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macroeconomics principles

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

Describe two factors that might cause a supply curve to shift.
Illustrate on a clearly labeled graph (a) a decrease in quantity supplied and (b) a decrease in supply.
Describe three characteristics of the type of market featured in classical analysis.
Has there been any talk of “speculative bubbles” in news reports recently? If so, what markets are being discussed? What explanations are given for why prices may be so high?
Think of several things that you regularly buy. For which of these goods or services do prices seem to change rapidly? For which do they seem to change slowly? Can you explain why?
What are some major characteristics, and strengths and weaknesses, of the business sphere?
What are some major characteristics and functions of the public- purpose sphere?
What are some major characteristics and functions of the core sphere?
What are the three spheres of economic activity?
Is wealth more or less equally distributed than income? Why?
Has income inequality in the United States decreased or increased over recent decades? What are some of the reasons?
What is a Lorenz curve? What does it measure?
What share of aggregate income does each quintile of households receive?
Describe progressive, proportional, and regressive taxation.
What is the difference between means-tested and social insurance programs?
What is the main reason for transfer programs?
What are the two major forms of income received in exchange?
What is a sustainable socioeconomic system? What is the difference between sustaining and restoring a system?
Describe the difference between a stock and a flow, giving examples.
Describe the relationship between consumption and saving.
What are the two main forms that the activity of distribution takes? Describe.
Describe the economic activity of production.
What do economists mean by "investment"?
How does economists' use of the term "capital" differ from common use?
What five types of capital contribute to productivity? Describe them.
What are the four essential economic activities?
Make a list of several things from which, over the past few days, you have eaten, drunk, been entertained by, been transported by, been sheltered by, or received other services. (For example, “dinner at Gina’s,” “my apartment,” or “the health clinic.”)Then, using the definitions
Education is sometimes provided within the core sphere (at-home preschool activities and home schooling), often provided by the public-purpose sphere (public and nonprofit schools), and sometimes provided by for-profit firms (including some “charter schools” or firms offering specific training
How is the concept of efficiency related to the concept of scarcity? Consider, for example, your own use of time. When do you feel time to be more, and when less, scarce? Do you think about how to use your time differently during exam week, compared to when you are on vacation?
The notion of "scarcity" reflects the idea that resources cannot be stretched to achieve all the goals that people desire. But what makes a particular resource "scarce"? If there seems to be more of it around than is needed, such as desert sand, is it scarce? If it is freely open to the use of many
Besides public goods and externalities, describe four real world factors that can cause market outcomes to be less than ideal.
What are negative and positive externalities? Give examples of each.
What is a public good? Why will private markets generally undersupply public goods?
What are the four institutional requirements of markets?
What are the three different meanings of the term "markets"?
What kinds of decisions would make a PPF expand over time? What kinds of decisions would make it shrink over time?
Draw a societal production-possibilities frontier, and use it to explain the concepts of tradeoffs (opportunity cost), attainable and unattainable output combinations, and efficiency.
What three requirements are met in producing along a production- possibilities frontier?
How do abundance and scarcity create the possibility of, and the necessity of, economic decision making?
