Principles Of Economics 3rd Edition Moore Mcdowell - Solutions

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3. Suppose again that capital’s and labor’s shares of income are .3 and .7, respectively.a. What would be the effect (on output) of increasing the capital stock by 10 percent?b. What would be the effect of increasing the pool of labor by 10 percent?c. If the increase in labor is due entirely to
2. Suppose output is growing at 3 percent per year and capital’s and labor’s shares of income are .3 and .7, respectively.a. If both labor and capital grow at 1 percent per year, what would the growth rate of total factor productivity have to be?b. What if both the labor and the capital stocks
1. In a simple scenario with only two factors of production, suppose that capital’s share of income is .4 and labor’s share is .6 and that annual growth rates of capital and labor are 6 and 2 percent, respectively. Assume there is no technical change.a. At what rate does output grow?b. How long
7. Since the mid-1990s, the U.S. economy has undergone a surge in labor productivity, given by Y N . What are some possible explanations given by equation (2) for this surge?Technical
6. What factors determine the growth rate of steady-state per capita output? Are there other factors that could affect the growth rate of output in the short run ?
5. Figure 3-4 is a basic illustration of the Solow growth model. Interpret it, being careful to explain the meaning of the saving and investment requirement lines. Why does the steady state occur where they cross?
4. If, in the context of a standard production function, Y F ( K , N ), where K represents physical capital and N represents raw labor, we were to interpret the Solow residual ( A A ) as “technological progress,” we would be in error. What, besides technological progress, would this
3. Consider a production function that omits the stock of natural resources. When, if ever, will this omission have serious consequences?
2. Can the Solow growth model help to explain the phenomenon of convergence?
1. What information does a production function provide?
2. How much was U.S. real GDP growth in the year 2008? What about the growth rate of U.S. population? First, check out “Gross Domestic Product (GDP) and Components” at http://research.stlouisfed.org/fred2 . Click on “GDP/GNP” and select “GDPCA,” title “Real Gross Domestic Product.”
1. Section 2.1 in this chapter deals with the relationship between the different components included in the National Income and Product Accounts (NIPA for short). Go to www.bea.gov .Click on the heading “National,” then click on “Interactive Tables: GDP and the National Income and Product
8. Suppose you buy a $100 government bond that is due next year. How much nominal interest will you receive if inflation is 4 percent over the year and the bond promises a real return of 3 percent?Empirical
7. Suppose a country’s CPI increased from 2.1 to 2.3 in the course of 1 year. Use this fact to compute the rate of inflation for that year. Why might the CPI overstate the rate of inflation?
6. Consider an economy that consists only of those who bake bread and those who produce its ingredients. Suppose that this economy’s production is as follows: 1 million loaves of bread(sold at $2 each); 1.2 million pounds of flour (sold at $1 per pound); and 100,000 pounds each of yeast, sugar,
5. If a country’s labor is paid a total of $6 billion, its capital is paid a total of $2 billion, and profits are zero, what is the level of output? ( Hint: See equation 2.)
4. Assume that GDP is $6,000, personal disposable income is $5,100, and the government budget deficit is $200. Consumption is $3,800, and the trade deficit is $100.a. How large is saving ( S )?b. How large is investment ( I )?c. How large is government spending ( G )?
3. The following is information from the national income accounts for a hypothetical country:GDP $6,000 Gross investment 800 Net investment 200 Consumption 4,000 Government purchases of goods and services 1,100 Government budget surplus 30 What isa. NDP?d. Disposable personal income?b. Net
2. Show from national income accounting thata. An increase in taxes (while transfers remain constant) must imply a change in net exports, government purchases, or the saving-investment balance.b. An increase in disposable personal income must imply an increase in consumption or an increase in
1. In the text, we calculated the change in real GDP in the hypothetical economy of Table 2-3 , using the prices of 2005. Calculate the change in real GDP between 2005 and 2010 using the same data but the prices of 2010 . Your answer should demonstrate that the prices that are used to calculate
9. Suppose you make a loan of $100 that will be repaid to you in 1 year. If the loan is denominated in terms of a nominal interest rate, are you happy or sad if inflation is higher than expected during the year? What if the loan instead had been denominated in terms of a real return?Technical
8. If you woke up in the morning and found that nominal GDP had doubled overnight, what statistic would you need to check before you began to celebrate? Why?
7. What is the GDP deflator, and how does it differ from the consumer and producer price indexes?Under what circumstances might it be a more useful measure of price than the CPI and PPI?
