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Microeconomics For Today 6th Edition Irvin B. Tucker - Solutions
7. Explain the relationship between the law of diminishing marginal utility and the law of demand.
6. Suppose the marginal utility of a Coke is 15 utils and its price is $1. The marginal utility of a pizza is 20 utils, and its price is $2. If you buy 1 unit of each good, will you achieve consumer equilibrium? If not, how can greater total utility be obtained?
5. Suppose you consume 3 pounds of beef and 5 pounds of pork per month. The price of beef is$1.50 per pound, and pork is $2.00 per pound.Assuming you have studied economics and achieved consumer equilibrium, what is the ratio of the marginal utility of beef to the marginal utility of pork?
4. Suppose your marginal utility for meals at the campus cafeteria this week has fallen to zero.Explain what has happened to your total utility curve derived from consuming these meals. Now explain what will happen to total utility if you eat more meals at the cafeteria this week.
3. This week you have gone to two parties. Assume the total utility you gained from these parties is 100 utils. Then you go to a third party, and your total utility rises to 110 utils. What is the marginal utility of the third party attended per week? Given the law of diminishing marginal utility,
2. Do you agree with the following statement? “If you like tacos, you should consume as many as you can.”
1. Does a dollar given to a rich person raise the rich person’s total utility more than a dollar given to a poor person raises the poor person’s total utility?
15. As shown in Exhibit 11, the $1 per pack sales tax on cigarettes raises tax revenue per day totaling:a. $5 million.b. $6 million.c. $10 million.d. $15 million.
14. As shown in Exhibit 11, assume the government places a $1 per pack sales tax on cigarettes. The percentage of the burden of taxation paid by tobacco sellers is:a. zero.b. 50 percent.c. 75 percent.d. 100 percent. EXHIBIT 11 Supply and Demand Curves for Cigarettes 3.50 3.00 2.50 Price per pack
13. As shown in Exhibit 11, assume the government places a $1 per pack sales tax on cigarettes. The percentage of the burden of taxation paid by consumers of a pack of cigarettes isa. zero.b. 25 percent.c. 50 percent.d. 100 percent.
12. If the government wanted to raise tax revenue and shift most of the tax burden to the sellers, it would impose a tax on a good with aa. steep (inelastic) demand curve and a steep (inelastic)supply curve.b. steep (inelastic) demand curve and a flat (elastic)supply curve.c. flat (perfectly
11. To determine whether two goods are substitutes or complements, an economist would estimate thea. price elasticity of demand.b. income elasticity of demand.c. cross-elasticity of demand.d. price elasticity of supply.
10. The income elasticity of demand for shoes is estimated to be 1.50. We can conclude that shoesa. have a relatively steep demand curve.b. have a relatively flat demand curve.c. are a normal good.d. are an inferior good.
9. The price elasticity of demand coefficient for a good will be lowera. if there are few or no substitutes available.b. if a small portion of the budget will be spent on the good.c. in the short run than in the long run.d. if all of the above are true.
8. A downward-sloping straight-line demand curve will have aa. higher price elasticity of demand coefficient along the top of the demand curve.b. lower price elasticity coefficient along the top of the demand curve.c. constant price elasticity of demand coefficient throughout the length of the
7. A manufacturer of Beanie Babies hires an economist to study the price elasticity of demand for this product. The economist estimates that the price elasticity of demand coefficient for a range of prices close to the selling price is greater than 1.The relationship between changes in price and
6. If a 5 percent reduction in the price of a good produces a 3 percent increase in the quantity demanded, the price elasticity of demand over this range of the demand curve isa. elastic.b. perfectly elastic.c. unitary elastic.d. inelastic.e. perfectly inelastic.
5. Suppose the quantity of steak purchased by the Jones family is 110 pounds per year when the price is $2.10 per pound and 90 pounds per year when the price is $3.90 per pound. The price elasticity of demand coefficient for this family isa. 0.33.b. 0.50.c. 1.00.d. 2.00.
