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macroeconomics principles

Microeconomics 2nd Global Edition Daron Acemoglu, David Laibson, John List - Solutions

11. Around the world, the wage premium for a skilled worker over a low-skilled worker has been rising rapidly in the past two decades. Some commentators blame the widespread adoption of computerized machines that require more training before use. In your view, are they correct? Explain your answer.
10. What is the difference between statistical and taste-based discrimination? The owner of a company that manufactures automobile parts states that it will not hire gay or lesbian employees. Is this an example of statistical or taste-based discrimination?
9. In developing countries, working as a miner is riskier than working as a security guard. You are the manager of a mining company, and you wish to hire one miner and one security guard. Given the candidates with the same level of education and other attributes, which type of worker would you
8. Last year, chief executive officers (CEOs) of large companies earned 354 times the salary of the average worker. Why do companies pay so much to hire a CEO? Why do CEOs get paid so much more than junior managers?
7. How do labor-saving technologies differ from laborcomplementary technologies? Give an example of each.
5. Consider an industry employing skilled technicians and low-skilled workers together with machines to produce a good. A new technology comes along that performs the low-skill tasks, but needs more maintenance. How would the adoption of this technology affect the following?a. The wage for skilled
4. We showed in this chapter that a profit-maximizing firm will hire the number of workers such that the wage is equal to the value of the marginal product of labor. But, as we saw in Chapter 6, a profit-maximizing firm will produce the quantity of output such that price equals marginal cost. Are
3. Use the concepts discussed in this chapter to explain how a company like The Wisconsin Cheeseman can maximize its profits.
12. The Sensible Estate Tax Act of 2016 slashes the estate tax exemption to $3.5 million and raises the estate tax rate to 45%. Small and family businesses can be particularly hard hit. Family Business Defense Council calculated an effective death tax rate of 57%, and with state inheritance taxes
11. New York raises the price of a pack of cigarettes from $10.50 to $13, adding additional pressure on what is already the costliest cigarette market in the country. However, the sales of bootleg cigarettes from other states allow smokers in New York to bypass taxes and buy cigarettes for a
10. Create a sketch that shows the trade-off between equity and efficiency. Highlight the portion of the curve where there is a fundamental trade-off between equity and efficiency. In this region, what is the cost of moving up the curve? What is the cost of moving down the curve?
9. Some government agricultural policies involve price controls. Other agricultural policies, however, involve quantity controls.a. The equilibrium price of wheat is $5 and the equilibrium quantity is 100. Draw a supply and demand diagram that shows the equilibrium in the wheat market.b.
8. Suppose the supply and demand schedules for cell phones are as follows: Price Demand Supply $2 10 0 $3 9 0 $4 8 0 $5 7 1 $6 6 2 $7 5 3 $8 4 4 $9 3 5 $10 2 6 $11 1 7 $12 0 8a. Make a sketch of supply and demand.b. Find the equilibrium price and quantity in the cell phone market.c. Suppose the
7. This chapter has focused on the effect of taxes. Let’s consider the effect of subsidies, which also generate deadweight loss. A subsidy creates a gap between the price received by sellers and the price paid by buyers.a. Complete the table using the letters from the above diagram. The
6. The following diagram shows the effect of a $4 tax.a. Complete the table using the letters from the diagram on the preceding page.b. Based on this calculation, what is the deadweight loss of the tax? This is the difference in social surplus between the two columns.c. Redraw a similar diagram,
5. Consider the following demand and supply schedules in the market for basketballs in country A.Demand Supply Price 700 0 $2.00 600 0 $2.50 500 100 $3.00 400 200 $3.50 300 300 $4.00 200 400 $4.50 100 500 $5.00a. Find the initial equilibrium price and quantity and draw the graph.b. Suppose the
4. Consider the following graph, which shows the equilibrium price and quantity in the plastic boxes market in country X. Suppose the government imposes a tax of 5% on the production of plastic boxes.a. Find the new equilibrium price and quantity.b. What is the amount of tax revenue earned by the
3. Suppose there are three families with different annual incomes. The Smiths have an income of $20,000, the Johnsons have an income of $70,000, and the Kleins have an income of $210,000. Based on the following table, answer the questions:Progressive Tax Smiths $20,000 15% Johnsons $70,000 25%
2. Britain taxed windows from 1696 until 1851. Under the 1747–1757 tax rates, you would pay no tax if your home had 0–9 windows, but if your home had 10–14 windows you would pay a tax of 6 pence per window for every window in your home.a. In what way is the window tax similar to the U.S.