6. The CPI and PPI are both measures of the price level. How are they different, and when might you prefer one of these measures over the other?
5. Increases in real GDP are often interpreted as increases in welfare. What are some problems with this interpretation? Which do you think is the biggest problem with it, and why?
4. What is NDP? Is it a better or worse measure of output than GDP? Explain.
3. What is the difference between GDP and GNP? Is one a better measure of income/output than the other? Why?
2. In the national income accounts, what is the difference betweena. A firm’s buying an auto for an executive and the firm’s paying the executive additional income to buy the automobile herself?b. Your hiring your spouse (who takes care of the house) rather than having him or her do the work
1. What would happen to GDP if the government hired unemployed workers, who had been receiving amount $ TR in unemployment benefits, as government employees and now paid them $ TR to do nothing? Explain.
1. In this exercise, we will calculate by how much U.S. per capita real income has increased between the year you were born and today. Go to http://research.stlouisfed.org/fred2. To find real GDP data, click on “Gross Domestic Product (GDP) and Components” and choose“GDP/GNP.” Then click on
1. Suppose that actual output is $120 billion and potential (full-employment) output is $156 billion.What is an output gap in this hypothetical economy? Based on your estimate of the output gap, would you expect the unemployment level to be higher or lower than usual?Empirical
1. Using the aggregate supply–aggregate demand model, explain how output and prices are determined.Will output vary or stay fixed in the long run? Suppose the aggregate demand curve were to remain fixed: What can we infer about the behavior of prices over time?Technical
A village has six residents, each of whom has accumulated savings of 100. Each villager can use this money either to buy a government bond that pays 15 per cent interest per year or to buy a year-old llama, send it on to the commons to graze, and sell it after one year. The price the villager gets
Refer to Problem 8, Barton decides to buy a full-sized grand piano. The new payoff matrix is as follows.a. If Statler has the legal right to peace and quiet and Barton and Statler can negotiate at no cost, will Barton install and maintain soundproofing? Explain.Is this outcome socially efficient?b.
Barton and Statler are neighbours in an apartment complex in London's Canary Wharf. Barton is a concert pianist and Statler is a poet working on an epic poem. Barton rehearses his concert pieces on the baby grand piano in his front room, which is directly above Statler's study. The matrix below
How, if at all, would your answer to Problem 6 differ if John would be willing to pay up to 30 per month to avoid giving up his privacy by sharing quarters with Karl?
John and Karl can live together in a two-bedroom flat for 500 per month, or each can rent a single-bedroom flat for 350 per month. Aside from the rent, the two would be indifferent between living together and living separately, except for one problem: John leaves dirty dishes in the sink every
Suppose the law says that Jones may not emit smoke from his factory unless he gets permission from Smith, who lives downwind. If the relevant costs and benefits of filtering the smoke from Jones' production process are as shown in the table below, and if Jones and Smith can negotiate with one
Refer to Problem 3, How would the imposition of a tax of €3 per unit on each daily boom box rental affect efficiency in this market?
Suppose the supply curve of boom box rentals at a holiday resort in the Mediterranean is given by P=5 +0.1Q, where Pis the daily rent per unit in euros and Q is the volume of units rented in hundreds per day. The demand curve for boom boxes is 20-0.2Q. If each boom box imposes €3 per day in noise
Phoebe keeps a bee farm next door to an apple orchard. She chooses her optimal number of beehives by selecting the honey output level at which her private marginal benefit from beekeeping equals her private marginal cost.a. Assume that Phoebe's private marginal benefit and marginal cost curves from
Determine whether the following statements are true or false, and briefly explain why.a. A given total emission reduction in a polluting industry will be achieved at the lowest possible total cost when the cost of the last unit of pollution curbed is equal for each firm in the industry.b. In an
Why does the Great Salt Lake, which is located wholly within the state of Utah, suffer lower levels of pollution than Lake Erie, which is bordered by several states and Canada?
If a country's government could declare any activity that imposes external costs on others illegal, would such legislation be advisable?
How would you explain to a friend why the optimal amount of freeway congestion is not zero?
What incentive problem explains why the freeways in cities such as Los Angeles suffer from excessive congestion?
Explain why advertising campaigns announcing that 'we will not beaten on price, and will refund twice the difference. . .' can be a mechanism to reduce rather than intensify price competition.
Can you show where (approximately) prices would settle if Firm I were a leader and Firm II a follower in the price-setting game in Fig. 10.10 (the equivalent to point Y in the quantity setting game in Fig. 10.9)?
