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

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1.1. Whi of the following might be inferior goods? Could they be normal goods at some income levels and inferior goods at others?a. A community college educationb. Cigareesc. BMW carsd. Supermarket foode. Restaurant food
1. 2. Whi goods might be normal goods at some income levels but inferior goods at other income levels?(Hint: You might think of a household that is desperately poor, then becomes moderately poor, and eventually becomes middle income.)
1.1. Suppose that your income increases. Whi goods and services would you buy more of (i.e., normal goods)? Whi goods and services would you buy less of (i.e., inferior goods)?
1. 2. Economists draw supply curves as upward sloping. But sometimes, as consumers, we notice that the price per unit goes down if we buy more of something, not up. For example, a liter bole of Pepsi costs less per ounce than a can of Pepsi, warehouse stores sell breakfast cereal in “jumbo
1.1. Suppose that a government alternative-energy program is having difficulty hiring enough engineers to work on a project, and so it raises the wage that it offers to pay by 15 percent. Who are the buyers in this case? Who are the sellers? How would we show the wage increase on a
1. 2. Suppose that when Winged Demons Athletic Shoes offers a 15 percent discount on its latest model of shoe, it finds that it sells 20 percent more of them. Calculate the price elasticity of demand for these shoes. Describe whether demand is price elastic or price inelastic, and describe what
1. 9. Mat ea concept in Column A with an example in Column B.Column A Column Ba. Substitute goods 1. Price and quantity along the supply curveb. A nonprice determinant of demand 2. Tea and coffeec. A nonprice determinant of supply 3. A ange in tenologyd. Markup pricing 4. Hungere.
1. 8. Suppose that a newspaper report indicates that the price of wheat has fallen. For ea of the following events, draw a supply-and-demand graph showing the event’s effect on the market for wheat. en state whether the event could explain the observed fall in the price of wheat.a. A
1. 7. At a price of $8 per tiet, Shalimar goes to 2 movies per month, Wen goes to 1 movie per month, and Adam goes to 3 movies per month. At a price of $10 per tiet, Shalimar goes to 1 movie, Wen goes to 0 movies, and Adam goes to 2 movies. Graph and carefully label the individual demand
1. 6. At a price of $5 per bag, William is willing to supply 3 bags of oranges, Marguerite 2 bags, and Felipe 5 bags. At a price of $7 per bag, William is willing to supply 5 bags, Marguerite 4 bags, and Felipe 7 bags.Graph and carefully label the individual supply curves, and then graph the market
1. 5. Using your understanding of the nonprice determinants of supply and of demand, analyze ea of the following market cases. Draw a graph showing what happens in ea situation, indicate what happens to equilibrium price and quantity, and explain why, following this example: Market for
1. 4. Continuing on from the previous problem (in question 3), suppose that new innovations in energy efficiency reduce people’s need for electricity. e supply side of the market does not ange, but at ea price buyers now demand 3 million kilowa hours fewer than before. For example, at
1. 3. Suppose that the supply and demand sedules for a local electric utility are as follows: e price is in cents per kilowa hour (kWh), and the quantities are in millions of kilowa hours. e utility does not operate at prices less than 13 cents per kWh.a. Using graph paper and a
1. 2. Explain in words why the demand curve slopes downward.
1.1. Explain in words why the supply curve slopes upward.
1. 12. Explain the difference between precision and accuracy.
1. 11. Name three ways in whi supply can be inadequate.
1. 10. Explain the difference between market value and social value.
1. 9. Illustrate what happens to equilibrium price and quantity when both the supply and demand curve shi. (Explore different combinations of shiing curves.)
1. 8. Illustrate what happens to equilibrium price and quantity when either the supply curve or demand curve shis.
1.7. Draw a graph illustrating surplus, shortage, and equilibrium.
1. 6. Name the five nonprice determinants of demand.
1. 5. Illustrate on a graph: (a) a decrease in quantity demanded and (b) a decrease in demand.
1. 4. Define and sket a demand curve.
1. 3. Name the six nonprice determinants of supply.
1. 2. Illustrate on a graph: (a) a decrease in quantity supplied and (b) a decrease in supply.
