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macroeconomics

Macroeconomics 8th Edition Glenn Hubbard, Anthony Patrick O Brien - Solutions

According to an article on cnbc.com, in October 2018, S&P cut its rating on General Electric’s bonds from A to BBB+.a. What is S&P’s top bond rating? Under what circumstances would S&P or one of the other bond rating agencies be likely to cut the rating on a firm’s bonds?b. What will be the
In early 2019, the Powerball lottery was advertised as having a payoff of $750,000,000. The winner was given the choice of receiving $465,500,000 at once or equal annual payments over the next 30 years that would total $750,000,000.a. Is the lottery being accurate in stating that the winner will
Jay Shambaugh and colleagues at the Brookings Institution argued: In recent years it has become clear that young firms—and not necessarily small firms, as is commonly supposed—are the engine of employment and productivity growth in the United States. As they introduce new technologies and
Minnesota Senator Amy Klobuchar was a candidate for the 2020 Democratic nomination for president. In an opinion column written with Senator Mike Lee of Utah, she argued, “There is evidence that [occupational] licensing requirements raise the price of goods and services, restrict employment
In discussing corporate structures like Lyft’s, where there are two classes of stock, and the founders own most of the class with the most voting power, SEC Commissioner Robert J. Jackson, Jr., argued that “there is reason to think that, at least for a defined period of time early in a
An article on cnbc.com quoted a financial advisor discussing Lyft as an investment: “We’ve seen throughout history that great services, great products don’t necessarily make great businesses.”a. In what sense might Lyft be considered a great service or a great product?b. What did the
A column on barrons.com as Lyft was preparing to launch its IPO contained the following advice: “The Lyft IPO is sure to create excitement as other tech unicorns prepare to follow it to market. Investors should stand back on the curb until there is a clear road to profitability.”a. What is a
Suppose you are explaining the benefits of free trade and someone states, “I don’t understand all the principles of comparative advantage and gains from trade. I just know that if I buy something produced in America, I create a job for an American, and if I buy something produced in Brazil, I
In 2018, when the Trump administration imposed a 25 percent tariff on imports from China, executives at Walmart sent a letter to U.S. Trade Ambassador Robert Lighthizer in which they stated, “For lower-income families, a 25% tax on these items would be a serious burden on household finances.”
An article on bloomberg.com notes that “for candy makers who use . . . sugar, high prices prompted an exodus of manufacturing to places outside the U.S., where it’s possible to buy the sweet stuff far more cheaply.” The article also states that “while estimates vary, it’s thought that
In 2019, Kent Jones of Babson College wrote in an opinion column on barrons.com that recent trade disputes might result in the collapse of the WTO. If that happened, then “unbound by any WTO constraints, countries would be free to negotiate or impose new tariffs on imports from their trading
An article in the New York Times states that “China’s explosive rise was a shock to the global trading system.”a. What does the article mean by “China’s explosive rise”?b. Why didn’t economists and policymakers expect the economic effect of imports from China to be as great as it
Which of the following products are most likely to have significant network externalities? Briefly explain.a. Smartphonesb. Dog foodc. Board gamesd. LCD televisionse. 3D televisions
What is anchoring? How might a firm use anchoring to influence consumer choices in order to increase sales?
Jacob receives an allowance of $5 per week. He spends all his allowance on ice cream cones and bottles of smartwater.a. If the price of ice cream cones is $0.50 per cone and the price of bottles of smartwater is $1 per bottle, draw a graph showing Jacob’s budget constraint. Be sure to indicate on
Suppose that Jacob’s allowance in problem 10A.4 climbs from $5 to $10 per week.a. Show how the increased allowance alters Jacob’s budget constraint.b. Draw a set of indifference curves showing how Jacob’s choice of ice cream cones and bottles of smartwater changes when his allowance
An article on bloomberg. com discussed trends in stores that sell clothing: “Apparel has become cheaper to make in recent years. . . . This downward price pressure coincides with the emergence of lowcost, fast-fashion retailers in the U.S.”a. What is “fast-fashion” clothing (sometimes also
In the following budget constraint–indifference curve graph, Nikki has $200 to spend on tops and pants.a. What is the price of tops? What is the price of pants?b. Is Nikki making the optimum choice if she buys 4 tops and 2 pairs of pants? Explain how you know this.