4. The price elasticity of demand for a horizontal demand curve isa. perfectly elastic.b. perfectly inelastic.c. unitary elastic.d. inelastic.e. elastic.
15. Beginning from an equilibrium at point E1 in Exhibit 11, an increase in demand for good X, other things being equal, would move the equilibrium point toa. E1 (no change).b. E2.c. E3.d. E4.
14. In Exhibit 11, an increase in supply would cause a move from which equilibrium point to another, other things being equal?a. E1 to E2b. E1 to E3c. E4 to E1d. E3 to E4
13. In Exhibit 11, which of the following might cause a shift from S1 to S2?a. A decrease in input pricesb. An improvement in technologyc. An increase in input pricesd. An increase in consumer income EXHIBIT 11 Supply and Demand Curves Price (dollars Ps per unit) P P E Qz Q Q Q Quantity of good Xx
12. A public good may be defined as any good or service thata. allows users to collectively consume benefits.b. must be distributed to all citizens in equal shares.c. is never produced by government.d. is described by answers (a) and (c) above.
11. Which of the following is the best example of a public good?a. Pencilsb. Educationc. Defensed. Trucks
10. Pollution from cars is an example ofa. a harmful opportunity cost.b. a negative externality.c. a production dislocation.d. none of the above.
9. A good that provides external benefits to society hasa. too few resources devoted to its production.b. too many resources devoted to its production.c. the optimal resources devoted to its production.d. not provided profits to producers of the good.
8. Suppose the equilibrium price set by supply and demand is lower than the price ceiling set by the government. The eventual result will bea. a shortage.b. that quantity demanded is equal to quantity supplied.c. a surplus.d. a black market.
7. Which of the following is least likely to result from rent controls set below the equilibrium price for rental housing?a. Shortages and black markets will result.b. The existing rental housing will deteriorate.c. The supply of rental housing will increase rapidly.d. People will demand more
6. If the federal government wants to raise the price of cheese, it willa. take cheese from government storage and sell it.b. encourage farmers to research ways to produce more cheese.c. subsidize purchases of farm equipment.d. encourage farmers to produce less cheese.
5. An increase in the wage paid to grape pickers will cause thea. demand curve for grapes to shift to the right, resulting in higher prices for grapes.b. demand curve for grapes to shift to the left, resulting in lower prices for grapes.c. supply curve for grapes to shift to the left, resulting in
4. An increase in consumers’ incomes increases the demand for oranges. As a result of the adjustment to a new equilibrium, there is a (an)a. leftward shift of the supply curve.b. downward movement along the supply curve.c. rightward shift of the supply curve.d. upward movement along the supply
3. Consider the market for chicken. An increase in the price of beef willa. decrease the demand for chicken, resulting in a lower price and a smaller amount of chicken purchased in the market.b. decrease the supply of chicken, resulting in a higher price and a smaller amount of chicken purchased in
2. Which of the following statements is true?a. An increase in demand, with no change in supply, will increase the equilibrium price and quantity.b. An increase in supply, with no change in demand, will decrease the equilibrium price and the equilibrium quantity.c. A decrease in supply, with no
1. Suppose prices for new homes have risen, yet the number of homes sold has also risen. We can conclude thata. the demand for new homes has risen.b. the law of demand has been violated.c. new firms have entered the construction industry.d. construction firms must be facing higher costs.
10. Which of the following are public goods?a. Air bagsb. Pencilsc. Cycle helmetsd. City street lightse. Contact lenses
9. Why are public goods not produced in sufficient quantities by private markets?
8. Explain the impact of external costs and external benefits on resource allocation.
7. Suppose coal-burning firms are emitting excessive pollution into the air. Suggest two ways the government can deal with this market failure.
6. Consider this statement: “Government involvement in markets is inherently inefficient.”Do you agree or disagree? Explain.
5. Suppose a market is in equilibrium and both demand and supply curves increase.What happens to the equilibrium price if demand increases more than supply?
