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Introduction To Information Systems 5th Edition R. Kelly Rainer, Brad Prince, Casey G. Cegielski - Solutions
Do Pierre, a software engineer earning $200,000 a year, and Sally, a single mother whose welfare benefits are about to expire, get equal weight in the measure of consumer surplus? (Institutionalist)
The chapter frames the issue of the effects of taxation in terms of its effects on producer and consumer surplus.a. What does that framework leave out of the analysis?b. How might one frame the analysis differently?c. If women are discriminated against and receive less income than men on average,
The quotation from Calvin Coolidge at the beginning of the chapter equates taxation to robbery.a. Is that a reasonable position to take?b. What alternatives to taxation could a country consider to collect the revenue it needs to operate? (Austrian)
Given the graph below, up to how much would suppliers be willing to spend to restrict supply to Q1? (LO7-4) Price Demand Q1 Quantity Supply
What is the general rule of political economy? Give an example from the real world. (LO7-4)
Define rent seeking. Do firms have a greater incentive to engage in rent-seeking behavior when demand is elastic or when it is inelastic? (LO7-4)
A political leader comes to you and wonders from whom she will get the most complaints if she institutes a price ceiling when demand is inelastic and supply is elastic. (LO7-3)a. How do you respond?b. Demonstrate why your answer is correct.
Use the graph below to answer the following questions:(LO7-3)a. What are equilibrium price and quantity?b. What is producer surplus when the market is in equilibrium?c. What is consumer surplus when the market is in equilibrium?d. If price were held at $12 a unit, what are consumer and producer
Suppose government imposed a minimum wage above equilibrium wage. (LO7-3)a. Assuming nothing else changes, what do you expect to happen to the resulting shortage of jobs as time progresses?b. What do you expect to happen to the producer surplus transferred to minimum wage earners as time progresses?
Demonstrate how a price floor is like a tax on consumers and a subsidy to suppliers. Label the following: tax on consumers, transfer of surplus to suppliers, and welfare loss. (LO7-3)a. Who gets the revenue in the case of a tax?b. Who gets the revenue in the case of a price floor?
In which case would the shortage resulting from a price ceiling be greater: when supply is inelastic or elastic?Explain your answer. (LO7-3)
Calculate the percentage of the tax borne by the demander and supplier in each of the following cases: (LO7-2)a. ED = 0.3, ES = 1.2b. ED = 3, ES = 2c. ED = 0.5, ES = 1d. ED = 0.5, ES = 0.5e. Summarize your findings regarding relative elasticity and tax burden.
Should tenants who rent apartments worry that increases in property taxes will increase their rent? Does your answer change when considering the long run? (LO7-2)
Which good would an economist normally recommend taxing if government wanted to minimize welfare loss and maximize revenue: a good with an elastic or inelastic supply? Why? (LO7-2)
What percentage of a tax will the demander pay if price elasticity of supply is 0.3 and price elasticity of demand is 0.7? What percentage will the supplier pay? (LO7-2)
If the demand for a good is perfectly elastic and the supply is elastic, who will bear the larger share of the burden of a tax on the good where the tax is paid by consumers? (LO7-2)
Suppose demand for cigarettes is inelastic and the supply of cigarettes is elastic. Who would bear the larger share of the burden of a tax placed on cigarettes? (LO7-2)
What types of goods would you recommend that the government tax if it wants the tax to result in no welfare loss? Name a few examples. (LO7-2)
If the federal government wanted to tax a good and suppliers were strong lobbyists, but consumers were not, would government prefer supply or demand to be more inelastic?Why? (LO7-2)
Use the graph below that shows the effect of a$4 per-unit tax on suppliers to answer the following questions:(LO7-2)a. What are equilibrium price and quantity before the tax? After the tax?b. What is producer surplus when the market is in equilibrium before the tax? After the tax?c. What is
Demonstrate the welfare loss of: (LO7-2)a. A restriction on output when supply is perfectly elastic.b. A tax t placed on suppliers.c. A subsidy s given to suppliers.d. A restriction on output when demand is perfectly elastic.
