Microeconomics 1st Edition Austan Goolsbee, Steven Levitt, Chad Syverson - Solutions

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6. Analyze the impact of an increase in the minimum wage from the current level to $10 per hour. How would the following be affected?a. employment of people previously earning less than $10 per hourb. the unemployment rate of teenagersc. the availability of on-the-job training for lowskilled
5. Congress recently passed a new program that will subsidize the purchase of prescription drugs by the elderly. What impact will this program have on the demand for and price of prescription drugs? How will people who are not elderly be affected by this program? Explain.
3. What is the difference between a price ceiling and a price floor? What will happen if a price ceiling is imposed below the market equilibrium? If a price ceiling for a good is set below the market equilibrium, what will happen to the quality and future availability of the good? Explain.
● What is the Laffer curve? What does it indicate about the relationship between tax rates and tax revenues?
● How does a tax or subsidy affect a market? What determines the distribution of the tax burden (or subsidy benefit) between buyers and sellers?
● What are “black markets”? How does the lack of a well-structured legal environment affect their operation?
● How do rent controls affect the maintenance and quality of rental housing? How do minimum-wage rates influence the job opportunities of low-skilled workers?
● What happens when prices are set by law above or below the market equilibrium level?
● How broadly can the supply and demand framework be used?
19. If General Motors (GM) is earning losses, should the government step in to keep them in business with a taxpayer subsidy? What does the presence of losses say about how consumers value the company’s output relative to its cost of production?Be sure to address the effects of the policy on
18. How do higher gasoline prices affect each of the following? Explain your answers.a. the incentive to invest in developing alternative fuels (such as coal liquefaction or solar energy)b. use of mass transit and carpoolingc. the development of hybrid cars
14. What’s wrong with this way of thinking?“Economists argue that lower prices will result in fewer units being supplied. However, there are exceptions to this rule. For example, in 1972, a very simple ten-digit electronic calculator sold for $120.By 2000, the price of the same type of
7. Recent tax reforms make college tuition partially tax deductible for certain families. This should motivate more people to attend college. How will this higher demand for a college education affect tuition prices?How will it affect the cost of college for families who don’t qualify for the tax
6. Define consumer and producer surplus. What is meant by economic efficiency, and how does it relate to consumer and producer surplus?
4. Are prices an accurate measure of a good’s total value? Are prices an accurate measure of a good’s marginal value? What’s the difference? Can you think of a good that has high total value but low marginal value? Use this concept to explain why professional wrestlers earn more than nurses,
1. Which of the following do you think would lead to an increase in the current demand for beef?a. higher pork pricesb. higher consumer incomec. higher prices of feed grains used to feed cattled. widespread outbreak of mad cow or hoof-andmouth diseasee. an increase in the price of beef
● What is the “invisible hand” principle?
● How do markets adjust to changes in demand? How do they adjust to changes in supply?
● How is the market price of a good determined?
● What role do profits and losses play in an economy?What must a firm do to make a profit?
● How do buyers and sellers respond to changes in the price of a good?
● How do consumers decide whether to purchase a good? How do producers decide whether to supply it?
● What are the laws of demand and supply?
16. During the last three decades, entrepreneurs like Michael Dell, Sam Walton, and Ted Turner have earned billions of dollars. Do you think the average American is better or worse off as the result of the economic activities of these individuals? Explain your response.
15. In this chapter, it was stated that a private-property right also involves having the right to transfer or exchange what you own with others. However, selling your organs is a violation of federal law, a felony punishable by up to five years in prison or a$50,000 fine. In 1999, eBay intervened
14. Consider the following questions:a. Do you think that your work effort is influenced by whether there is a close link between personal output and personal compensation (reward)?Explain.b. Suppose the grades in your class were going to be determined by a random drawing at the end of the course.
13. Consider the choices of two groups of women ages thirty to fifty. All the women in one group have a college education. All the women in the other group have less than a high school education. Which of the two groups will participate more in the workforce?Which of the two groups will bear a
10. What are the major sources of gains from trade?Why is exchange important to a nation’s prosperity?How does trade influence the quantity of output that trading partners are able to produce? In a market economy, will there be a tendency for both resources and products to be supplied by low-cost
8. Does a 60-year-old tree farmer have an incentive to plant and care for Douglas fir trees that will not reach optimal cutting size for another fifty years?
5. What is the objective of the entrepreneur when it comes to the use of his or her resources? What is the major function of the middleman? Is the middleman an entrepreneur?
3. It takes one hour to travel from New York City to Washington, D.C., by air, but it takes five hours by bus.If the airfare is $110 and the bus fare is $70, which would be cheaper for someone whose opportunity cost of travel time is $6 per hour? For someone whose opportunity cost is $10 per hour?
2. Economists often argue that wage rates reflect productivity. Yet, the wages of house painters have increased nearly as rapidly as the national average, even though these workers use approximately the same production methods as they did fifty years ago. Can you explain why the wages of painters
● What are the two major methods of economic organization?How do they differ?
