Questions and Answers of Foundations Of Economics

The HHI for automobiles is 2,350, for sporting goods is 253, for batteries is 2,883, and for jewelry is 230. Which of these markets is an example of monopolistic competition?
The four largest firms in a market have the following market shares of total revenue: 20 percent, 15 percent, 10 percent, and 5 percent. The ______ in this industry is ________.A. Four-firm
Use Figure 17.6, which shows the demand curve, marginal revenue curve, and cost curves of La Bella Pizza, a firm in monopolistic competition, to work Problems.If La Bella advertises its pizza online
Use Figure 17.1, which shows the demand curve, marginal revenue curve, and cost curves of Lite and Kool, Inc., a producer of running shoes in monopolistic competition, to work Problems 3 to 5.In the
Use Figure 17.1, which shows the demand curve, marginal revenue curve, and cost curves of Lite and Kool, Inc., a producer of running shoes in monopolistic competition, to work Problems 3 to 5.Do you
A firm in monopolistic competition that is maximizing profit ________.A. Always makes a positive economic profit in the short runB. Never needs to shut down because its price always exceeds minimum
Sony announces Smart Tennis Sensor Tennis racket maker Babolat introduced its smart racket Play Pure Drive in 2013. Smash and Shot Stats soon followed. Now Sony is partnering with Wilson to make
Read Eye on Inequality and rank the influences on the degree of income inequality—education, household size, household type, age of householder, race, and region of residence—in order of
If soccer becomes more popular in the United States and basketball becomes less popular, is it true that professional basketball players will earn more than they earn today? Use the laws of demand
Is it true that the opening of a new diamond mine in the Yukon in Canada will lower the world price of diamonds and lower the wage rate paid to diamond workers in South Africa? Use a graph to
An ex-Google coder makes twice as much freelancing James Knight quit a well-paid job writing software for Google to go freelance and is now earning about double his Google pay as a freelancer. In a
Which of the following statements about a nonrenewable natural resource market is incorrect?A. The demand for the resource is determined by its value of marginal product.B. The supply of the resource
Robots at Kroger, Walmart, and Whole Foods The grocery industry is stepping up its investment in robot technology. Retailers are spending an estimated $3.6 billion in robot technology globally, and
Suppose that Bananaland is the world’s largest grower of bananas. Bananaland plans to double its population in 3 years by hiring well-educated people from the United States. To increase the number
Use Figure 17.2, which shows the demand curve, marginal revenue curve, and cost curves of Stiff Shirt, Inc., a producer of shirts in monopolistic competition, to work Problems 6 and 7.In the short
Use Figure 17.2, which shows the demand curve, marginal revenue curve, and cost curves of Stiff Shirt, Inc., a producer of shirts in monopolistic competition, to work Problems 6 and 7.In the long
In the long run, each firm in monopolistic competition ______.A. Makes zero economic profitB. Makes as much economic profit as it would if it was a monopolyC. Has the same markup and excess capacity
Sony announces Smart Tennis Sensor Tennis racket maker Babolat introduced its smart racket Play Pure Drive in 2013. Smash and Shot Stats soon followed. Now Sony is partnering with Wilson to make
If one firm advertises and other firms in the market don’t, then ______.A. The demand for the advertised good becomes more elasticB. The profit-maximizing quantity of the advertised good decreases
Some people happily pay more for Coke or Pepsi than they are willing to pay for a nonbranded cola. And some people happily pay more for Tylenol than they are willing to pay for generic acetaminophen.
Each firm in monopolistic competition uses a brand name and advertising to achieve all of the following except to ______.A. Differentiate its good from its competitors’ goodsB. Signal quality and
Mike’s, a firm in monopolistic competition, produces bikes. With no advertising, Mike’s profit-maximizing output is 500 bikes a day and the price is $100 a bike. Now all firms begin to advertise.