Given this elasticity, what would be the impact of funding the Social Security program with tax increases on the number of hours worked and on the amount of taxes collected to fund Social Security?(LO7-2)
Minneapolis Federal Reserve Bank economist Edward Prescott estimates the elasticity of the U.S. labor supply to be
How is elasticity related to the revenue from a sales tax? (LO7-2)
Why does nearly every purchase you make provide you with consumer surplus? (LO7-1)
Why isn’t the combination of consumer and producer surplus maximized if there is either excess demand or supply? (LO7-1)
If there were only two goods in the world, can you say whether they would be complements or substitutes?Explain your answer.
Colleges have increasingly used price sensitivity to formulate financial aid. The more eager the student, the less aid he or she can expect to get. Use elasticity to explain this phenomenon. Is this practice justified?
In the discussion of elasticity and raising and lowering prices, the text states that if you have an elastic demand, you should hesitate to raise your price, and that lowering price can possibly increase profits (total revenue minus total cost). Why is the word possibly used?
In 2004, Congress allocated over $20 billion to fight illegal drugs. About 60 percent of the funds was directed at reducing the supply of drugs through domestic law enforcement and interdiction. Some critics of this approach argue that supply-side approaches to reduce the drug supply actually help
Demand for “prestige” college education is generally considered to be highly inelastic. What does this suggest about tuition increases at prestige schools in the future?Why don’t colleges raise tuition by amounts even greater than they already do?
Economists have estimated the demand elasticity for motor fuel to be between 0.4 and 0.85.a. If the price rises 10 percent and the initial quantity sold is 10 million gallons, what is the range of estimates of the new quantity demanded?b. In carrying out their estimates, they came up with different
A major cereal producer decides to lower price from$3.60 to $3 per 15-ounce box.a. If quantity demanded increases by 18 percent, what is the price elasticity of demand?b. If, instead of lowering its price, the cereal producer increases the size of the box from 15 to 17.8 ounces, what would you
Why would an economist be more hesitant about making an elasticity estimate of the effect of an increase in price of 1 percent than an increase in price of 50 percent?
In the 1960s, coffee came in 1-pound cans. Today, most coffee comes in 11-ounce cans.a. Can you think of an explanation why?b. Can you think of other products besides coffee whose standard size has shrunk? (Often the standard size is supplemented by a “supersize” alternative.)
In the box “Geometric Tricks for Estimating Price Elasticity,”there are three statements about the elasticities of straight-line supply curves. One of those statements is that supply curves intersecting the quantity axis are inelastic.Can you prove that that is true by algebraic manipulation of
Price elasticity is not just a technical economic concept. It also reflects the distribution of economic power—the bargaining power and economic opportunities of buyers and sellers.a. When suppliers (for example, landlords or energy companies) hold disproportionate power over buyers, or consumers
If elasticities are constantly changing as the time period gets longer, how do managers use a measure of elasticity of demand to determine the price they charge? If they don’t use elasticities, how do they set price? (Post-Keynesian)
In the chapter, you saw that an increase in Vermont’s minimum wage stimulated a small quantity response.a. What does this tell you about the nature of the labor market in Vermont? (Hint: Think carefully and critically about the conditions shaping worker options and their responses to changes in
Early economists made a distinction between needs and wants. Needs were economists’ concern; wants were of far less importance.a. Is such a distinction useful?b. Would making such a distinction change the nature of economic analysis?c. Does the fact that the book makes no distinction between
In this chapter, we learn that most new cars aren’t sold at their list price but are sold at a discount and that this allows dealerships to charge more to customers with inelastic demand. At the same time, studies have shown that retail car dealerships systematically offer substantially better
The text tells us that there are long-run elasticities and short-run elasticities.a. How long is the long run and how long is the short run?b. What meaning do the elasticity measures have if you don’t know those lengths? (Austrian)
For each of the following assume that the supply curve shifts while the demand curve remains constant. What is the direction of the supply shift and relative elasticity of demand? (LO6-5)a. Price remains nearly constant. Quantity increases enormously.b. Price falls enormously. Quantity does not
Would a shift in demand have a greater effect on the percentage change in equilibrium quantity for a straightline supply curve that intersects the quantity axis or the price axis? (LO6-5)
Would you expect a shift in supply to have a greater effect on equilibrium quantity in the short run or in the long run? Explain your answer. (LO6-5)
Calculate the income elasticities of demand for the following:(LO6-4)a. Income rises by 20 percent; demand rises by 10 percent.b. Income rises from $30,000 to $40,000; demand increases(at a constant price) from 16 to 19.
