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macroeconomics principles
Survey Of Economics 1st Edition David A. Anderson - Solutions
The price of a good naturally gravitates toward the level at which thea. Supply curve intersects the vertical axis.b. Demand curve intersects the vertical axis.c. Supply curve intersects the demand curve.d. Demand curve intersects the horizontal axis.e. Supply curve reaches its highest point.
In order to have an effect on the market, a price ceiling must bea. Above the equilibrium price.b. Below the equilibrium price.c. Equal to the equilibrium price.d. At a price that equates the quantity supplied and the quantity demanded.e. None of the above
Draw a supply and demand graph for the college-education market, which has an upward-sloping supply curve and a downward sloping demand curve. Consider tuition to be the price of a college education. Label the equilibrium price and quantity P1 and Q1, respectively. For simplicity, assume that the
Suppose the demand for acoustic (non-electric) guitars is unit elastic. If Christopher Woods increases the price he charges for acoustic guitars, assuming that the price elasticity of demand does not change, what will happen to his total revenue? Explain your answer.
How would you expect the elasticity of demand for each of the following products to compare with the price elasticity of demand for standard car tires? Explain your answer.a. Snow tires (not necessary, but handy on snowy days)b. School bus tires (purchased with tax dollars on a fixed schedule)c.
Insert the missing values for the marginal utility and the total utility received from smoothies: Smoothies 1 2 3 4 5 сл 6 Marginal Utility 100 95 50 -30 Total Utility 100 280 340
For each of the following scenarios, draw a graph that shows how an increase in supply will affect the equilibrium price and quantity.a. Demand is perfectly inelastic and supply is upward sloping.b. Demand is perfectly elastic and supply is upward sloping.c. Demand is downward sloping and supply is
Suppose a 15 percent increase in the price of hot dogs sold at gas stations would lead to a 20 percent decrease in the quantity of hot dogs purchased at gas stations. What is the price elasticity of demand for hot dogs sold at gas stations?
Suppose that your friend’s income increases from $25,000 to $50,000, and, as a result, the quantity of energy drinks she purchases increases from 4 per week to 10 per week. What is your friend’s income elasticity of demand for energy drinks?
Suppose the price of an ad on a typical news website falls from $1,000 to $800, and, as a result, the quantity of ads on news websites rises by 10 percent and the quantity of ads in newspapers falls by 3 percent.a. What type of elasticity can tell you whether ads in newspapers and ads on news
Provide an example not mentioned in the chapter of each of the following types of goods:a. A normal goodb. An inferior goodc. Two goods that are substitutesd. Two goods that are complementse. A luxury goodf. A good that is a necessityFor each type of good listed above:i. Indicate the type of
The following table provides information on the daily productivity of robots at the Island Bakery.a. Fill in the missing values for the marginal product of robots and the total output per day.b. Draw the marginal product curve for robots.c. Why does the marginal product of inputs such as robots
True or False: The slope of a demand curve at any particular point is equal to the price elasticity of demand at that point. Explain your answer.
The following table provides cost information for the first 5 loaves of bread produced by the Island Bakery. Fill in the missing values. Loaves 0 1 2 3 4 5 Fixed Cost $25.00 Variable Cost Total Cost Average Total Cost $00 Marginal Cost $5.00 4.00 2.00 4.00 7.50
Identify at least 2 fixed inputs and 2 variable inputs in this picture. wavebreakmedia/Shutterstock.com
Draw an upward-sloping supply curve and a downward-sloping demand curve for the tire market. Label the equilibrium price and quantity as P1 and Q1. Now suppose the government imposes a tax on consumers of $5 per new tire to help pay for the disposal of old tires. Indicate how the curves on the
The demand for some pharmaceutical drugs is quite inelastic because customersneed the drugs to survive. This has made it possible for some drug companies to charge more than $1,000 for a daily dose of medicine. In your opinion, is it acceptable for drug companies to charge the most that consumers
Suppose you and your neighbor indicate that you each receive 1,000 utils per month from the neighborhood park. Explain why this doesn’t mean that you each receive the same amount of happiness from the park.
