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microeconomics
Questions and Answers of
Microeconomics
What factors can change demand? What factors can change quantity demanded?
What would the supply curve for houses (in a given city) look like for a period of (a) the next 10 hours and (b) the next three months?
What happens to the supply curve if each of the following occurs?a. The number of sellers decreases.b. A per-unit tax is placed on the production of a good.c. The price of a relevant resource falls.
“If the price of apples rises, the supply of apples will rise.” True or false? Explain your answer.
When a persown goes to the grocery store to buy food, there is no auctioneer calling out prices for bread, milk, and other items. Therefore, supply and demand cannot be operative.Do you agree or
The price of a personal computer of a given quality is lower today than it was five years ago. Is this necessarily the result of a lower demand for computers? Explain your answer.
What is the effect on equilibrium price and quantity of the following?a. A decrease in demand that is greater than the increase in supplyb. An increase in supplyc. A decrease in supply that is
At equilibrium quantity, what is the relationship between the maximum buying price and the minimum selling price?
If the price paid for a certain item is \($40\) and the consumers’ surplus is \($4,\) then what is the maximum buying price for that item? If the minimum selling price is \($30\) and the
It seems to me that the law of demand has to be wrong in some cases. There are plenty of examples of the price of a good rising and people buying more of the good. For example, during the period
There are two sides to a market—a buying or demand side and a selling or supply side. Since most of us buy many more goods and services than we sell, let’s consider the price a buyer pays for a
Consumers’ surplus is the difference between the maximum buying price and the price paid.If you’d be willing to pay a maximum of \($10\) for good X, but you pay only \($4\) for the good, then
What is the difference between a movement factor and a shift factor?
The price of good X is higher in year 2 than in year 1 and people are buying more of good X in year 2 than year
Obviously, the law of demand does not hold. Do you agree or disagree? Explain your answer.
Why is there a need for a rationing device, whether it is price or something else?
If price is not the rationing device used, then individuals won’t have as sharp an incentive to produce. Explain.
Do buyers prefer lower prices to higher prices?
“When there are long-lasting shortages, there are long lines of people waiting to buy goods. It follows that the shortages cause the long lines.” Do you agree or disagree? Explain your answer.
Who might argue for a price ceiling? A price floor?
Someone says, “The price of good X has risen, so good X is more expensive than it used to be.” In what sense is this statement correct? In what sense is this statement either incorrect or
The government has today imposed a price ceiling on gasoline purchased at the pump. As one member of Congress said, “It was done to keep gasoline prices within the reach of the poor and the
Represent the following data in bar graph form. Year U.S. Money Supply ($ billions) 2012 2,458 2013 2,641 2014 2,924 2015 3,079 2016 3,278
What does a straight-line PPF represent? What does a bowed-outward PPF represent?
What does the law of increasing costs have to do with a bowed-outward PPF?
A politician says, “If you elect me, we can get more of everything we want.” Under what condition is the politician telling the truth?
In an economy, only one combination of goods is productive efficient. True or false? Explain your answer.
True or false? Scarcity is the condition of finite resources. Explain your answer.
How does competition arise out of scarcity?
How does choice arise out of scarcity?
Give an example to illustrate how a change in opportunity cost can affect behavior.
Studying has both costs and benefits. If you continue to study (e.g., for a test) for as long as the marginal benefits of studying are greater than the marginal costs, and you stop studying when the
You stay up an additional hour to study for a test. The intended effect is to raise your test grade. What might be an unintended effect of staying up another hour to study?
What is the purpose of building a theory?
Your economics instructor says, “If the price of going to the movies goes down, people will go to the movies more often.”A student in class says, “Not if the quality of the movies goes down.”
First person says: “People are always advancing theories to explain this or that. They advance theories to explain things like the climate, crime, rising unemployment, poverty, and so much more. I
Why is it important to test a theory? Why not simply accept a theory if it sounds right?
Jen's utility function with respect to wealth is \(U(W)=\sqrt{W}\). Plot this utility function and illustrate in your figure why Jen is risk averse.