Marty and Ann discussed the rule of equal marginal utility per dollar spent, a topic that was recently covered in the economics course they were both taking: Marty: “When I use my calculator to divide the marginal utility of pizza by a price of zero, I don’t get an answer. This result must mean
An article in the Financial Times about Taylor Swift’s Reputation concert tour made the following three points:1. “Instant sell-outs have become a rite of passage for big stars, as scalpers use software to buy up tickets the moment they are available online.” 2. Most of Swift’s concerts on
An opinion column in the Washington Post observes that: “No ‘rational’ person would go to the gym merely because they had purchased a nonrefundable membership. But real people do precisely that.”a. Why did the author put the word rational in quotation marks?b. Briefly explain which error in
A columnist on forbes.com discussed a proposal in the United Kingdom to have a minimum price for alcohol. He wondered whether heavy drinkers would “reduce their consumption or whether they’ll just substitute away from other things. . . . Really, is alcohol a Giffen Good for a heavy drinker?”
Before the 2018 National Football League season, the Jacksonville Jaguars signed quarterback Blake Bortles to a 3-year contract for a total of $56 million. Bortles performed poorly during the 2018 season, and in 2019, the Jaguars had to decide whether to replace him with another quarterback. Even
Dave has $300 to spend each month on pizzas and online movies. Pizzas and movies both currently have a price of $10, and Dave is maximizing his utility by buying 20 pizzas and 10 movies. Suppose he still has $300 to spend, but the price of a pizza rises to $12, while the price of a movie drops to
A student concludes: “When I got a raise from $9 per hour to $10 at my part-time job, I started renting more movies on iTunes. My response to the raise is an example of the income effect used in analyzing how consumers make their choices.” Briefly explain whether you agree.
In an article in the Quarterly Journal of Economics, Ted O’Donoghue and Matthew Rabin made the following observation: “People have self-control problems caused by a tendency to pursue immediate gratification in a way that their ‘long-run selves’ do not appreciate.” What do they mean by
In an interview with Barron’s, Ron Johnson reflected on his time as CEO at J.C. Penney: “Young people didn’t shop at J.C. Penney. So how do you appeal to the next generation customer? You’ve got to reinvent how they experienced the store. . . . A young person wants the best price every day.
Where does the marginal cost curve intersect the average variable cost curve and the average total cost curve?
A column on barrons.com discussing General Motors (GM) made the following observation: “Even the seemingly ‘variable’ costs of hourly workers were made burdensome by union agreements whereby 95% of hourly workers’ salaries were paid when they were laid off, turning variable labor
An article on bloomberg.com discussed the situation at the mining firm BHP Billiton Ltd., which is headquartered in Australia: “The fixed element of mining costs doesn’t change much, regardless of how many tons are being produced, so the declines in output . . . pushed up the average [cost per
Many of the firms that were the first to use fracking techniques to produce oil were small. By 2018, though, many large oil companies, such as Chevron and ExxonMobil, had begun using fracking techniques. An article in the Wall Street Journal quotes an industry analyst as arguing that “these
According to an article in the Wall Street Journal, “United [Airlines] rolled out a new app to its flight attendants earlier this year with so much information about people, the airline has been reluctant to turn on all the functionality. The tool can show flight attendants information on each
A technology website estimated that the cost of materials and components in Apple’s iPhone XS Max was $453. Apple was selling this phone for $1,249. Can we conclude from this information that Apple was making a profit of about $729 on each of these iPhones? Briefly explain.
A book providing advice to entrepreneurs describes some business costs as being “the amount of money that will go out even if none at all comes in.”a. Is the author describing a business’s fixed cost or its variable cost? Briefly explain.b. Give an example of this type of cost.
In 2019, wireless firms T-Mobile and Sprint proposed merging. They were the third and fourth largest wireless firms in the United States, behind AT&T and Verizon. The companies argued that without a merger, they wouldn’t be able to successfully compete because of the high costs of building new 5G
A Federal Reserve publication notes “Airlines have high fixed costs.” What are likely to be the most important fixed costs for an airline? Are airlines likely to have particularly high fixed costs relative to their variable costs compared with, say, an Old Navy clothing store or a Panera Bread
Briefly explain which of the following statements best describes the conditions for a consumer to maximize utility when buying two goods.1. The consumer should buy the maximum available amount of both goods.2. The consumer should be on the highest indifference curve possible, given her budget
An article in the Wall Street Journal quoted a representative of the group Footwear Distributors and Retailers of America as saying, “The American footwear industry is very familiar with the negative impact tariffs have on consumer goods, having paid $1.5 billion in duties from China” in a
In 2018, when the Trump administration imposed a 25 percent tariff on imports of steel to the United States, economists at the Federal Reserve Bank of New York wrote, “We can conclude that the 25 percent steel tariff is likely to cost more jobs than it saves.” Why might a tariff on steel
In 2019, Pablo D. Fajgelbaum of the University of California, Los Angeles and colleagues wrote an academic paper in which they analyzed “the impacts of the 2018 trade war on the U.S. economy.” What is a trade war? Why did a trade war occur in 2018?
