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macroeconomics principles
Macroeconomics In Context 4th Edition Neva Goodwin, Jonathan M. Harris, Julie A. Nelson, Pratistha Joshi Rajkarnikar, Brian Roach, Mariano Torras - Solutions
1. Fixing up old houses requires plumbing and carpentry work. Jack (who is a jack of all trades but is a master of none) is a decent carpenter and a decent plumber but is not particularly good at either. He can fix up two houses in a year if he does all the carpentry and plumbing himself. His wage
13. Explain the concept of zero profits in the long run with an example.
10. What is meant by sunk costs? Are fixed costs or variable costs considered as sunk costs in the short run?
7. Define explicit and implicit costs with examples of each.
3. How does the marginal product change as a firm increases the number of workers employed? Explain your answer.
1. How can you describe a price-taker? If a farmer raises cattle, can he be considered a price-taker? What would happen if all cattle farmers decide to raise sheep? Explain.
12. Examine the following statements and determine how price elasticity of demand changes:a. Applebee has decided to raise the price of burgers while keeping the price for pizzas and pastas the same.b. Tom wants to buy a house, but the price just increased by 10 percent.c. Facebook shares have
11. Starbucks and Dunkin’ Donuts are two of the largest eatery chains that specialize in coffee. Despite being founded 20 years after Dunkin’ Donuts, Starbucks has grown aggressively and is now a substantially larger company. Examine the following statements and identify the ones that could
10. Three years after graduating from college you get a promotion and a 20 percent raise. Your consumption habits change accordingly. Use the following information to determine your income elasticity of demand, and state whether the good is a normal good, an inferior good, or a luxury good.a. You
9. Calculate the cross-price elasticities in case of a decrease in the price of cabbages with 20 percent, an increase in the demand for tomatoes with 15 percent and a decrease in the demand for artichokes with 10 percent. Comment on whether tomatoes and artichokes can substitute or complement the
8. Consider Sophia and Marcus’s total expenditure on sandwiches: Price Total expenditure (per month) Sophia Marcus $5 $90 $50 $4 $80 $60a. Use the midpoint formula to calculate the price elasticity of demand for Sophia when the price of sandwiches increases from $4 to $5.b. Use the midpoint
7. The total benefit for burgers and beers is given below. Burgers cost $10 and beers cost $20. Total Benefit (Burgers) Total Benefit (Beers) 1 15 30 2 30 50 3 45 60 4 60 65a. What is the marginal benefit of a third beer?b. What is the “bang for the buck” of a second burger?c. Using the “bang
6. Kira will be attending university soon for which she needs new pairs of jeans (j) and shirts (s). Her budget constraint is given by $40j + $20s = $120.a. What are the bundles of her budget constraint? Draw a table with her possibilities and a diagram.b. What is the opportunity cost of jeans in
5. Suppose Gia has $800 to spend on art books and design books. The price of an art book is $40 and the price of a design book is $50.a. Draw the budget constraint and show its slope.b. Suppose the price of a design books is $40. Draw the budget constraint and explain the changes.c. Suppose the
4. Thomas has an income of $500, and he consumes two goods: rods and baits. The price of a rod is $100, and the price of bait is $50.a. Suppose Thomas receives a prize of 4 rods. Draw Thomas’s budget set.b. Now suppose Thomas lost $100. Draw Thomas’s new budget set.
3. Jean has a budget of $100, which she wants to spend on pens that are priced at $5 per pen and paper that is priced at $10 per bundle of 100 sheets.a. Draw Jean’s budget constraint. Find its slope and the opportunity cost of buying pens and bundles of paper.b. If Jean’s budget set is $100,
2. Elisa earns $2,500 per month and spends her income on flowers and vegetables. Suppose the price of flowers is $80 and the price of vegetables is $120.a. Draw a diagram for Elisa’s budget constraint, identifying its slope and intercepts.b. Suppose the price of the flowers falls to $60,
1. Each school-week night you can play video games, talk on the phone, or watch a movie. You have a total of five nights to spend doing one of these three things. Play Video Games Talk on Phone Watch a Movie Quantity (nights): Total Benefit Marginal Benefit Total Benefit Marginal Benefit Total
16. Examine the accuracy of the following statement: “Given that healthcare services are considered luxury goods based on income elasticity, fewer people can afford to receive assistance to cure their diseases.”
14. Examine the accuracy of the following statement: “Though Apple iPhones and Samsung mobiles are substitute goods, if the price of an iPhone increases, consumers will still buy them because of brand preference.”
13. What does a negative income elasticity of demand mean?
11. How does the number of available substitutes determine the price elasticity of demand?
10. Can a price increase lead to lower revenue? Suppose a bookstore sells 15 books a day. The price of one book increases from $10 to $12. At this price, the store sells 10 books a day. Discuss the revenue of the store in this case.