When the price of ketchup rises by 15 percent, the demand for hot dogs falls by 1 percent. (LO6-4)a. Calculate the cross-price elasticity of demand.b. Are the goods complements or substitutes?c. In the original scenario, what would have to happen to the demand for hot dogs for us to conclude that
For each of the following pairs of goods, state whether the cross-price elasticity is likely positive, negative, or zero.Explain your answers. (LO6-4)a. Lettuce, carrots.b. Housing, furniture.c. Nike sneakers, Puma sneakers.d. Jeans, formal suits.
For each of the following goods, state whether it is a normal good, a luxury, a necessity, or an inferior good. Explain your answers. (LO6-4)a. Vodka.d. Perfume.b. Table salt.e. Beer.c. Furniture.f. Sugar.
Which of the following producers would you expect to support a tax on beer? Which would not? Explain your answer. (LO6-4)a. Producers of hard liquor. Cross-price elasticity with beer: −0.11.b. Producers of wine. Cross-price elasticity with beer: 0.23.
Suppose average movie ticket prices are $8.50 and attendance is 1.2 billion. The price of tickets rises to$9.50 and attendance rises to 1.4 billion. (LO6-3)a. What happened to total revenue?b. If you were to estimate elasticity from these figures, what would your estimate be?c. What provisos would
How is elasticity related to the revenue from a sales tax? (LO6-3)
University of Richmond Professor Erik Craft analyzed the states’ pricing of vanity plates. He found that in California, where vanity plates cost $28.75, the elasticity of demand was 0.52. In Massachusetts, where vanity plates cost $50, the elasticity of demand was 3.52. (LO6-3)a. Assuming vanity
Once a book has been written, would an author facing an inelastic demand curve for the book prefer to raise or lower the book’s price? Why? (LO6-3)
A newspaper recently lowered its price from 50 cents to 30 cents. As it did, the number of newspapers sold increased from 240,000 to 280,000. (LO6-3)a. What was the newspaper’s elasticity of demand?b. Given that elasticity, did it make sense for the newspaper to lower its price?c. What would your
Kean University Professor Henry Saffer and Bentley University Professor Dave Dhaval estimated that if the alcohol industry increased the prices of alcoholic beverages by 100 percent underage drinking would fall by 28 percent and underage binge drinking would fall by 51 percent. (LO6-2)a. What is
Economists have estimated the following transportation elasticities. For each pair, explain possible reasons why the elasticities differ. (LO6-2)a. Elasticity of demand for buses is 0.23 during peak hours and 0.42 during off-peak hours.b. Elasticity of demand for buses is 0.7 in the short run and
Which of the pairs of goods would you expect to have a greater price elasticity of demand? (LO6-2)a. Cars, transportation.b. Housing, leisure travel.c. Rubber during World War II, rubber during the entire 20th century.