Using the numbers in the following table, explain which country has a comparative advantage in producing smartphones. Switzerland Canada Output per Hour of Work Smartphones 8 LO 5 Fitness Bracelets 10 3
The authors of an International Monetary Fund working paper state that “consumers lose more from a tariff than producers gain, so there is a ‘deadweight loss’.” Briefly explain what the authors mean by “deadweight loss.”
Is Jill Johnson correct when she states the following: “I am currently producing 20,000 pizzas per month at a total cost of $75,000. If I produce 20,001 pizzas, my total cost will rise to $75,002. Therefore, my marginal cost of producing pizzas must be increasing.” Draw a graph to illustrate
In 2007, the European airplane manufacturer Airbus began selling its “super jumbo” jet, the A380. By 2019, smaller jets using carbon fiber parts and more efficient engines were also on the market. According to an article in the Wall Street Journal, “Airlines, it turns out, preferred [the
In 2019, an article in the Wall Street Journal noted that the federal government’s Office of the Comptroller of the Currency had said about Wells Fargo bank, “We continue to be disappointed with . . . its inability to execute effective corporate governance and a successful risk management
Briefly explain whether a firm earning zero economic profit will continue to produce in the long run.
How is the market supply curve derived from the supply curves of individual firms?
Explain why it is true that for a firm in a perfectly competitive market, the profit-maximizing condition MR = MC is equivalent to the condition P = MC.
Explain whether each of the following is a perfectly competitive market. For each market that is not perfectly competitive, explain why it is not.a. Tomato growingb. Coffee shopsc. Automobile manufacturingd. New home construction
The following questions are about long-run equilibrium in the market for cage-free eggs.a. According to the chapter opener, in 2019 was the market for cage-free eggs in long-run equilibrium? Briefly explain.b. What would we expect to happen to the price of cage-free eggs and the quantity of
In 2019, an article in the Wall Street Journal noted that the Nestlé company was facing “fierce competition” in the markets for its Nescafé coffee and KitKat chocolate bars. Does this “fierce competition” mean that the demand curves for Nescafe coffee and KitKat chocolate bars are
An article in the Wall Street Journal about companies drilling in shale oil fields notes that “banks have provided financing when [oil] producers spend more cash than they take in from operations.” If a company spends more to produce oil than it receives in revenue from selling the oil, isn’t
An article on forbes.com discussed a business decision by Matt O’Hayer, owner of Vital Farms. O’Hayer was one of the first poultry farmers to begin selling pastured eggs. He committed to raising his chickens with each having 108 feet of outdoor space. According to the article, “It was one of
A columnist in the Wall Street Journal observes that “the highest-cost producers mining Canada’s oil sands can’t make profits at $50 but, since they have big sunk costs and little need to reinvest, they will keep pumping to generate cash.”a. What does the columnist mean by “sunk costs”?
Why is a monopolistically competitive firm not allocatively efficient?