9. Assume that the price of a beverage, Cola, doubles. As a result, the quantity demanded for Cola falls as consumers switch to a less-expensive alternative, Spritzer. What type of elasticity is seen in this situation? What are the other forms of elasticity?
8. Can consumer surplus be negative? Explain your answer.
7. What happens to consumer surplus when price decreases? Explain with an example and supplement it with a diagram.
6. Consider the following supply and demand diagram:Identify which of the three areas labeled A, B, and C represents consumer surplus in this market.
5. What is meant by consumer surplus? How is it calculated?
2. The buyer’s problem states that consumers spend money to maximize their benefits, which depend on tastes and preferences, and consider trade-offs to achieve it. Is a consumer’s buying decision based on her budget set or budget constraint?
1. What are the three necessary ingredients that help a consumer decide what to buy?
A3. Consider indifference curves for goods X and Y. Suppose we plot the quantity of good Y on the y-axis and the quantity of good X on the x-axis.a. Why are indifference curves downward-sloping?b. What is the economic interpretation of the slope of an indifference curve?c. Following what we
A2. Explain the income and substitution effects of an increase in the price of one good on an individual’s consumption choice.
A1. What is an indifference curve? Can two indifference curves intersect? Explain your answer.
14. Note: This problem requires some basic algebra. The demand for ice cream is QD = 70 - 4P, and the supply of ice cream is QS = 10 + 2P, where P is the price of ice cream.a. Find the equilibrium price and quantity of ice cream.b. Suppose consumers’ income increases and ice cream is considered
13. The equilibrium price of coffee in an economy, measured in dollars, is about $2,000 per ton. To help the coffee farmers earn a higher income, the government set the price to $2,500 per ton.a. How will this affect the demand and supply of coffee in the coffee market?b. Construct a diagram for
12. As part of U.S. sugar policy (in 2013), the government offered to buy raw sugar from domestic sugarcane mills at an average price of 18.75 cents per pound. This government offer was made for as much raw sugar as the sugarcane mills produced. Any raw sugar purchased by the government was not
11. Lobsters are plentiful and easy to catch in August but scarce and difficult to catch in November. In addition, vacationers shift the demand for lobsters further to the right in August than in any other month. Compare the equilibrium price and quantity of lobsters in August to the equilibrium
10. New York decides to reduce the consumption of sugary soda by imposing a minimum price of $2.50 per soda. The current equilibrium price is $1.50. Sketch the supply and demand for soda and show the effect of this policy. Clearly label the excess supply in your diagram.
9. Suppose one of your friends offered the following argument: a rightward shift in demand will cause an increase in price. The increase in price will cause a rightward shift of the supply curve, which will lead to an offsetting decrease in price. Therefore, it is impossible to tell what effect an
8. A freshwater aqua farm in Singapore can breed tiger prawns and tilapia. Recently, it was found that there may be a risk of contracting a type of disease from the consumption of tiger prawns – this discovery has led to fear among its consumers. How will this affect the equilibrium price and
7. For each of the following situations, sketch the demand curve as accurately as possible.a. Appendectomy is a life-saving operation that some people need. Regardless of the price, the quantity demand is 300,000 every year.b. For any price above $5 absolutely nobody will buy your lemonade, but
6. Suppose the energy supply in your country is primarily provided by nuclear reactors. Your country is both sunny and windy at the same time and, therefore, many people have decided to set up sun collectors and wind farms as a cheaper alternative to obtaining electricity. Explain how this might
5. Thailand is the world’s second-largest producer of Hard Drives after China. In 2011, there were severe floods in Thailand. Because the hard drive manufacturing factories had to shut down due to the flood the cost of hard drives increased significantly.a. Draw and discuss a supply and demand
4. Sketch generic supply and demand curves for the housing market and label the equilibrium price and quantity.a. A booming economy increases the demand for housing. Show the shift in the demand curve on your graph. What does this do to the price and quantity in the market?b. You and a friend both
3. The following two incidents involve simultaneous shifts in the demand and the supply curves. Analyze the final effects on the equilibrium price and quantity after the changes. Explain your answers.a. Severe drought at the peak of summer reduces the production of watermelons. With even more
2. Suppose your country has been doing really well since the end of the global financial crisis and, therefore, the wages have increased by 30 percent since 2008. In parallel, active workers represent 75 percent of the population. Using a generic supply curve and assuming steak is a normal
1. Suppose the following table shows the quantity of laundry detergent that is demanded and supplied at various prices in Country 1. Price ($) Quantity Demanded (million oz.) Quantity Supplied (million oz.) 2 65 35 4 60 40 6 55 45 8 50 50 10 45 55 12 40 60 14 35 65a. Use the data in the table to
8. In the United Kingdom, the following tax rates have been implemented: Band Taxable Income Tax Rate Personal Allowance Up to £11,500 0% Basic rate £11,501 to £45,000 20% Higher rate £45,001 to £150,000 40% Additional rate over £150,000 45% Someone who earns £60,000 would have a marginal
7. Scott is planning on buying a car. He can choose between 6 types of powering: petrol, diesel, gas, hybrid, electric, or hydrogen. Being environmentally conscious, his total benefit will reflect the amount of greenhouse gases a car releases. The total cost is the price and upkeep of the car. He
