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Microeconomics 8th Global Edition Jeffrey Perloff - Solutions

In Solved Problem 4.5, if the generic bleach increases its strength to equal that of Clorox without changing its price, what bundles will Chris buy if the price of Clorox is \(\$ 3\) or \(\$ 2\) ?Data From Solved Problem 4.5:-The Concentration of active ingredient, sodium hypochlorite, in Clorox is
The Wall Street Journal, a newspaper based in the United States, publishes an index of Starbucks coffee prices in various cities around the world. Would people find this index to be as useful as the Consumer Price Index in measuring how their true cost of living changes over time?
Mahdu views Coke, \(q\), and Pepsi as perfect substitutes: He is indifferent as to which one he drinks. The price of a 12-ounce can of Coke is \(p\), the price of a 12-ounce can of Pepsi is \(p^{*}\), and his weekly cola budget is \(Y\). Derive Mahdu's demand curve for Coke using the method
On January 1, 2017, the minimum wage in Germany was raised from \(€8.50\) per hour to \(€8.84\) per hour. Frieda's job pays the minimum wage, and she presently works 8 hours per day, while her utility function is \(U(Y, N)=Y^{\alpha} N^{1-\alpha}\), where \(Y\) is her income and \(N\) is
In Norway, a parent may receive a cash benefit for private childcare for a child between the ages of 1 and 2 years if the child does not attend a governmentsubsidized childcare facility. Effective August 1, 2017, the maximum amount of this cash-for-care benefit is \(625 \mathrm{kr}\) per month for
Sudi spends his income on two goods. His income elasticity of demand for the first good is \(\xi_{1}=0.2\), while his income elasticity of demand for the second good is \(\xi_{1}=2\). Illustrate in one diagram how a \(10 \%\) increase in his income would affect the quantity he demands of the two
Mahdu views Coke and Pepsi as perfect substitutes. The price of a 12-ounce can of Coke, \(p\), is less than the price of a 12-ounce can of Pepsi, \(p *\). What does Mahdu's Engel curve for Coke look like? How much does his weekly cola budget have to rise for Mahdu to buy one more can of Coke per
Given the figure in the Challenge Solution, could the government set a smaller lump-sum subsidy than shown that would make poor parents as well off as with the price subsidy yet cost the government less? Given the tastes shown in the figure, what would be the effect on the number of hours of
A price increase has two effects on the quantity of a good demanded: consumers switch to relatively less expensive goods (holding utility and other prices constant) and less goods are demanded because purchasing power and the opportunity set has been reduced. What are the two effects on quantity
How do parents who do not receive childcare subsidies feel about the two programs discussed and illustrated in the Challenge Solution?
A price increase has two effects on the quantity of a good demanded: consumers switch to relatively less expensive goods (holding utility and other prices constant) and less goods are demanded because purchasing power and the opportunity set has been reduced. What are the two effects on quantity
There is much controversy surrounding genetically modified (GM) foods in Europe, and the European Union member states have different policies concerning them. On one side, concerns have been expressed about the safety of GM food for human consumption and their effects on the environment and
Next to its plant, a manufacturer of dinner plates has an outlet store that sells plates of both first quality (perfect plates) and second quality (plates with slight blemishes). The outlet store sells a relatively large share of seconds. At its regular stores elsewhere, the firm sells many more
How would your answer to Question 1.4 change if \(U(G, N)=\ln (G+N)\) so that consumers have diminishing marginal utility of GM foods?Data From Question 1.4:-There is much controversy surrounding genetically modified (GM) foods in Europe, and the European Union member states have different policies
Ximing spends his money on rice, a Giffen good, and all other goods. Show that when the price of rice falls, Ximing buys less rice. Decompose this total effect of a price change on his rice consumption into a substitution effect and an income effect.
