Microeconomics 4th Edition R. Glenn Hubbard, Anthony Patrick O’Brien - Solutions

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In a speech, Federal Reserve Chairman Ben Bernanke made the following observation: “Although we Americans strive to provide equality of economic opportunity, we do not guarantee equality of economic outcomes, nor should we.” If the federal government wanted to, how could it“guarantee equality
A U.S. Census Bureau report showed that 46 percent of households living below the poverty line owned their own homes, 76 percent lived in dwellings with air-conditioning, about 75 percent owned cars, and 62 percent had cable or satellite TV reception. All these levels are considerably higher than
Suppose that a country has 20 million households. Ten million are poor households that each have labor market earnings of $20,000 per year, and 10 million are rich households that each have labor market earnings of$80,000 per year. If the government enacted a marginal tax of 10 percent on all labor
Suppose that Congress and the president decide on a policy of bringing about a perfectly equal distribution of income.What factors might make this policy difficult to achieve?If it were possible to achieve the goal of this policy, would doing so be desirable?
Use the following Lorenz curve graph to answer the questions:a. Did the distribution become more equal in 2010 than it was in 2009, or did it become less equal? Briefly explain.b. If area A = 2,150, area B = 250, and area C = 2,600, calculate the Gini coefficient for 2009 and the Gini coefficient
[Related to the Chapter Opener on page 581] In his column on MSNBC.com, Robert J. Samuelson wrote, “As for what’s caused greater inequality, we’re also in the dark.The Reagan and Bush tax cuts are weak explanations, because gains have occurred in pretax incomes. . . . Up to a point,
[Related to Solved Problem 18.4 on page 602] Evaluate the following statement: “Policies to redistribute income are desperately needed in the United States. Without such policies, the more than 15 percent of the population that is currently poor has no hope of ever climbing above the poverty
Compare the distribution of income in the United States with the distribution of income in other high-income countries.
What is a Lorenz curve? What is a Gini coefficient? If a country had a Gini coefficient of 0.48 in 1960 and 0.44 in 2012, would income inequality in the country have increased or decreased?
[Related to the Don’t Let This Happen to You on page 594]According to an article in the New York Times, during 2009 some New Yorkers were deciding to buy existing condominiums(condos) rather than newly constructed condos.One reason given was the following: “[Some buyers] seek to avoid the 1.825
Governments often have multiple objectives in imposing a tax. In each part of this question, use a demand and supply graph to illustrate your answer.a. If the government wants to minimize the excess burden from excise taxes, should these taxes be imposed on goods that are elastic or goods that are
[Related to the Making the Connection on page 595]Use a demand and supply model for the labor market to show the effect of the corporate income tax on workers.What factors would make the deadweight loss or excess burden from the tax larger or smaller?
[Related to Solved Problem 18.3 on page 596] Explain whether you agree with the following statement: “For a given demand curve, the excess burden of a tax will be greater when supply is less price elastic than when it is more elastic.” Illustrate your answer with a demand and supply graph.
[Related to Solved Problem 18.3 on page 596] Use the following graph of the market for cigarettes to answer the questions:a. If the government imposes a 10-cents-per-pack tax on cigarettes, will the price consumers pay rise more if the demand curve is D1 or if the demand curve is D2?Briefly
According to the 2004 Economic Report of the President,“The actual incidence of a tax may have little to do with the legal specification of its incidence.” Briefly explain what this statement means and discuss whether you agree or disagree with it.
[Related to the Making the Connection on page 592]Suppose the government eliminates the income tax and replaces it with a consumption tax. Think about the effect of this on the market for automobiles. Can you necessarily tell what will happen to the price and quantity of automobiles?Briefly explain
Almost all states levy sales taxes on retail products, but about half of them exempt purchases of food. In addition, virtually all services are exempt from state sales taxes.Evaluate these tax rate differences, using the goals and principles of taxation on pages 591–594.
[Related to the Making the Connection on page 592]Currently, the Social Security and Medicare programs are funded by payroll taxes rather than by the federal personal income tax. In 2011, the payroll tax for Social Security was 12.4 percent on wage, salary, and self-employment income up to
[Related to the Making the Connection on page 589]President Barack Obama in his September 2011 deficit reduction plan proposed the so-called “‘Buffett Rule,’named after billionaire Warren Buffett, who noted that he was paying a lower tax rate than his secretary. The “Buffett Rule” would
Use the information in Table 18.2 on page 588 to calculate the total federal income tax paid, the marginal tax rate, and the average tax rate for people with the following incomes.(For simplicity, assume that these people have no exemptions or deductions from their incomes.)a. $25,000b. $125,000c.
Many state governments have begun using lotteries to raise revenue. If we think of a lottery as a type of tax, is a lottery likely to be progressive or regressive? What data would you need to determine whether the burden of a lottery is progressive or regressive?
