Microeconomics 4th Edition David Besanko, Ronald Braeutigam - Solutions

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5. Combine the graphs and equations from questions 3 and 4 and determine the following:a. The equilibrium price of broadband Internet serviceb. The equilibrium quantity of broadband Internet servicec. Consumer surplusd. Producer surpluse. The total surplus received by producers and consumers
4. Consider the diagram on the next page, which depicts the supply of broadband Internet service.The supply of broadband service is given by Q S = 12.5P – 150, where Q is the quantity of services (in hundreds) and P is the price per month. Assume that the price of broadband service is $25 per
3. Consider the demand for broadband Internet service, given as follows: Q D = 224 – 4P, where Q is the number of subscribers in a given area(in hundreds) and P is the price in dollars per month. This demand relationship is illustrated in the diagram on the right. Assume that the price of
2. The demand for air travel is summarized in the equation Q D = 800 – 2P, where quantity is in millions of enplanements per quarter and price is in dollars per enplanement. How much would consumer surplus change if the rising cost of fuel led airlines to raise the price from $150 to $200?
1. If the supply curve for snowboards in the United States is described by the equation Q S =400P – 8,000 (where Q is the number of snowboards and P is in dollars per snowboard), compute the producer surplus at a price of $120. What happens to producer surplus if the price falls to $100?
18. Why does a subsidy create a deadweight loss?
17. How does a subsidy affect consumer and producer surplus?
16. What is a subsidy?
15. What is the tax incidence? What factors determine the tax incidence?
14. How does a tax affect consumer and producer surplus? Why does a tax create a deadweight loss?
13. What happens to the equilibrium price and quantity of a good when a tax is imposed on the good? Why does a tax create a wedge between the price the consumer pays and the price the producer receives?
12. Why is the relative size of crowding out inefficiencies dependent only on the elasticity of demand and not on the elasticity of supply?
11. What is crowding out? Why does it occur?
10. What is a quota? How does it differ from a price ceiling or a price floor?
9. When is a price ceiling nonbinding? When is a price floor nonbinding?
8. What is a deadweight loss? If the price elasticity of a good is large, would you expect the deadweight loss to be large or small?
7. What is a price floor? Why does a price floor create an excess supply of (surplus of) a good?
6. What is a price ceiling? Why does a price ceiling create excess demand for (shortage of) a good?
5. How does a demand shift affect consumer and producer surplus in a given market? Consider both inward and outward shifts of the demand curve.
4. How does a supply shift affect consumer and producer surplus in a given market? Consider both inward and outward shifts of the supply curve.
3. What is the supply choke price? How does this price relate to producer surplus?
2. What is the demand choke price? How does this price relate to consumer surplus?
1. Define consumer and producer surplus.
20. One type of elasticity that economists often use is the income elasticity, which is measured as the percentage change in the quantity of a good when the income of consumers changes by 1%.a. What sign might you expect the income elasticity to have if the good in question is Swedish massages?b.
19. One type of elasticity that economists often use is the cross-price elasticity, which is measured as the percentage change in the quantity of a good when the price of a different good changes by 1%.a. What sign might you expect the cross-price elasticity to have if the two goods are shampoo and
18. Suppose that a typical consumer has an inverse demand for frog’s legs given by the following:a. Show that the demand curve is unit-elastic.b. If this customer came into your restaurant and asked for frog’s legs, would you be better off charging a high price or a low price? 3 P QD- A graph
17. Consider the following problems on elasticity:a. When bottlers increased the price of canned soda from vending machines by 10%, sales dropped by 2.5%. Calculate the elasticity of demand for canned soda.b. Refer to part (a). The total revenue received by bottlers from their sales of canned soda
16. Some policy makers have claimed that the U.S.government should purchase illegal drugs, such as cocaine, to increase the price that drug users will face. Does this idea have any merit?Illustrate this logic in a simple supply and demand framework. How does the elasticity of demand for illegal
15. Suppose that innovations in agriculture lower the cost of producing lettuce by 10%. This cost reduction effectively shifts the inverse supply curve downward by 10% at every quantity.a. Assume that the price of lettuce is determined by the forces of demand and supply. Graph the market for
14. Suppose that budding economist Buck measures the inverse demand curve for toffee as P =$100 – Q D , and the inverse supply curve as P = Q S . Buck’s economist friend Penny likes to measure everything in cents. She measures the inverse demand for toffee as P = 10,000 – 100Q D , and the
13. Suppose the demand for down pillows is given by Q D = 100 – P, and that the supply of down pillows is given by Q S = – 20 + 2P.a. Solve for the equilibrium price.b. Plug the equilibrium price back into the demand equation and solve for the equilibrium quantity.c. Double-check your work by
12. Consider the market for van Gogh paintings and assume no forgeries are possible.a. Is the supply of van Gogh paintings somewhat elastic, somewhat inelastic, perfectly elastic, or perfectly inelastic? Why?b. Draw the supply curve for van Gogh paintings.c. Suppose there are only 10 van Gogh