4. What are the advantages and disadvantages of the price system?
3. Using market supply and demand analysis, explain why labor union leaders are strong advocates of raising the minimum wage above the equilibrium wage.
2. Use a graph to show the impact on the price of Japanese cars sold in the United States if the United States imposes import quotas on Japanese cars. Now draw another graph to show how the change in the price of Japanese cars affects the price of Americanmade cars in the United States. Explain the
1. Market researchers have studied the market for milk, and their estimates for the supply of and the demand for milk per month are as follows:Price per Gallon Quantity Demanded(millions of gallons)Quantity Supplied(millions of gallons)$10.50 100 500 8.00 200 400 6.50 300 300 4.00 400 200 2.50 500
10. As shown in Exhibit A-7, assume that the quantity of good X exchanged results in triangle CDE. This would be caused by resources being used by producers to produce good X.A. too manyb. too fewc. an optimal amount ofd. asymmetric
9. As shown in Exhibit A-7, assume that the quantity of good X exchanged results in triangle EIH. This would be caused by resources being used by producers to produce good X.a. too manyb. too fewc. an optimal amount ofd. asymmetric
8. Suppose in Exhibit A-7 that exchange in the market for good X yields triangle ABE, this means that which of the following conditions exists in the market?a. Only consumer surplusb. Only producer surplusc. Deadweight lossd. Maximum consumer plus producer surplus
7. In Exhibit A-7, suppose firms devote resources sufficient to produce 4,000 units of good X per month. The result is a deadweight loss of trianglea. ABE.b. CDE.c. EGE.d. EDE.
6. Which of the following statements is correct?a. Total surplus is the sum of consumer and producer surplus.b. Deadweight loss is the net loss of both consumer and producer surplus.c. Deadweight loss is a measure of market inefficiency.d. All of the above. EXHIBIT A-7 Demand and Supply Curves for
5. Total surplus equalsa. consumer surplus þ producer surplus deadweight loss.b. consumer surplus producer surplus deadweight loss.c. consumer surplus producer surplus þdeadweight loss.d. consumer surplus þ producer surplus.
4. Deadweight loss results froma. equilibrium.b. underproduction.c. overproduction.d. none of the above are correct.e. Eitherb. or c.
3. In an efficient market, deadweight loss isa. maximum.b. minimum.c. constant.d. zero.
2. Suppose Gizmo Inc. is willing to sell one gizmo for $10, a second gizmo for $12, a third for$14, and a fourth for $20, and the market price is$20. What is Gizmo Inc.’s producer surplus?a. $56b. $24c. $20d. $10
1. If Bill is willing to pay $10 for one good X, $8 for a second, and $6 for a third, and the market price is $5, then Max’s consumer surplus isa. $24.b. $18.c. $9.d. $6.
4. Using Exhibit A-6, and assuming the market is in equilibrium at QE, identify areas ACD, DCE, and ACE. Now explain the result of underproduction at Q in terms of areas BCG, GCF, and BCF.
3. Using Exhibits A-4 and Exhibit A-5 above, calculate the total surplus. Now calculate the effect on consumer surplus, producer surplus, and total surplus of a fall in the equilibrium price of textbooks from $30 to $15 each. Explain the meaning of your calculations.
2. Consider the market for used textbooks. Use Exhibit A-5 to calculate the total producer surplus. EXHIBIT A-5 Used Textbook Market Willingness Potential Market Seller to Sell Price Forest $60 $30 Betty 45 30 Allen 35 30 Paul 25 30 Alice 10 30
1. Consider the market for used textbooks. Use Exhibit A-4 to calculate the total consumer surplus. EXHIBIT A-4 Used Textbook Market Willingness Potential Market Buyer to Pay Price Brad $60 $30 Juan 45 30 Sue 35 30 Jamie 25 30 Frank 10 30
15. In Exhibit 6, which of the following points on the production possibilities curve are full-employment production points?a. A, B, C, Db. A, B, C, D, Uc. E, U, Wd. B, C, D, Ue. A, B, C, U
14. In Exhibit 6, to move from U to B, the opportunity costa. would be 4 units of consumption goods.b. would be 2 units of capital goods.c. would be zero.d. would be 5 units of capital goods.e. cannot be estimated.
