Questions and Answers of Foundations Of Modern Macroeconomics

Rising grain prices have started to impact the price of breakfast for millions of Americans—cereal prices are rising.Explain how the rising price of grain affects the average total cost and
The price of coal has fallen to $125 a ton from $300 a ton. BHP Billiton will cut production, lay off 6,000 workers, and close some mines for six months.As BHP responded to the fall in price, how did
With corn prices falling, the price of chicken wings is falling, and that’s good news for wings restaurants.Explain how a fall in the price of corn (the main chicken feed) changes the marginal cost
New high-yield varieties have boosted Brazil’s coffee production and coffeebean prices have fallen 54 percent in the past two years. The drop has been so steep that some longtime Brazilian coffee
Draw a graph to describe the maple syrup market and the cost and revenue of one firm in 2007, assuming that all firms are making zero economic profit.Sugaring season in Vermont is going full blast.
Starting with the industry in long-run equilibrium, explain how the drop in the Canadian supply, other things remaining the same, affects the maple syrup market and an individual producer in the
Starting with the industry in long-run equilibrium, explain how the increase in the demand for maple syrup, other things remaining the same, affects the maple syrup market and an individual producer
On the graph, show the long-run effects of the pollution crackdown.California plans to crack down on the use of fumigants by growers of strawberries. The biggest burden will fall on Ventura
Why did grain prices fall in 2008? Draw a graph to show the short-run effect on an individual farmer’s economic profit.Big drops in prices for crops make it tough down on the farm Corn, soybean,
Explain the effect of a fall in the oil price on the market for ethanol. If the price of oil remains low for some years, what will be the long-run effects on the market for ethanol and the number of
With 64 jets, Allegiant Air has achieved the lowest costs, fullest planes, and highest margins in the U.S. airline industry. It serves 75 small U.S. cities and faces competition on just 17 of its 203
Allegiant carries leisure travelers from 75 small U.S. cities to 14 warm-weather places. The airline faces no competition on 186 of its routes and has the lowest costs, the fullest planes, and the
Entrées at Patina in Los Angeles start at $40, but the four-course fixed menu ism $59. And pair that with the waived corkage fee on Tuesdays. At Michael Mina, San Francisco, enjoy a three-course,
Protesters fight the plan to open Mexico’s state oil monopoly to private investment. In Mexico, the government sets the price and taxes the monopoly’s profit.The price in Mexico is $2.48 a gallon
If Hawaii Cable is subject to a price cap regulation that enables it to break even, show in your graph the price, quantity, economic profit, consumer surplus, and deadweight loss.Hawaii Cable
What barriers to entry exist in the cable television market? Are high cable prices evidence of monopoly power?The Federal Communications Commission (FCC) will make it easier for independent
Draw a graph to illustrate the effects of the FCC’s new regulations on the price, quantity, consumer surplus, producer surplus, and deadweight loss.The Federal Communications Commission (FCC) will
Cell-phone providers are offering no-contract plans. For example, T-Mobile’s “flexpay” plans allow users to buy monthly service; Boost Mobile’s no-contract plan has unlimited use; and Virgin
When its customers switched to healthier foods, Hostess incurred losses. To return to profit, the firm proposed a wage cut, but its workers went on strike. Hostess shut down its 33 bakeries, 565
Americans like to pour their own laundry detergent and when concentrated detergent was introduced, Americans continued to pour the same amount and soap sales boomed. But when P&G introduced its
Apple Inc. will launch iTunes Radio with over 200 programmed channels and an opportunity for users to buy music direct from its iTunes Store. iTunes Radio joins a crowded streaming-music market in
Southeast Asia’s rice-exporting nations are in talks to create a formal alliance aimed at boosting prices and increasing export revenues. but the previous attempt to form a cartel failed as
Soda sales are declining, but big drinks companies are fighting back with a more finely-tuned selection of product targeting smaller consumer niches. As the total market is expected to grow at 6
The European Union recently fined Intel $1.45 billion because it gave “loyalty discounts” to repeat customers, presumably increasing Intel’s dominance in the microprocessor business—called