Suppose that Tommy Hilfiger’s marginal cost of a jacket is a constant $100 and at one of the firm’s shops, total fixed cost is $2,000 a day. The profit maximizing number of jackets sold in this
Isolated Island has two taxi companies, one owned by Ann and the other owned by Zack. Figure 18.3 shows the market demand curve for taxi rides, D, and the average total cost curve of one of the
Retail graveyard: more than 7,000 U.S. stores have closed this year Last year, 5,864 stores closed, while 3,258 opened. So far this year, 7,062 have closed, while 3,017 have opened, but U.S. retail
Read Eye on Smartphones and explain why smartphone producers offer such a large variety of their products. Draw a graph of a firm’s cost and revenue curves if all smartphones are identical. Use
When the first automobiles were built in 1901, they were made by skilled workers using hand tools. Later, in 1913, Henry Ford introduced the moving assembly line, which lowered costs and speeded
Read Eye On the Wireless Oligopoly and think about the following game between AT&T and Verizon. AT&T and Verizon have two pricing strategies: Set a high (monopoly) price or set a low
Agile Airlines is making $10 million a year economic profit on a route on which it has a monopoly. Wanabe Airlines is considering entering the market and operating on this route. Agile warns Wanabe
Which of the following statements is incorrect. In oligopoly ________.A. Barriers to entry prevent new firms enteringB. Each firm’s profit is influenced by each other firms’ advertisingC. Each
When the first automobiles were built in 1901, they were made by skilled workers using hand tools. Later, in 1913, Henry Ford introduced the moving assembly line, which lowered costs and speeded
Isolated Island has two taxi companies, one owned by Ann and the other owned by Zack. Figure 18.3 shows the market demand curve for taxi rides, D, and the average total cost curve of one of the
Isolated Island has two taxi companies, one owned by Ann and the other owned by Zack. Figure 18.3 shows the market demand curve for taxi rides, D, and the average total cost curve of one of the
The United States claims that Canada subsidizes the production of softwood lumber and that imports of Canadian lumber damage the interests of U.S. producers. The United States has imposed a tariff on
If firms in oligopoly form a cartel, it will likely break down because _____.A. Firms cannot agree on how to share the economic profitB. The price set by the cartel is too lowC. With price exceeding
The United States claims that Canada subsidizes the production of softwood lumber and that imports of Canadian lumber damage the interests of U.S. producers. The United States has imposed a tariff on
The oligopoly dilemma is whether to ________.A. Act together to restrict output and raise the priceB. Raise the price to the monopoly profit-maximizing priceC. Cheat on others in the cartel to take
In the prisoners’ dilemma game, each player ________.A. Consults the other player to determine his best actionB. Chooses the best outcome for the other playerC. Chooses the best outcome for
DOJ investigation prompts lawsuits alleging that airlines are fixing airfares It is alleged that Southwest, American, Delta, and United Airlines have been colluding to limit the increases in their
DOJ investigation prompts lawsuits alleging that airlines are fixing airfares It is alleged that Southwest, American, Delta, and United Airlines have been colluding to limit the increases in their
A Nash equilibrium ______.A. Is the outcome that delivers maximum economic profitB. Is the outcome in which each player takes the best action given the other player’s actionC. Changes each time the
DOJ investigation prompts lawsuits alleging that airlines are fixing airfares It is alleged that Southwest, American, Delta, and United Airlines have been colluding to limit the increases in their
Coke, Pepsi and the new front in the cola wars The cola wars between Coca-Cola and PepsiCo may become even tougher as consumers seek out healthier alternatives to sugary soft drinks. But both Coke
Read Eye On the Wireless Oligopoly and then explain the effects of economies of scale on the market for smartphones and illustrate it with a graph based on text Figure 18.1. FIGURE 18.4 Chapter
In the years after World War II, the birth rate increased and the so-called baby boom generation was created. That generation is now beginning to retire. Draw a demand-supply graph to illustrate the
In an advertising prisoners’ dilemma game, ______.A. Both firms will advertise and end up with lower profits than if neither advertisesB. Only one firm will advertise because the other firm sees
Coke, Pepsi and the new front in the cola wars The cola wars between Coca-Cola and PepsiCo may become even tougher as consumers seek out healthier alternatives to sugary soft drinks. But both Coke
Through the 1990s, the percentage of high school students who decided to go to college increased. Draw a demand-supply graph to illustrate the effect of this increase on the market for college
Each of the following practices violates U.S. antitrust law except ______.A. An agreement to sell one good only if the buyer purchases another goodB. An agreement between the manufacturer and the
A California asparagus farmer is maximizing profit. The price of asparagus is $2 a bunch, a farm worker’s wage rate is $12 an hour, and the asparagus farm employs six workers. What is the marginal
Read Eye on the Coach and then answer the following question. Is the market for college football coaches competitive? If it is, why don’t they all earn the same wage rate? Is the market for Nick
A firm’s demand for labor is determined by ________.A. The market wage rateB. The price of the good that the firm produces and the wage rate it paysC. The marginal product of labor and the market
The value of marginal product of labor increases if ________.A. More labor is hiredB. More of the good is producedC. The market price of the good produced risesD. Using a new technology reduces the
If your college switched to online delivery of its courses, what changes do you predict would occur in the factor markets in the town where your college is located?