Calculate the elasticity of the designated ranges of supply and demand curves on the following graph. (LO6-1) Price $40 35 30 B 25 G 20 15 F LL 10 I C 5 0 10 20 30 40 50 60 70 80 90 100 110 120 Quantity
Which has greater elasticity: a supply curve that goes through the origin with slope of 1 or a supply curve that goes through the origin with slope of 4? (LO6-1)
One football season Domino’s Pizza, a corporate sponsor of the Washington Redskins (a football team), offered to reduce the price of its medium-size pizza by $1 for every touchdown scored by the Redskins during the previous week. Until that year, the Redskins weren’t scoring many touchdowns.
When tolls on the Dulles Airport Greenway were reduced from $1.75 to $1.00, traffic increased from 10,000 to 26,000 trips a day. Assuming all changes in quantity were due to the change in price, what is the price elasticity of demand for the Dulles Airport Greenway?(LO6-1)
A firm has just increased its price by 5 percent over last year’s price, and it found that quantity sold remained the same. (LO6-1)a. What is its price elasticity of demand?b. How would you calculate it?c. What additional information would you search for before you did your calculation?
Determine the price elasticity of demand if, in response to an increase in price of 10 percent, quantity demanded decreases by 20 percent. Is demand elastic or inelastic? (LO6-1)
In the early 2000s, Whole Foods Market Inc. switched to a medical care plan that had a high deductible, which meant that employees were responsible for the first $1,500 of care, whereas after that they received 80 percent coverage.The firm also put about $800 in an account for each employee to use
In the late 1990s, the television networks were given$70 billion worth of space on public airways for broadcasting high-definition television rather than auctioning it off.a. Why do airways have value?b. After the airway had been given to the network, would you expect that the broadcaster would
Rent control today looks far different from the rent freeze New York City enacted after World War II. Most rent controls today simply restrict annual rent increases and guarantee landlords a “fair return” in return for maintaining their properties.a. How would the economic effects of today’s
Most religions argue that individuals should not fully exploit market positions. For example, the text makes it sound as if allowing prices to rise to whatever level clears the market is the best policy to follow. That means that if, for example, someone were stranded in the desert and were willing
Biological evolution occurs very slowly; cultural evolution occurs less slowly, but still slowly compared to institutional and market evolution.a. Give some examples of these observations about the different speeds of adjustment.b. Explain the relevance of these observations to economic reasoning.
On average, women are paid less than men. What are the likely reasons for that? Should the government intervene with a law that requires firms to pay equal wages to those with comparable skills? (Feminist)
Some economists believe minimum wages create distortions in the labor market. If you are an employer and unable to hire the one willing and able to work for the lowest wage, how else might you choose a worker? Is this fair? Why or why not? (Austrian)
You’re given the following supply and demand tables:(LO5-5)a. What is equilibrium price and quantity in a market system with no interferences?b. If this were a third-party-payer market where the consumer pays $2, what is the quantity demanded?What is the price charged by the seller?c. What is
In what ways is the market for public postsecondary education an example of a third-party-payer market?What’s the impact of this on total educational expenditures? (LO5-5)
The city of Pawnee issues a fixed number of fishing licenses each year. (LO5-4)a. Using the accompanying graph, demonstrate the effect of a limit of 100 fishing licenses at a cost of$20 per license.b. Is there excess supply or demand for licenses? Label the excess supply or demand on the graph.c.
