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microeconomics

Questions and Answers of Microeconomics

What argument underlies the general laissez-faire policy argument?
Steve can bake either 4 loaves of bread or 8 dozen cookies a day.Sarah can bake either 4 loaves of bread or 4 dozen cookies a day. Show, using production possibility curves, that Steve and Sarah
True or false? Two countries can achieve the greatest gains from trade by each producing the goods for which it has a comparative advantage and then trading those goods.
How does globalization reduce the costs of production?
Is it likely that all U.S. jobs one day will have moved abroad?Why or why not?
John, your study partner, is telling you that the best way to allocate property rights is through the market.How do you respond?
Which would be more likely to attempt to foster individualism:socialism or capitalism?
The uncertainty caused by terrorist attacks makes consumers reluctant to spend on luxury items.This reduces ________. Should the missing words be demand for luxury goods or quantity of luxury goods
Explain the effect of each of the following on the demand for new computers:1. The price of computers falls by 30 percent.2. Total income in the economy rises.
Derive a market demand curve from the following two individual demand curves: Price $10 9 8765432 1 D Dz 0 1 2 3 4 5 6 7 8 9 10 Quantity
Assume that the price of gasoline rises, causing the demand for hybrid cars to rise. As a result, the price of hybrid cars rises. This makes _______ rise. Should the missing words be the supply or
Explain the effect of each of the following on the supply of romance novels:1. The price of paper rises by 20 percent.2. Government provides a 10 percent subsidy to book producers.
Demonstrate graphically the effect of a heavy frost in Florida on the equilibrium quantity and price of oranges.
Is the marginal social benefit of a good that exhibits positive externalities greater or less than the private social benefit of that good? Why?
How would an economist likely respond to the statement “There is no such thing as an acceptable level of pollution”?
Would a high tax on oil significantly reduce the amount of pollution coming from the use of oil? Why or why not?
The marginal cost, marginal social cost, and demand for fish are represented by the curves in the graph below. Suppose that there are no restrictions on fishing.a. Assuming perfect competition,
Which is more efficient: a market incentive program or a direct regulatory program? Why?
There’s a gas shortage in Gasland. You’re presented with two proposals that will achieve the same level of reduction in the use of gas. Proposal A would force everybody to reduce their gas
List the public-good aspects (if any) of the following goods: safety, street names, and a steak dinner.
Why are both nonexcludability and nonrivalry important elements of public goods?
Why are voluntary contributions to provide for public goods such as city parks unlikely to lead to an efficient quantity of parks in a city?
Use the table below, which shows the demand for a public good in an economy consisting of two households, A and B, to answer a to d below.a. Graph the individual demand curves and the market demand
If you are willing to pay $5,000 for a used car that is a“cherry” and $1,000 for a used car that is a “lemon,” how much will you be willing to offer to purchase a car if there is a 50 percent
Give three examples of signaling in the real world.
Automobile insurance companies offer low-premium contracts with high deductibles and high-premium contracts with low deductibles. How is this an example of screening?
The book titles this chapter “Market Failure versus Government Failure.”a. Does the fact that the author spends most of the chapter discussing market failure rather than government failure
Institutional economists define economics as the study of how people use institutions to socially interact in the process of extracting materials from the biophysical world to produce and exchange
Post-Keynesians suggest that contractual agreements might be a way to deal with asymmetric information.a. Name a business or consumer transaction where asymmetric information might occur.b. How could
Water privatization in South Africa has been guided by what the World Bank calls the “cost recovery” approach:Water should be made available to people only if the company providing it can recover
Most economists believe that the federal gasoline tax should be raised to $1 per gallon or higher. What do you suppose were their reasons?
In his book At the Hand of Man, Raymond Bonner argues that Africa should promote hunting, charging large fees for permits to kill animals (for example, $7,500 for a permit to shoot an elephant).a.
Suppose an air-quality law is passed that requires 3.75 percent of all the cars sold to emit zero pollution.a. What would be the likely impact of this law?b. Can you think of any way in which this
Should government eliminate the Food and Drug Administration’s role in restricting which drugs may be marketed?Why or why not?
Financial analysts are not currently required to be licensed.Should they be licensed? Why or why not?
Scientists have identified a gene that accounts for 5 percent of thrill-seeking behavior. People with this gene are likely to take more risks such as smoking and bungee jumping in search of the next
List five ways you are affected on a daily basis by government intervention in the market. For what reason might government be involved? Is that reason justified?
Would a high tax on oil significantly reduce the total amount of pollution in the environment?
A debate about dairy products concerns the labeling of milk produced from cows that have been injected with the hormone BST, which significantly increases milk production.Since the FDA has determined
Why does the existence of an externality prevent the market from working properly?
If a positive externality exists, does that mean that the market works better than if no externality exists?
It is sometimes said that there is a trade-off between fairness and efficiency. Explain one way in which that is true and one way in which that is false.
In what sense is the tax incentive approach to externalities fair?
What are two reasons to be dubious of solutions based on voluntary action that is not in people’s self-interest?
Why is it so difficult for government to decide the efficient quantity of a public good to provide?
How would you expect medical insurance rates to change if medical insurers could use information contained in DNA to predict the likelihood of major medical illnesses?
Who would benefit and who would lose if an informational alternative to licensing doctors were used?
Would an economist necessarily believe that we should simply let the market deal with a pollution problem?
If one accepts the three reasons for market failure, why might one still oppose government intervention?
A dressmaker can sew 800 garments with 160 bolts of fabric and 3,000 hours of labor. Another dressmaker can sew 800 garments with 200 bolts of fabric and 2,000 hours of identical labor. Fabric costs
A student has just written on an exam that, in the long run, fixed cost will make the average total cost curve slope downward. Why will the professor mark it incorrect?