India is the top papaya-producing country in the world, accounting for about \(40 \%\) of the global supply, and most of its production is consumed domestically. Farmers in the state of Andhra Pradesh produce the fruit using both organic and non-organic farming techniques. The price per kilogram
Generic private-label brands can cost \(25 \%\) to \(30 \%\) less than nationally recognized name brands. Data show that people buy more private-label products during times of economic weakness. In Europe, for example, it is estimated that the market share of private-label products has increased
Enrico receives a no-strings-attached scholarship that pays him an extra \(Y^{*}\) per day. How does this scholarship affect the number of hours he wants to work? Does his utility increase?
Draw a figure to illustrate the answer given in Solved Problem 5.4. Use math and a figure to show how adding an ad valorem tax changes the analysis.Solved Problem 5.4:-Next to its plant, a manufacturer of dinner plates has an outlet store that sells plates of both first quality (perfect plates) and
A flat tax is a tax on income at the same rate for everyone regardless of how much income they earn. Estonia reduced its rate of flat tax from \(21 \%\) in 2014 to \(20 \%\) in 2015 . What effect can such a tax rate reduction be expected to have on hours worked and tax revenues? Explain your answer
Portugal has a progressive personal income tax system. In 2016, tax rates on taxable income were \(14.5 \%\) on the first \(€ 7,035,21 \%\) on the next \(€ 13,065,37 \%\) on the next \(€ 20,100,45 \%\) on the next \(€ 39,800\), and \(48 \%\) on taxable income over \(€ 80,000\). If Afonso
In its 2016 International Tax Competitiveness Index report, the U.S.-based Tax Foundation ranked Estonia as having the most competitive tax system in the OECD, based in part on its \(20 \%\) flat tax on individual income. A flat tax is simply a tax on income at the same rate for everyone regardless
A lump-sum tax is a fixed amount of tax per person. If a lump-sum tax, \(T\), raises the same amount of revenue for the government as a tax on earnings at the rate, \(t\), then \(t w H=T\), where \(w\) is the wage rate and \(H\) is the number of hours of work per day. Assume that Mika works 10
If the wage elasticity of labor supply is negative, what can we say about the slope of the labor supply curve and the relative sizes of the income and substitution effects? Is leisure a normal or inferior good in this case? Will a fall in the tax rate on earnings increase or decrease tax revenues?
For a linear production function \(q=f(L, K)=2 L+K\), what is the short-run production function given that capital is fixed at \(\bar{K}=100\) ? What is the marginal product of labor?
Haiti was hit by a devastating earthquake on January 12, 2010. A quarter of a million lives were lost and millions more were left injured and homeless. Many countries sent medical teams and medical supplies, among other items, to assist in the relief efforts. Identify the outputs and inputs, and
Suppose that a firm's production function is \(q=2 K L\), where \(L\) is labor services and \(K\) is capital services, and that \(K=3\). What are the total product, average product of labor, and marginal product of labor curves?
In the long run, a firm can usually substitute one input for another while continuing to produce the same level of output. If such a firm produces a given level of output using the same amount of capital but a greater amount of labor, what can we say about how the firm is producing? Why?
Parents with a child in subsidized childcare in the province of Québec, Canada, pay a basic amount and, depending on family income, may pay an additional amount. As of January 1, 2017, families with a net income of \(\$ 50,920\) or less pay only the basic amount of \(\$ 7.75\) per day per child.
A firm in the state of Karnataka in India can source one of its factors of production either within the state, \(F_{K}\), or from the neighboring state of Maharashtra, \(F_{M}\). Assume the quality and rental price of the input is identical in both states, \(r=₹ 1,000\) per hour, and there is no
A firm has the cost curve \(C(q)=25+q^{2}\). Show how the firm's average cost varies with output. Is there a minimum average cost and, if so, at what level of output is average cost minimized?
In the Application “A Beer Manufacturer's ShortRun Cost Curves," the short-run variable cost function for Japanese beer is \(V C=0.55 q^{1.67}\). If the fixed cost is 600 and the firm produces 550 units, determine the \(C, V C, M C, A F C\), and \(A V C\). What happens to these costs if the firm
A firm's production function is \(q=K^{0.4} L^{0.6}\). What is the firm's cost-minimizing input bundle when \(w=3\) and \(r=4\) ? Draw a diagram depicting the firm's long-run expansion path. What is the firm's long-run cost function, \(C(q)\) ?
