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intermediate microeconomics
Microeconomics Theory And Applications With Calculus 5th Edition Jeffrey M. Perloff - Solutions
4.8 Green et al. (2005) estimate that the demand elasticity is -0.47 and the long-run supply elasticity is 12.0 for almonds. The corresponding elasticities are -0.68 and 0.73 for cotton and -0.26 and 0.64 for processing tomatoes. If the government were to apply a specific tax to each of these
4.7 Given the 2013 federal tax of $1.01 per pack of cigarettes and an estimated elasticity of demand for the U.S. population of -0.3, what is the effect of a 10¢ increase in the federal tax? How would your answer change if the state tax does not change? A
4.6 Use math to show that, as the supply curve at the equilibrium becomes nearly perfectly elastic, the entire incidence of the tax falls on consumers. A
4.5 Quebec, Canada, offers a per-child subsidy on day care for young children that lowers the price to$7 per child as of 2011 (at a cost of about$10,000 per child per year). (Hint: A subsidy is a negative tax.)a. What is the effect of this subsidy on the equilibrium price and quantity?b. Show the
4.4 In early 2010, the U.S. government offered an$8,000 subsidy to new homebuyers. What effect does a per-house subsidy have on the equilibrium price and quantity of the housing market? What is the incidence of the subsidy on buyers? (Hints:A subsidy is a negative tax. See the Application“The
4.3 Governments often use a sales tax to raise tax revenue, which is the tax per unit times the quantity sold. All else the same, will a specific tax raise more tax revenue if the demand curve is inelastic or elastic at the original price?
4.2 An empirical study by Callison and Kaestner(2012) suggests that a 100% cigarette tax would be required to decrease adult smoking by as much as 5%. What does this result imply about the shapes of the supply and demand curves (assuming that the cigarette market is competitive)?
4.1 Dan has a much higher elasticity of demand for fish than most other people. Is the incidence of a tax on fish, which is sold in a competitive market, greater for him than for other people?
3.8 In 2012, the governors of several livestock producing states asked the U.S. Environmental Protection Agency (EPA) to suspend federal ethanol mandates due to a major drought (Amanda Peterka, “EPA Denies Waiver of Corn-based Fuel Requirements,”Greenwire, November 16, 2012). The mandates
3.7 Solved Problem 3.3 claims that a new war in the Persian Gulf could shift the world supply curve to the left by up to 24 million barrels per day, causing the world price of oil to soar regardless of whether we drill in ANWR. Use the same type of analysis as in the Solved Problem to calculate how
3.6 Cranfield (2012) estimated that the elasticity of demand for Canadian beef was -0.83. If the supply curve of beef is nearly inelastic in the short run and a change in the law causes the supply curve to shift to the left by 10%, how much will the price rise?
3.5 According to Borjas (2003), immigration into the United States increased the labor supply of working men by 11.0% from 1980 to 2000 and reduced the wage of the average native worker by 3.2%. From these results, can we make any inferences about the elasticity of supply or demand? Which curve(or
3.4 Will Mexico stop producing tequila? Because of record-low industry prices for the agave azul plant, from which tequila is distilled, farmers in Jalisco and other Mexican states are switching to more lucrative plants like corn (Kyle Arnold, “No Mas Tequila,” The Monitor, September 17,
3.3 When the U.S. government announced that a domestic mad cow was found in December 2003, analysts estimated that domestic supplies would increase in the short run by 10.4% as many other countries barred U.S. beef. An estimate of the price elasticity of beef demand is -1.6 (Henderson, 2003).