“Indeed it has been said that democracy is the worst form of government,” said British Prime Minister Winston Churchill (1874–1965), “except all those other forms that have been tried from time to time.”Some people make the same claim about more marketized forms of economic systems. What
In what sense is the term “market” being used in each of the following sentences? “Go to the market and get some bananas.” “The market is the best invention of humankind.” “The labor market for new Ph.D.s is bad this year.” “The advance of the market leads to a decline in social
11. Imagine that you arrive at an economics experiment with six other people and are told that you will simulate a market. You will be the only seller. The other five people will be assigned a dollar value that they will receive if they buy the good for any amount of money (so if a person’s
10. For simplicity, consider a monopolist with no costs whatsoever; thus profit is revenue, which is just price multiplied by quantity. Demand consists of two groups. There are 14 adults: 10 are willing to pay $30 and 4 are willing to pay $20. There are also 16 children: 6 are willing to pay $20
9. Suppose you are a monopolist and you have two customers, Joseph and Monique. Each will buy either zero or one unit of the good you produce. Joseph is willing to pay up to $50 for your product; Monique is willing to pay up to $20. You produce this good at a constant average and marginal cost of
8. Priceline is a Web site that sells flights and hotel bookings based on the price that a consumer states he or she is willing to pay. So consumers who want to book a flight or a hotel room need to tell Priceline the price they are willing to pay, and the seller lets Priceline know whether it is
7. The following graph shows the demand, marginal revenue, and marginal cost curves in a monopoly marketa. Identify the profit-maximizing price and quantity for this monopolist.b. What are the values of the consumer surplus, producer surplus, and deadweight loss in the market?c. How would consumer
6. You are a monopolist that sells textbooks to undergraduate students. Currently you sell 100 books at a price of $100 each, for revenue of $10,000. Each book is essentially costless to print, so you ignore fixed costs and focus on maximizing revenue. Based on research by your marketing team,
4. You run a company that has a monopoly on a new drug that treats arthritis. The price is $10 per dose, and you sell 10 million doses per day. Market research shows that a reduction of price by $2 will increase sales to 11 million doses per day. On a graph, show the price effect (loss of revenue
3. Textbook publishers hope to maximize profits. Authors, however, face very different incentives. Authors are typically paid royalties, which are a specified percentage of total revenue from the sale of a book. And so, for example, if an author’s contract says that she will receive 20 percent
2. Critically analyze the following scenarios and explain whether you agree or disagree.a. Janet knows a lot of people who do not like Marmite, a yeast extract that is used as a spread on toast. She says that Marmite is so unpopular that Unilever, the company that manufactures Marmite, cannot
1. As this chapter explains, a monopoly is an industry structure in which only one firm provides a good or service that has no close substitutes. This question explores the last part of this definition further.a. At one time Sirius Satellite Radio and XM Satellite Radio were the only two satellite
13. Are there any cases where a monopoly is beneficial to the economy? Explain.
12. To restrict a firm’s monopoly power, why can’t antitrust authorities just set a price floor or a price ceiling in the market?
11. Examine the following statements and identify the type of price discrimination in each case.a. A popular club in a city waives its entry fees for women who arrive before 11 p.m.b. A combo meal of a burger, a soft drink, and fries at a fast-food outlet costs less than how much it would cost to
10. Why does a monopoly firm not have a supply curve?
9. Both competitive firms and monopolies produce at the level where marginal cost equals marginal revenue. Other things remaining the same, why then is the price lower in a competitive market than in a monopoly?
8. What is the relationship between price, marginal revenue, and total revenue for a monopolist?
7. What is the shape of a monopolist’s demand curve and marginal revenue curve?
6. People who need life-saving drugs cannot do without them and surely will be willing to pay very high prices for them. So why can’t producers of life-saving drugs charge any price that they wish?
5. How does a natural monopoly differ from a firm that becomes a monopoly due to network effects?
4. Why is national defense better off as a natural monopoly? What other industry or service do you think should be a natural monopoly?
3. What does it mean to say that a good generates network externalities?
2. Use a graph to explain the difference between a competitive firm’s ATC curve and the ATC curve of a natural monopoly.
1. What is meant by market power? What are the ways in which a monopoly gains market power?
11. For Acme Manufacturing, the marginal product of labor is MPL = 10 − 2L. Acme sells output for $10 per unit.a. Sketch the value of the marginal product of labor (VMPL). How many workers will Acme hire given a wage of $40?b. Repeat, but after the output price increases to $20 per unit. Does
10. You run a factory that uses pottery wheels to make pots. You can hire anywhere between 1 and 3 skilled artisans (workers), and you can rent 1 or 2 pottery wheels (machines). Pots sell for $100 each. The total product of your factory per day is shown in the following table. Number of Workers
9. Joey, Mandy, and Jim have the following labor supply (hours per day, based on hourly pay). Wage Joey Mandy Jim $5 4 0 2 $10 8 4 6 $15 12 8 9a. Who values their leisure most, Joey, Mandy, or Jim (or is there not enough information to say)?b. What is total labor supply given a wage of $15?c. What