In Question 1.3, you paid €850 to purchase stock in a company on the advice of your financial advisor. Now suppose you are risk-averse and have the concave utility function \(U(W)=\sqrt{W}\), where
Using the information in Solved Problem 11.2, calculate the elasticity of demand for the iPad at the profit-maximizing solution using its inverse demand curve. Also calculate the inverse demand curve
Solve for the Nash-Bertrand equilibrium for the firms described in Question 5.5 if both firms have a marginal cost of \(\$ 0\) per unit. \(\mathbf{A}\)Data From Question 5.5:-Suppose that identical
Solve for the Nash-Bertrand equilibrium for the firms described in Question 5.5 if Firm 1's marginal cost is \(\$ 30\) per unit and Firm 2's marginal cost is \(\$ 10\) per unit.Data From Question
After a technical or managerial innovation, a firm can produce more today from a given amount of inputs than it could in the past. In farming, for example, new seed varieties, fertilizers, machines,
The demand function for lamb in Australia (see Question 1.1) is \(Q_{d}=63-11 p+7 p_{b}+3 p_{c}+2 Y\), and the supply function (see Question 2.1) is \(Q_{s}=149+8 p-9 p_{s}\). Solve for the
Suppose that a combination of public health warnings, school programs, a ban on advertising, and warnings on package labelling cut the demand for cigarettes in half (that is, the demand curve shifted
Does a price increase cause revenue to rise or fall if the demand curve is elastic at the initial price? How does revenue change if the demand curve is inelastic?
Argentina has a strong football tradition. Its national football team has appeared in five World Cup finals, and among several accolades, it has won the Copa América 14 times. The Argentine Olympic
Natural disasters such as earthquakes significantly reduce tourism to the area directly affected and to surrounding areas for a time. Nishimura et al. (2013) investigate the extent of the reduction
Nate's utility function over jelly, \(J\), and peanut butter, \(N\), is \(U=J N\). Nate's marginal utility from jelly is \(M U_{I}=N\), and his marginal utility from peanut butter is \(M U_{N}=J .{
Use algebra to solve for the Nash-Stackelberg equilibrium quantities and market price if American Airlines were a Stackelberg leader and United Airlines were a follower.
Two large firms, one domestic and one foreign, are competing in the world market for aluminum. If either obtains a subsidy from its respective national government, it can shift profits away from its
Two manufacturers of toothpaste are debating whether or not to increase their advertising campaigns to promote the special attributes of their products. They have the following payoff matrix. Does
Divit and Sara are each considering starting a new small business selling textiles in the same less developed region in India. If they have the following profit matrix, does either person enter the
Two firms supply a market. If they have the following profit matrix for low, medium, and high levels of output, identify each firm's best response to its rival's actions. What is the Nash
Suppose two firms sell a homogeneous product at constant marginal cost, \(M C=2\), in a market. The inverse market demand curve is \(p=50-2 Q\), where \(Q=q_{1}+q_{2}\). What is each firm's market
You and a good friend have just finished having a drink together at a local bar and are both insisting on paying the bill. The two of you agree to each flip a coin to resolve this "dispute." You pay
Two Internet providers supply a local market. If they have the following profit matrix for charging low and high prices, does either firm have a dominant strategy? Is there a pure-strategy Nash
Two couples love eating at restaurants, particularly when they can go together. However, one couple prefers organic food while the other would rather eat non-organic food. If they go together, the
Suppose that the two couples in Question 1.13 only like to eat at restaurants when they can go together so that the payoff is negative and the same for each (payoff \(=-1)\) if they dine out alone.
Suppose that Question 1.4 were modified so that the state government does not provide an incentive for new business startups, but Sara has a head start over Divit and can move first. What is the Nash
Two firms are considering which of two markets to enter. The markets are located in different cities. They have the following profit matrix:If both firms move simultaneously, does either firm have a
To increase its market share, one firm in a duopoly has been charging a price less than its competitor. This has reduced the other firm's profits, and that second firm is now threatening the first
In 2007, Italy announced that an Italian journalist, Daniel Mastrogiacomo, who had been held hostage for 15 days by the Taliban in Afghanistan, had been ransomed for 5 Taliban prisoners. Governments
Firm 1 has a first-mover advantage from research that resulted in a new cost-saving technology and lower costs of production than potential rivals. This monopolist could even sell at a price so low
People sometimes turn down an offer even at some personal cost to themselves. Suppose, for example, that a firm decides to close a money-losing plant. To avoid additional costs that opposition to the
In the game between Intel and AMD in the Challenge Solution, suppose that each firm earns a profit of 9 if both firms advertise. What is the new subgame perfect Nash equilibrium outcome? Show in a
A paper firm's short-run Cobb-Douglas production function is estimated to be \(^{2}\) where \(\bar{K}\) is the fixed amount of capital. In the short-run, the firm's capital is fixed at
How does a competitive firm adjust its demand for labor when the government imposes a specific tax of \(t\) on each unit of output?
How are consumers affected and how do profits change in the example if the labor monopoly buys the monopoly producer, which is called vertical integration?
How does the equilibrium in a labor market with a monopsony employer change if a minimum wage is set at the competitive level?
Explain how a competitive firm selects the amount of labor it employs. Assume that the labor market is also competitive.