What differences in firms' cost structures would lead you to treat them as Cournot or Bertrand competitors?
Suppose Boeing had entered into a contract with a large airline to produce a stretched B747. How would this have affected Airbus's decision?
Can you explain why cartels offer an example of a prisoner's dilemma problem, and suggest how (ignoring legalities) the problem could be solved for the members of the cartel?
Jill and Jack both have two pails that they must use to carry water down a hill. Each makes only one trip down the hill, and each pail of water can be sold for 5. Both the children would be willing to pay 2 each to avoid carrying one bucket down the hill and an additional 3 to avoid carrying a
Harry has four 2 euro pieces. He can offer Sally from one to four of them. If she accepts his offer, she keeps the coins Harry offered her and Harry keeps the others. If Sally declines Harry's offer, they both get nothing. They play the game only once, and each cares only about the amount of money
You are playing a game of 'matching pennies' with a friend. Each of you has a penny hidden in your hand, facing either heads up or tails up (you know which way the one in your hand is facing). On the count of 'three' you simultaneously show your pennies to each other. If the face-up side of your
Newfoundland's fishing industry has declined sharply due to over-fishing, even though fishing companies were supposedly bound by a quota agreement. If all fishing companies had abided by the agreement, yields could have been main- tained at high levels.a. Model this situation as a prisoner's
You are sitting in your car in a university car park that is currently full, waiting for a place to become free. Just as one becomes free a driver who has just arrived overtakes you in order to park in the vacated spot before you can. Suppose this driver would be willing to pay up to 10 to park in
The owner of a thriving business wants hire someone who will manage a new office in a distant city honestly. He can afford to pay a weekly salary of 2,000 (C1,000 more than the manager would be able to earn elsewhere) and still earn an economic profit of C800. He fears that he will not be able to
What should Lufthansa and Alitalia do if the payoff matrix in Example 9.2 is modified as follows?
Blackadder and Baldrick are rational, self-interested criminals imprisoned in sep- arate cells in a dark medieval dungeon. They face the prisoner's dilemma displayed in the matrix below..
Consider the following 'dating game', which has two players, A and B, and two strategies, to buy a cinema ticket or a football ticket. The payoffs, given in points, are as shown in the matrix below. Note that the highest payoffs occur when both A and B attend the same event.Assume that players A
In studying for his economics final, Sam is concerned about only two things: his grade and the amount of time he spends studying. A good grade will give him a benefit of 20; an average grade, a benefit of 5; and a poor grade, a benefit of 0. By studying a lot. Sam will incur a cost of 10; by
Describe the commitment problem that narrowly self-interested diners and waiters confront at restaurants located on interstate highways. Given that in such restaurants tipping does seem to assure reasonably good service, do you think people are always selfish in the narrowest sense?
Would you be irrational to refuse a one-sided offer in an ultimatum bargaining game if you knew that you would be playing that game many times with the same partner?
Suppose General Motors is trying to hire a small firm to manufacture the door handles for Opel and Holden saloon cars. The task requires an investment in expensive capital equipment that cannot be used for any other purpose. Why might the CEO of the small firm refuse to undertake this venture
Why did Warner Brothers make a mistake by waiting until the filming of Analyze This was almost finished before negotiating with Tony Bennett to perform in the final scene?
Explain why a military arms race is an example of a prisoner's dilemma.
Beth is an eight-year-old who old sells homemade lemonade on a street corner in a suburban neighbourhood. Each paper cup of lemonade costs Beth 20 cents to produce; she has no fixed costs. The reservation prices for the ten people who walk by Beth's lemonade stand each day are as listed in the
Suppose you are a monopolist in the market for a specific video game. Your demand curve is given by P= 80-Q/2, and your marginal cost curve is MC = Q. Your fixed costs equal 400.a. Graph the demand and marginal cost curve.b. Derive and graph the marginal revenue curve.c. Calculate and indicate on
a. What is the marginal revenue curve in each of the three sub-markets?b. What price should the cinema charge in each of the three sub-markets if its goal is to maximise profit?
Suppose that a university student cinema is a local monopoly whose demand curve for adult tickets on Saturday night is P= 12-2Q, where P is the price of a ticket in euros and Q is the number of tickets sold in hundreds. The demand for children's tickets on Sunday afternoon is P= 8-3Q, and for adult
TotsPoses, a profit-maximising business, is the only photography business in town that specialises in portraits of small children. George, who owns and runs TotsPoses, expects to encounter an average of eight customers per day, each with a reservation price as shown in the table below.