1. The following table gives the 2017 federal income tax rates for a head of the household. Taxable Income Bracket Rate $0 to $13,350 10% $13,350 to $50,800 15% $50,800 to $131,200 25% $131,200 to $212,500 28% $212,500 to $416,700 33% $416,700 to $444,550 35% $444,550+ 39.60%a. Calculate the total
15. If your goal is to minimize the deadweight loss from a tax, would you tax goods for which demand is elastic or goods for which demand is inelastic, everything else being equal? Explain using a diagram.
14. What is the effect of increasing taxes by the U.S. government on high-income innovators? What will happen if all advanced countries increase their top tax brackets?
12. Look at Exhibit 10.17 in the chapter that shows the tradeoff between equity and efficiency. Is it possible for the government to improve equity and efficiency at the same time? Explain.
11. How can you define corruption? Explain your answers with examples of corrupt activities.
10. If a price ceiling is set above the equilibrium price in the oil market, how does it affect the oil price and quantity?
9. How does a binding price floor affect the consumer surplus, produce surplus, and social surplus?
8. If the demand for a good is more elastic than its supply, how will the tax burden be distributed between buyers and sellers?
7. How does a higher unit tax affect the size of the deadweight loss? Explain your answer.
4. What are the tools commonly used by the government to intervene in the market?
3. How does the federal government raise revenue? What is the largest source of revenue for the federal government? Do state governments raise revenue from the same sources as the federal government?
2. Consider Exhibit 10.1. What can you say about the reach of government in the United States in the stated period? What about the budget deficit?
12. Suppose demand is QD = 16 - P and supply is QS = P. There is a constant positive externality of $4 per unit 1Marginal external benefit = $42. Find the maximum possible social surplus.
11. Three roommates—Tinker, Evers, and Chance—share an apartment. It is really cold outside, and they are considering turning up the thermostat in the apartment by 1, 2, 3, or 4 degrees. They know that each time they raise the temperature in the apartment by 1 degree, their heating bill will
10. Each year, a university organizes a students’ laser show at the beginning of the summer. Ana and Jenna are willing to pay $40 to participate, Tom and Gerard are willing to pay $50, and Laura and Sam are willing to pay $70. The cost of this laser show is $300.a. In terms of efficiency, should
9. There is a road between the suburbs and downtown. The road is congested at rush hour. If 100 people use the road at rush hour, the trip takes 30 minutes. If the 101st person enters the road, everyone has to slow down, and the trip now takes 31 minutes. People value their time at $6 per hour
8. China’s economic growth has been powered by an increasing, coal-dominated fossil fuel consumption. The coal production required to match such demand generates both carbon dioxide and all particulate matters, along with arsenic, mercury, chromium and cadmium. This has resulted in extremely
7. Certain diseases, such as chicken pox, are highly contagious. When a person is affected by chicken pox, their family members, work colleagues, and people whom they regularly interact with stand a high risk of catching the disease. The disease can be prevented by taking an injection of vaccine
6. Malaria is spread by mosquitoes. That is, a mosquito spreads malaria by biting an infected person and later infusing malaria into a different person. A study by Jeffrey Sachs and others shows a strong correlation between the incidence of malaria in a country and poverty. Malaria is known to
5. The government of Country Alpha imposes an entry charge of $3 on each vehicle using the expressway to control the traffic volume but still there are congestions. Explain why the government did not raise the charge to further reduce the number of vehicles on the expressway.