6. Viktoria, a business consultant, has to travel quite frequently from Singapore to other parts of Asia. She has a frequent flyer card with Singapore Airlines and can choose from four different classes—First Class, Business Class, Premium Economy, and Economy. The following table provides the
5. Richard has begun running to improve his health. The first column lists the distance he is jogging in meters, the second column the total benefits in U.S. dollars. Meters Ran Total Benefit 0 0 500 40 1000 100 2000 200 3000 320 4000 420 5000 490 6000 540 7000 550a. Find the marginal benefit, the
4. Pascal is taking three courses this semester: economics, calculus, and statistics. Pascal’s goal is to maximize his average grade on the three term exams. Using optimization in marginal analysis, help Pascal decide how much time to spend studying for each exam if he has only one day in total
3. Determine if the following statements use optimization by total values or optimization by marginal analysis.a. Kelly is working as an administrator at a university. The university is now facing the decision whether to launch a new bachelor’s and a new master’s programme. The expected net
2. Suppose you applied to three jobs and are accepted for all three. Considering all factors:a. How would you make an optimal decision on which job to choose?b. The jobs that you have applied for only require a Bachelor’s degree; however, you may wish to pursue your Masters. How can you make an
1. Suppose you are making two different decisions: the first decision is to buy a financial stock. The second decision is to buy a good to consume. Identify how you would behave in each decision so as to optimize your choice. Does optimal choice always mean obtaining the highest values?
9. A normative model answers optimization questions like what is the optimal way of solving things. Why do you think economists are being taught early on about normative models and optimization?
8. Define optimization in differences and optimization in levels. Do they yield the same result?
7. Economists like using marginal analysis to illustrate a point. Suppose you have been working very hard and are considering taking a vacation. Use marginal analysis to illustrate how you would approach taking (i) one additional day and (ii) one additional week of vacation.
5. Suppose you are trying to open a store at a local shopping mall. There are two open spaces: one is on the ground floor near the entrance; the other is on the topmost floor. Both spaces are identical in size, but the rent for the ground floor space is almost twice the rent for the top floor
3. Suppose your workplace does not have a cafeteria. To grab a hot lunch you have to go out during your lunch break. You have two options: an expensive restaurant that is two minutes away or a cheaper one that is ten minutes away. Does picking the one that is ten minutes away necessarily imply that
2. How is optimization used to predict economic or business outcomes?
1. Are people, households, businesses, and governments always exercising their optimal choice when making decisions?
A3. Suppose the following table shows the relationship between revenue that the Girl Scouts generate and the number of cookie boxes that they sell.Number of Cookie Boxes Revenue 50 $200 150 $600 250 $1,000 350 $1,400 450 $1,800 550 $2,200a. Present the data in a scatter plot.b. Do the two variables
A2. Consider the following data that show the quantity of coffee produced in Brazil from 2004 to 2012. Year Production (in tons) 2004 2,465,710 2005 2,140,169 2006 2,573,368 2007 2,249,011 2008 2,796,927 2009 2,440,056 2010 2,907,265 2011 2,700,440 2012 3,037,534a. Plot the data in a time series
A1. How would you represent the following graphically?a. Income inequality in the United States has increased over the past 10 years.b. All the workers in the manufacturing sector in a particular country fit into one (and only one) of the following three categories: 31.5 percent are high school
9. It is the night before your economics final exam and you must decide how many hours to study. The total benefits in the following table shows how many more points you will earn because of increased knowledge. The total cost column shows how many points you will lose because of careless errors
8. Use the concepts discussed in this chapter to answer the following problems:a. Oskar is about to join a new factory where he has the option of joining a trade union. Being a part of the trade union means that he will have to pay 5 percent of his wages to the union. Why do you think some workers
7. In 2014, California was in its third year of a major drought. With water supplies dwindling, Governor Brown issued a plea for a voluntary 20 percent reduction in water use. This target was not reached. In early 2015 Governor Brown issued an executive order requiring local water agencies to
6. Consider the following three statements:a. Your friends are coming over for lunch and you realize you have forgotten to get groceries. You go to the local market, where there are about 50 stalls. You are in a hurry, so you decide to do all of your shopping at the first two stalls.b. You find a
5. Consider the following three statements:a. You are planning a conference in St. Petersburg, Russia, and your closing gala will be on a cruise boat in November. Do you think hosting the event on a boat is a rational choice?b. You have to reach the airport during rush hour to catch your flight to
4. By taking the train, Alain can travel from Paris to Lille in one hour. The same trip takes 5 hours by bus. The train costs €80 and the bus €20. When Alain is not traveling he can work and earn €25 per hour.a. What is the opportunity cost of Alain for traveling by bus and by train?b. What
3. Your local coffee shop used to be the best in the neighborhood; however, due to a recent change in ownership the quality of the service and products offered has been steadily decreasing. Nevertheless you have some fond memories of the place and it is also quite conveniently located—on the way
2. You are thinking about buying a house in London. You find one you like that costs £1,000,000. You learn that, based on the value of the house and your wages, your bank will give you a mortgage for 20 years in the region of £600,000. This means that you have to make a down payment of £400,000.