The Canadian metal chair manufacturing market has \(n=78\) firms. The estimated 8.1 elasticity of supply is \(\eta_{0}=3.1\), and the estimated elasticity of demand is \(=-1.1\). Assuming that the firms are identical, calculate the elasticity of demand facing a single firm. Is its residual demand
If the cost function for John's Shoe Repair is \(C(q)=100+10 q-q^{2}+\frac{1}{3} q^{3}\), and its marginal cost function is \(M C=10-2 q+q^{2}\), what is its profit-maximizing condition given that the market price is \(p\) ?
If a competitive firm's cost increases due to an increase in the price of a factor of production or a tax, the firm's manager can quickly determine by how much to adjust output by calculating how the firm's marginal cost has changed and applying the profit-maximization rule. Suppose that the
In Brazil, layoffs are generally treated as terminations without cause, for which firms are required to provide 30 days' notice plus an additional three days' notice for every year the employee has worked for the company. In addition, employees are entitled to their wages, holiday pay, and access
Fixed costs can significantly affect the profitability of a small business. One way to reduce fixed costs might be to outsource the company's sales and marketing functions to third parties. For example, a third party could schedule appointments with prospective clients and track progress, and web
Each firm in a competitive market has a cost function of \(C=q^{2}\), so its marginal cost function is \(M C=2 q\). The market demand function is \(Q=24-p\). Determine the long-run equilibrium price, quantity per firm, market quantity, and number of firms.
Uber, a car-for-hire service that connects passengers with private drivers, presently operates in 613 cities worldwide. Lower overheads allow Uber to charge significantly less than a taxi company would charge for an equivalent ride, due in part to lower or nonexistent city licence fees. Taxi
What is the effect on the short-run equilibrium of a specific tax of \(t\) per unit that is collected from all \(n\) firms in a market? What is the incidence of the tax?
The iPhone debuted in January 2007. In the 10 years since then, smartphones have revolutionized and enriched our lives in many ways, and they are continuing to do so. According to the International Telecommunications Union, a specialized agency of the United Nations for information and
Question 3.16 asked about the effect of imposing a specific tax on a perfectly competitive industry when entry into the industry is limited. If entry were instead unlimited, how would the market and firm equilibria change in the long run when a specific tax is imposed?Data From Question 3.16:-About
Derive Equation 8.7. 1-0 A 09 (8.7)
In the short run, what happens to the competitive market price of gasoline when a state's demand curve shifts to the right during warm months? In your answer, distinguish between areas in which regular gasoline is sold and jurisdictions that require special blends.
According to the European Commission's Weekly Oil Bulletin for June 12, 2017, taxes made up \(66.2 \%\) of the \(€ 1.51\) per liter consumer price of gasoline in Italy. Included in the tax total is an excise tax of \(€ 0.728\) per liter levied by the national government, plus excise taxes
It is generally accepted that one advantage of an online store is lower overhead costs (expenses not directly related to production such as rent, utilities, and insurance). How would a move to e-commerce affect a competitive firm's pricing and production decisions and its profits in the short run?