4. Serene is a dance instructor who tends to play music very loudly at home while practicing. Her neighbor, Jennifer, is a teacher who needs a quiet environment to mark her students’ assignments. Dancing gives benefits to Serene worth $120 daily. But Jennifer’s marking progress is affected and
3. To improve the public transportation in Singapore, the government has decided to construct the Circle Line (CCL), a mass rapid transit (MRT) project that comprises many stations in the central region of the country. This is a huge infrastructural project and involves digging and pounding in the
2. A company decides to expand its business and plans to build a new factory close to the existing one. It buys the land next to its current factory and builds a link roadway. Based on the ideas from this chapter, can this be a positive externality? Explain.
1. The European Union banned certain pesticides for 2 years after studies found links between the use of these insecticides and a decline in the bee population. In particular, research has shown that the use of imidacloprid, clothianidin, and thiamethoxam on flowering crops has adversely affected
12. How does the market demand curve for a private good differ from that of a public good?
9. Compare a private good with a club good.
8. To provide national defense to a country, the supplier needs to hire soldiers and acquire weapons and other military equipments. Do you think it is possible that a private firm is able to supply national defense efficiently?
6. How does a command-and-control policy differ from a market-based policy?
3. Education is considered as a consumer good with positive externality, in which other non-consuming parties in the society also tend to benefit from it. Why does the invisible hand fail to generate socially efficient outcome in the education market?
2. Explain whether the following are examples of positive or negative externalities:a. Thomas drives an old car and his neighbors complaint of air pollution.b. Sonya is a good student and she works as a volunteer at a local childcare center.c. Diana use pesticides to improve the yield of her apple
11. Suppose domestic demand is QD = 16 - P and domestic supply is Qs = P. The world price is $2 and the import tariff is $3 per unit. First make a sketch, and then find the following values. Each value will be represented by an area in your sketch.a. Consumer surplusb. Producer surplusc.
10. Suppose a decrease in the world demand for desktop computers causes the price of desktop computers to fall from $600 to $500. Before the fall in demand, Juna, a local computer dealer in Japan, used to produce 9,000 desktop computers and exported 50 percent of it to other countries every week.
8. Suppose the Indonesian government decides to open its market for rice and rubber. The world price for rice is higher than its domestic price and the world price for rubber is lower than its domestic price. The supply and demand curves for rice and rubber are shown below.a. For each good, will
7. The remote island nations of Nearway and Farway produce fish and coconuts and have recently decided to engage in trade with one another. Use the table to answer the following questions. Coconuts Fish Characteristic Nearway Farway Nearway Farway Optimal production without trade 200 300 100 200
6. Consider two individuals, Teresa and Justin, who produce vegetables. Each uses the same number of workers to produce tomatoes or peppers. Production per lot (in kilograms) is shown in the table below.Teresa Justin Tomatoes 100 80 Peppers 130 120a. Who has an absolute advantage in the production
5. Julia is a dressmaker and runs her own business. She has 10 employees working 8 hours a day. Now assume that Julia is enters into an agreement to make 25 shirts and 25 skirts for a company in 2 weeks. The following table shows the number of dresses her employees can sew in a given number of
4. There are 10 workers in Thailand, and each can produce either 2 computers or 30 tons of rice. There are 20 workers in the United States, and each can produce either 5 computers or 40 tons of rice.a. Draw the PPC for each country. In each case, identify the intercepts and the slopes of the
3. Suppose a school has 150 first-year and 100 secondyear students to work in its greenhouse for practical training. A first-year student can clean either 2 pots or 2 planters; a second-year student can clean either 3 pots or 1 planter.a. Who has a comparative advantage in cleaning pots? In
2. Suppose you and your classmate, Janet, are only studying two subjects, economics and mathematics, this semester. The opportunity cost of solving questions for both subjects are as follows.Economics Opportunity cost Mathematics Opportunity cost You 1/3 mathematics question 3 economics questions
1. John and Aria run a bookbinding business together. They each work in shifts of 6 hours a day. John binds 10 books or 12 scripts a day and Aria binds 8 books or 10 scripts a day.a. Sketch the production possibilities curves (PPC) for John and Aria.b. Who has an absolute advantage in binding
14. Consider the following diagram. The discussion in the text implies that if this country imposes a tariff, social surplus will fall by the sum of area A and area B. Intuitively, why is A part of the deadweight loss from this tariff? Intuitively, why is B part of the deadweight loss from this
12. The infant industry argument relies on the idea that in industries with economies of scale, it is important for the government to protect newborn companies in their development. What are the implications of such an economic policy in the short run and long run?
