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microeconomics

Questions and Answers of Microeconomics

As we saw in this chapter, comparative advantage is an important economic concept. We often use a table and some arithmetic to explain it, but how might you use words to explain comparative advantage
The first discussion of comparative advantage appears in On the Principles of Political Economy and Taxation, a book written by the British economist David Ricardo in 1817. Ricardo provided a famous
Dave has $300 to spend each month on pizzas and streaming movies. Pizzas and movies both have a price of $10, and Dave is maximizing his utility by buying 20 pizzas and 10 movies. Suppose Dave still
The following table shows Lee’s utility from consuming ice cream cones and bottles of smartwater:a. Lee’s friend Ed inspects this table and concludes, “Lee’s optimal choice would be to
Spotify and Apple Music both charge $9.99 per month for unlimited music streaming. Spotify introduced a reduced price of $4.99 for college students, which after a delay Apple decided to match. In an
For this exercise, your instructor may assign you to a group. Each group member should do all of the following.a. Search sources such as a local newspaper, cnn.com, bloomberg.com, the Wall Street
Like any other business strategy, deterring entry is a good idea only if it has a higher payoff than alternative strategies. Use the following decision tree to decide whether Apple should deter Dell
When Apple first launched Apple Music, singer Taylor Swift refused to allow her album 1989, which had been the best-selling album of the year, to be made available for the service because Apple did
In 2015, the U.S. Department of Justice (DOJ) investigated whether the four major U.S. airlines were colluding. In 2017, the DOJ concluded that there wasn’t enough evidence of collusion to sue the
Suppose that Comcast has a cable monopoly in Philadelphia. The following table gives Comcast’s demand and cost per month for subscriptions to basic cable. (For simplicity, we keep the number of
During the summer of 2019, Apple was selling MacBook Pro laptop computers with 13-inch Retina displays on its website and in its retail stores for $1,299. But college students and faculty members
We have assumed that Apple can sell as many iPhones as it wants without having to cut the price. A firm in a perfectly competitive market is in this situation. These firms are price takers. Suppose
As we have seen, because of either discrimination or differing preferences, certain jobs are filled primarily by men, and other jobs are filled primarily by women. On average, the “men’s jobs”
What are the two ways that the productivity of a firm's employees may increase when a firm moves from straighttime pay to commission or piece-rate pay? If piece-rate or commission systems of
For this exercise, your instructor may assign you to a group.a. Each person in the group should read Section 17.2.b. Each person should identify some point(s) in these pages that he or she finds
In 2017, Congress and the Trump administration enacted changes to the federal tax code, including reducing the top corporate income tax rate from 35 percent to 21 percent. An editorial in the Wall
Many political observers have noted that Republican presidential candidates tend to emphasize their conservative positions on policy issues while running for their party's nomination, and Democratic
You can spend spring break either working at home for $100 per day for five days or go to Florida for the week. If you stay home, your personal expenses will total about $120. If you go to Florida,
Would the price elasticity of demand for electricity be more elastic over a shorter or a longer period of time? Why?
Why is a firm that produces a line of products interested in the cross-price elasticities between these products
Suppose that marginal utility of Good X = 100, the price of X is $10 per unit, and the price of Y is $5 per unit. Assuming that the consumer is in equilibrium and is consuming both X and Y, what must
Given the many individual demand curves for a good, describe how to derive the market demand curve for that good.
Medicare recipients pay a monthly premium for coverage, must meet an annual deductible, and have a co-payment for doctors’ office visits. What impact would an increase in the monthly premium have
In analyzing scale economies and diseconomies, what’s the difference between the plant level and the firm level?
Why would firms choose to operate in a perfectly competitive market even though they earn no economic profit in the long run?
What is rent seeking, and how could it increase the welfare cost of monopoly?
What’s the difference between shutting down and going out of business?
Determine whether each of the following statements is normative or positive:a. The U.S. unemployment rate was 6.2 percent in 2014.b. The inflation rate in the United States is too high.c. The U.S.
Explain the relationship between the price elasticity of demand and total revenue.