Sketch the average total cost curve and the demand curve for automobiles in 1901 and in 2012.When the first automobiles were built in 1901, they were made by skilled workers using hand tools. Later,
Describe the strategies in the game that Coca-Cola and PepsiCo play. With some assumed payoffs, create a payoff matrix for the game and find the equilibrium outcome.What’s your soft drink of
Apple and Samsung have two pricing strategies: Set a high (monopoly) price or set a low (competitive) price. Suppose that if they both set a competitive price, economic profit for both is zero. If
Explain how the price-fixing scheme benefited the airlines and imposed costs on consumers.To date, 21 airlines have coughed up more than $1.7 billion in fines in one of the largest criminal antitrust
Describe the price-fixing scheme as the equilibrium outcome of an oligopoly cartel game played by the airlines. Explain why the cartel survived.To date, 21 airlines have coughed up more than $1.7
U.S. companies offer many reasons for their lack of robust hiring, including weak consumer spending. Over the past year, there has been an increase in manufacturing, transportation, and health-care
Since 2000, factories have shed 5 million jobs despite growth in manufacturing output. With union wage rates, factories are investing in automated machinery and technologies to make them far more
The impact of higher oil prices is being felt on the farm in a number of ways.Feed grain prices and wheat prices have moved up significantly from a year ago.And at these higher prices land rents have
Explain the effects of not enough itinerant workers at harvest time on the market for farm labor.Commercial farms of the future may be staffed by robots that will identify, spray, and pick individual
How will the use of robots change the value of marginal product of farm workers?Commercial farms of the future may be staffed by robots that will identify, spray, and pick individual pieces of
Explain how using robots will create better paying farm jobs.Commercial farms of the future may be staffed by robots that will identify, spray, and pick individual pieces of produce from plants, even
“As more people buy Internet service, the price of Internet service will fall.The fall in the price of Internet service will lead to a fall in the wage rate paid to Web page designers.” Is this
Draw a graph to show the change in the land market from 1969 to 2007. Explain the effects of the moratorium on the Bethel land market.In August 1969, in Bethel, N.Y., some 400,000 people swarmed to
Draw a graph to show the Bethel labor market in 2007. Explain the effects of the moratorium on the Bethel labor market.In August 1969, in Bethel, N.Y., some 400,000 people swarmed to Max Yasgur’s
Plummeting home values, as well as home foreclosures, have had a big impact on the distribution of wealth because blacks and Hispanics have a much higher share of their wealth tied up in the value of
Disappearing jobs have helped drive people to state-run trade schools. Patricia Parker, who is tired of getting laid off at factories decided to re-educate herself by taking a course in business
In 2006, the lowest 40 percent of income earners received net payments equal to 3.6% of total income tax revenues. The third 20 percent of income earners pay 4.4% of total income tax revenues. That
In 1985, urban Chinese earned 1.9 times as much as people in the countryside, which is home to 60 percent of the population. By 2007, they earned 3.3 times as much according to the United
White Americans have 22 times the wealth of African-Americans and 15 times the wealth of Latinos and these gaps got larger during the Great Recession.What does the data in the news clip tell us about
New York continues to have the highest income gap of any state. Experts claim that the income gap arises from the large number of poor unskilled immigrants. The economic immobility of these workers
In May, California voters rejected an increase in taxes to close a $26 billion budget gap. To generate more tax revenues, California will have to encourage new businesses and create jobs. With 50
Honeybees are crucial for the pollination of almonds in California’s Central Valley. During 2008, 30 percent of U.S. honeybees died. Explain how this loss of honeybees affected the Central
Emissions from all new vehicles must be cut from 354 grams to 250 grams. To meet this new standard, the price of a new vehicle will rise by $1,300. Calculate the opportunity cost of reducing the
Brazil is almost self-sufficient in ethanol. Brazilian ethanol is made from sugar and costs 83¢ per gallon whereas U.S. ethanol, made from corn, costs $1.14 per gallon. The United States does not
In an hour, Sue can produce 40 caps or 4 jackets and Tessa can produce 80 caps or 4 jackets. Who has a comparative advantage in producing caps? If Sue and Tessa specialize and trade, who will gain?