13. In Exhibit 6, which of the following points on the production possibilities curve are efficient production points?a. A, B, C, Ub. A, B, C, D, Uc. E, U, Wd. B, C, D, Ue. A, B, C, D
12. From the information in Exhibit 6, which of the following points on the production possibilities curve are attainable with the resources and technology currently available?a. A, B, C, E, Ub. A, B, C, D, Wc. E, U, Wd. B, C, D, Ue. A, B, C, E EXHIBIT 6 Consumption goods Production Possibilities
11. A nation can accelerate its economic growth bya. reducing the number of immigrants allowed into the country.b. adding to its stock of capital.c. printing more money.d. imposing tariffs and quotas on imported goods.
10. Education and training that improve the skill of the labor force are represented on the production possibilities curve by a(an)a. movement along the curve.b. inward shift of the curve.c. outward shift of the curve.d. movement toward the curve from an exterior point.
9. Along a production possibilities curve, an increase in the production of one good can be accomplished only bya. decreasing the production of another good.b. increasing the production of another good.c. holding constant the production of another good.d. producing at a point on a corner of the
8. Using a production possibilities curve, unemployment is represented by a point locateda. near the middle of the curve.b. at the top corner of the curve.c. at the bottom corner of the curve.d. outside the curve.e. inside the curve.
7. Any point inside the production possibilities curve is a(an)a. efficient point.b. unfeasible point.c. inefficient point.d. maximum output combination.
6. On a production possibilities curve, a change from economic inefficiency to economic efficiency is obtained bya. movement along the curve.b. movement from a point outside the curve to a point on the curve.c. movement from a point inside the curve to a point on the curve.d. a change in the slope
5. If a farmer adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to$100 per acre. According to marginal analysis, the farmer should add fertilizer if it costs less thana. $12.50 per pound.b. $20 per pound.c. $80 per pound.d. $100 per pound.
4. On a production possibilities curve, the opportunity cost of good X in terms of good Y is represented bya. the distance to the curve from the vertical axis.b. the distance to the curve from the horizontal axis.c. the movement along the curve.d. all of the above.
3. Opportunity cost is thea. purchase price of a good or service.b. value of leisure time plus out-of-pocket costs.c. best option given up as a result of choosing an alternative.d. undesirable sacrifice required to purchase a good.
2. A student who has one evening to prepare for two exams on the following day has the following two alternatives:Possibility Score in Economics Score in Accounting A 95 80 B 80 90 The opportunity cost of receiving a 90, rather than an 80, on the accounting exam is represented by how many points on
3. Opportunity cost is thea. purchase price of a good or service.b. value of leisure time plus out-of-pocket costs.c. best option given up as a result of choosing an alternative.1. Which of the following decisions must be made by all economies?a. How much to produce? When to produce?How much does
2. A student who has one evening to prepare for two exams on the following day has the following two alternatives:Possibility Score in Economics Score in Accounting A 95 80 B 80 90 The opportunity cost of receiving a 90, rather than an 80, on the accounting exam is represented by how many points on
1. Which of the following decisions must be made by all economies?a. How much to produce? When to produce?How much does it cost?b. What is the price? Who will produce it? Who will consume it?c. What to produce? How to produce it? For whom to produce?d. None of the above.
3. Opportunity cost is thea. purchase price of a good or service.b. value of leisure time plus out-of-pocket costs.c. best option given up as a result of choosing an alternative.
2. A student who has one evening to prepare for two exams on the following day has the following two alternatives:Possibility Score in Economics Score in Accounting A 95 80 B 80 90 The opportunity cost of receiving a 90, rather than an 80, on the accounting exam is represented by how many points on
1. Which of the following decisions must be made by all economies?a. How much to produce? When to produce?How much does it cost?b. What is the price? Who will produce it? Who will consume it?c. What to produce? How to produce it? For whom to produce?d. None of the above.