11. As tariff is imposed on imported goods, who will be better off? Explain your answer.
10. Explain the concept of protectionism. Define one method of protectionism.
8. Do both producers and consumers of an exported good gain from international trade? Explain.
7. Outsourcing business processes has become increasingly common with globalization. The immediate gain it offers a transnational company is a reduction in the use of domestic labor in the production function, which leads to an increase in the goods’ competitiveness in the world market. What do
6. How does the relationship between the domestic equilibrium price and the world price of a good explain whether a country is an importer or an exporter of that good?
5. Explain the impact, if any, of each of the following on the PPC.a. Brazil’s population suffers from water shortages even though the country has about a fifth of the water reserves of the world.b. China’s one-child policy was planned to reduce the country’s population and limit the demand
4. What do the points to the left, right, and on a production possibilities curve (PPC) signify? Which of these points are attainable, and why?
3. What is meant by complete specialization? How does it affect the total level of output produced by both trading partners?
2. Can a country have comparative advantage in producing all goods and services? Can it have an absolute advantage in producing all goods and services?
1. Consider the figure at the right. The blue line shows how many units of goods A and B a worker in Taiwan can produce, and the tan line shows the number of units of goods A and B that a worker in Korea can produce. Does this figure indicate anything about either worker having a comparative or
13. Ashley is willing to pay $7, Bill is willing to pay $5, and Carrie is willing to pay $1.a. Sketch the demand curve.b. Write out the demand schedule for each integer price up to $8 ($0, $1, $2, . . . , $8).c. Find the consumer surplus if the price is $2.d. What if another buyer shows up who is
12. According to reports in the Chinese media, commuters in Beijing are facing a somewhat paradoxical situation: they find it difficult to get a cab while hundreds of cabs lie idle during rush hour. The demand for taxis in Beijing has increased as average incomes have risen. Governmentdetermined
11. The equilibrium rent in a town is $500 per month, and the equilibrium number of apartments is 100. The city now passes a rent control law that sets the maximum rent at $400. The diagram that follows summarizes the supply and demand for apartments in this city.a. Use the figure to complete the
10. Suppose a market for cheap sunglasses is in a long-run competitive equilibrium and that the price is $10. Every producer of sunglasses sells 5,000 pairs. A cloudy summer decreases the demand for sunglasses, which causes the market price to change. As a consequence, in the short run, will each
9. Masumi is a Japanese company producing 10,000 pairs of chopsticks every month in Madagascar at the average total cost of $0.8. The manager of the company has found that while the average total cost of producing 3,000 pairs of chopsticks in Japan is $1.2, the average total cost of producing 7,000
8. The following tables show a small firm’s long-run average cost of manufacturing a good at two different plants: Plant 1 Quantity Total Cost Average Cost Marginal Cost 1 $50 2 $106 3 $164 4 $224 5 $287 6 $355 7 $430 8 $520 9 $618 Plant 2 Quantity Total Cost Average Cost Marginal Cost 1 $20 2
6. The market for electric drills in a certain country is characterized by a large number of buyers and sellers, and every buyer who wants a drill and can afford one has bought one. In other words, the market for drills is in equilibrium.a. Does this also mean that the market is Pareto
4. Let us continue with the electric car example from Problem 3. Suppose the market for electric cars is competitive.a. Show that the equilibrium price in this market is $40,000.b. Which firms will produce an electric car if the price is $40,000?c. Which consumers will buy an electric car when the
3. There are four consumers willing to pay the following amounts for an electric car: Consumer 1: Consumer 2: Consumer 3: Consumer 4: $70,000 $20,000 $80,000 $40,000 There are four firms that can produce electric cars. Each can produce one car at the following costs: Firm A: Firm B: Firm C: Firm D:
2. Suppose the market for live lobsters is perfectly competitive. After the lobsters are caught, the fishermen have to sell them as soon as they can before the lobsters die. Assume that no one buys dead lobsters from the fishermen, and therefore, the price of dead lobsters is zero. Explain the
12. Imagine you are a buyer in a double oral auction with a reservation value of $10, and there is a seller asking for $8.a. How much will you gain from accepting this offer?b. If you are the only buyer, and you know that the lowest ask price is $2, should you accept this offer?