11. Your university has an honors program that accepts exactly 40 freshmen each year. Every year before soliciting applications, students are informed of the standards for program participation.The admissions staff observed that whenever the difficulty of the program requirements
10. Suppose the demand for towels is given by Q D = 100 – 5P, and the supply of towels is given by Q S = 10P.a. Derive and graph the inverse supply and inverse demand curves.b. Solve for the equilibrium price and quantity.c. Suppose that supply changes so that at each price, 20 fewer towels are
9. When the demand for toilet paper increases, the equilibrium quantity sold increases. Consumers are buying more, and producers are producing more.a. How do producers receive the signal that they need to increase production to meet the new demand?b. Does the increased production reflect an
8. In March 2002 the retail price of gasoline was$1.19 per gallon — exactly the same as it was in August 1990. Yet, total gasoline production and consumption rose from 6.6 million barrels per week in 1990 to 8.7 million barrels per week in 2002. Using the graph below, draw the appropriate shifts
7. Suppose that you have been collecting vintage lightning rods for the past 30 years. When you began, finding lightning rods for sale meant drifting from town to town and antique store to antique store hoping that you would find a lightning rod for sale. The availability made possible by the
*6. Suppose that a hard freeze destroys a large portion of the Florida orange crop. At the same time, the Journal of the American Medical Association releases the results of a new study showing that drinking large quantities of orange juice substantially reduces one’s risks of both heart disease
5. Your roommate remarks that it is strange that a flight from New York to Chicago costs more than a flight from New York to Orlando, since New York and Chicago are closer than New York and Orlando. What is your roommate assuming about the relationship between distance and price? How do you explain
4. How is each of the following events likely to shift the supply curve or the demand curve for fast-food hamburgers in the United States?Make sure you indicate which curve (curves) is affected and if it shifts out or in.a. The price of beef triples.b. The price of chicken falls by half.c. The
*3. Out of the following events, which are likely to cause the demand for coffee to increase? Explain your answers.a. An increase in the price of teab. An increase in the price of doughnutsc. A decrease in the price of coffeed. The Surgeon General’s announcement that drinking coffee lowers the
*2. The demand for organic carrots is given by the following equation:Q D O = 75 – 5 P O + P C + 2I where P O is the price of organic carrots, P C is the price of conventional carrots, and I is the average consumer income. Notice how this isn’t a standard demand curve that just relates the
1. Is there a difference between movements along a demand curve and shifts in a demand curve?How would you explain this difference to a friend who is taking this course and is confused about the issue?
19. Using the concept of cross-price elasticity of demand, describe substitutes and complements.
18. Using the concept of income elasticity of demand, describe normal, luxury, and inferior goods.
17. Why must you know the price elasticity of demand to be able to predict the effect of a change in price on total expenditure?
16. What is total expenditure? Total revenue?
15. We learned that economists have special terms for elasticities of particular magnitudes. Name the magnitudes for the following: inelastic, elastic, unit elastic, perfectly elastic, and perfectly inelastic.
14. What is the difference between an elasticity and slope?
13. What happens to equilibrium price when demand and supply shift in the same direction?What happens to equilibrium quantity in the same situation?
12. Why is the direction of change of either price or quantity unknown when both supply and demand shift?
11. In what direction will price and quantity move as a result of a supply shift?
10. In what direction will price and quantity move as a result of a demand shift?
9. What happens when price is below the equilibrium price? Why?
8. Define market equilibrium. What is true of the quantity supplied and demanded at the market equilibrium?
7. What is the difference between a change in quantity supplied and a change in supply?
6. What is an inverse supply curve? Why do economists often represent supply using the inverse supply curve?
5. Why is the supply curve upward-sloping?
4. What is the difference between a change in quantity demanded and a change in demand?
3. What simplifying assumption do we make to build a demand curve? Why is the demand curve downward-sloping?
2. Complements and substitutes of a given good affect the demand for that good. Define complements and substitutes.
1. There are four key assumptions underlying the supply and demand model. Name these assumptions.
5. Why has microeconomics evolved into an empirical discipline?
4. What tools do we use to study microeconomics?
3. How are consumption and production interconnected?
2. Name one instance in which you were a consumer.
1. What differentiates microeconomics from macroeconomics?
10. Why does the free-rider problem make it difficult or impossible for markets to provide public goods efficiently?
9. What is a public good? How can one determine the optimal level of provision of a public good?
8. How does a nonrival good differ from a nonexclusive good?
7. What is the Coase Theorem, and when is it likely to be helpful in leading a market with externalities to provide the socially efficient level of output?