In June 2014, the international price of crude oil was about \$114 per barrel (Brent benchmark). Three years later, it was about \(\$ 47\) per barrel. This dramatic price reduction caused petroleum companies to write down the value of their high-cost Canadian oil sands reserves and some companies
A 2016 survey by Opinion Way for kayak.co.uk found that the use of travel agents has changed dramatically over the past 10 years in the United Kingdom (Sullivan, 2016). While 57\% of respondents indicated that they booked through a travel agency a decade ago, only \(19 \%\) do so today. Instead,
On January 28, 2017, an empty LPG tanker leaving the Kamarajar Port in the State of Tamil Nadu, India, collided with an inbound tanker carrying 45,000 metric tons of oil, causing a spill of between 20 and 60 metric tons. A physical barrier to keep the oil contained was not effective, and the spill
Norway is the world's second largest exporter of fish and fish products by value, with key markets in Europe, Russia, Japan, China, and the United States. Haddock is one of the main capture species. However, the price of haddock fluctuates widely. For example, it was about \(60 \%\) lower in March
According to an article in the Financial Times on March 8, 2016, the capacity of the biggest container ships afloat rose sharply between 2011 and 2016 and has more than doubled since 2000. What is the economic explanation for this behavior? Use a diagram to show what this implies about the firm's
About two-third of the world's wine is produced in Europe. France, Italy, and Spain account for almost half of all the wine produced in the world. Except for France, none of the top 10 wine-producing countries in Europe levy an excise (per-unit) tax on still wine, and France's excise tax is very
As of October 15, 2015, large stores (with 250 or more full-time employees) in England are required to charge shoppers 5 pence per new plastic bag. Plastic bags at airport shops or aboard trains, planes, and ships are not included, and neither are paper bags. An article in The Guardian indicated
If the estimated supply curve for roses is linear, how much producer surplus is lost when the price of roses falls from \(30 otin\) to \(21 ot\) per stem (so that the quantity sold falls from 1.25 billion to 1.16 billion rose stems per year)?
Airport owners grant airlines the right to schedule a landing or departure during a specific period of time in accordance with guidelines set out by the International Air Transport Association. Once allocated, landing slots can be traded between airlines. It was reported in February 2016, for
Suppose that the demand curve for wheat is \(Q=100-10 p\) and the supply curve is \(Q=10 p\). The government imposes a specific tax of \(t=1\) per unit.a. How do the equilibrium price and quantity change?b. What effect does this tax have on consumer surplus, producer surplus, government revenue,
An April 2014 study by researchers at University College London found that people who ate seven or more portions of fruits and vegetables a day had a \(42 \%\) lower risk of death at any point in time compared to those who ate less than one portion. The research also showed that vegetables have
The consumption of alcohol is illegal for Afghan citizens, but the government does allow the sale of alcohol under licence to foreigners. Use a diagram to show how such a prohibition would affect the price of alcohol. Who wins and who loses? Consider the effects of the ban on consumers, producers,
The WTO agreement allows members to apply anti-dumping measures when dumping (selling at a price less than the cost of production) by one country that may result in material injury to the competing domestic industry in the member country. Regardless, many economists criticize anti-dumping measures,
Two linear demand curves go through the initial equilibrium, \(e_{1}\). One demand curve is less elastic than the other at \(e_{1}\). The original horizontal supply curve also goes through \(e_{1}\). For which demand curve is the deadweight loss from a specific tax \(t\) greater? For which is the
Contracting parties to the General Agreement on Tariffs and Trade (1947-94) could use quotas to limit imports of agricultural products from other countries. Under the Uruguay Round (1986-94), import quotas were replaced by tariffs (a process referred to as "tariffication"). Use diagrams to compare
A government is considering a quota or a tariff, both of which will reduce imports by the same amount. Which does the government prefer, and why? Explain how your answer depends on the way that the quota is allocated.
What are the effects in the soybean market of a \(\$ 5\)-per-bushel price support using a deficiency payment on the equilibrium price and quantity, consumer surplus, producer surplus, and deadweight loss?
Economic sanctions are sometimes imposed on one country by another country (or a group of countries) to achieve an economic, political, or social objective. They may take a variety of forms, including a ban on trade with the country being targeted, and it can be quite costly for the country that
What is the effect on the equilibrium, consumer surplus, producer surplus, and welfare if the government sets a price ceiling, \(\bar{p}\), below the unregulated competitive equilibrium price?
Suppose that the demand curve for wheat is \(Q=100-10 p\) and the supply curve is \(Q=10 p\). The government provides producers with a specific subsidy of \(s=1\) per unit.a. How do the equilibrium price and quantity change?b. What effect does this tax have on consumer surplus, producer surplus,
Australia has over 500 national parks in which commercial activities are prohibited and human activity is strictly monitored. In the interests of visitor safety or environmental sustainability, access to national parks may be restricted at certain times. Suppose the Australian National Parks and
Firms and consumer groups often try to influence government to adopt a policy that favors them. Others who do not support lobbying arguing that, left alone, competitive markets maximize societal welfare. Which of the following policies would each of these three groups favor: a price ceiling, a
Milk quotas in the European Union were abolished on April 1, 2015. They had been introduced in 1984 under the Common Agricultural Policy to manage excess supply. What are the effects of a limit on the amount of a good that competitive firms may sell on consumer surplus, producer surplus, and
How much would the price have to fall for consumers to be willing to buy 1 million more tons of coffee per month?