Explain whether the following statement is true, false, or uncertain: When marginal utility is decreasing, total utility is decreasing.
Use the information in the table from problem 4 to draw the marginal cost curve and the average total cost curve for the first 5 loaves made by the Island Bakery. If you were to continue these curves for larger quantities of loaves, what can you say about where the two curves would cross?Table from
Suppose this weekend you’re going to the sporting goods store to spend a $75 gift certificate on some combination of $15 soccer balls and $5 pairs of socks. Draw your budget constraint, with the quantity of pairs of socks shown on the horizontal axis and the quantity of soccer balls shown on the
On your graph for problem 5, draw the new budget constraint that results if the price of soccer balls increases to $25 and the price of socks remains $5 per pair. Shade the area on your graph that represents all the combinations of the two goods that you could afford after the price change.Data
Suppose that at your currently weekly consumption levels, your marginal utility from bagels is 100 and your marginal utility from oranges is 75. The price per bagel is $1.00 and the price per orange is $0.50. Next week, if all prices and your budget for bagels and oranges remain the same, you
Gas prices typically end with 9/10 of a cent. If a price of $2.49(9/10) per gallon seems better to consumers than a price of $2.50 per gallon, this is most likely the result ofa. Gasoline being an inferior good.b. A desire for balance.c. A desire for fairness.d. Bounded rationality.e. Bounded
This chapter explains three things that behavioral economists have determined that consumers want: (1) Balance, (2) Some options, but not too many(3) Fairness. Which of these things leads consumers to spend more money than necessary to purchase a particular good or to win a particular
Does your decision making resemble the optimal consumption rule? Is there any way you could change your spending to receive more bang per buck?
Ben plays the bassoon in an orchestra for an annual salary of $60,000. He is considering the possibility of quitting his job as a musician and opening Ben’s Bagel Shop instead. Ben estimates that the bagel shop would sell $190,000 worth of bagels per year and incur the following annual
Suppose that, with your current use of inputs, the marginal product of labor is 100, the marginal product of capital is 12, the wage is $25, and the rental rate is $2. Could your firm lower its costs by adjusting the use of inputs? If so, how?
Suppose your family chooses to stay in an expensive hotel because it offers free breakfast. The next morning you notice a lovely bakery across the street that serves more appealing breakfasts. Your parents argue that the family should eat at the hotel because they have already spent so much to stay
Is the following statement true or false? The marginal cost curve is downward sloping whenever the average total cost curve is downward sloping. Explain your answer.
Is the following statement true or false? Diseconomies of scale exist throughout the range of output for which the marginal cost is rising. Explain your answer.
Identify whether each of the following is an implicit cost or an explicit cost:a. The income you could earn if you weren’t in collegeb. The money you pay for college tuitionc. The money you could earn renting your car to someone elsed. The taxes you pay when you buy food at a restaurant
Describe a real-life situation in which you have observed the diminishing marginal product of an input such as labor.
Which of the following is not a characteristic of a perfectly competitive market?a. There are many buyers and sellers.b. The firms sell differentiated products.c. Firms are price-takers.d. Buyers and sellers have full information about the product and its price.
Assume that peaches are grown in a perfectly competitive market and that peach farms have cost curves that look like those in this chapter. Draw a graph for a peach farm that earns a profit. Label the axes, as well as the curves for demand, marginal revenue, average total cost, and marginal cost.
Suppose firms in a perfectly competitive market incur losses in the short run. Explain how this market will reach a long-run equilibrium. Illustrate your answer with side-by-side graphs of the market and a representative firm.
Suppose firms in a perfectly competitive market earn profits in the short run. Explain how this market will reach a long-run equilibrium. Illustrate your answer with side-by-side graphs of the market and a representative firm.
True, false, or uncertain: Unlike the marginal revenue curves for firms in other market structures, the marginal revenue curve for a perfectly competitive firm is horizontal. Explain your answer.