1.1. Define and sket a supply curve.
1. 2. For ea example below, discuss whether it is a situation of shortage, scarcity, or inadequacy.a. You go to a store to buy a certain computer game and find that it is sold out.b. Jasmine cannot afford to go to a doctor.c. Rafe can think of dozens of songs he would like to download, but he
1.1. In Chapter 1 we discussed the three basic economic questions: What should be produced? How should production be conducted? For whom should economic activity be undertaken? Discuss how the workings of markets provide some answers to these questions, also considering the implications for
1. 2. Have you ever found yourself shut out of a class that you wanted to take because it was already full?Or has this happened to a friend of yours? Analyze this situation in terms of surplus or shortage. Do you think classes are supplied through “a market” similar to what has been described
1.1. ink about the market for high-quality basketballs. In ea of the following cases, determine whicurve will shi and in whi direction. Also draw a graph and describe, in words, the anges in price and quantity. (Treat ea case separately.)a. A rise in consumers’ incomesb. An
1. 2. Verbally explain the difference between a ange in “quantity demanded” and a ange in demand.Considering the demand side of the market for lawn-mowing services, what kind of ange (increase or decrease, in quantity demanded or demand) would ea of the following events cause?a. A
1.1. Explain verbally why the demand curve slopes downward.
1. 2. Sket a supply curve graph illustrating a student’s willingness to offer tutoring services. e student, call her Lena, is willing to tutor for three hours per week if she receives $10/hour. If Lena receives $15 per hour, she is willing to tutor for five hours per week. If she can
1. 3. Imagine trying to run a contemporary market economy without ea of the following. What problems do you think would arise? What might people have to do to get around the la of ea one?a. Moneyb. e expectation that most people will not eatc. An organized way of keeping people from
1. 2. Mat ea concept in Column A with an example in Column B.Column A Column Ba. Explicit contract 1. Failure to account for environmental externalitiesb. A core sphere activity 2. A signed lease for an apartmentc. Implicit contract 3. An example of a financial marketd. A public purpose
1.1. Give an example of ea of the following:a. A retail marketb. A commodity marketc. A resale marketd. A financial markete. An underground marketf. An auction market g. A market with bargaining
1. 11. What are three major categories of market outcomes, based on efficiency, fairness, and sustainability?
1. 10. List three major types of markets in terms of how prices are set.
1. 9. List eight different types of markets in terms of what is sold.
1. 8. Give several examples of the infrastructure necessary for markets to function.
1. 7. Give several examples of ways in whi trust can be established.
1. 6. Describe four main categories of institutional requirements for markets.
1. 5. Give three different meanings of the term “market.”
1. 4. What are some major aracteristics of the business sphere?
1. 3. Why do businesses find it difficult to supply “public goods”?
1. 2. What are some major aracteristics of the public purpose sphere?
1.1. What are some major aracteristics of the core sphere?
1. 2. “Indeed, it has been said that democracy is the worst form of government,” said British Prime Minister Winston Churill (1874–1965), “except all those other forms that have been tried from time to time.”Some people make the same claim about more market-oriented forms of economic
1.1. On a sheet of paper, draw two columns. In one column, list some historical and contemporary advantages of market exanges, and in the other, list some disadvantages. Can you give examples beyond those listed in the text?
1. 2. e Internet has opened up a whole new set of markets for everything from antiques to airplane tiets. Pool your knowledge with that of others in the class, and, for the types of markets listed in this section, think of as many examples as possible that are online.
1.1. Reviewing the different types of markets outlined in this section, think about whether you have ever directly participated in a market of ea type. If so, describe specific instances.
1. 2. In what sense is the term “market” being used in ea of the following sentences? “Go to the market and get some bananas.” “e market is the best invention of humankind.” “e labor market for new Ph.D.s is bad this year.” “e advance of the market leads to a decline
1.1. You aend a college or university. In what sense is it an “educational institution”? Can you identify any institutionalized paerns that structure the behavior of students and faculty at your sool?