An article in the Wall Street Journal discussed the Ground Round restaurant chain, which had 219 restaurants at its peak in 1989 but today has only 22. According to the article, “Ground Round had its heyday in the 1980s, building its reputation on juicy hamburgers, a publike atmosphere and
JAB, a German company that now owns both Peet’s and Intelligentsia, has been focusing on sales of cold-brewed coffee, which it sells in supermarkets and convenience stores. According to an article in the Wall Street Journal, “Making and distributing cold-brewed coffee, in particular, is
A column in the Wall Street Journal argues that many firms have shifted away from traditional advertising toward providing “content”: “Content, these days, is the catchall term for all the media that we consume. . . . Tweets are content. Articles are content. Instagram posts are definitely
According to an article on barrons.com, earnings increased for Starbucks in early 2019 partly because of lower variable costs due to “streamlined operations.” Draw a graph showing the effect of this cost decline on the price of a Starbucks cappuccino, on the quantity of cappuccinos a
The third wave coffeehouse Intelligentsia offers 46 different “In Season” coffees over the course of the year. These coffees are sold to customers closer to the time the coffee beans were picked than is true of most coffee other coffeehouses sell. According to Intelligentsia’s president,
In 2019, an article on forbes.com discussed one of the new Reserve Roastery coffeehouses that Starbucks has introduced: A “23,000-squarefoot three-story emporium, where specialty coffee, pizza and pastries to be served in-house had all been roasted or baked on site and a cocktail bar on the top
Draw a graph similar to panel (a) of Figure 13.5, showing the effect of installing Just Walk Out technology in a convenience store that had previously used a conventional checkout process with cash registers and cashiers. Assume that the technology causesa decline in both the fixed cost and the
The following table is similar to Table 16.2, except that it includes the earnings of Asian men and women. Does the fact that Asian men are the highest-earning group in the table affect the likelihood that economic discrimination is the best explanation for why earnings differ among the groups
The following table is based on a summary of a survey conducted by the Bureau of Labor Statistics. There are wide differences in the median wages of the occupations listed- for example, between air traffic controllers and actors. (Half the workers in an occupation earn more than the median wage,
State whether each of the following events will result in a movement along the market supply curve of agricultural labor in the United States or whether it will cause the market supply curve of agricultural labor to shift. If the supply curve shifts, indicate whether it will shift to the left or to
In San Francisco, the minimum wage is $15 per hour. Restaurants that have more than 20 employees must also provide them with health insurance, paid sick leave, and paid parental leave. In response, some restaurants hire fewer workers and ask customers to pick up their meals from a counter and bus
The Creator restaurant has replaced cooks and food preparers with a robot. On its website, the company describes the people who work there as “a motley crew of engineers, culinary scientists, human-centered designers, machinists, and tested fabricators.”a. Is the average wage of people who work
Prior to the early twentieth century, a worker who was injured on the job could collect damages only by suing his employer. To sue successfully, the worker-or his family, if the worker had been killed-had to show that the injury was due to the employer’s negligence, that the worker did not know
Why might employers be more likely to interview a job applicant with a white-sounding name than an applicant with an African American–sounding name? Leaving aside legal penalties, will employers that follow this practice incur an economic penalty? Briefly explain.
Many firms include on their employment applications a box that job seekers are asked to check if they have ever been convicted of a crime. Some firms automatically reject applicants who check the box. As a result, some people with criminal convictions have difficulty finding a job, which may
Daniel Hamermesh, an economist at the University of Texas, has done a great deal of research on labor markets. In a book, Hamermesh wrote that “there is a penalty to earnings for bad looks and a premium for good looks.” According to his statistical estimates, “the bottom 15 percent of women
Airlines sometimes find themselves in price wars. Consider the following game: Delta and United are the only two airlines flying the route from Houston, Texas, to Omaha, Nebraska. Each firm has two strategies: Charge a high price or charge a low price.a. What (if any) is the dominant strategy for
Briefly explain which of the five competitive forces is involved in each of these business developments.a. The effect on the Educational Testing Service, which offers the SAT test, as more college admissions offices begin to accept the new Classic Learning Test (CLT).b. The effect on McDonald’s
When Microsoft announced a new version of its Xbox One video game console, it said the console would have a price of $499. Later, Sony announced that its new PlayStation 4 video game console would have a price of $399. An article on the event where Microsoft introduced the new console noted that
An article in the Wall Street Journal quoted a business consultant as saying, “Today, companies are trying to get bigger to get economies of scale.”a. What are economies of scale?b. What benefits might a firm receive from attaining economies of scale before competing firms in the industry do?c.
A column on bloomberg.com discusses whether tech firms like Google, Apple, Facebook, and Amazon will be able to maintain their high market shares indefinitely. The column notes that the firms “argue that their dominance is hardly durable because barriers to entry are low for new competitors. As
The late Thomas McCraw of the Harvard Business School once wrote, “Throughout American history, entrepreneurs have tried, sometimes desperately, to create big businesses out of naturally small-scale operations. It has not worked.” What advantage would entrepreneurs expect to gain from creating
An article on cnbc.com about the turnover in the firms included in the S&P 500 stock index notes that “the disruptive force of technology is killing off older companies earlier and at a much faster rate than decades ago, squeezing employees, investors and other stakeholders.”a. Which of the
In Florida, it is illegal for anyone who isn’t a state-licensed dietitian to accept payment for providing nutritional advice—such asrecommending that someone follow a particular diet and supervising the person’s progress in following the diet. To become a licensed dietitian in Florida
An article in the Wall Street Journal in 2019 discussed the fact that ride-sharing firms Uber and Lyft were suffering losses. The article noted that to eliminate these losses, “numerous investors in both companies, former ride-hailing executives and academics who study the market believe Uber and
In 2019, Best Buy had the following price matching policy posted to its website: We match local retail competitors (including their online prices) and these qualifying online retailers: Amazon.com, Crutchfield.com, Dell.com, HP.com, Newegg.com, and TigerDirect.com. Is Best Buy’s policy likely to
Suppose that Congress decides to end the USPS’s monopoly on making deliveries to residential mailboxes. Will consumer surplus and economic efficiency necessarily increase? What information would help you to determine the answer?