How has inexpensive broadband changed the production possibilities of video entertainment and other goods and services?Inexpensive broadband access has created a new generation of television
Sketch a PPF for video entertainment and other goods and services before broadband.Inexpensive broadband access has created a new generation of television producers and the Internet is their native
Explain how the arrival of inexpensive broadband has changed the PPF.Inexpensive broadband access has created a new generation of television producers and the Internet is their native medium.
Chinese private-sector wages rose 14 percent in 2012. This trend in rapidly rising wage rates might hurt its manufacturing dominance. Explain the effect of the rising wage rates on the supply of
After heavy rain this year, the corn harvest will be less than expected while the demand for corn will continue to increase. Food prices will continue to rise. Using the demand and supply model,
Why can we be confident that the market for college education is competitive and that an increase in demand rather than the greed of college administrators is the reason for the ongoing rise in
The price of wheat has fallen from $9 a bushel to $7 a bushel in the past seven months as rain and snow fell on the southern states. Explain the effect of the fall in the wheat price on the market
Alabama Farmers Federation announced that food prices in May will increase. In previous unprofitable years, farmers reduced their herds with the result that in 2009 meat production will fall. Bacon
Steel producers expect to cut output by 10 percent in response to cancelled orders from construction companies and car and appliance producers.Explain how the cancellation of orders change the market
In 2003, when music downloading first took off, Universal Music slashed the price of a CD from $21 to $15. The company said that it expected the price cut to boost the quantity of CDs sold by 30
The chairman of Yanzhou Coal Mining, Wang Xin, reported that the demand for coal has fallen by 11.9 percent from a year earlier, despite the price falling by 10.6 percent. Calculate the price
With their fast-rising incomes, Chinese consumers will overtake those in today’s rich economies to become the world’s biggest spenders on luxury goods. They will rebalance their budgets in a
Read Eye on the Price of Gasoline on p. 121 and then explain why the demand for gasoline is more inelastic in the short run than in the long run. Which is likely to be more inelastic, the demand for
Calculate the price elasticity of demand for gasoline implied by what most studies have found.Why the tepid response to higher gasoline prices?Most studies report that when U.S. gasoline prices rise
Compare the elasticity implied by the data for the period from September 2004 to September 2005 with that implied by most studies. What might explain the difference?Why the tepid response to higher
Was the price of almonds expected to rise or fall? Did a change in the supply of or demand for almonds bring about this expected change in the price?Almonds galore!The quantity of almonds harvested
If the price of almonds changed as a result of a change in the supply of almonds, is the demand for almonds elastic or inelastic? Explain your answer.Almonds galore!The quantity of almonds harvested
The 40,000 tickets for the March 6 gig sold out in seven minutes—a record. Many people who camped out overnight missed getting a ticket. What method was used to allocate AC/DC concert tickets? Was
The Australian dollar has soared 26 percent against the U.S. dollar since last June, making those foreign lift tickets cheaper than those in Australia, and travel agents report a jump in interest in
The Senate has voted to end the $6 billion a year in subsidies paid to the ethanol industry for the past three decades. Refiners would lose the 45-cent-a-gallon subsidy, and the tax on imported
Describe the method of allocating table resources in these three restaurants.At McDonald’s, no reservations are accepted; at Panorama Restaurant at the St.Louis Art Museum, reservations are
Why don’t all restaurants use the market price to allocate their tables?At McDonald’s, no reservations are accepted; at Panorama Restaurant at the St.Louis Art Museum, reservations are accepted;
Panic in paradise: Are high fares the new reality for Hawaii?On March 31, 2008, Hawaii lost 15 percent of its air service as Aloha Airlines and the cheap-flight airline ATA suddenly shut down.