True, false, or uncertain: After some firms leave a market in which they were experiencing losses, the remaining firms will produce the same quantity of output as before the other firms left. Explain your answer using side-by-side graphs of the market and a representative firm.
The following table shows a firm’s output, fixed cost, marginal costs, and marginal revenue. Do the values in this table indicate that the firm is a monopolist or part of a perfectly competitive market? How can you tell? Loaves 1 2 3 4 5 6 Fixed Cost $25.00 25.00 25.00 25.00 25.00 25.00 Marginal
Suppose Cotton Acres Farm earns revenue of $550,000 per year. Cotton Acres faces an annual variable cost of $300,000 and an annual fixed cost of $150,000. Is the cotton market in long-run equilibrium? How can you tell?
In the case of a prisoner’s dilemma, the outcome when each player adopts its dominant strategy is worse than the outcome that could be achieved with cooperation. The following payoff matrix shows the hypothetical daily profit in millions of dollars for Citgo and Shell, depending on each firm’s
Suppose you start a peach farm and find yourself earning zero economic profit. Explain why that is not a good reason to shut the farm down.
True, false, or uncertain: A firm maximizes its profit by producing the quantity at which the marginal cost is as far below the price as possible. Explain your answer.
True, false, or uncertain: A firm will stay open in the short run even though it is incurring losses. Explain your answer.
What characteristics does the hamburger market in your area share with a perfectly competitive industry? What conditions for perfect competition does it violate?
Identify one example of a market not discussed in this chapter that closely resembles a perfectly competitive market.
Fill in the missing numbers in the following table.If the wage rate is $25, how many workers should the firm hire? Quantity of Labor (workers) 1 2 3 st 4 5 Total Output 22 45 80 Marginal Product of Labor 22 20 10 Marginal Revenue $2 2 2 2 2 Marginal Revenue Product
For which of the following types of firms does the marginal revenue equal the price?a. A firm in a perfectly competitive marketb. A monopolist that charges all customers the same pricec. A perfect price discriminator
What three conditions are required for price discrimination? Describe a situation not mentioned in the book in which you have seen customers paying different prices for the same good or service.
Suppose a patent makes you the only seller of a new cold remedy. Draw a graph for your monopoly, assuming it resembles a typical monopoly. Include the curves for demand, marginal revenue, marginal cost, and average total cost. Shade and label the areas that represent profit and deadweight loss.
Suppose the patent held by the monopoly in problem 3 expires and many competitors enter the market. Which of the following will be eliminated in the long run due to monopolistic competition?a. Deadweight lossb. Profitc. The separation of the marginal revenue curve and the demand curveDraw a new
True, false, or uncertain: In a perfectly competitive market, firms are interdependent, and economists use game theory to analyze the firms’ behavior. Explain your answer.
In which market structures do firms enjoy some degree of market power?
What is the source of market power for each of the following producers?a. Author Stephen Kingb. Cable television provider Spectrumc. Perrier water producer Nestlé, which owns the Perrier spring
There are many competing laundromats in Cleveland, but some will wash and fold your clothes for you, some provide free beverages, and some offer Wi-Fi. Which market structure characterizes the laundromat market of Cleveland?
Given that monopolies create deadweight loss, why does the government grant patents and copyrights that give firms monopoly power?
Identify one monopolistically competitive market that was not mentioned in this chapter. Discuss how firms in that market try to differentiate their products and encourage consumers to be loyal to their brands.
