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microeconomics
Microeconomics Private And Public Choice 11th Edition James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson - Solutions
=+a. If the ticket pays $150,000 per year at the end of each year for the next twenty years,
=+12. According to a news item, the owner of a lottery ticket paying $3 million over twenty years is offer- ing to sell the ticket for $1.2 million cash now. "Who knows?" the ticket owner explained. "We might not even be here in twenty years, and I do not want to leave it to the dinosaurs."
=+11. Some countries with very low incomes per capita are unable to save very much. Are people in these countries helped or hurt by people in high-income countries with much higher rates of saving? *
=+c. Do people like Mike benefit from the presence of people like Alicia? Explain. *
=+b. Do people like Alicia benefit from the presence of people like Mike? Explain.
=+a. Who has the higher rate of time preference?
=+*10. Alicia's philosophy of life is summed up by the proverb, "A penny saved is a penny earned." She plans and saves for the future. In contrast, Mike's view is, "Life is uncertain; eat dessert first." Mike wants as much as possible now.
=+Is the project profitable at an in- terest rate of 12 percent? Provide calculations in support of your answer.
=+The lessee is responsible for the upkeep and maintenance of the machine during the three-year period. If you can borrow (and lend) money at an in- terest rate of 8 percent, will the investment be a prof- itable undertaking?
=+9. Suppose that you are contemplating the purchase of a commercial lawn mower at a cost of $10,000. The expected lifetime of the machine is three years. You can lease the asset to a local business for $4,000 an- nually (payable at the end of each year) for three years.
=+8. If the money rate of interest on a low-risk govern- ment bond is 10 percent and the inflation rate for the last several years has been steady at 4 percent, what is the estimated real rate of interest?
=+Should the government impose an interest rate ceiling of, say, 10percent? If it did, who would be hurt and who would be helped? Discuss. *
=+7. The interest rates charged on outstanding credit card balances are generally higher than the interest rate that banks charge customers with a good credit rat- ing. Why do you think the credit card rate is so high?
=+*6. Over long periods of time, the rate of return of an av- erage investment in the stock market has exceeded the return on high-quality bonds. Is the higher return on stocks surprising? Why or why not?
=+ Do profitable in- vestments create wealth? Why or why not? Do all investments create wealth? Discuss.
=+5. In a market economy, investors have a strong incen- tive to undertake profitable investments. What makes an investment profitable?
=+4. A lender made the following statement to a bor- rower: "You are borrowing $1,000, which is to be repaid in twelve monthly installments of $100 each. Your total interest charge is $200, which means your interest rate is 20 percent." Is the effective interest rate on the loan really 20 percent?
=+ Do human capital investors make profits? If so, what is the source of the profit? Explain. *
=+ What deter- mines the profitability of a physical capital invest- ment?
=+ 3. How are human and physical capital investment decisions similar? How do they differ?
=+ Any return above that is pure gravy; it is excess profit." Do you agree with this view? Why or why not?
=+2. "Any return to capital above the pure interest yield is unnecessary. The pure interest yield is sufficient to provide capitalists with the earnings necessary to replace their assets and to compensate for their sac- rifice of current consumption.
=+e. Improved investment opportunities in Europe
=+d. Increased uncertainty about a nuclear war
=+c. An increase in domestic inflation
=+b. An increase in the positive time preference of borrowers
=+a. An increase in the positive time preference of lenders
=+*1. How would the following changes influence the rate of interest in the United States?
=+ How do profitable and unprofitable investments influence the wealth of nations?
=+ When is an investment profitable?
=+ Why is the interest rate so important when costs and revenues are evaluated across time periods?
=+Why are lenders willing to loan funds?
=+ Why are investors willing to pay interest to get loanable funds?
=+ What is the interest rate?
=+Why are capital resources often used to produce consumer goods?
=+Why do people invest?
=+13. If an individual is motivated primarily by the desire to make money, will he or she have an incentive to be helpful to others? Will he or she have an incentive to develop skills that others value highly? Why or why not?
=+1 "Technological change eliminates thousands of jobs every year. Unless something is done to slow the growth of technology, ordinary workers will face a bleak future of low wages and high unemployment." Explain why you either agree or disagree with this statement.
=+ In which occupation will the annual wage be highest? Why?
=+11. Consider two occupations (A and B) that employ people with the same skills and abilities. When employed, workers in the two occupations work the same number of hours per day. In occupation A, employment is stable throughout the year, while employment in B is characterized by seasonal lay-
=+f. The job requires substantial amounts of out-of- town travel. *
=+e. The job requires employees to move often from city to city.
=+c. The employer provides low-cost child care services on the premises.d. The job is widely viewed as prestigious.
=+b. The job involves split shifts (work three hours, off two hours, work three additional hours, and so on).
=+a. The employee must work the midnight to 8:00 shift. A.M.
=+10. Other things being constant, how will the following influence the hourly earnings of employees? Explain your answer.
=+*9. "If individuals had identical abilities and opportuni- ties, earnings would be equal." Is this statement true or false? *
=+8. People who have invested heavily in human capital (for example, lawyers, doctors, and even college professors) generally have higher wages, but they also generally work more hours than other workers. Can you explain why?
=+d. Can you think of a more equitable system? If so, explain why it is more equitable. *
=+c. Do you think the market system of wage determi- nation is fair? Why or why not?