10. Is the introduction of unemployment insurance a policy to increase efficiency or equity? Explain.
9. Sofia, a political science student, thinks that the government should intervene to revive declining industries like video stores and print newspapers. The government, she reasons, can resolve the coordination problem of getting the agents in these markets to trade. Do you agree with her?
8. Suppose the need for babysitters increases in all countries. How does it cause different consequences in the market economies and the planned economies?
7. There are always debates on minimum wages between policymakers and economists. While policymakers may support the raise of minimum wage, economists usually object to it. What are the rationales behind them?
5. Can the government do a good job of the invisible hand? Explain your answer with the case of Korea discussed in the chapter.
4. How will the social surplus change if the quantity sold is restricted below the equilibrium quantity?
13. Suppose a firm is described by the following: Market demand is P = 50 − Q; ATC = 20 + 4Q; and MC = 30 + 5Q.a. Find the profit maximizing price and quantity.b. What is the firm’s profit?c. Suppose that the firm incurs additional costs and now needs to produce at the quantity where price
12. The following table shows the long-run total costs of four different firms: Output Firm A Firm B Firm C Firm D Total costs ($) 10 90 100 100 70 12 120 108 96 120 25 200 175 225 225 40 280 320 280 320a. Calculate the ATC for these firms and explain if they experience economies or diseconomies of
11. Larry Krovitz is a salesman who works at a used-car showroom in Sydney, Australia. It’s the last week of July, but he has not yet met his sales target for the month. A customer, Harold Kumar, who wants to buy a Ford Fiesta, walks into the showroom. After taking one of the cars for a test
10. This problem asks you to think carefully about sunk costs.a. The International Space Station (ISS) is a habitable satellite that was launched by NASA and space agencies of other countries. In 2009, NASA was considering shutting down the ISS within the next 5 to 6 years. Among those who were
9. Daniel sells 500 hotdogs in a perfectly competitive market every week. The weekly fixed cost of his shop is $1,000 and the variable cost is $500. If the price of each hotdog is $2, explain whether Daniel is making a profit or a loss, and whether he should continue to operate his shop or shut it
8. For the Olympic Games, the demand to watch the sporting event live is always greater than the number of seats available. After the event is sold out officially, people start to trade in the secondary markets. However, the tickets sold through secondary sources are usually much more expensive
7. There are many identical firms with a simple cost structure: Total cost for Q = 0 is $6 and total cost for Q = 1 is $8. Each firm is incapable of producing anything more; in other words, total cost is infinite for any Q larger than 1.a. What is the fixed cost? What is the marginal cost of the
6. You are one of five identical firms (i.e., you all have the same costs) that sell widgets. Each day you have a fixed cost of $9 to operate. The marginal costs of your first through fifth widgets are $1, $2, $3, $7, and $8, respectively. You have a capacity constraint of 5, and you can only
5. Jeremy worked at a bank with a monthly salary of $1,500. He decided to quit his job and open a bookstore in his neighborhood. He now pays $500 in rent, $80 in utilities, and $120 in wages every month.a. Suppose Jeremy sells 100 books at the price of $30 every month. i. What is the monthly total
4. Fill in the ATC and MC columns in the following table: Output Total Cost Average Total Cost Marginal Cost 0 $14 1 15 2 18 3 24 4 36a. Use the MC curve to determine how many units this firm would supply if the market price were $10.b. Assuming free entry and exit of other firms, based on the ATC
3. The following table gives you information on the total cost of Mac’s ice cream production: Quantity of Ice Cream (liter) Total Cost 0 $50 10 $90 20 $110 30 $140 40 $190 55 $260 60 $350a. Is Mac producing ice cream in the short run or the long run? Explain.b. Compute the average total cost at
2. Ethanol has become one of the most important alternative fuels of the world. It is produced mainly from grains and provides energy efficiency and independence. Assume that a small ethanol plant from Illinois recorded good production over the past year. During the year, the plant’s fixed and

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