During the 1990s, the U.S. Congress imposed a high sales tax on yachts, figuring that the rich could afford to pay for this luxury. But so many jobs were lost in the boat-building industry that the
Does the free-rider problem arise from the characteristics of consumption rivalry, excludability, or both?
Which groups typically bear the costs and which groups enjoy the benefits of (a) Traditional public goods, (b) Special-interest legislation,(c) Competing- interest legislation?
What does it mean to say that a common-pool resource is “overused”? Overused compared to what?
Under what conditions would monopoly be a more efficient outcome for a market than would competition?
Provide examples of markets that help people stick with decisions that involve short-term costs for long-term benefits.
In the movement to downsize government, advocates often recommend turning over some government services to private firms hired by the government. What are the potential benefits and costs of such
Identify four ways that unions try to increase the demand for unionized workers.
Suppose that the cost of living increases, thereby reducing the purchasing power of your income. If your money wage doesn’t increase, you may work more hours because of this cost-of-living
How is the demand for lumber affected by the demand for housing?
Determine whether each of the following is a characteristic of perfect competition, monopolistic competition, oligopoly, and/or monopoly:a. A large number of sellers.b. Product is a commodity.c.
“The existence of only three big U.S. auto manufacturers is evidence that the market structure is anticompetitive and that antitrust laws are being broken.” Evaluate this assertion.
Identify economic trends that have hurt those with few skills and little education, and at the same time have helped those with more skills and good education.
The following graph shows the market for pollution rights.a. If there are no restrictions on pollution, what amount is discharged?b. What is the quantity supplied and the quantity demanded if the
What’s the difference between the median household income and the mean household income?
Although the poverty rate among single mothers has decreased during the last four decades, the number of poor children from such families has more than doubled. Explain.
Which types of discrimination may cause an earnings gap between white and black workers? Consider discrimination in schooling, for example. How would researchers detect racial discrimination in
What has happened to the percentage of the U.S. population on welfare since 1994? What best explains the change over time?
Firms hurt by lower-cost imports typically argue that restricting trade will save U.S. jobs. What’s wrong with this argument? Are there ever any reasons to support such trade restrictions?
Firms earn economic profit by offering a differentiated product. How does Zara differentiate its clothing?
The Big Mac Index computed by The Economist magazine has consistently found the U.S. dollar to be undervalued against some currencies and overvalued against others. This finding seems to be at odds
It is widely recognized that foreign aid that promotes productivity in developing economies is superior to merely shipping consumer goods like food and clothing to these countries. Yet the latter is
Which resource suppliers did the worst and which the best as a result of the auto bailout? Why do you suppose one group was favored over another?
In what sense was this spill in the Gulf not an externality? Should the government require deepwater oil companies to spend whatever it takes to reduce the chance of future spills to zero?
List the ill effects that the Great Recession had on high-income households and, therefore, on the economy.
An article on bloomberg.com quoted the Wall Street Journal’s observation that Congress’s use of the sugar quota was an attempt to “save industries afflicted with an extreme form of prolongation
An article in the Wall Street Journal notes, “After the Trump administration announced new tariffs on imported washing machines in January, Marc Bitzer, the chief executive of Whirlpool Corp.,
With his first paycheck, Hailey decides to buy a car. After spending hours researching the many specifications each car has—from gas mileage to horsepower—she decides to give up trying to find
Barry sees a sweater that he likes in a store. The price is $25. Barry wouldn't usually purchase the sweater at this price, but then he notices a sign that says the sweater is marked down from $50
Suppose you have plans to save 5 percent of your salary next year. Then your company goes bankrupt, your pay gets slashed by 20 percent, and you end up not saving at all. Is this an example of time
Is instituting a $100 fine for anyone caught littering a nudge? Why or why not?
Joan loves turning up her electric guitar amp all the way, but her next-door neighbor hates listening to her. How might Joan and her neighbor reach a private solution to their problem? Describe
A soccer team is voting for a captain based on how many times the captain would have the team practice per week. Table 22P-2 below shows the number of team members in favor of various numbers of
Which of the following industries do you expect to have high concentration ratios: automobile production, aircraft manufacture, computer and electronics production, pharmaceuticals, production of
Consider two alternatives for Stromboli in 2018. In case (a), Its inhabitants eat 60 million pizzas and build 6,000 pizza ovens. In case (b), The population eats 15 million pizzas but builds 18,000
Price decreases from $60 to $50. Demand is ______ and total revenue ______.