1. 2. Make a list of several things that, over the past few days, you have eaten, drunk, been entertained by, been transported by, been sheltered by, or received other services from (e.g., “dinner at Gina’s,” “my apartment,” and “the health clinic”). en, using the definitions in
1.1. Education is sometimes provided within the core sphere (at-home presool activities and home sooling), is oen provided by the public purpose sphere (public and nonprofit sools), and is occasionally provided by for-profit firms (“arter sools” or firms offering specific
11. There was a sharp increase in the number of the longterm unemployed following the recession that began in December 2007. Rand Ghayad did the following study to better understand long-term unemployment. He sent out 3,600 fake resumes in response to 600 job openings. He varied the length of time
10. A field experiment was conducted to see how others’ opinions affect a user’s ratings online. Whenever a comment was added on a certain social news site, researchers randomly assigned an up vote, a down vote, or no vote. The researchers conducting the experiment noted that comments that
9. Maya and Paul want to watch a movie. There are two movies available: a comedy and an action film. Maya loves comedies, whereas Paul enjoys action films.a. As separate individuals, which movie will Maya choose? Which one will Paul choose? Why?b. If Maya and Paul are on a date, what factors (other
7. Consider the Ultimatum Game played in reverse: The Responder moves first and decides preemptively whether to accept or reject whatever split the Proposer eventually determines. If the Responder chooses to reject, both players get nothing; but if the Responder accepts, then the Proposer decides
6. In Mario Puzo’s The Godfather, Michael Corleone (played by Al Pacino in the movie version of the book) would like to meet with Virgil “The Turk” Sollozzo. Michael is concerned that if he meets with Sollozzo, Sollozzo will kill him. We can think of their problem as a game. First, Michael
5. Assume that a charity hired you to improve its results on donations. You decide to mail letters asking for donations. You use three different types of letters: Letter A: Control—standard letter asking for money. Letter B: “Once and Done”—standard letter but with a statement at the front
4. Let’s add a twist to the Ultimatum Game: there is $10.00 to be split, but if the Responder rejects the offer, then he gets $2.00 and the Proposer gets $4.00. Use backward induction to determine the equilibrium. Assume that $0.01 is the smallest increment of money possible.
3. There are five people in a village. Each has $10. The village is prone to flooding. Flooding is reduced if people contribute to flood-control efforts. In particular, each person in the village receives $0.50 of benefits when someone contributes $1 to flood control (flood control is a public
2. Consider a three-person version of the Ultimatum Game: The Responder does not receive any money but instead decides whether to accept on behalf of a third-party bystander. Otherwise the structure is like that of the Ultimatum game in which the Proposer first decides how to split $10.00. Suppose
1. Under the tax law in 2012, you could claim all of your charitable contributions as a deduction on your federal income tax (if you decided to itemize your deductions), and the top marginal tax rate was 35 percent.a. What is the cost of a $100 charitable contribution under 2012 tax law for
13. What is an information cascade? Explain with examples.
12. What does herding mean? Why do individuals decide to herd?
11. What does it mean to say that a good exhibits network externalities? Can you think of a good that you use because it has network externalities?
10. How does indoctrination affect our preferences? Explain with an example.
9. Consider a trust game between two players. Suppose the players care only about their own payoffs. The payoffs are such that, in equilibrium, the players do not trust each other, leading to a socially inefficient equilibrium. How could the game be changed so that in equilibrium, the players do
8. In the Dictator Game, the Allocator decides how a certain sum of money is to be divided, and the Recipient must accept whatever choice the Allocator makes. How does the outcome of the game differ when the Allocator remains anonymous to the Recipient versus when the Allocator faces the Recipient?
7. Why do lab experiments show a different outcome for the Ultimatum Game compared to the outcome predicted by game theory?
6. In the Friend or Foe? game, Foe is a (weakly) dominant strategy for both players. What can explain why, in roughly 50 percent of decisions, players chose Friend and split the sum of money with the other player?
5. In the context of this chapter, what is meant by having a preference for fairness?
4. Refer to the experiment in the chapter on soliciting donations for a children’s hospital. Experimenters put flyers on doors saying that solicitors would be stopping by at a particular time. Fewer people opened the door when they knew that a solicitor would be coming, but those who did gave
3. Is it correct to say that people give to charity only out of selflessness and concern for the well-being of others? Explain your answer.