6. How might an emissions standard lead to an efficient level of output in a market with a negative externality?
5. How might an emissions fee lead to an efficient level of output in a market with a negative externality?
4. When do externalities require government intervention, and when is such intervention unlikely to be necessary?
3. Why does an otherwise competitive market with a positive externality produce less output than would be economically efficient?
2. Why does an otherwise competitive market with a negative externality produce more output than would be economically efficient?
1. What is the difference between a positive externality and a negative externality? Describe an example of each.
Explain the free rider problem.
Show how the efficient quantity of a public good is determined.
Describe the Coase Theorem and discuss its economic significance.
Explain how a subsidy could reduce the economic inefficiency that arises in a competitive market with a positive externality.
Analyze how a congestion toll can reduce the economic inefficiency due to negative externalities from traffic congestion.
Analyze how taxes or emissions standards could reduce the economic inefficiency that arises in a competitive market with a negative externality.
Distinguish between positive and negative externalities.
Explain why externalities and public goods are a source of market failure.
Define externalities and public goods.
16.23. Brazil and China can produce cotton and soybeans. The labor required to produce a unit of each product is shown in the following table:
16.22. The United States and Switzerland both produce automobiles and watches. The labor required to produce a unit of each product is shown in the following table:U.S. and Swiss Labor Requirements Automobiles (labor- Watches (laborhours per unit) hours per unit)United States 5 50 Switzerland 20 60
16.21. Consider an economy that uses labor and capital to produce two goods, beer (x) and peanuts ( y), subject to technologies that exhibit constant returns to scale. The marginal cost of a 12-ounce can of beer is $0.50. The marginal cost of a 12-ounce tin of peanuts is $1.00.Currently, the
16.20. An economy consists of two consumers ( Julie and Carina), each consuming positive amounts of two goods, food and clothing. Food and clothing are both produced with two inputs, capital and labor, using technologies exhibiting constant returns to scale. The following information is known about
16.19. Consider an economy that produces two goods: food, x, and clothing, y. Production of both goods is characterized by constant returns to scale.Given current input prices, the marginal cost of producing clothing is $10 per unit, while the marginal cost of producing food is $20 per unit. What
16.18. Two firms together employ 20 units of labor and 12 units of capital. For Firm 1, which uses 5 units of labor and 8 units of capital, the marginal products of labor and capital are and For Firm 2, which uses 15 units of labor and 4 units of capital, the marginal products are anda) Draw an
16.16. There are two firms in an economy. Each of them currently employs positive amounts of two inputs, capital and labor. Their technologies are characterized by diminishing marginal rate of technical substitution of labor for capital. At the current operating basket, Firm A’s marginal rate of
16.15. Two firms together employ 100 units of labor and 100 units of capital. Firm 1 employs 20 units of labor and 80 units of capital. Firm 2 employs 80 units of labor and 20 units of capital. The marginal products of the firms are as follows: Firm 1:Firm 2: Is this allocation of inputs
16.14. Consider an economy that consists of three individuals: Maureen (M), David (D), and Suvarna (S). Two goods are available in the economy, x and y. The marginal rates of substitution for the three consumers are given by and Maureen and David are both consuming twice as much of good x as good
16.13. There are two individuals in an economy, Joe and Mary. Each of them is currently consuming positive amounts of two goods, food and clothing. Their preferences are characterized by diminishing marginal rate of substitution of food for clothing. At the current consumption baskets, Joe’s
16.12. Two consumers, Ron and David, together own 1,000 baseball cards and 5,000 Pokémon cards. Let xR denote the quantity of baseball cards owned by Ron and?
16.11. Ted and Joe each consume peaches, x, and plums, y. The consumers have identical utility functions, with Together, they have 10 peaches and 10 plums. Verify whether each of the following allocations is on the contract curve:a) Ted: 8 plums and 9 peaches; Joe: 2 plums and 1 peach.b) Ted: 1
16.10. Two consumers, Josh and Mary, together have 10 apples and 4 oranges.a) Draw the Edgeworth box that shows the set of feasible allocations that are available in this simple economy.b) Suppose Josh has 5 apples and 1 orange, while Mary has 5 apples and 3 oranges. Identify this allocation in the
16.9. One of the implications of Walras’ Law is that the ratios of prices (rather than the absolute levels of prices) are determined in general equilibrium. In Learning-By-Doing Exercise 16.2, show that the ratio of the price of food to the price of capital is about 0.7, as illustrated in Figure

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Microeconomics 4th Edition David Besanko, Ronald Braeutigam - Solutions

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