3.2 Use calculus to derive the elasticity of supply if the supply function is Q = Bp0.5. C
1.3.1 The linear supply function is Equation 3.8, Q = g + hp. Derive a formula for the elasticity of supply in terms of p (and not Q). Now give one entirely in terms of Q. A
2.14 Using the coconut oil demand function from Question 2.13, calculate the price and cross-price elasticities of demand for coconut oil
2.13 The coconut oil demand function (Buschena and Perloff, 1991) is Q = 1,200 - 9.5p + 16.2pp + 0.2Y, where Q is the quantity of coconut oil demanded in thousands of metric tons per year, p is the price of coconut oil in cents per pound, pp is the price of palm oil in cents per pound, and Y is the
2.12 Traditionally, the perfectly round, white saltwater pearls from oysters have been prized above small, irregularly shaped, and strangely colored freshwater pearls from mussels. Scientists in China (where 99%of freshwater pearls originate) perfected a means of creating bigger, rounder, and
2.11 If the demand elasticity is -1 at the initial equilibrium and price increases by 1%, by how much does revenue change? (Hint: See Solved Problem 3.2.)
2.10 Illustrate the revenue effects in the Application “Do Farmers Benefit from a Major Drought?” (Hint:See Solved Problem 3.2.)
2.9 Nataraj (2007) found that a 100% increase in the price of water for heavy users in Santa Cruz, California, caused the quantity of water they demanded to fall by an average of 20%. (Before the increase, heavy users initially paid $1.55 per unit, but afterward they paid $3.14 per unit.) In
2.8 Suppose that the demand curve for wheat in each country is inelastic up to some “choke” price p*—a price so high that nothing is bought—so that the demand curve is vertical at Q* at prices below p*and horizontal at p*. If p* and Q* vary across countries, what does the world’s demand
2.7 Duffy-Deno (2003) estimated that the demand function for broadband service was Qs = 15.6p-0.563 for small firms and Ql = 16.0p-0.296 for larger ones. These two demand functions cross. What can you say about the elasticities of demand on the two demand curves at the point where they cross?What
2.6 Use calculus to prove that the elasticity of demand is a constant ε everywhere along the demand curve whose demand function is Q = Apε. C
2.5 What section of a straight-line demand curve is elastic?
2.4 Cranfield (2012) estimated that the demand elasticities were -0.83, -0.61, and -0.76 for Canadian beef, chicken, and pork respectively. Are these demand elasticities elastic or inelastic? Which product is the least elastic?
2.3 Gillen and Hasheminia (2013) estimate that the elasticity of demand for air travel is -0.17 for people traveling alone and -3.09 for couples. Are these demand elasticities elastic or inelastic? For which type of traveler is demand more elastic? Why do you think these elasticities differ in this
2.2 According to Duffy-Deno (2003), when the price of broadband access capacity (the amount of information one can send over an Internet connection)increases 10%, commercial customers buy about 3.8% less capacity. What is the elasticity of demand for broadband access capacity for firms?Is demand at
2.1 In a commentary piece on the rising cost of health insurance (“Healthy, Wealthy, and Wise,” Wall Street Journal, May 4, 2004, A20), economists John Cogan, Glenn Hubbard, and Daniel Kessler state,“Each percentage-point rise in health-insurance costs increases the number of uninsured by
1.4 After a major freeze destroyed many Californian crops, the price of celery increased several hundred percent. What can you conclude about the shape of its supply curve? The price increase was more moderate for avocados because they can be imported from other countries. Use a graph to explain
1.3 Six out of ten teens no longer use watches to tell time—they’ve turned to cell phones and iPods.Sales of inexpensive watches dropped 12% from 2004 to 2005, and sales of teen favorite, Fossil, Inc., fell 19%. Sales dropped 9% in 2009, during the Great Recession. However, sales rose by 9% in
1.2 During football weekends, many people travel to South Bend, Indiana, to see a Notre Dame football game. Hotel prices are much higher on football weekends than during the other 341 days of the year—particularly in years when Notre Dame is expected to have a winning season. Use a
1.1 Using graphs similar to those in Figure 3.1, illustrate how the effect of a demand shock depends on the shape of the supply curve. Consider supply curves that are horizontal, linear upward sloping, linear downward sloping, and vertical.