2. Suppose the act of giving is viewed as an economic good. How can the price of charitable donations be measured? Does the quantity demanded decrease as the price of giving increases?
1. How does the standard model of Homo economicus differ from the Homo economicus that is studied in behavioral and social economics?
12. This chapter illustrates how the Coase Theorem can be applied to explain the outcome of a divorce in two different systems. In both cases, where the unhappy partner values the divorce at $5,000 and the happy partner values the marriage at $10,000, the equilibrium is “no divorce.” Now
11. Space heaters are dangerous. The U.S. Consumer Product Safety Commission estimates that more than 25,000 residential fires every year are associated with the use of space heaters, resulting in more than 300 deaths. This question asks you to think about the Coase Theorem and the assignment of
10. Ronald Coase used the example of a farmer and railroad tracks to explain bargaining. Sparks from trains running on tracks near farmland would set off fires in the fields. To avoid this, railroad companies would either have to stop running trains on tracks along fields or incur a cost in fixing
9. The Johnson Steel Company generates water pollution when it makes steel. It could eliminate this pollution at a cost of $700. The Smith family lives downstream. It suffers $1,000 of damages from the water pollution Johnson creates. Assume that transaction costs are zero.a. Suppose first that
8. Consider what would happen in the ultimatum game (with offers between $0 and $10) if the Responder were able to fully commit in advance. It would be as if the Responder had moved first; he would declare which offers he plans to accept, and which he plans to reject. This means that the so-called
7. The owners and the players’ union are negotiating over a contract for the upcoming hockey season. In October, the owners will make an offer to the union. If they reach an agreement, they will share $50 of revenues. So, for example, if the owners offer the players $10 in October and the
6. You have learned that in a second-price auction you should always bid your actual willingness to pay; not a penny more and not a penny less. Proving why this is always best, no matter what others bid, is somewhat subtle. However, it is relatively easy to argue that at least some of the time,
5. U.S. Treasury notes are sold at a discount. For example, a buyer might offer $950 for a $1,000 note that will become due in 2 years because (as Chapter 15 explains) money received in the future is not as valuable as money received now. In September 1992, the U.S. Treasury began selling 2-year
4. A town wants to build a new bridge. Construction firms are asked to submit sealed bids. The town will award the contract to the firm that submits the lowest bid and will pay the firm the amount of the second-lowest bid, that is, the town will conduct a second-price procurement auction. So, for
3. The original Filene’s Basement in Boston had a unique pricing system. Every article in the store was marked with a tag showing the price and the date the article was first put on sale. Twelve days later, if it had not been sold, the price was reduced by 25 percent. Six selling days later, it
2. According to this chapter, in a first-price sealed bid auction (or a Dutch auction), a bidder should multiply her willingness to pay by the number of other bidders, then divide by the total number of bidders. Suppose you are willing to pay $60 for a pair of shoes that are being auctioned on
1. An escalation clause in a real estate contract specifies what a prospective buyer will offer for a home if the seller receives multiple offers. An escalation clause typically includes three elements: • The buyer’s initial offer • How much that offer will rise above any other competitive
13. Explain why in situations where the Coase Theorem applies, bargaining power does not influence whether the efficient outcome is reached, but it does affect the distribution of gains.
12. How does the ultimatum game work? What does experimental evidence show about the outcome of the ultimatum game?
11. What is meant by bargaining power? What are the two factors that determine an individual’s bargaining power?
10. What does the revenue equivalence theorem state?
9. What are the similarities between an English auction and a Dutch auction?
8. Suppose a bet is placed on the outcome of the flip of a coin—if the coin comes up heads, you get $25 and if it comes up tails, you lose $25. If you accepted this bet, does it imply that you are risk averse, risk neutral, or risk loving?
6. What is a Dutch auction? 7. What is meant by risk neutrality?
5. What is meant by sniping in an auction? Does it make sense to snipe to win an auction?
4. What is the dominant strategy for a bidder in an English auction?

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

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