What is the socially desirable price for a natural monopoly to charge? Why will a natural monopoly that attempts to charge the socially desirable price invariably suffer an economic loss?
Explain why price discrimination and the existence of slightly different variants of the same product tend to go hand in hand. Give an example from your own experience.
If a monopolist could perfectly price discriminate:a. the marginal revenue curve and the demand curve would coincideb. the marginal revenue curve and the marginal cost curve would coincidec. every consumer would pay a different priced. marginal revenue would become negative at some output levele.
A single-price profit-maximising monopolist:a. causes excess demand, or shortages, by selling too few units of a good or serviceb. chooses the output level at which marginal revenue begins to increasec. always charges a price above the marginal cost of productiond. also maximises marginal
a. In a perfectly competitive industry the industry demand curve is horizontal, whereas for a monopoly it is downward-sloping.b. Perfectly competitive firms have no control over the price they charge for their product.c. For a natural monopoly, average cost declines as the number of units produced
Two car manufacturers, Saab and Volvo, have fixed costs of 1 billion and mar- ginal costs of 10,000 per car. If Saab produces 50,000 cars per year and Volvo produces 200,000, calculate the average production cost for each company. On the basis of these costs, which company's market share do you
True or false: Because a natural monopolist charges a price greater than marginal cost, it necessarily earns a positive economic profit.
Why is marginal revenue always less than price for a monopolist but equal to price for a perfectly competitive firm?
Why do most successful industrial societies offer patents and copyright protection, even though these protections enable sellers to charge higher prices?
True or false: A firm with market power can sell whatever quantity it wishes at whatever price it chooses.
What important characteristic do all three types of imperfectly competitive firm share?
Ludovico, a renowned chef, owns one of the 1,000 spaghetti restaurants in Sicily. Each restaurant serves 100 plates of spaghetti a night at 5 per plate. Ludovico knows he can develop a new sauce at the same cost as the current sauce, which would be so tasty that all 100,000 spaghetti eaters would
You have an opportunity to buy an apple orchard that produces 25,000 per year in total revenue. To run the orchard, you would have to give up your current job, which pays 10,000 per year. If you would find both jobs equally satisfying, and the annual interest rate is 10 per cent, what is the
You have a friend who is a potter. He holds a permanent patent on an indestructible teacup whose sale generates 30,000 a year more revenue than his production costs. If the annual interest rate is 20 per cent, what is the market value of his patent?
Unskilled workers in a poor cotton-growing region must choose between working in a factory for 6,000 a year or being a tenant cotton farmer. One farmer can work a 120-hectare farm, which rents for 10,000 a year. Such farms yield 20,000 worth of cotton each year. The total non-labour cost of
The government of the Republic of Self-Reliance has decided to limit imports of machine tools, to encourage development of locally made machine tools. To do so, the government offers to sell a small number of machine-tool import licences. To operate a machine-tool import business costs 30,000,
Explain carefully why, in the absence of a patent, a technical innovation invented and pioneered in one tofu factory will cause the supply curve for the entire tofu industry to shift to the right. What will finally halt the rightward shift?
A city has 200 advertising companies, 199 of which employ designers of normal ability at a salary of 100,000 a year. Paying this salary, each of the 199 firms makes a normal profit on 500,000 in revenue. However, the 200th company employs Janus Jacobs, an unusually talented designer. This company
John Jones owns and manages a caf whose annual revenue is 5,000. The annual expenses are as in the table below.
Explain why new software firms that give away their software products at a short- run economic loss are nonetheless able to sell their stock at positive prices.
Explain why the following statements are true or false.a. The economic maxim "There's no cash on the table' means that there are never any unexploited economic opportunities.b. Firms in competitive environments make no accounting profit when the mar- ket is in long-run equilibrium.c. Firms that can
Why is a payment of 10,000 to be received one year from now more valuable than a payment of 10,000 to be received two years from now?
Why did airlines that once were regulated by government generally fail to earn an economic profit, even on routes with relatively high fares?
Why do market forces drive economic profit but not economic rent towards zero?
How can a business owner who earns 10 million per year from his business credibly claim to earn zero economic profit?
Why do most cities now have more radios but fewer radio repair shops than they did in 1960?
How does public policy affect economic welfare by limiting resource allocation changes?
If competition holds price close to the cost of production, why do so many entre- preneurs become fabulously wealthy?
How does the pursuit of profit serve society's ends, as is asserted by economists who support the use of markets to allocate resources?

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Principles Of Economics 3rd Edition Moore Mcdowell - Solutions

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