What is the long-run incidence of the federal gasoline tax on consumers? What is the short-run incidence if the tax is suspended during summer months when gasoline prices are typically higher?
If the supply curve is perfectly elastic and demand is linear and downward sloping, what is the effect of a $1 specific tax collected from producers on equilibrium price and quantity, and what is the incidence on consumers? Why?
Show mathematically the effects on the equilibrium price and quantity of corn from a specific tax of t = $2.40 collected from suppliers, as illustrated in panel a of Figure 3.6.
What would be the effect of ANWR production on the world price of oil given thatε = -0.25, η = 0.25 (Baumeister and Peersman, forthcoming), the pre-ANWR daily world production of oil is Q1 = 90 million barrels per day, the pre-ANWR world price is p1 = $100 per barrel, and daily ANWR production
Does an increase in price cause revenue to increase or decrease if the demand curve is inelastic at the initial price? How does it change if the demand curve is elastic?
The estimated equation for the linear U.S. corn demand curve is4 Q = 15.6 - 0.5p, (3.5)where p is the price in dollars per bushel and Q is the quantity demanded in billion bushels per year. What is the elasticity of demand at the point on the demand curve where the price is p = $7.20 per bushel
7.5 The prices received by soybean farmers in Brazil, the world’s second-largest soybean producer and exporter, tumbled 30%, in part because of China’s decision to cut back on imports and in part because of a bumper soybean crop in the United States, the world’s leading exporter (Todd Benson,
7.4 When he was the top American administrator in Iraq, L. Paul Bremer III set a rule that upheld Iraqi law: anyone 25 years and older with a“good reputation and character” could own one firearm, including an AK-47 assault rifle. Iraqi citizens quickly began arming themselves. Akram Abdulzahra
7.3 Due to fear about mad cow disease, Japan stopped importing animal feed from Britain in 1996, beef imports and processed beef products from 18 countries including EU members starting in 2001, and similar imports from Canada and the United States in 2003. After U.S. beef imports were banned,
7.2 In the previous question, you were asked to illustrate why the mad cow disease announcement initially caused the U.S. equilibrium price of beef to fall and the quantity to rise. Show that if the supply and demand curves had shifted in the same directions as above but to greater or lesser
7.1 Humans who consume beef products made from diseased animal parts can develop mad cow disease(bovine spongiform encephalopathy, or BSE, a new variant of Creutzfeldt-Jakob disease), a deadly affliction that slowly eats holes in sufferers’ brains.The first U.S. case, in a cow imported from
6.1 Are predictions using the supply-and-demand model likely to be reliable in each of the following markets? Why or why not?a. Apples.b. Convenience stores.c. Electronic games (a market with three major firms).d. Used cars.
5.10 Suppose that the government imposes a price support(price floor) on processing tomatoes at $65 per ton. The government will buy as much as farmers want to sell at that price. Thus, processing firms pay $65. Use the information in Question 3.6 to determine how many tons of tomatoes firms buy
5.9 After a major disaster such as the Los Angeles earthquake and hurricanes such as Katrina, retailers often raise the price of milk, gasoline, and other staples because supplies have fallen. In some states, the government forbids such price increases. What is the likely effect of such a law?
5.8 Some cities impose rent control laws, which are price controls or limits on the price of rental accommodations (apartments, houses, and mobile homes). As of 2012, New York City alone had approximately one million apartments under rent control. In a supply-and-demand diagram, show the effect of
5.7 The Thai government actively intervenes in markets(Nophakhun Limsamarnphun, “Govt Imposes Price Controls in Response to Complaints,” The Nation, May 12, 2012).a. The government increased the daily minimum wage by 40% to Bt300 (300 bahts ≈ $9.63).Show the effect of a higher minimum wage on
5.6 Usury laws place a ceiling on interest rates that lenders such as banks can charge borrowers.Low-income households in states with usury laws have significantly lower levels of consumer credit(loans) than comparable households in states without usury laws. Why? (Hint: The interest rate is the
5.5 A group of American doctors have called for a limit on the number of foreign-trained physicians permitted to practice in the United States. What effect would such a limit have on the equilibrium quantity and price of doctors’ services in the United States?How are American-trained doctors and
5.4 What is the effect of a quota Q 7 0 on equilibrium price and quantity? (Hint: Carefully show how the total supply curve changes. See Solved Problem 2.4.)