8. The Patient Protection and Affordable Care Act (ACA) requires all employers with at least 50 full-time-equivalent workers to offer health insurance to their full-time employees or pay a fine of up to $2,000 per employee (see http://www.hhs.gov/healthcare/rights/index.html for a description of
7. Sketch a typical-looking labor market with a downward sloping aggregate VMPL (labor demand).a. Label the part of this VMPL curve that maximizes total productivity.b. Label the part of this VMPL curve that maximizes average productivity (i.e., output per worker).c. Add an upward sloping labor
6. For a long time, your firm has been paying its workers a wage of $20 per hour, and your employees have been happy to work 40 hours per week at this wage. Business is suddenly booming, and your firm would really like your workers to agree to a 50-hour work week to meet this new demand for your
5. The following table shows the average salary for major league baseball players. As you can see, the average salary of $3,440,000 in 2012 is nearly 20 times larger than the average salary in 1970.ear Average Salary* 1970 $173,397 1980 $408,198 1990 $1,035,515 2000 $2,649,988 2010 $3,472,326 2012
4. A friend tells you that he thinks that the salespeople who work at Apple stores are paid very low wages, given their productivity. Dividing Apple’s revenues by the total number of employees shows that each employee contributed an average of $473,000 in revenues in 2011. But most of Apple’s
3. You accept a new job for a wage of $30,000 at a newspaper. You join the sales team, which consists of 10 people who try to sell online subscriptions. Each subscription sells for $200. When you talk to your boss, she says that you are the eleventh worker, and that if you had not joined the team,
2. Consider the following daily production functions for Pleasanton’s three different coffee shops. Each cup of coffee sells for $1.Arabica Alley Barista Bar Coffee Cafe Workers Total Product Marginal Product Total Product Marginal Product Total Product Marginal Product 0 0 – 0 – 0 – 1 100
1. Suppose that, at your firm, the relationship between output produced and the number of workers you hire is as follows: Labor Total Product Produced 0 0 1 12 2 23 3 32 4 38 5 42 6 45a. Find the marginal product of labor for each worker.b. Is the relationship between output and labor consistent
13. Suppose an identical tax is levied on capital, labor, and land. Would the tax have the same effect in each of these markets? Explain your answer.
12. How does the market for inputs like labor differ from the market for goods and services?
11. What factors could explain why wage inequality in the United States has been increasing over the past several decades?
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 the United States in 2011, there were 104 fatalities per 100,000 workers in the logging industry. This is the second-highest fatality rate after the fisheries industry. Everything else being equal, would you expect workers in the logging industry to be paid higher wages than workers with
8. Some people think it’s unfair that celebrities like George Clooney earn a lot more than people who add so much more value to society, like teachers. What do you think explains this wage differential?
7. How do labor-saving technologies differ from laborcomplementary technologies? Give an example of each.
6. Suppose wages in the market for plumbers increase. Some plumbers start taking on extra plumbing jobs while others cut back on the number of hours they work. What could explain these two responses?
5. How would the following factors affect equilibrium in the market for labor?a. An increase in the demand for the product that a firm is producingb. The use of a new technology that halves the time that workers will take to produce a goodc. An increase in the age when people begin to receive
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. In a competitive labor market, what is the profitmaximizing number of workers that a firm will hire?
2. How does the labor-leisure trade-off determine the supply of labor?
1. How do firms estimate their demand for labor?
12. The following graph shows the supply 1QS = 2P2and demand 1QD = 12 = P2 for cigarettes. The government decides to impose $6 tax on each cigarette.a. What is the producer surplus, consumer surplus, and social surplus when there is no tax on cigarettes?b. With the tax, verify that the price paid
11. Consider the following reservation values for buyers and sellers of soccer balls.Buyers Willingness to pay Sellers Willingness to accept Alex $70 Clint $10 Hope $50 Tim $30 Carli $30 Michael $40 Abby $10 Landon $60a. Sketch the supply and demand. (It will be a step function; see Exhibit 7.2
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. Suppose
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 supply and demand for hats. Suppose there is a $3 tax per hat. This exercise will demonstrate that the effect of the tax does not depend on who is required to actually pay the tax.Price (price paid for b; price received forc) Supply Demand Supply with $3 tax on sellers
4. Consider a simple opportunity for trade: You are renting a new condo and the previous tenant offers to sell her old couch. You are the sole buyer and you have a willingness to pay of $200. The previous tenant is the sole seller and has a willingness to accept of $120.a. Regardless of what price
3. Many people have argued that an income tax should be “marriage neutral,” that is, two people should pay the same total tax whether they are married or they are single. Suppose Amanda earns nothing, Ben earns $60,000, and Cathy and Dylan each earn $30,000. They are all single.a. Amanda pays
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 2013 federal income tax rates for a single individual. Income Rate $0 to $8,925 10% $8,925 to $36,250 15% $36,250 to $87,850 25% $87,850 to $183,250 28% $183,250 to $398,350 33% $398,350 to $400,000 35% $400,000 and above 39.60%a. Calculate the total tax payable for

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