● What are the sources of gains from trade? How does trade influence our modern living standards?
● What does a production possibilities curve demonstrate?
● How does private ownership affect the use of resources?Will private owners pay any attention to the desires of others?
● Why do people engage in exchange?
● What is opportunity cost? Why do economists place so much emphasis on it?
14. Should the United States attempt to reduce air and water pollution to zero? Why or why not?
13. Do individuals “economize”? If so, what are they trying to do? Do you economize when you shop at the mall? Why or why not?
12. “Economics is about trade-offs. If more scarce resources are used to produce one thing, fewer will be available to produce others.” Evaluate this statement.
7. Congress and government agencies often make laws to help protect the safety of consumers. New cars, for example, are required to have many safety features before they can be sold in the United States. These rules do indeed provide added safety for buyers, although they also add to the cost of
4. In recent years, both the personal exemption and child tax credit have been increased in the United States. According to the basic principles of economics, how will the birthrate be affected by policies that reduce the taxes imposed on those with children?
● What is the difference between positive and normative economics?
● What is the economic way of thinking? What is different about the way economists look at choices and human decision making?
● How does scarcity differ from poverty? Why does scarcity necessitate rationing and cause competition?
● What is scarcity, and why is it important even in relatively wealthy economies?
12. Contrast natural and field experiments. What are some advantages of each?
11. Lab experiments allow economists to test economic theory while holding all other variables constant.What are some downfalls of lab experiments?
10. What tends to happen to irrational or biased actors in the market system?
9. How do economists attempt to account for altruism in economic models?
8. How does mental accounting affect individuals’consumption decisions?
7. Describe one example of anchoring.
6. What is the importance of the reference point in loss aversion?
5. How does the endowment effect contradict aspects of conventional economic theory?
4. Why is time consistency important in economic models?
3. What does hyperbolic discounting lead consumers to prefer?
2. Define overconfidence.
1. Characterize Homo economicus. How does he differ from a regular human being?
19. A home-team baseball victory produces benefits for residents (in terms of hometown pride) that is both nonrival and nonexcludable. The graph below depicts the marginal benefits that Beatrice, Edward, and Charlotte (the residents of a very tiny town indeed) receive from home-team wins. The graph
17. Classify each of the following goods using these terms: nonrival, nonexcludable, private good, public good, and common resource.a. Hamburgere. Parkb. Lighthousef. Broadcast televisionc. Flood control g. Cellular telephone serviced. Swimming pool h. Computer software
14. Al regularly rehearses accordion music on his back deck with members of his musical troupe, the Starland Polka Band. Practicing on his deck saves him the $500 per year it would take to rent a rehearsal space. Unfortunately, practicing on his deck keeps his neighbor, Marcy, awake at night. The
8. Two pink slime producers, XL and IPSP, are located in an otherwise pastoral mountain town.Each producer emits 30 tons of ammonium hydroxide into the atmosphere each year. City planners wish to cut the level of ammonium hydroxide pollution to 50 tons overall.a. Alfred B. Packer steps forward with
*7. The inverse demand for leather is given by P = 50 – 0.5Q. The industry supply of leather is determined by its marginal cost: MC = 0.45Q.Unfortunately, the production of leather causes noxious chemical residue to leach into groundwater supplies. The external marginal cost caused by these
6. Suppose that growing flowers produces both a positive externality (people in the neighborhood get to view the flowers) and a negative externality(the flowers aggravate peoples’ allergies).a. True or false, and explain your answer (using a diagram): We can say for sure that too many flowers are
5. The private demand for drive-in movies is given by P = 20 – 0.1Q. The industry marginal cost of showing drive-in movies is given by MC = 0.1Q.a. Graph the private demand and marginal cost curves, and determine the price and quantity of movies that will be shown.b. Drive-in movies can be viewed
*4. Gasoline brings great benefit to those who buy it, but burning it also creates external costs.Consider the graph below, which shows the demand for gasoline, the private marginal cost of producing gasoline, and the social marginal cost of producing gasoline.a. Suppose that buyers and producers
3. Suppose that the inverse demand for marching band music is given by P = $1,000 – Q. Because marching bands across the world produce music of sufficient quality at increasing marginal cost, the industry marginal cost is given by MC = 0.75Q. Unfortunately, marching band music is not produced in
2. Jill sells bouquets of flowers that she grows in her backyard. Jill’s marginal cost of producing bouquets is given by MC = 0.25Q, where Q is the number of bouquets she makes. Jill can sell all the bouquets she wishes at the local farmers’market for $6 per bouquet. Unfortunately, Jill’s
1. Kansas City is famous for its barbeque. But, good barbeque comes at a cost: Pit masters have to bear the costs of producing slow-roasted pulled pork and beef briskets. There is also an external cost: Every time a pit master roasts another rack of ribs, it offends the sensibilities of nearby
12. Why does the free-rider problem arise?
11. When is a public good being produced efficiently?
10. What are the two defining properties of public goods?
9. What is the main prediction of the Coase theorem?
8. What types of solutions can address the tragedy of the commons?
7. Compare and contrast Pigouvian taxes and quantity-based solutions to externalities. What are some of the advantages and disadvantages of each?