5.3 In 2002, the U.S. Fish and Wildlife Service proposed banning imports of beluga caviar to protect the beluga sturgeon in the Caspian and Black seas, whose sturgeon populations had fallen 90% in the last two decades. The United States imports 60% of the world’s beluga caviar. On the world’s
5.2 Is it possible that an outright ban on foreign imports will have no effect on the equilibrium price? (Hint: Suppose that imports occur only at relatively high prices.)
1.5.1 The Application “Occupational Licensing” analyzed the effect of exams in licensed occupations given that their only purpose was to shift the supply curve to the left. How would the analysis change if the exam also raised the average quality of people in that occupation, thereby also
4.9 Use the demand and supply functions for avocado, Equations 2.2 and 2.6, to derive the new equilibria in Figure 2.7.
4.8 Using the information in Question 3.6, determine how the equilibrium price and quantity of processing tomatoes change if the price of tomato paste falls by 10%. (Hint: See Solved Problem 2.3.) A
4.7 The demand function for roses is Q = a - bp, and the supply function is Q = c + ep + ft, where a,b,c, e, and f are positive constants and t is the average temperature in a month. Show how the equilibrium quantity and price vary with temperature.(Hint: See Solved Problem 2.3.) A
4.6 Ethanol, a fuel, is made from corn. Ethanol production increased 5.5 times from 2000 to 2008 and another 34% from 2008 to February 2013(www.ethanolrfa.org). Show the effect of this increased use of corn for producing ethanol on the price of corn and the consumption of corn as food using a
4.5 Increasingly, instead of advertising in newspapers, individuals and firms use Web sites that offer free or inexpensive classified ads, such as ClassifiedAds.com, Craigslist.org, Realtor.com, Jobs.com, Monster.com, and portals like Google and Yahoo. Using a supplyand-demand model, explain what
4.4 Use supply-and-demand diagrams to illustrate the qualitative effect of the following possible shocks on the U.S. avocado market.a. A new study shows significant health benefits from eating avocados.b. Trade barriers that restricted avocado imports from Mexico are eliminated (“Free Trade Party
4.3 The U.S. supply of frozen orange juice comes from Florida and Brazil. What is the effect of a freeze that damages oranges in Florida on the price of frozen orange juice in the United States and on the quantities of orange juice sold by Floridian and Brazilian firms?
4.2 The major BP oil spill in the Gulf of Mexico substantially reduced the harvest of shrimp and other seafood in the Gulf, but had limited impact on the prices that U.S. consumers paid in 2010 (Emmeline Zhao, “Impact on Seafood Prices Is Limited,” Wall Street Journal, June 20, 2010). The
4.1 The United States is increasingly outsourcing jobs to India: having the work done in India rather than in the United States. For example, the Indian firm Tata Consultancy Services, which provides information technology services, increased its workforce by 70,000 workers in 2010 and expected to
3.6 Green et al. (2005) estimated the supply and demand curves for California processing tomatoes.The supply function is ln(Q) = 0.2 + 0.55 ln(p), where Q is the quantity of processing tomatoes in millions of tons per year and p is the price in dollars per ton. The demand function is ln(Q) = 2.6 -
3.5 The demand function for a good is Q = a - bp, and the supply function is Q = c + ep, wherea, b, c, and e are positive constants. Solve for the equilibrium price and quantity in terms of these four constants. A
3.4 The estimated Canadian processed pork demand function (Moschini and Meilke, 1992)is Q = 171 - 20p + 20pb + 3pc + 2Y (see Question 1.1), and the supply function is Q = 178 + 40p - 60ph (see Question 2.1). Solve for the equilibrium price and quantity in terms of the price of hogs, ph; the price
3.3 A large number of firms are capable of producing chocolate-covered cockroaches. The linear, upwardsloping supply curve starts on the price axis at $6 per box. A few hardy consumers are willing to buy this product (possibly to use as gag gifts). Their linear, downward-sloping demand curve hits
3.2 Every house in a small town has a well that provides water at no cost. However, if the town wants more than 10,000 gallons a day, it has to buy the extra water from firms located outside of the town. The town currently consumes 9,000 gallons per day.a. Draw the linear demand curve.b. The
2.4 How would the shape of the total supply curve in Solved Problem 2.2 change if the U.S. domestic supply curve hit the vertical axis at a price above p?
