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microeconomics

Questions and Answers of Microeconomics

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?
How can an increase in productivity harm suppliers?
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.
If supply is perfectly inelastic, will price controls cause a large shortage?
Why do price controls tend to create ongoing shortages or surpluses in the long run?
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?
What percentage of a tax will the demander pay if price elasticity of supply is 0.4 and price elasticity of demand is 0.6? What percentage will the supplier pay?
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?
Should tenants who rent apartments worry that increases in property taxes will increase their rent? Does your answer change when considering the long run?
Calculate the percentage of the tax borne by the demander and supplier in each of the following cases:a. ED = 0.3, ES = 1.2b. ED = 3, ES = 2c. ED = 0.5, ES = 1d. ED = 0.5, ES = 0.5e. Summarize your
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.a. Who gets the revenue
Use the graph below to answer the following questions: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
In which case would the shortage resulting from a price ceiling be greater: when supply is inelastic or elastic?Explain your answer.
Suppose government imposed a minimum wage above equilibrium wage.a. Assuming nothing else changes, what do you expect to happen to the resulting shortage of jobs as time progresses?b. What do you
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.a. How do you respond?b.
Define rent seeking. Do firms have a greater incentive to engage in rent-seeking behavior when demand is elastic or when it is inelastic?
What is the general rule of political economy? Give an example from the real world.
State three reasons for a potentially beneficial role of government intervention.
What is the adverse selection problem?
Automobile insurance companies charge lower rates to married individuals than they do to unmarried individuals.What economic reason is there for such a practice?Is it fair?
An advanced degree is required to teach at most colleges.In what sense is this a form of restricting entry through licensure?
Who would benefit and who would lose if an informational alternative to licensing doctors were introduced?
What is the effect of the moral hazard problem on insurance premiums? Explain your answer.
The total cost of government regulations in the U.S. manufacturing sector was estimated by the National Association of Manufacturers to be about $2 trillion in 2012, or$15,400 per family.a. Do the
When Ben wears his red shirt, it bothers Sally, who hates the color red. Since Ben’s wearing of a red shirt imposes a cost on Sally, it involves an externality. Would it therefore be correct to
True or false? Burning fossil fuels contributes to climate change. Thus, it makes sense for the government to place a tax on the burning of fossil fuels. Why?
If the opportunity cost of oil for food were the same for both the United States and Saudi Arabia, what should I.T. do?
In the 10th century B.C., King Solomon brought the Israelites into great economic wealth through specialization and trade. It was difficult when faced with the practices and beliefs of their trading
In what circumstances would a small country not get the larger percentage of the gains from trade?
What are four reasons for the difference between laypeople’s and economists’ views of trade?
Why has globalization caused employment and wages to decline in the manufacturing sector but not in the education, government, and health care sectors?
What are two likely adjustments that will reduce the trade deficit between China and the United States?
Show graphically the effect on the price of euros of an increase in the demand for dollars by Europeans.
If one dollar can be exchanged for more euros, has the dollar appreciated or depreciated?
If the world supply of goods is at the domestic price level, what will be the level of net imports? Explain your answer.
How can the discovery of a highly valuable resource lead to the appreciation of a currency and loss of comparative advantage in other goods?
How has the nature of U.S. imports from China changed in recent years?
Will a debtor nation necessarily be running a trade deficit?
How are tariffs like taxes?Demonstrate with a supply and demand curve.
Why do importers prefer a quota to a tariff? Why does government prefer a tariff?
How might a country benefit from having an inefficient customs agency?
Who is likely to be more vocal when lobbying government to impose trade restrictions: producers or consumers? Explain your answer.
True or false? In strategic trade bargaining, it is sometimes reasonable to be unreasonable. Explain.
Is it efficient for a country to maintain a trade barrier in an industry that exhibits economies of scale?
What are two important international economic organizations?
What are two important trade associations?
What costs and revenues do economists include when calculating profit that accountants don’t include? Give an example of each.
The text presents very detailed cost tables when it considers the decisions of firms.a. Do entrepreneurs have such cost tables available to them when they enter a business?b. If not, how do they
“There is no long run; there are only short and shorter runs.” Evaluate that statement.
What distinguishes accounting profit from economic profit?
Peggy-Sue’s cookies are the best in the world, or so I hear. She has been offered a job by Cookie Monster, Inc. to come to work at $130,000 per year.Currently, she is producing her own cookies, and
Say that a drug firm could increase its profit by marketing a drug that it knows might have serious side effects. Say also that it knows that it can never be prosecuted for doing so.a. Would it?b.
If you increase production to an infinitely large level, the average variable cost and the average total cost will merge. Why?
What are the normal shapes of marginal productivity and average productivity curves?
Economan has been infected by the free enterprise bug. He sets up a firm on extraterrestrial affairs.The rent of the building is $4,000, the cost of the two secretaries is $50,000, and the cost of