In 2019, Noëlle Santos opened The Lit. Bar bookstore in the Bronx borough of New York City. Her bookstore is the only one located in the Bronx, which has a population of about 1.5 million. Should the only bookstore in the Bronx, or any other city, be considered a monopoly? If so, why wouldn’t
A columnist for the Boston Globe observes, “Google is a ‘monopoly’ only in its corner of the Internet playing field: search engine advertising. That is certainly an important corner, but it isn’t the whole digital universe. It isn’t even the whole search universe..... For the soaring
Review the concept of externalities from Chapter 5. If a market is a monopoly, will a negative externality in production always lead to a quantity being produced that is greater than the economically efficient quantity? Use a graph to illustrate your answer.
In discussing Senator Elizabeth Warren’s proposal to treat technology firms like Google and Facebook as public utilities, an article on bloomberg.com observes, “Public utility regulation is usually an acknowledgement that monopolies naturally occur in some markets and the best thing to do is to
A task force established by the Trump administration to evaluate the USPS recommended that Congress consider making the USPS a private firm, although the Postal Rate Commission might keep the authority to regulate the prices the new firm would charge. The administration noted that the “USPS is
Suppose that the city has given Fernando a monopoly selling baseball caps at the local minor league stadium. Use the following graph to answer the questions.a. What quantity will Fernando produce, and what price will he charge?b. How much profit will Fernando earn?c. Review the definition of
We saw in the chapter that when firms want to merge, they frequently make the argument that the newly merged firm will have significantly lower costs. Suppose for the sake of simplicity that all the firms in a perfectly competitive industry want to merge to form a monopoly (though we know that in
An article in the Wall Street Journal discussing the smartphone market notes that industry analysts make the followingobservation: Apple’s “biggest advantage has been its role as the only seller of devices featuring its iOS operating system. The iOS monopoly means users who switch to a rival
Look again at the section “The Department of Justice and FTC Merger Guidelines and the Herfindahl-Hirschman Index of Concentration.” Evaluate the following situations.a. A market initially has 20 firms, each with a 5 percent market share. Of the firms, 4 propose to merge, leaving a total of 17
Quora.com is a website where people post questions and users suggest answers. One user posted the following question: “If monopolies are price makers, why don’t they charge an infinite price?”a. What does the person posting the question mean by a “price maker”?b. Provide an answer to this
The following table shows the market shares during the first three months of 2019 for companies in the U.S. personal computer (PC) market, which includes desktop PCs and laptops but not tablets, such as iPads.Use the information in the section “The Department of Justice and FTC Merger Guidelines
Use the following graph of a monopoly to answer the questions.a. What quantity will the monopoly produce, and what price will the monopoly charge?b. Suppose the monopoly is regulated. If the regulatory agency wants to achieve economic efficiency, what price should it require the monopoly to charge?
Jason Furman and Tim Simcoe, who served on President Barack Obama’s Council of Economic Advisors, wrote, “Economists have studied [price discrimination] for many years, and while big data seems poised to revolutionize pricing practice, it has not altered the underlying principles. . . . Those
In what sense is the demand for labor a derived demand?
What is the difference between the marginal product of labor and the marginal revenue product of labor?
In 2018, Frito-Lay changed the compensation of drivers of trucks delivering Doritos, Cheetos, and other snacks to convenience stores and supermarkets. Previously, drivers’ compensation depended primarily on commissions tied to the revenue from the snacks they delivered. Frito- Lay shifted to
In recent years, the gap between the wages of workers with college degrees and the wages of workers without college degrees has been increasing.a. What does this fact tell us about how much in recent years the demand for workers with college degrees has shifted relative to how much the supply of
Research by economists Susan Helper, Morris Kleiner, and Yingchun Wang found that the use of pay-forperformance, or piece-rate pay, has declined in manufacturing industries in recent decades. They conclude that this result is caused by firms adopting “‘modern manufacturing’ in which firms

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