A firm's production function is Cobb-Douglas: \(q=A L^{a} K^{b}\). What is the firm's marginal revenue product of labor?
A competitive firm's production function is \(q=\) \(2 L K\). What is its marginal revenue product of labor?
If the marginal product of labor is \(M P_{L}=9-L\), the market price is \(p=10\) and the wage rate is \(w=10\), how many units of labor will a competitive firm hire? How does your answer change if
How does a rise in the rental price of capital affect a firm's demand for labor in the long run?
Suppose that competitive firms use a fixed proportions production process to assemble bicycles using one frame and two tires. Each frame costs \(p_{F}\) and each tyre costs \(p_{T}\). What is the
In July 2016, ABC Rural reported that a more environmentally friendly and less costly water-jet technology is being developed to compete with hydraulic fracturing in which water, sand, and chemicals
How does a monopoly's demand for labor change if a second firm enters its output market and the result is a Stackelberg duopoly equilibrium, where the former monopoly becomes the Stackelberg leader?
The inverse market demand curve for a final good is \(P=50-Q\) and the marginal cost of supplying labor is \(M C_{L}=20\). Each unit of output requires half a unit of labor, \(L\), and no other
The inverse market demand curve for a final good is \(P=50-Q\) and the wage rate is \(w=20\). Each unit of output requires half a unit of labor, \(L\), and no other factor, \(Q=2 L\). If factor and
The sale of commercial rights for the matches in the qualifying competitions of the 2016 European Football Championship and the 2018 FIFA World Cup was centralized under the Union of European
The inverse market demand curve for a final good is \(p=50-Q\) and the wage rate is \(w=20\). Each unit of output requires half a unit of labor, \(L\), and no other factor, \(Q=2 L\). If factor and
In August 2011, the United Kingdom's big supermarkets and certain dairy processors were found to have colluded to increase the prices consumers paid for milk, butter, and cheese in 2002 and 2003.
Use a diagram of a competitive labor market to compare the equilibrium effects and incidence of a per-unit tax on earnings when the buyer of the labor services is competitive compared to when it is a
Compare welfare in a market where a firm is both a monopsony and a monopoly (as in Question 3.6) to welfare in markets in which the firm has a monopsony in the input market but acts as a price taker
Some employment contracts contain a non-compete clause that prohibits an employee from engaging in certain activities for its company's competitors for a certain amount of time after the employment
Melody Toyota advertises that it will sell you a Corolla for \(\$ 14,000\) or lease it to you. To lease it, you must make a down payment of \(\$ 1,650\) and agree to pay \(\$ 1,800\) at the end of
Peter Guber and Joe Lacob bought the Golden State Warriors basketball team for \(\$ 450\) million in 2010. Forbes magazine estimated that the team's net income for 2009 was \(\$ 11.9\) million. If
Peter Guber and Joe Lacob can buy the Golden State Warriors basketball team for \(\$ 450\) million, and they expect an annual real flow of payments (profits) of \(f=\$ 11.9\) million forever. Using
Suppose the government needs to borrow money to pay for fighting a war in a foreign land. Show that increased borrowing by the government-an increase in the government's demand for money at any given
People and firms invest in human and physical capital. Both types of capital are durable goods, the benefits from which can last for many years. Entering into a credit agreement is often key in
Under Section 347 of the Canadian Criminal Code, an annual rate of interest that exceeds \(60 \%\) under a credit agreement is a "criminal" rate of interest. The term "interest" is defined to include
You buy a new 4K TV today for \(€ 1,000\), paying half today and the remaining half in one year. If the inflation rate is \(2 \%\) and the nominal interest rate is \(3 \%\), what is the present
A parts supplier is considering entering into a twoyear contract to make its products available to one of two retail companies. Both retailers are offering an upfront payment of 20,000 . Retailer 1
You are in the market for a used car in Egypt, and you find one that you like for \(\mathrm{E} £ 210,000\) at a local dealership. The dealer offers you a choice in paying for it: a discount of \(E
A Brazilian employer offers its employees a choice between taking a lump-sum distribution of pension or a pension annuity for 25 years when they retire. The choice for one employee is between
You are debating whether to either purchase a car or continue to take public transportation and taxis at an annual cost of \(€ 6,000\) to get where you want to go. The purchase price of the car you
A group of Turkish investors is considering purchasing a firm for TL140 million. The net income of the firm in 2017 was TL5.6 million and financial analysts expect this level of profitability
As discussed in the previous question, a group of investors is considering purchasing a firm. The net income of the firm in 2017 was TL5.6 million and financial analysts expect this level of
On January 15, 2016, the United Kingdom's Competition and Market Authority approved the \(£ 12.5\) billion takeover of telecommunications company EE Limited (a joint venture between the French
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