1. You have already purchased (non-refundable and unsellable) tickets to a concert on Friday night. A friend also invites you to her birthday party on Friday. While you like your friend, you politely decline because you really want to go to the concert.a. You learn that your friend is serving
11. Identify the cause and the effect in the following phenomena in a hypothetical country:a. A surge in the price of goods and an increase in the workers’ income.b. A rise in GDP and an increase in the number of university graduates.
10. “Scarcity exists because people have unlimited wants in a world of limited resources.” Explain this statement by giving a real-life example.
9. The problem of free-riding has interested economists for a considerable time. Suppose you are living in a housing project that has 100 apartments. The housing project has its own garden, swimming pool, library, and community center. To be able to utilize the available amenities, residents have
8. Suppose the market price of the latest model of iPhone is €759 in Germany. What are the three conditions that will need to be satisfied for the iPhone market to be in equilibrium at this price?
7. Suppose you wish to take a mortgage to buy a new house for your family. However, the houses you like exceed your budget. You are considering three options: choose a neighborhood that is less fashionable and, therefore, the prices are lower; take up a mortgage with a longer maturity period; or
5. Why do economic agents have to make trade-offs on any given day of their lives? What kind of non-monetary budget constraints do agents face?
3. Examine the following statements and determine if they are normative or positive in nature. Explain your answers.a. The Euro area of the European Union (EU) is projected to grow by 1.6 percent in 2017, according to a report released by the International Monetary Fund (IMF) in January 2017.b.
1. Give examples to explain how economic analysis can be positive and normative.2. Economists think of almost all human behavior as the outcome of choices. Do you agree with this statement? Based on your reading of the chapter, how would you define economics?
1. 5. Mat ea concept in Column A with an example in Column B.Column A Column Ba. An alternative to wage employment 1. “Insurance adjustor” jobs are traditionally given to men while “insurance representative” jobs go to womenb. e income effect on individual labor supply 2. Isabella
1. 4. e U.S. Bureau of Labor Statistics keeps tra of the average wages and number of workers involved in various occupations over time and also makes projections about what jobs may show the most growth in the future. Using data available at the bureau’s Web site, www.bls.gov, try to look
1. 3. Suppose that you observe that the wages for accountants in your town have gone up and that the number of accountants employed has also gone up. Whi one of the following conditions could explain this? Illustrate your answer with a graph and explain in a brief paragraph.a. Businesses are
1.2. Draw labor market graphs illustrating the following examples that were mentioned in the text.a. A labor demand curve, when very good substitutes for labor in the production process exist.b. e effect of a drop in demand for the organization’s product.c. e effect of a rise in the price
1.1. Reviewing Chapters 3 and 4 if necessary, illustrate on a labor market graph the following examples that were described in the text.a. A relatively elastic supply curve for wait staff.b. A virtually “fixed” supply of aerospace engineers, in the short run.c. e effect on the supply of
1. 23. What is the role of political power in explaining the stagnation of median wages in the United States in recent decades?
1. 22. What has been the trend in median wages in the United States in the past few decades? How does this compare with the trend in corporate profits?
1. 21. How do paid vacation and leave policies in the United States compare to most other countries?
1. 20. How do average work hours per year in the United States compare to most other countries?
1. 19. What are worker cooperatives, and how do they differ from traditional firms in terms of labor organization?
1. 18. What is the economic evidence about how immigration affects wages?
1. 17. What is employment flexibility from the perspective of workers? From the perspective of employers?
1. 16. How has labor market participation anged in the United States in recent decades?
1. 15. What is occupational segregation?
1. 14. How can we identify labor discrimination?
1. 13. What are dual labor markets?
1. 12. What is efficiency wage theory?
1. 11. What is oligopsony?
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