Why could diseconomies of scale never occur if production relationships were only technical relationships?
In the early 2000s carmakers began to design vehicles’chassis, engines, and transmissions so that different models could be produced on the same assembly line.Within the first year of implementing
Draw a long-run average total cost curve. a. Why does it slope downward initially?b. Why does it eventually slope upward?c. How would your answers to a and b differ if you had drawn a short-run cost
Why are long-run costs always less than or equal to shortrun costs?
Draw a short-run marginal cost curve, short-run average cost curve, and long-run average total cost curve for an efficient firm producing where there are diseconomies of scale.
Where along the long-run average total cost curve will an efficient firm try to produce in the long run?
What is the role of the entrepreneur in translating cost of production into supply?
Your average total cost is $30; the price you receive for the good is $15. Should you keep on producing the good?Why?
True or false? Because entrepreneurs are motivated by opportunities to sell an item at a price higher than the average cost of producing it, they do not start for-benefit firms. Explain your answer.
A student has just written on an exam that technological change will mean that the cost curve is downward-sloping.Why did the teacher mark it wrong?
How does learning by doing affect average total costs?
If a firm is experiencing learning by doing, what is likely true about the long-run average total cost curve? Explain your answer.
Adam Smith argued that at birth most people were similarly talented, and that differences in individual abilities, and hence productivity, are largely the effect of the division of labor, not its
Firms have an incentive to “externalize” their costs, that is, to make others face the opportunity costs of their actions while firms reduce their own accounting costs.a. Give some examples of
A major survey conducted by economists David Levine and Laura Tyson found that “in most reported cases the introduction of substantive shop floor participation (job redesign and participatory work
If you were describing the marginal cost of an additional car driving on a road, what costs would you look at? What is the likely shape of the marginal cost curve?
A major issue of contention at many colleges concerns the cost of meals that is rebated when a student does not sign up for the meal plan. The administration usually says that it should rebate only
When economist Jacob Viner first developed the envelope relationship, he told his draftsman to make sure that all the marginal cost curves went through both(1) the minimum point of the short-run
The cost of setting up a steel mill is enormous. For example, a Gary, Indiana, hot-strip mill would cost an estimated$1.5 billion to build. Using this information and the cost concepts from the
Why are larger production runs often cheaper per unit than smaller production runs?
If production involved only technical relationships and had no social dimension, what would the long-run average total cost curve look like?
Why is the short-run average cost curve a U-shaped curve?
Why is the long-run average total cost curve generally considered to be a U-shaped curve?
Why is the role of the entrepreneur central to the production process in the economy?
What is the difference between an economy of scope and an economy of scale?
Does learning by doing cause the average cost curve to be downward-sloping?
As the owner of the firm, Jim pays himself $1,000. All other expenses of the firm add up to $2,000. What would an economist say are the total costs for Jim’s firm?
Why must buyers and sellers be price takers for a market to be perfectly competitive?
List three conditions for perfect competition.
If the conditions for perfect competition are generally not met, why do economists use the model?
You’re thinking of buying one of two firms. One has a profit margin of $8 per unit; the other has a profit margin of $4 per unit. Which should you buy? Why?(Difficult)
A perfectly competitive firm sells its good for $20. If marginal cost is four times the quantity produced, how much does the firm produce? Why? (Difficult)
Draw marginal cost, marginal revenue, and average total cost curves for a typical perfectly competitive firm and indicate the profit-maximizing level of output and total profit for that firm. Is the
State what is wrong with each of the graphs. P Price What's wrong? MC AFC D = MR P Price What's wrong? MC (a) Q Quantity (b) Q Quantity D
What will be the effect of a technological development that reduces marginal costs in a competitive market on short-run price, quantity, and profit?
Draw marginal cost, marginal revenue, and average total cost curves for a typical perfectly competitive firm in long-run equilibrium and indicate the profit-maximizing level of output and total
Each of 10 firms in a given industry has the costs given in the left-hand table. The market demand schedule is given in the right-hand table.a. What is the market equilibrium price and the price each
Graphically demonstrate the quantity and price of a perfectly competitive firm.a. Why is a slightly larger quantity not preferred?b. Why is a slightly lower quantity not preferred?c. Label the
How is a firm’s marginal cost curve related to the market supply curve?
Draw the ATC, AVC, and MC curves for a typical firm.Label the price at which the firm would shut down temporarily and the price at which the firm would exit the market in the long run.
Under what cost condition is the shutdown point the same as the point at which a firm exits the market?
A profit-maximizing firm is producing where MR = MC and has an average total cost of $4, but it gets a price of$3 for each good it sells.a. What would you advise the firm to do?b. What would you
A farmer is producing where MC = MR. Say that half of the cost of producing wheat is the rental cost of land(a fixed cost) and half is the cost of labor and machines(a variable cost). If the average
Based on the following table:a. What is the profit-maximizing output?b. What will happen to the market price in the long run? Output Price Total Cost 0 $10 $ 31 1 10 40 23 10 45 10 48 4 10 55 5 10 65
Why is the long-run market supply curve horizontal in a constant-cost industry?
Use the accompanying graph, which shows the marginal cost and average total cost curves for the shoe store Zapateria, a perfectly competitive firm.a. How many pairs of shoes will Zapateria produce if
A Wall Street Journal headline states: “A Nation of Snackers Snubs Old Favorite: The Beloved Cookie.”As U.S. consumers adopted more carbohydrate-conscious diets, the number of cookie boxes sold
The book presents the perfectly competitive model as the foundation for economic analysis.a. How well does the theory of perfect competition reflect the real world?b. What role, if any, does the
This chapter discusses perfect competition as a benchmark to think about the economy.a. Can labor market discrimination—hiring someone on the basis of race or gender rather than capability—exist

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