On April 1, 2009, a 62-cent increase in the federal cigarette tax went into effect. The following data are from the Gallup-Healthways Well-Being Index for 2008:Based on these data, would the federal cigarette tax be considered progressive or regressive? Be sure to define progressive tax and
In September 2011, President Barack Obama proposed a new deficit reduction plan that included increasing tax rates on families earning $250,000 or more. If President Obama’s proposals are enacted, is it likely that the U.S. tax system will become more progressive or less progressive?Be sure to
Which type of tax raises the most revenue for the federal government? Which type of tax raise the most revenue for state and local governments?
Nobel Laureate James Buchanan, who is one of the key figures in developing the public choice model, wrote: “The relevant difference between markets and politics does not lie in the kinds of values/interests that persons pursue, but in the conditions under which they pursue their various
Is the typical person likely to gather more information when buying a new car or when voting for a member of the House of Representatives? Briefly explain.
An article in the Economist magazine made the following observation: “In fact, as public choice theory shows, government has a whole set of special decision-making problems that can make the normal human mistakes of those decision-makers even worse.” What “special decision- making problems”
An article in the Economist magazine made the following observation:People often complain that it is simplistic for economics to assume that individuals are rational and self-interested. Of course this is a simplification, but it is an enlightening one, and not flatly contradicted in the real
Discuss the distribution of income in the United States and understand the extent of income mobility.
Elasticity, page 594 Understand the effect of price elasticity on tax incidence.
Understand the tax system in the United States, including the principles that governments use to create tax policy.
Describe the public choice model and explain how it is used to analyze government decision making.
In a competitive labor market, imposing a minimum wage should reduce the equilibrium level of employment.Will this also be true if the labor market is a monopsony?Briefly explain.
In 1879, economist Henry George published Progress and Poverty, which became one of the best-selling books of the nineteenth century. In this book, George argued that all existing taxes should be replaced with a single tax on land.In Chapter 4, we discussed the concept of tax incidence, or the
Many people have predicted, using a model like the one in panel (b) of Figure 17.12 on page 570, that the price of natural resources should rise consistently over time in comparison with the prices of other goods because the demand curve for natural resources is continually shifting to the right,
[Related to the Making the Connection on page 567]What effect did the incentive pay system have on Safelite’s marginal cost of installing replacement car windows? If all firms that replace car windows adopted an incentive pay system, what would happen to the price of replacing automobile glass?
[Related to the Making the Connection on page 563]Why might employers be more likely to interview a job applicant with a white-sounding name than an applicant with an African-American–sounding name? Leaving aside legal penalties, will employers who follow this practice incur an economic penality?
[Related to Solved Problem 17.4 on page 561] In most universities, economics professors receive larger salaries than English professors. Suppose that the government requires that from now on, all universities must pay economics professors the same salaries as English professors. Use demand and
[Related to Solved Problem 17.4 on page 561] Use the following graphs to answer the questions:a. What is the equilibrium quantity of trash collectors hired, and what is the equilibrium wage?b. What is the equilibrium quantity of receptionists hired, and what is the equilibrium wage?c. Briefly
[Related to the Making the Connection on page 559]Some policymakers have proposed that all firms be required to make contributions to retirement plans for their employees. If such a proposal is enacted, what is likely to happen to the wages received by workers at firms that currently do not make
The following table is similar to Table 17.2 on page 560, except that it includes the earnings of Asian males and females.Does the fact that Asian males are the highest-earning group in the table affect the likelihood that economic discrimination is the best explanation for why earnings differ
Prior to the early twentieth century, a worker who was injured on the job could collect damages only by suing his employer. To sue successfully, the worker—or his family, if the worker had been killed—had to show that the injury was due to the employer’s negligence, that the worker did not
Goldwyn, a movie producer during Hollywood’s Golden Age, once remarked about one of his stars: “We’re overpaying him, but he’s worth it.”a. In what sense did Goldwyn mean that he was overpaying this star?b. If he was overpaying the star, why would the star have still been worth it?