A new coffee shop opens and to maximize profit it hires 5 workers at the competitive wage rate. The price of a cup of coffee is $4 and the value of marginal product of workers in the coffee shop is
An individual’s supply of labor curve is _______.A. Horizontal at the market wage rateB. Upward sloping as the wage rate risesC. Upward sloping at low wage rates but becomes downward sloping at
A new coffee shop opens and to maximize profit it hires 5 workers at the competitive wage rate. The price of a cup of coffee is $4 and the value of marginal product of workers in the coffee shop is
In a competitive labor market for bakers, the equilibrium wage rate _______.A. Rises if bakers become more productiveB. Falls if the supply of bakers decreasesC. Rises if the market price of bakery
Suppose that Palm Island, the world’s largest grower of coconuts, plans to build its first airport on 100 acres of productive farm land. Palm Islanders expected the world price of coconuts to rise
An ex-Google coder makes twice as much freelancing James Knight quit a well-paid job writing software for Google to go freelance and is now earning about double his Google pay as a freelancer. In a
An ex-Google coder makes twice as much freelancing James Knight quit a well-paid job writing software for Google to go freelance and is now earning about double his Google pay as a freelancer. In a
A union will ______ if it can ______.A. Raise the wage rate of its members; decrease the marginal product of its union membersB. Raise the wage rate of its members; introduce minimum qualifications,
Why do economists think that discrimination in the labor market is an unlikely explanation for the persistent inequality in earnings between women and men and among the races?
The table shows the distribution of money income in Australia. Calculate the cumulative distribution of income for Australia and draw the Lorenz curve for Australian income. In which country is the
To maximize profit, a firm ______.A. Uses the quantity of land at which the rental rate equals the value of marginal product of landB. Balances the rental rate of capital against the wage rate of
Read Eye on the Coach and then draw demand-supply graphs to illustrate the markets for football coaches and economics professors. Explain the differences in the equilibrium wage rates and the
Robots at Kroger, Walmart, and Whole Foods The grocery industry is stepping up its investment in robot technology. Retailers are spending an estimated $3.6 billion in robot technology globally, and
Robots at Kroger, Walmart, and Whole Foods The grocery industry is stepping up its investment in robot technology. Retailers are spending an estimated $3.6 billion in robot technology globally, and
Hong Kong is much more densely populated than is the United States. Compare the rent on land in Hong Kong with that in Chicago. Explain why the percentage of commercial buildings that are new in
The table shows the income share for each household quintile and the cumulative shares. Provide the values for A, B, C, D, and E.