Using a separate graph for each change, show the effects of the following changes on the market labor demand curve.a. An increase in the wage rateb. An increase in the price of the good that the workers producec. A decrease in the marginal product of labord. A decrease in the number of firms
Using a separate graph for each change, show the effects of the following changes on the market labor supply curve.a. A decrease in the wage rateb. An increase in the opportunity cost of time spent workingc. A decrease in the marginal product of labord. An increase in the number of workers
For 30 years, the Ringling Brothers’ and Barnum and Bailey Circus operated Clown College. Suppose the tuition for Clown College doubles, making it more difficult to obtain clown qualifications. What will happen to each of the following?a. The market labor supply curve for clownsb. The market
Suppose the demand for hammocks increases. What will happen to each of the following in the market for hammock makers?a. The market labor supply curveb. The market labor demand curvec. The equilibrium wage rated. The equilibrium quantity of workers hired
Suppose a shop called Buy the Sea Shore sells seashells in a perfectly competitive shell market and hires labor from a perfectly competitive labor market. Draw the labor demand curve and the labor supply curve for Buy the Sea Shore, assuming these curves have their usual shapes. Then show how a
Draw a graph for a labor market with a perfectly inelastic (vertical) labor demand curve and an upward-sloping labor supply curve. Label the equilibrium quantity of labor Le and the equilibrium wage rate We. Draw a dotted line at the level of a minimum wage rate set above the equilibrium wage rate.
Workers in each of the following occupations earn more than the average wage. Indicate characteristics of each occupation that might lead to high wages by causing the demand for labor to be relatively high or the supply of labor to be relatively low.a. Firefightingb. Rocket sciencec. Television
Describe one situation not mentioned in the chapter in which discrimination in the hiring process would:a. Conflict with a firm’s profit maximizationb. Be acceptable due to a bona fide occupational qualification (BFOQ)
What is one pro and one con of a minimum wage? Do you believe that raising the minimum wage would be an appropriate way to decrease income inequality? Why or why not?
Advances in automation and robotics have eliminated some jobs. Examples include cashiers replaced by self-checkout lanes and manufacturing workers replaced by robotic arms. At the same time, those technological advances have created new jobs for engineers, software developers, and other workers who
True, false, or uncertain? Perfectly competitive markets allocate resources efficiently. Explain your answer
Identify whether each of the following statements refers to a problem caused by a positive externality, a negative externality, imperfect information, imperfect competition, a public good, or none of the above:a. Society would be better off if more people wore smiley-face T-shirts, which brighten
Identify the source of market failure addressed by each of the following remedies:a. Copayments made by insurance customersb. Antitrust legislationc. The pre-purchase of mechanical checkups for used carsd. Subsidiese. The Federal Trade Commissionf. Cap-and-trade programsg. Public education
Suppose the strings of holiday lights used to decorate yards are produced in a perfectly competitive market and that each string purchased creates a positive externality of $1 due to its visual appeal to neighbors.a. Draw a hypothetical graph for the holiday light market with an upward-sloping
The Urban Dictionary defines second-hand rap as the “phenomenon created when some idiot with a loud car stereo believes the entire community would like to have their own music, conversations, or inner peace drowned out by . . . the sound of a car being vibrated apart.” Suppose loud car stereos
The government of Jefferson County, Colorado, purchases forests and preserves them as “green space” so the surrounding communities can enjoy views of the natural landscape. These views are non-rival and non-excludable.a. Would a private market for green space bring about the efficient amount of
Use the CPI values provided below to calculate the inflation rate between the given years. a. CPI1973 = 44.4; CPI1974 = 49.3 b. CP/2011 = 224.9; CP/2012 =229.6
Policy making to remedy market failure requires the government to estimate values such as marginal private costs, marginal private benefits, marginal external costs, and marginal external benefits. Indicate which of these values must be estimated correctly in order to allocate resources efficiently
In 2017, the CPI was 245.1 and a ticket to the Super Bowl cost $2,200. Use the following CPI values and the nominal Super Bowl ticket prices provided to calculate the real price of Super Bowl tickets in 1967, 1984, and 2015, expressed in 2017 dollars. a. CPI1967 = 33.4; ticket price = $12 b.
To check for conflicting agendas among your friends, ask five of them which policy option they would vote for in each of the following categories of government spending:a. Increase Decrease Make no change in spending on the military.b. Increase Decrease Make no change in spending on public
Excessive paperwork requirements can be a source of government failure.a. Identify a paperwork task that you must complete for school, work, or the government.b. What is the benefit of the paperwork?c. Do you think the administrators who demand the paperwork consider the transaction costs when
Explain a specific situation in which equity and efficiency are conflicting goals. In the situation you described, would you be willing to sacrifice some efficiency to gain more equity? Why or why not?