2. A student who has one evening to prepare for two exams on the following day has the following two alternatives:Possibility Score in Economics Score in Accounting A 95 80 B 80 90 The opportunity cost of receiving a 90, rather than an 80, on the accounting exam is represented by how many points on
1. Which of the following decisions must be made by all economies?a. How much to produce? When to produce?How much does it cost?b. What is the price? Who will produce it? Who will consume it?c. What to produce? How to produce it? For whom to produce?d. None of the above.
11. Draw a production possibilities curve for a hypothetical economy producing capital goods and consumer goods. Suppose a major technological breakthrough occurs in the capital goods industry and the new technology is widely adopted only in this industry. Draw the new production possibilities
10. Suppose, unfortunately, your mathematics and economics professors have decided to give tests 2 days from now and you can spend a total of only 12 hours studying for both exams. After some thought, you conclude that dividing your study time equally between each subject will give you an expected
9. Interpret the phrases “There is no such thing as a free lunch” and “A free lunch is possible” in terms of the production possibilities curve.
8. Why does a production possibilities curve have a bowed-out shape?
7. The following table shows the production possibilities for pies and flower boxes. Fill in the opportunity cost (pies forgone) of producing the first through the fifth flower box.Combination Pies Flower Boxes Opportunity Cost A 30 0 ___________ B 26 1 ___________ C 21 2 ___________ D 15 3
6. The following is a set of hypothetical production possibilities for a nation.Combination Automobiles(thousands)Beef(thousands of tons)A 0 10 B 2 9 C 4 7 D 6 4 E 8 0a. Plot these production possibilities data. What is the opportunity cost of the first 2,000 automobiles produced? Between which
5. Attending college is expensive, time-consuming, and it requires effort. So why do people decide to attend college?
4. Which of the following decisions has the greater opportunity cost? Why?a. A decision to use an undeveloped lot in Tokyo’s financial district for an apartment building.b. A decision to use a square mile in the desert for a gas station.
3. Explain verbally the statement “There is no such thing as a free lunch” in relation to scarce resources.
2. Suppose a retailer promotes its store by advertising a drawing for a “free car.” Is this car free because the winner pays zero for it?
1. Explain why scarcity forces individuals and society to incur opportunity costs. Give specific examples.
12. Which of the following pairs is the most likely to exhibit a direct relationship?a. The price of gasoline and the amount of gasoline that people purchaseb. Cholesterol levels and the likelihood of developing heart diseasec. Outdoor temperature and heating oil salesd. Annual income and weekly
11. Which of the following pairs is the most likely to exhibit an inverse relationship?a. The amount of time you study and your grade point averageb. People’s annual income and their expenditure on personal computersc. Baseball players’ salaries and their batting averagesd. The price of a
10. When an inverse relationship is graphed, the resulting line or curve isa. horizontal.b. vertical.c. upward sloping.d. downward sloping.
9. What is used to illustrate an independent relationship between two variables?a. An upward sloping curveb. A downward sloping curvec. A hill-shaped curved. A horizontal or vertical line
8. A change in a third variable not on either axis of a graph is illustrated by aa. horizontal or vertical line.b. movement along a curve.c. shift of a curve.d. point of intersection.
7. A shift in a curve represents a change ina. the variable on the horizontal axis.b. the variable on the vertical axis.c. a third variable that is not on either axis.d. any variable that is relevant to the relationship being graphed.
6. In Exhibit A-8, the slope of straight line AB isa. 3.b. 1.c. −1.d. −5.
5. As shown in Exhibit A-8, the slope of straight line ABa. decreases with increases in X.b. increases with increases in X.c. increases with decreases in X.d. remains constant with changes in X.
4. Straight line AB in Exhibit A-8 shows thata. increasing the value of X reduces the value of Y.b. decreasing the value of X increases the value of Y.c. there is an inverse relationship between X and Y.d. all of the above are true.
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