Quotas are quantity restrictions on imported goods.Demonstrate the effect of a quota on the price of imported goods. (LO5-4)
Draw the supply and demand curves associated with the tables below. (LO5-3)a. What is equilibrium price and quantity?b. What is equilibrium price and quantity with a $0.75 per-unit tax levied on suppliers? Demonstrate your answer graphically.c. How does your answer to b change if the tax were
Taxes can be levied on consumers or producers. (LO5-3)a. Demonstrate the effect of a $4 per-unit tax on suppliers on equilibrium price and quantity.b. Demonstrate the effect of a $4 per-unit tax on consumers on equilibrium price and quantity.c. How does the impact on equilibrium prices (paid by
Graphically show the effects of a minimum wage on the number of unemployed. (LO5-2)
Demonstrate graphically the effect of a price floor. (LO5-2)
Demonstrate graphically why rent controls might increase the total payment that new renters pay for an apartment. (LO5-2)
Demonstrate graphically the effect of an effective price ceiling. (LO5-2)
In the early 2000s a drought in Australia’s rice-growing regions raised the world price of rice from 12 to 24 cents a pound. Demonstrate graphically the effect of the drought on equilibrium price and quantity in the world rice market.(LO5-1)
Kennesaw University Professor Frank A. Adams III and Auburn University Professors A. H. Barnett and David L. Kaserman recently estimated the effect of legalizing the sale of cadaverous organs, which currently are in shortage at zero price. What are the effects of the following two possibilities on
In 2011 oil production in Libya was interrupted by political unrest. At the same time, the demand for oil by China continued to rise. (LO5-1)a. Demonstrate the impact on the quantity of oil bought and sold.b. Oil production in Libya returned to its original levels by the end of 2012. What was the
Demonstrate the effect on price and quantity of each of the following events: (LO5-1)a. In a recent popularity test, Elmo topped Cookie Monster in popularity (this represents a trend in children’s tastes). Market: cookies.b. The Atkins Diet that limits carbohydrates was reported to be very
The technology has been developed so that road use can be priced by computer. A computer in the surface of the road picks up a signal from your car and automatically charges you for the use of the road. How would this affect bottlenecks and rush-hour congestion?(LO5-1)
Say that equilibrium price fell and quantity remained constant.What would you say was the most likely cause? (LO5-1)
Say that the equilibrium price and quantity both rose. What would you say was the most likely cause? (LO5-1)
Why is a supply/demand analysis that includes only economic forces likely to be incomplete?
What would be the effect of a 75 percent tax on lawsuit punitive awards that was proposed by California Governor Arnold Schwarzenegger in 2004 on:a. The number of punitive awards. Demonstrate your answer using supply and demand curves.b. The number of pretrial settlements.
In 1994, the U.S. postal service put a picture of rodeo rider Ben Pickett, not the rodeo star Bill Pickett, whom it meant to honor, on a stamp. It printed 150,000 sheets.Recognizing its error, it recalled the stamp, but it found that 183 sheets had already been sold.a. What would the recall likely
In the early 2000s, the demand for housing increased substantially as low interest rates increased the number of people who could afford homes.a. What was the likely effect of this on housing prices?Demonstrate graphically.b. In 2005, mortgage rates began increasing. What was the likely effect of
Oftentimes, to be considered for a job, you have to know someone in the firm. What does this observation tell you about the wage paid for that job?
Some economists believe that imposing international labor standards would cost jobs. In support of this argument, one economist said, “Either you believe labor demand curves are downward-sloping, or you don’t.” Of course, not to believe that demand curves are negatively sloped would be
Do you think consumers make purchasing decisions based on general rules of thumb instead of price?a. Why would consumers do this?b. What implication might this have for the conclusions drawn about markets? (Post-Keynesian)
Knowledge is derived from a tautology when something is true because you assume it is true. In this chapter, you have learned the conditions under which supply and demand explain outcomes. Yet, as your text author cautions, these conditions may not hold. How can you be sure if they ever hold?
Economics is often referred to as the study of choice.a. In U.S. history, have men and women been equally free to choose the amount of education they receive even within the same family?b. What other areas can you see where men and women have not been equally free to choose?c. If you agree that men
In the late 19th century, Washington Gladden said, “He who battles for the Christianization of society, will find their strongest foe in the field of economics. Economics is indeed the dismal science because of the selfishness of its maxims and the inhumanity of its conclusions.”a. Evaluate
In a centrally planned economy, how might central planners estimate supply or demand? (Austrian)
State whether “other things constant” is likely to hold in the following supply/demand analyses: (LO4-4)a. The impact of an increase in the demand for pencils on the price of pencils.b. The impact of an increase in the supply of labor on the quantity of labor demanded.c. The impact of an
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