=+b. Why are the incomes of some workers high and others low?
=+a. Does hard work necessarily lead to a high income?
=+ 7. "If Jones has a skill that is highly valued, she will be able to achieve high market earnings. In contrast, Smith may work just as hard or even harder, and still earn only a low income."
=+6. "Jobs are the key to economic progress. Unless we create more jobs, our standard of living will fall." Is this statement true or false? Explain.
=+Can higher earnings be achieved without higher productivity? Why or why not? Discuss. *
=+5. Is there a relationship between the growth of pro- ductivity and changes in wage rates?
=+b. If the average earnings differ between two groups of employees (for example, whites and blacks), does this mean that the group with the lower earn- ings is experiencing employment discrimination? Why or why not?
=+4.a. If minority employees are discriminated against, how will this affect their earnings? Use supply and demand analysis to explain your answer.
=+lawyer and a Wall Street lawyer, (e) an experienced, skilled craftsperson and a twenty-year-old high school dropout, and (f) an upper-story and a ground-floor window washer?
=+ 3. What explains the earnings differences between (a) a lawyer and a minister, (b) an accountant and an elementary school teacher, (c) a business executive and a social worker, (d) a country
=+ Is the labor force itself responsible for the higher wages of American workers? Explain.
=+2. Why are real wages in the United States higher than in other countries?
=+How do wage differentials influence the allocation of resources? Explain. *
=+ Why are wages in some occupations higher than in others?
=+1. Why do some people earn higher wages than oth- ers?
=+ Why has the growth rate of both wages and income per capita increased during the past decade?
=+ What is the source of higher wages?
=+13. Leisure Times Inc. employs skilled workers and capital to install hot tubs. The capital includes the tools and equipment workers use to construct and install the tubs. The installation services are sold in
=+c. What would happen to employment if the wage rate rose to $50? Explain.
=+b. How many units of labor would be employed if the market wage rate were $40? Why?
=+12. The following chart provides information on a firm that hires labor competitively and sells its product in a competitive market.Units of Total Marginal Product Total Labor Output Product Price Revenue MRP 1234567 14 $5 26 $5 37 $5 46 $5 53 $5 58 $5 62 $5a. Fill in the missing figures.
=+11. Other things being constant, what impact will a highly elastic demand for a product have on the elasticity of demand for the resources used to pro- duce the product? Explain. *
=+10. "The earnings of engineers, doctors, and lawyers are high because lots of education is necessary to prac- tice in these fields." Evaluate this statement.
=+How low would the Mex- ican wage have to be for the firm to reduce its wage cost per unit of output by moving to Mexico?
=+9. A firm is considering moving from the United States to Mexico. The firm pays its U.S. workers $12 per hour. Current U.S. workers have a marginal product of forty, whereas the Mexican workers have a marginal product of ten.
=+ Is the dress- maker minimizing costs? If not, what changes need to be made?
=+8. A dressmaker uses labor and capital (sewing ma- chines) to produce dresses in a competitive market. Suppose the last unit of labor hired cost $1,000 per month and increased output by 100 dresses. The last unit of capital hired (rented) cost $500 per month and increased output by 80 dresses.
=+What does this imply about the relationship between average shoplifting per hour in the economy and the wage rates of security guards? *
=+ 7. Suppose that you were the manager of a large retail store that was currently experiencing a shoplifting problem. Every hour, approximately $15 worth of merchandise was being stolen from your store. Sup- pose that a security guard would completely elimi- nate the shoplifting in your store. If
=+6. Many school districts pay teachers on the basis of their highest degree earned and number of years of service (seniority). They often find it quite easy to fill the slots for English and history teachers, but very difficult to find the required number of math and science teachers. Can you
=+b. "In a market economy, each resource will tend to be paid according to its marginal product. Highly productive resources will command high prices, whereas less productive resources will command lower prices." *
=+a. "Firms will hire a resource only if they can make money by doing so."
=+5. Are the following statements both correct? Are they inconsistent with each other? Explain.
=+4. Are productivity gains the major source of higher wages? If so, how does one account for the rising real wages of barbers, who, by and large, have used the same techniques for a half-century?(Hint: Do not forget opportunity cost and supply.)
=+ Would Compute-Accounting be able to stay in business at the lower market price? Explain. *
=+ At this demand level, how many employees would Compute- Accounting hire at $250 per week in the short run?
=+c. Suppose that there were a decline in demand for accounting services that reduced the market price per monthly statement to $150.
=+b. What would the firm's maximum profit be if its fixed costs were $1,500 per week?
=+a. How many employees (operators) would Compute-Accounting hire at a weekly wage of $250 if it were attempting to maximize profits?
=+3. Use the information in Exhibit 4 of this chapter to answer the following:
=+What determines the combination of skilled and unskilled workers em- ployed by a firm?
=+ 2. How does a firm decide whether or not to employ an additional unit of a resource?
=+Why is the em- ployment of a resource inversely related to its price?
=+1. "The demand for resources is a derived demand." What is meant by that statement?
=+ How do resource prices help efficiently allocate a society's resources across competing uses?
=+ What determines the market price of a resource?
=+Why is the demand for a productive resource inversely related to its price?
=+Why do business firms demand labor, machines, and other resources?
=+e. Will the profits attract competitors to the indus- try? Why or why not? Explain.
=+d. Indicate the maximum profits of the monopolist.
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