2.3 If the supply of rice from the United States is Qa = a + bp, and the supply from the rest of the world is Qr = c + ep, what is the world supply? A
2.2 Use Equation 2.6, the estimated supply function for avocados, Q = 58 + 15p - 20pf, to determine how much the supply curve for avocados shifts if the price of fertilizer rises by $1.10 per lb. Illustrate this shift in a diagram.
1.2.1 The estimated supply function (Moschini and Meilke, 1992) for processed pork in Canada is Q = 178 + 40p - 60ph, where quantity is in millions of kg per year and the prices are in Canadian dollars per kg. How does the supply function change if the price of hogs doubles from$1.50 to $3 per kg? A
1.8 Duffy-Deno (2003) estimated the demand functions for broadband service are Qs = 15.6p-0.563 for small firms and Ql = 16.0p-0.296 for larger ones, where price is in cents per kilobyte per second and quantity is in millions of kilobytes per second (Kbps). What is the total demand function for all
1.7 Suppose that the inverse demand function for movies is p = 120 - Q1 for college students and p = 120 - 2Q2 for other town residents. What is the town’s total demand function (Q = Q1 + Q2 as a function of p)? Use a diagram to illustrate your answer. (Hint: See the Application “Summing the
1.6 The food and feed demand curves used in the Application “Summing the Corn Demand Curves”were estimated by McPhail and Babcock (2012) to be Qfood = 1,487 - 22.1p and Qfeed = 6,247.5- 226.7p, respectively. Mathematically derive the total demand curve, which the Application’s figure
1.5 Given the estimated demand function Equation 2.2 for avocados, Q = 104 - 40p + 20pt + 0.01Y, show how the demand curve shifts as per capita income, Y, increases by $1,000 a year. Illustrate this shift in a diagram. A
1.4 Given the inverse demand function for pork(Question 1.1) is p = 14.30 - 0.05Q, how much would the price have to rise for consumers to want to buy 2 million fewer kg of pork per year?(Hint: See Solved Problem 2.1.) A
1.3 Using the estimated demand function for processed pork from Question 1.1, suppose that the price of beef, pb, rises from $4 to $5.20. In what direction and by how much does the demand curve for processed pork shift? A
1.2 Using the estimated demand function for processed pork from Question 1.1, show how the quantity demanded at a given price changes as per capita income, Y, increases by $100 a year. A
1.1 The estimated demand function (Moschini and Meilke, 1992) for Canadian processed pork is Q = 171 - 20p + 20pb + 3pc + 2Y, where Q is the quantity in million kilograms (kg) of pork per year, p is the dollar price per kg (all prices cited are in Canadian dollars), pb is the price of beef per kg,
What is the effect of a United States quota on sugar of Q on the equilibrium in the U.S. sugar market? Hint: The answer depends on whether the quota binds (is low enough to affect the equilibrium).