The analysis in the book suggests that firms hire inputs so that they hold costs as low as possible. Yet, as Gloria Steinem has pointed out, looking at reality one sees men selling refrigerators and
When cell phones were first introduced, bandwidth was limited, which led to economically interesting pricing structures. One by Sprint offered customers 4,000 free minutes for $39.99 a month. The
Firms are likely to operate on what portion of the marginal productivity curve?
What distinguishes the short run from the long run?
The text does not emphasize firms’ role in shaping the tastes and preferences of consumers even though this is a very important role with firms spending about $185 billion a year on advertising. If
Say that neither labor nor machines are fixed but there is a 50 percent quick-order premium paid for both workers and machines for their delivery in the short run. Once you buy them, they cannot be
If total costs are $400, fixed costs are 0, and output is 10, what are average variable costs?
What is the difference between marginal product and average product?
Walmart, the nation’s largest retailer, has perfected a “just-in-time” competitive strategy. This retail giant relies on bar codes for instant inventory, distribution centers that purchase
If machines are variable and labor fixed, how will the general shapes of the short-run average cost curve and marginal cost curve change?
Draw a graph of both the marginal cost curve and the average cost curve.
Explain how studying for an exam is subject to the law of diminishing marginal productivity.
Will transferable or inherent comparative advantages be more impacted by the law of one price? Why?
What determines the distance between the average total cost and the average variable cost?
When marginal cost equals the minimum point of average variable cost, what is true about the average productivity and marginal productivity of workers?
If average productivity falls, will marginal cost necessarily rise? How about average cost?
An economic consultant is presented with the following total product table and asked to derive a table for average variable costs. The price of labor is $10 per hour.a. Help him do so.b. Show that
Say that a firm has fixed costs of $100 and constant average variable costs of $25.a. Show AFC, VC, AVC, and MC in a table.b. Graph the AFC, ATC, AVC, and MC curves.c. Explain why the curves have the
Say a firm has $100 in fixed costs and its average variable costs increase by $5 for each unit, so that the cost of 1 is $25, the cost of 2 is $30, the cost of 3 is $35, and so on.a. Show VC, AFC,
True or false? If a process is economically efficient, it is also technically efficient. Explain your answer.
What is the difference between technical efficiency and economic efficiency?
The text presents costs as if a firm could look them up in a book.a. How do you believe a firm’s true costs are revealed?b. Is this an optimal method of finding out costs?(Austrian)
A pair of shoes that wholesales for $28.79 has approximately the following costs:a. Which of these costs would likely be a variable cost?b. Which would likely be a fixed cost?c. If output were to
Why does Bangladesh use production techniques that require more workers per acre of land than do the techniques used in the United States?
One farmer can grow 1,000 bushels of corn on 1 acre of land with 200 hours of labor and 20 pounds of seed.Another farmer can grow 1,000 bushels of corn on 1 acre of land with 100 hours of labor and
The chapter points out that “businesses give enormous weight to experience,” or learning by doing. Empirical evidence suggests that, in surveys and applications, women tend to report the nature
What inputs do you use in studying this book? What would the long-run average total cost and marginal cost curves for studying look like? Why?
Graph the following table:a. What is marginal product and average product at each level of production?b. Graph marginal product and average product.c. Label the areas of increasing marginal
If average product is falling, what is happening to short-run average variable cost?
If marginal cost is increasing, what do we know about average cost?
Find TC, AFC, AVC, AC, and MC from the following table: 100 VC $ 0 Units FC $100 012345 40 100 60 100 70 100 85 100 130
Explain how each of the following will affect the average fixed cost, average variable cost, average total cost, and marginal cost curves faced by a steel manufacturer:a. New union agreement
A firm has fixed costs of $100 and variable costs of the following:a. Show AFC, ATC, AVC, and MC in a table.b. Graph the AFC, ATC, AVC, and MC curves.c. Explain the relationship between the MC curve
For each of the following indicate what costs are being calculated:a. FC + VCb. TC/Qc. FC/Qd. VC/Qe. AFC + AVC
If marginal costs are increasing, what is happening to average total costs?
Classify each of the following as fixed or variable costs:a. Outsourced payroll services.b. Leased offices.c. Company-owned building.d. Payroll taxes.
If marginal costs are decreasing, what must be happening to average variable costs?
Which of the costs discussed in the chapter is the most important when a firm is deciding how much to produce?
Why does the marginal cost curve intersect the average variable cost curve at the minimum point?
Bernie’s ice-making company produces ice cubes using a 10-ton machine and electricity. The quantity of output, measured in terms of pounds of ice, is given in the accompanying table.a. What is the
Aidy’s Apple Pies is a roadside business. Aidy must pay $9.00 in rent each day. In addition, it costs her $1.00 to produce the first pie of the day, and each subsequent pie costs 50% more to
The accompanying table shows three possible combinations of fixed cost and average variable cost for a single firm. Average variable cost is constant in this example (it does not vary with the
In each of the following cases, explain what kind of scale effects you think the firm will experience and why.a. A telemarketing firm in which employees make sales calls using computers and
Draw a graph like Figure 11-12 and insert a short-run average total cost curve corresponding to a long-run output choice of 5 cases of salsa per day. Use the graph to show why Selena’s Gourmet
Explain the difference between diminishing marginal returns to labor and decreasing returns to scale. Provide an example for each case.

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