Which of the following contribute to the quality of life but not to the standard of living? a. Socksb. Clean airc. Watermelonsd. Leisure timee. Freedom
Categorize each of the following people as being part of the labor force or not.a. Jesse, a new college graduate looking for her first jobb. Lin, a 70-year-old practicing optometristc. Greg, who is in prison and does not workd. Silvia, who was fired from her previous job and submitted her last job
Suppose 10,000 people live on the island of Yap. Its labor force is made up of 6,000 workers, 2,000 of whom are unemployed. Calculate the unemployment rate in Yap.
Indicate whether each of the following people causes the official unemployment rate to overestimate or underestimate the severity of the unemployment problem.a. John, who sells drugs illegallyb. Trish, who tried for a year to find a job and then stopped looking, even though she would really like to
Categorize each of the following people as being frictionally unemployed, structurally unemployed, cyclically unemployed, or seasonally unemployed.a. Chloe, who lost her job as a florist when a recession hit the economyb. Claire, who drives a Zamboni at an outdoor skating rink during the winter but
True or false: The aggregate demand curve slopes downward because when the price level rises, consumers substitute one good for another. Explain your answer.
True or false: The short-run aggregate supply curve slopes upward because when the price level rises, sticky wages create incentives for firms to produce more output. Explain your answer.
Which of the following changes cause the aggregate demand curve to shift to the left? Choose all that apply.a. An increase in the price levelb. A decrease in wealthc. An increase in exportsd. A decrease in workers’ optimism about job securitye. An increase in the interest ratef. A decrease in
Which of the following changes cause the short-run aggregate supply curve to shift to the right? Choose all that apply.a. An increase in the price levelb. A decrease in input pricesc. An increase in aggregate demandd. A decrease in business taxese. An increase in productivityf. A decrease in the
Calculate the spending multiplier in each of the following situations under the assumption that there are no taxes or imports:a. The MPS = 0.10b. The MPS = 0.05c. The MPC = 0.75d. Half of all new income is saved
Suppose the government spends $10 billion that it already has on hand to improve the nation’s railway system. If the marginal propensity to consume is 0.80, what will the total increase in spending be after the multiplier process is complete?
The short-run aggregate supply curve can have three ranges: the Keynesian range, the upward-sloping range, and the classical range. In which range does an increase in aggregate demand cause each of the following?a. An increase in both the price level and real GDPb. An increase in the price level
The aggregate supply curve takes on a different shape in the long run.a. Draw a long-run aggregate supply curve and label it LRAS1.b. What is the name for the level of output at which the long-run aggregate supply curve meets the horizontal axis?c. Explain why increases in the price level do not
Draw a graph of aggregate demand, short-run aggregate supply, and long-run aggregate supply. Label the curves and axes. Label the price level as PL1 and the real GDP as Y1.a. Show how the graph will change if the money supply decreases. Label the new price level as PL2 and the new real GDP as Y2.b.
Identify a possible cause of each of the following in the country where you live:a. A negative supply shockb. A positive supply shockc. A decrease in aggregate demandd. An increase in aggregate demand
Suppose you are the president of your country and are making a speech to the public about government efforts to boost the economy. How would you explain the way an increase in government spending can increase overall spending in the economy by more than the government’s initial increase in
True or false: Classical economists argue that the economy can correct itself quickly after a destabilizing event, such as a decrease in aggregate demand. Explain your answer.
True or false: Keynesian economists are opposed to the use of fiscal policy. Explain your answer.
True or false: Monetarist economists support the use of adjustments in the money supply to actively respond to swings in the business cycle. Explain your answer.
Which of the following are areas of general agreement among modern economists?a. To stabilize the economy, fiscal policy should be used prior to monetary policy.b. Expansionary fiscal policy increases aggregate demand.c. Various types of lags make passive monetary policy undesirable as a tool for
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