[Related to the Making the Connection on page 557]According to Alan Krueger, an economist at Princeton University, the share of concert ticket revenue received by the top 1 percent of all acts rose from 26 percent in 1982 to 56 percent in 2003. Does this information indicate that the top acts in
In early 2007, Nick Saban agreed to leave his job as head coach of the Miami Dolphins National Football League team to take a job as head football coach at the University of Alabama at a salary of $4 million per year for eight years.Ivan Maisel, a columnist for ESPN.com, wondered whether Saban was
Buster Olney, a columnist for ESPN.com, wondered why baseball teams pay the teams’ managers and general managers less than they pay most baseball players:About two-thirds of the players on the [New York] Mets’ roster will make more money than [manager Willie] Randolph; Willie will get somewhere
[Related to the Don’t Let This Happen to You on page 556]Joe Morgan is a sportscaster and former baseball player.After he stated that he thought the salaries of Major League Baseball players were justified, a baseball fan wrote the following to Rob Neyer, a sports columnist:Mr. Neyer, What are
[Related to the Chapter Opener on page 545] A student remarks, “I don’t think the idea of marginal revenue product really helps explain differences in wages. After all, a ticket to a baseball game costs much less than college tuition, yet baseball players are paid much more than college
Writing on the Baseball Prospectus Web site, Dan Fox argued,“What a player is really worth depends a great deal on the teams that are interested in signing him.” Do you agree? Shouldn’t a baseball player with a particular level of ability be worth the same to every team? Briefly explain.From
The journalist Michael Kinsley argued, “Free-market capitalism. . . works well for almost all by rewarding some people more than others.” Discuss whether you agree.From Michael Kinsley, “Curse You, Robert Caro!” Slate, November 21, 2002.
Is the fraction of U.S. workers in labor unions larger or smaller than in other countries?
In what sense do employers who discriminate pay an economic penalty? Is this penalty enough to eliminate discrimination?Briefly explain.
Define economic discrimination. Is the fact that one group in the population has higher earnings than other groups evidence of economic discrimination? Briefly explain.
In 541 a.d., an outbreak of bubonic plague hit the Byzantine Empire. Because the plague was spread by flea-infested rats that often lived on ships, ports were hit particularly hard. In some ports, more than 40 percent of the population died. The emperor, Justinian, was concerned that the wages of
A newspaper article summarizes a study showing that “a standout kindergarten teacher is worth about $320,000 a year. That’s the present value of the additional money that a full class of students can expect to earn over their careers.This estimate doesn’t take into account social gains, like
Sean Astin, who played Sam in the Lord of the Rings movies, wrote the following about an earlier film he had appeared in: “Now I was in a movie I didn’t respect, making obscene amounts of money (five times what a teacher makes, and teachers do infinitely more important work).”Are salaries
Reread the discussion on page 555 of changes in the salaries of software engineers. Use a graph to illustrate this situation. Make sure your graph has labor demand and supply curves for 2009 and 2011 and that the equilibrium point for each year is clearly indicated.
[Related to the Making the Connection on page 554]Over time, the gap between the wages of workers with college degrees and the wages of workers without college degrees has been increasing. Shouldn’t this gap have increased the incentive for workers to earn college degrees, thereby increasing the
If the labor supply curve shifts to the left and the labor demand curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment?Illustrate your answer with a graph.
If the labor demand curve shifts to the left and the labor supply curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment?Illustrate your answer with a graph.
State whether each of the following events will result in a movement along the market supply curve of agricultural labor in the United States or whether it will cause the market supply curve of agricultural labor to shift. If the supply curve shifts, indicate whether it will shift to the left or to
The fraction of the U.S. population older than age 65 is increasing.What is the likely effect of the aging of the U.S.population on the supply curve for labor?
Suppose that a large oil field is discovered in Michigan. By imposing a tax on the oil, the state government is able to eliminate the state income tax on wages. What is likely to be the effect on the labor supply curve in Michigan?
Most labor economists believe that many adult males are on the vertical section of their labor supply curves. Use the concepts of income and substitution effects to explain under what circumstances an individual’s labor supply curve would be vertical.Based on Robert Whaples, “Is There Consensus
A columnist writing in the Wall Street Journal during the recession of 2007–2009 made the following observation about the “price of time”:The recession is doing funny things with the price of time.Technically it’s risen in value. Although hardly anyone seems to have noticed, the
Daniel was earning $65 per hour and working 45 hours per week. Then Daniel’s wage rose to $75 per hour, and as a result, he now works 40 hours per week. What can we conclude from this information about the income effect and the substitution effect of a wage change for Daniel?
What are the three most important variables that cause the market supply curve of labor to shift?
How can we measure the opportunity cost of leisure? What are the substitution effect and the income effect resulting from a wage change? Why is the supply curve of labor usually upward sloping?
Baseball writer Rany Jazayerli assessed the Kansas City Royals outfielder Jose Guillen as follows: “Guillen has negative value the way his contract stands.” How could a baseball player’s contract cause him to have negative value to a baseball team?
State whether each of the following events will result in a movement along the market demand curve for labor in electronics factories in China or whether it will cause the market demand curve for labor to shift. If the demand curve shifts, indicate whether it will shift to the left or to the right
[Related to Solved Problem 17.1 on page 548] Complete the following table for Terrell’s Televisions:a. From the information in the table, can you determine whether this firm is a price taker or a price maker?Briefly explain.b. Use the information in the table to draw a graph like Figure 17.1 on
Frank Gunter owns an apple orchard. He employs 87 apple pickers and pays them each $8 per hour to pick apples, which he sells for $1.60 per box. If Frank is maximizing profits, what is the marginal revenue product of the last worker he hired? What is that worker’s marginal product?