6. Describe how tradable pollution permits can be used to address pollution.
5. How do regulators use Pigouvian taxes to produce efficient outcomes?
4. Why are the marginal benefit and marginal abatement cost of pollution considered equivalent?
3. How can the external marginal benefit and external marginal cost curves be used to find the efficient level of an externality?
2. Why does an unregulated market overproduce goods with negative externalities?
1. Contrast negative and positive externalities.Provide an example of each type of externality.
20. In the late 1800s “wildcat banks,” which were easy to charter and largely unregulated, sprang up across the American West. Some new banks chose to operate out of simple and inexpensive wooden structures, but others built elaborate buildings out of stone, with lots of gilding and other
19. Peacocks, with their fabulous tails, live wild in the jungle. There, a tail is a detriment — it slows the birds in flight, and presents an excellent handle for a predator to grab hold of. Nevertheless, males continue to grow them because peahens love bling, and the more, the better.a. Explain
18. Suppose that there are two types of workers in the world: Charlie Hustles, who are highproductivity workers, and Lazy Susans, who are low-productivity workers. The market would pay $70,000 (this and all numbers in this question are in present value terms) to hire a Charlie Hustle, but only
17. Princess Buttercup has a multitude of potential suitors. She wishes to separate them into two groups — those who are truly interested in her hand in marriage, and those who are only interested because she’s convenient, pretty, and rich.Let’s call these two groups “interested” and
16. You have decided to produce a line of moisturewicking skateboarding clothes. You’re a wonderful designer, but a lousy tailor, and as a result, you decide to hire your roommate (who is a wonderful seamstress) to produce the clothes for you. Is it better for you to pay your roommate by the hour
15. Consider the questions faced by the board and the CEO in Problem 14. Assume that, as before, expending modest effort costs the CEO $300,000.But, assume now that expending high effort costs the CEO $750,000.a. Draw the extensive form for this game and find the equilibrium. Does the change in the
14. The board of directors of a major corporation is trying to determine how to structure the salary of the new CEO. One option is for the board to offer the new CEO a flat salary of $1 million per year. A second option is to offer a profit-sharing plan with a base salary of $200,000 plus 10% of
13. A woman plans to divorce her philandering husband.If she can prove he cheated on her, she will receive a $500,000 cash settlement. If she cannot, her settlement will be $250,000. Her lawyer offers to take the case and presents her with the following payment options: a $100,000 flat fee, or 1/3
12. Consider the graph in the next column, which demonstrates the costs and benefits of theft proofing one’s home. The marginal costs increase as more precaution is taken: It’s cheap to install good locks, but more difficult to install invisible laser intruder-detection systems.The marginal
11. Harry is dating Sally. Because he is devastated at the thought of being dumped, he spends considerable resources making himself attractive to her: expensive haircuts, ballroom dancing classes, a gym membership, and so on. Harry’s marginal cost of making himself attractive to Sally is given by
10. Suppose that, to deal with adverse selection problems, a new federal lemons law requires all used car dealerships to provide a one-year warranty for each car they sell. Explain how this new law, designed to reduce adverse selection, might increase the problem of moral hazard.
9. After a probationary period of six years, during which they teach, research, and serve on committees, university professors who meet acceptable standards are given tenure. Tenure offers these professors tremendous job security.a. Explain why a tenure system makes universities susceptible to a
8. Many health and casualty insurance policies require policyholders to pay a certain amount(called a deductible) for claims before the insurer itself will begin to pay.a. Explain how the existence of a deductible reduces the problems of moral hazard.b. Often, insurers will let policyholders choose
7. To assist in ensuring adequate and affordable health care for all, the federal government has mandated that health insurers provide health insurance to all, regardless of their physical condition.Insurers may not reject coverage for preexisting health problems.a. Explain why this mandate,
*6. A few years ago, a new online insurer appeared.Found at www.ticketfree.org, the insurer offered, for a price, up to $500 of coverage against speeding tickets.a. Who has more valuable information in this potential transaction, the buyer of speeding ticket insurance or the seller?b. Explain why
5. Toyota regularly takes its own cars in trade for new models. It then subjects them to a rigorous inspection process, fixing defects as it goes, and offers them for sale with an extended warranty. Explain how these procedures help Toyota deal with the adverse selection problem.
4. In the 1960s Yale University began offering students an alternative to taking out student loans.Instead, students could attend Yale in exchange for a specified percentage of their earnings over a significant length of time. Yale used historical data to determine the percentage so that the
*3. In an isolated town, there are two distinct markets for cars. Buyers will pay up to $12,000 for a high-quality car or $8,000 for a low-quality car. There are 100 high-quality cars for sale, and the sellers have a minimum acceptable price of$11,000. There are also 100 low-quality cars for sale

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Microeconomics 1st Edition Austan Goolsbee, Steven Levitt, Chad Syverson - Solutions

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