Using algebra, determine how the equilibrium price and quantity of avocados change from the initial levels, p = $2 and Q = 80, if the price of fresh tomatoes increases from its original price of pt = 80¢ by 55¢ to $1.35.
How does the quota set by the United States on foreign sugar imports of Q affect the total American supply curve for sugar given the domestic supply curve, Sd in panel a of the graph, and the foreign supply curve, Sf in panel b?
How much would the price have to fall for consumers to be willing to buy 1 million more lbs of avocados per month?
Define Microeconomics ? Explain its Models. ? Give Uses of Microeconomic Models
*9.2 Soon after the United States revealed the discovery of a single case of mad cow disease in December 2003, more than 40 countries slapped an embargo on U.S.beef. In addition, some U.S. consumers stopped eating beef. In the three weeks after the discovery, the quantity sold increased by 43%
*7.3 Usury laws place a ceiling on interest rates that lenders such as banks can charge borrowers. Lowincome households in states with usury laws have significantly lower levels of consumer credit (loans)than comparable households in states without usury laws (Villegas, 1989). Why? (Hint: The
7.2 The Thai government actively intervenes in markets(Nophakhun Limsamarnphun, “Govt Imposes Price Controls in Response to Complaints,” The Nation, May 12, 2012).a. The government increased the daily minimum wage by 40% to Bt 300 ($9.63). Show the effect of a higher minimum wage on the number
7.1 After Hurricane Katrina damaged a substantial portion of the nation’s oil-refining capacity in 2005, the price of gasoline shot up around the country. In 2006, many state and federal elected officials called for price controls. Had they been imposed, what effect would price controls have had?
6.9 The United Kingdom had a drinking problem. British per capita consumption of alcohol rose 19%between 1980 and 2007, compared with a 13%decline in other developed countries. Worried about excessive drinking among young people, the British government increased the tax on beer by 42% from 2008 to
6.7 Canada provided a 35% subsidy of the wage of video game manufacturers’ employees in 2011.a. What is the effect of a wage subsidy on the equilibrium wage and quantity of workers?b. What happens when the wage subsidy rate falls?c. What is the incidence of the subsidy?
6.6 A subsidy is a negative tax through which the government gives people money instead of taking it from them. If the government applied a $1.05 specific subsidy instead of a specific tax in Figure 2.12, what would happen to the equilibrium price and quantity? Use the demand function and the
6.5 Green, Howitt, and Russo (2005) estimated that for almonds, the demand elasticity was -0.47 and the long-run supply elasticity was 12.0. The corresponding elasticities were -0.68 and 0.73 for cotton and -0.26 and 0.64 for processing tomatoes. If the government were to apply a specific tax to
6.3 Essentially none of the savings from removing the federal ad valorem tax were passed on to consumers for motion picture admissions and club dues(Brownlee and Perry, 1967; see Exercise 6.2). List the conditions (in terms of the elasticities or shapes of supply or demand curves) that are
6.2 On July 1, 1965, the federal ad valorem taxes on many goods and services were eliminated. Comparing prices before and after this change, we can determine how much the price fell in response to the tax’s elimination.Given an ad valorem tax of v, the tax collected on a good that sold for p was
6.1 What effect does a $1 specific tax have on equilibrium price and quantity, and what is the incidence on consumers, if the following is true:a. The demand curve is perfectly inelastic.b. The demand curve is perfectly elastic.c. The supply curve is perfectly inelastic.d. The supply curve is
5.11 In 2018, President Trump proposed opening nearly all offshore water to oil and gas drilling. The Bureau of Ocean Energy Management, which oversees government offshore leasing, estimated that President Trump’s plan could eventually result in 21 billion barrels being economically recoverable.
5.10 Solved Problem 2.5 claims that a new war in the Persian Gulf could shift the world oil supply curve to the left by 24 million barrels a day or more, causing the world price of oil to soar regardless of whether we drill in the Arctic National Wildlife Refuge(ANWR). How accurate is this claim?
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