A Lorenz curve plots the _____ .A. Trend in the cumulative percentage of income received by each quintile against trend in the number of householdsB. Average income received by each quintile against
Figure 20.2 shows the market for lows killed workers. With on-the-job training, low-skilled workers can become high skilled workers. The value of marginal product of high-skilled workers at each
Read Eye on Inequality then answer the following question: Which influence adds more, on average, to a household’s income: getting a professional degree, getting married, getting older, or moving
The table shows the distribution of prize money among the top 20 professional golfers. Calculate the cumulative distribution of income of these golfers and draw the prize money Lorenz curve of these
Which of the following statements is correct?A. The closer the Lorenz curve is to the line of equality, the more unequal is the distribution of income.B. The farther the Lorenz curve is from the line
China inequality among world’s worst China has one of the world’s highest levels of inequality. A Peking University report says the richest 1 percent own a third of the country’s wealth, and
In a year, 130,000 aircraft mechanics and service technicians earned an average of $20 an hour whereas 30,000 elevator installers and repairers earned an average of $25 an hour. The skill and
In recent years, as the gap between the rich and the poor has increased, the Lorenz curve has ________.A. Shifted away from the line of equalityB. Not changed, but there has been a movement down
Suppose that the government redistributes income by taxing the 60 percent of households with the highest market incomes 10 percent, then distributing the tax collected as an equal benefit to the 40
Of all the Americans who live in poverty, most are ______ families, while the highest poverty rate is among _______ families.A. Black; HispanicB. Black; whiteC. White; black and HispanicD. Hispanic;
Economic inequality arises from all of the following except ______.A. Inequality of human capitalB. Inequality of education attainmentC. A shortage of high-skilled laborD. Discrimination
Suppose that the government redistributes income by taxing the 60 percent of households with the highest market incomes 10 percent, then distributing the tax collected as an equal benefit to the 40
Income redistribution in the United States results in the income share of the ______ rising and the income share of the ________ falling.A. Lowest quintile; other four quintilesB. Two lowest
In a year, 130,000 aircraft mechanics and service technicians earned an average of $20 an hour whereas 30,000 elevator installers and repairers earned an average of $25 an hour. The skill and
Suppose that the government redistributes income by taxing the 60 percent of households with the highest market incomes 10 percent, then distributing the tax collected as an equal benefit to the 40
When governments redistribute income, they ______.A. Give every dollar collected in taxes to poor peopleB. Are influenced by how people vote in electionsC. Improve economic efficiencyD. Set the tax
The nation’s most unequal state In California, researchers found, it really matters where you live. Residents of Silicon Valley live more than four years longer than the average American, earn
The $1.4 billion trick to make us accept income inequality Lotteries take money from the poor and redistribute it unequally. The poor, the uneducated, and minorities play the lottery the most, and it
The nation’s most unequal state In California, researchers found, it really matters where you live. Residents of Silicon Valley live more than four years longer than the average American, earn
The nation’s most unequal state In California, researchers found, it really matters where you live. Residents of Silicon Valley live more than four years longer than the average American, earn
The nation’s most unequal state In California, researchers found, it really matters where you live. Residents of Silicon Valley live more than four years longer than the average American, earn
The nation’s most unequal state In California, researchers found, it really matters where you live. Residents of Silicon Valley live more than four years longer than the average American, earn
Read Eye on Booms and Busts and work the following exercise: In Brazil, real GDP in the first quarter of 2019 was lower than in the fourth quarter of 2018 and was lower in the second quarter of 2019
The national accounts of Parchment Paradise are kept on (you guessed it) parchment. A fire in the statistics office destroys some accounts, leaving only the following data:• GDP (income approach)
The national accounts of Parchment Paradise are kept on (you guessed it) parchment. A fire in the statistics office destroys some accounts, leaving only the following data:• GDP (income approach)
Use the following information to work Problems. An economy produces only fun and food. The table shows the prices and the quantities of fun and food produced in 2020 and 2021. The base year is
Mitsubishi Heavy Industries makes the wings of the new Boeing 787 Dreamliner in Japan. Toyota assembles cars for the U.S. market in Kentucky.Explain where these activities appear in the National
Use the following data on the economy of Iberia to work Problems.• Net taxes $18 billion• Government expenditure $20 billion• Saving $15 billion • Consumption expenditure $67 billion•
Use the table, which shows an economy’s total production and the prices of the final goods it produced in 2020 and 2021, to work Problems.Calculate nominal GDP in 2020 and 2021.
Use the following information to work Problems. An economy produces only fun and food. The table shows the prices and the quantities of fun and food produced in 2020 and 2021. The base year is

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