If the price of a haircut is $15, the number of haircuts provided is 125. If the price rises to $30 per haircut, barbers will work much longer hours, and the supply of haircuts will increase to 200.
Table 7P-1 shows the total utility that Han gets from ice cream, for each quantity he consumes. Fill in the third column showing the marginal utility he gets from each additional scoop. Scoops of
Sangjay is a professional photographer. His camera is broken, and he needs a new one within the next hour, or he will miss an important deadline. Keiko is a high-school student who doesn’t have a
Maheet has $40 to spend at an amusement park. The roller coaster costs $10 per ride. Given the information about Maheet’s utility in Table 7Q-2, explain why he chooses to ride only three times.
Simon spends $300 a month on voice lessons and dance lessons. He just learned that starting next month his favorite dance instructor is moving out of town and the monthly rent for his apartment is
Every year, Antoni hosts a holiday party for his friends. His party budget is $200. Antoni spends his budget on food platters that cost $25 each and on entertainment, which costs $50 per hour.a.
Sierrah spends her monthly entertainment budget on books and movies. Sierrah’s initial utility-maximizing combination of books and movies is five movies and two books a month. Assume the price of
Davin spends his money on baseball games and concert tickets. Baseball tickets cost $15, and concert tickets cost $25. His entertainment budget is $150.a. Draw Davin's budget constraint, putting
Laurel's utility is influenced by reciprocity. She is likely to respond to a surprisingly generous birthday gift from her best friend in what way?a. Not giving her friend a birthday gift at all.b.
You just spent $40 on a new movie for your collection. You would have preferred the director’s cut but discovered when you got home that you bought the theatrical version. The store you bought the
Suppose you’re bowling with friends. You’ve already played one game and are trying to decide whether to play another. Each game costs $7 per person, plus a one-time rental fee of $5 for the
Isaiah received a gift certificate that covers three salsa dance lessons. After the first lesson, Isaiah decided that he doesn’t like salsa, yet he still plans to go the next lesson because it
During a holiday party at work, you pay $5 to buy a raffle ticket for a 128-gigabyte iPad. You win the drawing. Based on a little research online, you discover that the going rate for a hardly used
You are saving for a trip to Europe. You have an existing savings account that earns 2 percent interest and has a current balance of $4,200. You don’t want to use your current savings for the
Suppose you have accumulated a credit card balance of $800, at an annual interest rate of 10 percent. You are also planning to open a new savings account that accumulates interest at an annual rate
You like your job, but your boss gives lousy bonuses. You were recently offered a new job with better rewards, and your friend wants to know if you intend to take it. You say, “It depends on
In a town with exactly 1,000 residents,60 percent of the residents make healthy choices, and 40 percent of the residents consistently make unhealthy choices. The health insurance company in town
Zach wants to signal his devotion to Emily. He has $75 and is considering a bracelet for Emily or a tattoo for himself of her name. Which is the more effective signal?
Your bank offers 4 percent annual interest on savings deposits. If you deposit $580 today, how much interest will you have earned at the end of one year?
You have $325, which a friend would like to borrow. If you don’t lend it to your friend, you could invest it in an opportunity that would pay out $376 at the end of the year. What annual interest
Cameron has a choice between $100 today and $150 in three months. Zari has a choice between $100 today and $125 in three months. Cameron chooses $100 today. Zari chooses $125 in three months. Explain
Suppose you run up a debt of $400 on a credit card that charges an annual rate of 12 percent, compounded annually. How much will you owe at the end of two years? Assume no additional charges or
Julia had two options when buying car insurance. The expected value of her wealth would be higher with Option A, but Julia chose Option B. From the list below, what can we assume about these policies
Matek pays $1,200 for an insurance policy with an expected value of $1,000. Explain why this is a rational choice for Matek.

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