In the early 1990s, the government auctioned half the national forests, converting these forests from public ownership to private ownership. The government’s decision was an incentive to get the
China moved to raise the price ceiling on gasoline and diesel on Tuesday. Lin Boqiang of Xiamen University advised the government on pricing reform and said the “move is in the right direction,
Hong Kong’s first minimum wage is set at $HK28 an hour—$HK5 less than labor unions wanted, but $HK5 more than the employers had offered. About 315,000 people will be affected by the new wage.What
A bumper harvest of sugar beets and sugar cane has sent U.S. sugar prices tumbling to 21 cents a pound, below the USDA’s support price of 25 cents a pound.How will the quantity of sugar produced
Suppose that the government introduces a price support for mushrooms and set the support price at $4 per pound. What are the quantity of mushrooms produced, the surplus of mushrooms, and the
Suppose that the government introduces a price support for mushrooms and sets the support price at $6 per pound. Who gains and who loses? What are the quantity of mushrooms produced, the surplus, and
Are China’s price controls price floors or price ceilings? Draw a graph to illustrate the shortages of coal and gasoline created by the price controls.The government of China has set price controls
Explain how China’s price controls have changed consumer surplus, producer surplus, total surplus, and the deadweight loss in the markets for coal and gasoline. Draw a graph to illustrate your
On a graph of the market for low-skilled labor, show the effect of the $26 a week increase in the minimum wage on employment of low-skilled labor.The government has increased the minimum wage by $26
Explain the effects of the higher minimum wage on the workers’ surplus and the firms’ surplus. Has the labor market become more efficient or less efficient? Explain.The government has increased
Draw a graph to illustrate the soybean market when the soybean price was low. Show the quantity of soybeans produced, the subsidy farmers received, and the deadweight loss created.High corn and
A support price set above the equilibrium price ______.A. Creates a shortage, increases farmers’ total revenue, and is efficient B. Creates a surplus, which the government buys and dumps on the
Choose the best statement.A. A subsidy to peanut growers lowers peanut growers’ costs, lowers the market price of peanuts, and increases the demand for peanuts.B. A price support for peanut growers
1. Florida levies the following taxes: a 5.5 percent corporate income tax; a 6 percent sales tax; taxes of 4¢ a gallon on gasoline, 33.9¢ a pack on cigarettes, $0.48 a gallon on beer, and $2.25 a
In Hong Kong, the marginal income tax rates range from 2 percent to 20 percent. Does Hong Kong or the United States place greater weight on the ability-to-pay principle? Does Hong Kong or the United
Seventeen states are raising the gas tax. Wyoming increased its gas tax from 14 cents a gallon to 24 cents a gallon. Big trucks are switching to natural gas. Given the information in Eye on the Price
Minnesota has added a new tax of 9.85% for single residents making over $150,000 and married couples making over $250,000. Maryland and California passed similar taxes last year while tax cuts remain
Mayor Michael Nutter of Philadelphia is pushing the 2-cents-per-ounce tax on soda to help prevent cuts in the city’s cash-strapped school system. Which principle of fairness will the mayor use to
Fueled by a recent survey showing growing public support, a penny-perounce tax on sugary drinks appears to be gaining traction in the California Legislature.Sugary drinks cost California $41 billion
Is this tax on cigarettes a progressive, regressive, or proportional tax?In 2002, New York State raised the cigarette tax by 39¢ to $1.50 a pack. Then New York City raised the tax from 8¢ to $1.50
Would a tax per mile driven be fairer than a tax per gallon of gasoline? Which tax would be more regressive? Explain your answers.Is raising the federal gasoline tax the best way to fund highways?The
Would a tax per mile driven be more efficient or less efficient than a tax per gallon of gasoline? Explain your answer.Is raising the federal gasoline tax the best way to fund highways?The 18.4 cent
The discovery of a huge oil field could make Brazil a large exporter of gasoline. Until two years ago Brazil imported oil; then it became self-sufficient in oil. With this discovery, Brazil will
World commodity prices have fallen in the past six weeks. Crude oil prices dropped 7%, beef prices fell 5%, and corn prices fell 4%. The United States imports crude oil and exports beef. How do these
Four months ago Indonesia imposed an import tariff on Hollywood movies. The tariff was meant “to protect local film makers.“ The major Hollywood studios responded by withdrawing their films from
The Indonesian import tariff on Hollywood movies was meant “to protect local film makers,“ but major Hollywood studios withdrew their films. What argument is Indonesia using against free trade
Explain who, in the United States, gains and who loses from this tariff on paper. How do you expect the prices of magazines and textbooks to change?U.S. expands China paper anti-dumping tariff The
What is dumping? Who in the United States loses from China’s dumping of glossy paper?U.S. expands China paper anti-dumping tariff The United States raised the tariff on glossy paper imports from

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