How does the quota, \(\bar{Q}\), set by the United States on foreign sugar imports affect the total American supply curve for sugar given the domestic supply curve, \(S^{d}\) in panel a of the graph, and the foreign supply curve, \(S^{f}\) in panel b?
What is the effect of a United States quota on sugar of \(\bar{Q}\) on the equilibrium in the U.S. sugar market?
Suppose everyone receives the same wage in a labor market. What happens to the equilibrium in this market if the government imposes a binding minimum wage, \(\underline{w}\) ?
Suppose that the demand function for lamb in Australia is Q = 63 - 11ρ + 7ρb + 3ρc + 2Υ, where Q is the quantity in million kilograms (kg) of lamb per year, ρ is the dollar price per kg (all prices cited are in Australian dollars), ρb is the price of beef per kg, ρc is the price of chicken
Using the demand function for lamb from Question 1.1, show how the quantity demanded at a given price changes as annual per capita income, Y, increases by AU$200.Data From Question 1.1:-Suppose that the demand function for lamb in Australia is Q = 63 - 11ρ + 7ρb + 3ρc + 2Υ, where Q is the
Given the inverse demand function for lamb (Question 1.1) is ρ = 33.64 - 0.09Q, how much would the price have to rise for consumers to want to buy 2 million kg of lamb less per year?Data From Question 1.1:-Suppose that the demand function for lamb in Australia is Q = 63 - 11ρ + 7ρb + 3ρc + 2Υ,
Suppose that the inverse demand function for movies is \(p=120-Q_{1}\) for college students and \(p=120-2 Q_{2}\) for other town residents. What is the town's total demand function \(\left(Q=Q_{1}+Q_{2}ight.\) as a function of \(p\) )? Use a diagram to illustrate your answer.
Duffy-Deno (2003) estimated the demand functions for broadband service are \(Q_{s}=15.6 p^{-0.563}\) for small firms and \(Q_{l}=16.0 p^{-0.296}\) for larger ones, where price is in cents per kilobyte per second and quantity is in millions of kilobytes per second (Kbps). What is the total demand
Based on the estimates of Ghose and Han (2014), the demand function for mobile applications at Apple's App Store is \(Q_{A}=1.4 p^{-2}\) and the demand function at Google Play is \(1.4 p^{-3.7}\), where the quantity is in millions of apps. What is the total demand function for apps? If the price
Suppose that the supply function for lamb in Australia is \(Q=149+8 p-9 p\), where \(Q\) is the quantity in millions of \(\mathrm{kg}\) of lamb per year, and \(p\) and \(p_{s}\) are the prices of lamb and sheep, respectively, in Australian dollars per kg. How does the supply curve change if the
If the supply curve for fertilizer in Jordan is \(Q_{j}=-2+4 p\) and the supply curve for fertilizer in the rest of the world is \(Q_{\text {row }}=25+8 p\), what is the world supply curve?
How would a quota of \(\bar{Q}=6\) million tons set by Iran on foreign wheat imports affect the total Iranian supply curve given the domestic supply curve \(Q_{s}^{d}=5 p-15\) and the foreign supply curve \(Q_{s}^{f}=2 p\), where the quantities are in millions of tons and the price is in rials per
A large number of firms are capable of producing chocolate-covered cockroaches. The linear, upward-sloping supply curve starts on the price axis at \(\$ 6\) per box. A few hardy consumers are willing to buy this product (possibly to use as gag gifts). Their linear, downward-sloping demand curve
Suppose the supply function for processing coffee beans from coffee cherries in Mexico is \(Q_{s}=3.15+0.1 p-0.5 p_{c}\) and the demand curve for coffee beans is \(Q_{d}=4.1-0.2 p\), where \(Q_{s}\) and \(Q_{d}\) are quantities of coffee beans in thousands of \(60-\mathrm{kg}\) bags, \(p\) is the
Use a figure to explain the fisher's comment about the effect of a large catch on the market price in the cartoon about catching lobsters near the beginning of Section 2.4. What is the supply shock?Data From Section 2.4:-How would a quota of \(\bar{Q}=6\) million tons set by Iran on foreign wheat
The last major outbreak of mad cow disease in the United Kingdom occurred in the mid 1990s. It is estimated that up to 6 million cows were destroyed at that time in an attempt to control the disease. What was the effect of the disease on the price and quantity of beef sold in the United Kingdom?