What are the five most important variables that cause the market demand curve for labor to shift?
What is the difference between the marginal product of labor and the marginal revenue product of labor?
In what sense is the demand for labor a derived demand?
Show how equilibrium prices are determined in the markets for capital and natural resources.
Discuss the role personnel economics can play in helping firms deal with human resources issues.
Use demand and supply analysis to explain how compensating differentials, discrimination, and labor unions cause wages to differ.
Explain how equilibrium wages are determined in labor markets.
Explain how people choose the quantity of labor to supply.
Explain how firms choose the profitmaximizing quantity of labor to employ.
Thomas Kinnaman, an economist at Bucknell University, has analyzed the pricing of garbage collection:Setting the appropriate fee for garbage collection can be tricky when there are both fixed and marginal costs of garbage collection. . . . A curbside price set equal to the average total cost of
[Related to the Chapter Opener on page 519] If you visited Disneyland between 1955 and 1982, you could not go on most rides without buying a ticket for the ride—in addition to the ticket necessary to enter the park. Explain why this pricing strategy earned Disney lower profits than the current
During the nineteenth century, the U.S. Congress encouraged railroad companies to build transcontinental railways across the Great Plains by giving them land grants. At that time, the federal government owned most of the land on the Great Plains. The land grants consisted of the land on which the
Some professional sports teams charge fans a one-time lump sum for a personal seat license. The personal seat license allows a fan the right to buy season tickets each year. No one without a personal seat license can buy season tickets. After the original purchase from the team, the personal seat
[Related to the Making the Connection on page 532]Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you find some indication about whether a publishing company actually was using cost-plus pricing for all its books?
An article in the Wall Street Journal gave the following explanation of how products were traditionally priced at Parker-Hannifin Corporation:For as long as anyone at the 89-year-old company could recall, Parker used the same simple formula to determine prices of its 800,000 parts—from
According to an article in the Wall Street Journal, McDonald’s and Burger King have much larger markups on French fries and sodas than on hamburgers. Is it likely that the companies believe that the demand for French fries and sodas is more elastic or less elastic than the demand for hamburgers?
One leading explanation for odd pricing is that it allows firms to trick buyers into thinking they are paying less than they really are. If this is true, in what types of markets and among what groups of consumers would you be most likely to find odd pricing? Should the government ban this practice
Why did the Walt Disney Company switch from charging for admission to Disneyland and charging for the rides to charging for admission and not charging for the rides?
What is cost-plus pricing? Is using cost-plus pricing consistent with a firm maximizing profits? How does the elasticity of demand affect the percentage markup?
What is odd pricing?
Draw a graph that shows producer surplus, consumer surplus, and deadweight loss (if any) in a market where the seller practices perfect price discrimination. Profit-maximizing firms select an output at which marginal cost equals marginal revenue. Where is the marginal revenue curve in this graph?
[Related to the Making the Connection on page 530]Some Netflix subscriptions have a higher price and allow more—or unlimited—movies to be rented per month. Others have a lower price and allow fewer movies to be rented per month. Is Netflix practicing price discrimination by offering these
Briefly explain whether supermarket coupons are a form of price discrimination.
[Related to the Chapter Opener on page 519] Why does Walt Disney World charge a lower admission price for children aged 3 to 9 than for adults? Why does Disney categorize a 10-year-old as an adult for this purpose? Why does it admit children under 3 for free? Why does it charge residents of Florida
[Related to the Making the Connection on page 527]Assume that the marginal cost of admitting one more student is constant for every university. Also assume that at every university, the demand for places in the freshman class is downward sloping. Now, suppose that the public becomes upset that
[Related to Solved Problem 16.2 on page 524] In addition to discounting the price of computers purchased by students and faculty, Apple also sells certain computer models only to schools and universities. According to a discussion on the MacRumors blog:Apple has quietly launched a lower cost $999
[Related to Solved Problem 16.2 on page 524] In the fall of 2011, Apple was offering a $100 discount to students on MacBook Pro laptops but only $50 on MacBook Air laptops. The MacBook Air is a very thin, very light laptop that is particularly aimed at businesspeople who travel frequently. Why
[Related to Solved Problem 16.2 on page 524] Use the graphs on the next page to answer the following questions.a. If this firm wants to maximize profits, what price will it charge in Market 1, and what quantity will it sell?b. If the firm wants to maximize profits, what price will it charge in

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Microeconomics 4th Edition R. Glenn Hubbard, Anthony Patrick O’Brien - Solutions

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