Use a supply-and-demand diagram of a competitive market to illustrate the qualitative effects of the following possible shocks in the Italian market for red wine.a. A new research study shows that red wine helps prevent heart disease, stave off aging, and reduce age-related memory decline.b. Trade
Ethanol, a fuel, is made from corn. Ethanol production increased 8.5 times from 2000 to 2015 (www.ethanolrfa.org). Show the effect of this increased use of corn for producing ethanol on the price of corn and the consumption of corn as food using a supply-and-demand diagram.
Using the information in Question 3.6, determine how the equilibrium price and quantity of coffee beans change if the price of coffee cherries falls by 25\%.Data From Section 3.6:-Suppose the supply function for processing coffee beans from coffee cherries in Mexico is \(Q_{s}=3.15+0.1 p-0.5
In 2015, the European Commission proposed giving individual member states the right to ban imports of genetically modified fruits and vegetables even if those products are still permitted at the European Union level. If a member state acted to ban such imports, what would be the likely effect of
There has been a great deal of movement of physicians across borders within the European Union, and this migration has raised concerns about patient safety and quality of care. Some member states have responded by tightening certification requirements for foreign-trained physicians. What effect
Rent control laws are in place in states such as Maharashtra and Karnataka in India. Such price controls establish the price of rental accommodations and limit annual increases in rent up to a maximum amount. Use a supply-and-demand diagram of a competitive market to show the effect of binding rent
The tsunamis that hit Japan in 2011 and India and Sri Lanka in 2004 were devastating, and their effects were felt for many years afterward. Natural disasters of this type as well as international events often result in severe disruptions to the supply of goods and services and in sharp spikes in
Suppose the Mexican government decides to control the price of coffee beans to support coffee bean producers in that country. It does so by imposing a binding price floor of 7.5 million pesos per thousand \(60 \mathrm{~kg}\) bags and by committing to buy any resulting excess supply. Use the
Brazil is one of the world's largest exporters of beef and China is a major purchaser of that beef (an estimated 30\% of China's beef imports in 2016 came from Brazil). However, in March 2017, China, South Korea, the European Union, and Chile suspended imports of meat products from Brazil as a
Question 7.1 asks you to illustrate why an import ban might cause the equilibrium quantity of beef in the domestic market to rise. Depending on how the supply and demand curves shift, could the equilibrium quantity of beef in the domestic market have fallen instead? Would it ever be possible for
The estimated equation for the linear U.S. corn demand curve iswhere \(p\) is the price in dollars per bushel and \(Q\) is the quantity demanded in billion bushels per year. \({ }^{5}\) What is the elasticity of demand at the point on the demand curve where the price is \(p=\$ 7.20\) per bushel? Q
What would be the effect of Arctic National Wildlife Refuge production on the world price of oil given that \(=-0.25, \eta=0.25\) (Baumeister and Peersman, 2013), the pre-Arctic National Wildlife Refuge daily world production of oil is \(Q_{1}=94\) million barrels per day, the pre-Arctic National
Show mathematically the effects on the equilibrium price and quantity of corn from a specific tax of \(t=\$ 2.40\) collected from suppliers, as illustrated in panel a of Figure 3.6.Figure 3.6:- (a) Specific Tax Collected from Producers p. $ per bushel P = 8.00 P = 7.20 P-1=5.60 T = $27.84 billion

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