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microeconomics principles applications

Microeconomics 2nd Canadian Edition R Glenn Hubbard; Anthony Patrick O’Brien; Apostolos Serletis; Jason Childs - Solutions

Economist Hal Varian has made two observations about international trade:a. Trade allows a country “to produce more with less.”b. There is little doubt who wins [from trade] in the long run: consumers. Briefly explain whether you agree with either or both of these observations. Based on Hal R.
A political commentator makes the following statement: The idea that international trade should be based on the comparative advantage of each country is fine for rich countries like Canada and Japan. Rich countries have educated workers and large quantities of machinery and equipment. These
The following table shows the hourly output per worker in two industries in Chile and Argentina. O u tp u t p e r H o u r o f W o rk Hats B eer Chile 8 6 Argentina 1 2a. Explain which country has an absolute advantage in the production of hats and which country has an absolute advantage in the
[Related to the Making the Connection on page 172] When measures to protect Canadian firms from foreign competition are discussed, the strongest opposition often comes from Canadian firms. Why would firms like Bombardier or Magna International (an auto parts maker based in Aurora, Ontario) oppose
Some of those arguing against the Canadian government’s efforts to increase trade ties with other regions and countries state that removing trade barriers will mean losingjobs in Canada. What do you think people mean by “losing jobs in Canada”? Using the economic concept of comparative
The following table shows for Greece and Italy the hourly output per worker measured as quarts of olive oil and pounds of pasta.O u tp u t p e r H o u r o f W o rk O liv e O il Pasta Greece 4 2 Italy 4 8 Calculate the opportunity cost of producing olive oil and pasta in both Greece and in Italy.
Briefly explain whether you agree with the following argument: “Unfortunately, Bolivia does not have a comparative advantage with respect to Canada in the production of any good or service.” (Hint: You do not need any specific information about the economies of Bolivia and Canada to be able
What is protectionism? Who benefits and who loses from protectionist policies? What are the main arguments people use to justify protectionism?
A WTO publication calls comparative advantage “arguably the single most powerful insight in economics.” What is comparative advantage? What makes it such a powerful insight?
On most days, the price of a rose is $1, and 8000 roses are purchased. On Valentine s Day, the price of a rose jumps to $2, and 30 000 roses are purchased.a. Draw a demand and supply graph that shows why the price jumps.b. Based on this information, what do we know about the price elasticity of
Consider an increase in the demand for petroleum engineers in Canada. How would the supply of these engineers respond in the short run and in the long run? Conversely, consider a decrease in demand for lawyers. How would the supply of lawyers respond in the short run and in the long run?
Briefly explain whether you agree with the following statement: “The longer the period of time following an increase in the demand for apples, the greater the increase in the equilibrium quantity of apples and the smaller the increase in the equilibrium price.”
Suppose that instead of being highly inelastic, the demand for oil is highly elastic.a. Given the situation illustrated by the first graph in the Making the Connection on page 154, would the resulting price change be larger, smaller, or the same as the actual price change shown in the graph?
An article in the Wall Street Journal notes that although US oil production has increased rapidly in recent years, the increase has still amounted to only 5 percent of world production. Still, that increase has been “enough to help trigger a price collapse.” Briefly explain under what
The head of the United Kumquat Growers Association makes the following statement: The federal government is considering implementing a price floor in the market for kumquats. The government will not be able to buy any surplus kumquats produced at the price floor or to pay us any other subsidy.
Corruption has been a significant problem in Iraq. Opening and running a business in Iraq usually requires paying multiple bribes to government officials. We can think of there being a demand and supply for bribes, with the curves having the usual shapes: The demand for bribes will be downward
Suppose that the long-run price elasticity of demand for gasoline is —0.55. Assume that the price of gasoline is currently $1.15 per litre, the quantity of gasoline is 140 billion litres per year, and the federal government decides to increase the excise tax on gasoline by $0.30 per litre.
Consider firms selling three goods. One firm sells a good with an income elasticity of demand less than zero, one firm sells a good with an income elasticity of demand greater than zero but less than one, and one firm sells a good with an income elasticity of demand greater than one. In a
The elasticities reported in this Making the Connection were calculated using price data for many brands of beer. Why might price elasticity estimates for a product be less reliable if they use data for only one brand of that product?
Coca-Cola has been focusing on selling more 220-ntL cans in displays near supermarket checkout lines. Previously, Coke had relied more heavily on 600-mL bottles displayed in the beverage sections of supermarkets. A news story noted that, “The smaller 220-mL mini-cans are typically priced at five
Briefly explain whether you agree or disagree with Manager 1 s reasoning: Manager 1: “The only way we can increase the revenue we receive from selling our frozen pizzas is by cutting the price.” Manager 2: “Cutting the price of a product never increases the amount of revenue you receive. If
Use the graph below for Yolanda’s Frozen Yogurt Stand to answer the questions.a. Use the midpoint formula to calculate the price elasticity of demand for D\ between point A and point C and the price elasticity of demand for Dr between point A and point B. Which demand curve is more elastic, D\
The entrance fee into Yellowstone National Park in northwestern Wyoming is “$50 for a private, noncommercial vehicle; $40 for a motorcycle; or $20 for each visitor 16 and older entering by foot, bike, ski, etc.” The fee provides the visitor with a seven-day entrance permit into Yellowstone
One study found that the price elasticity of demand for pop is —0.78, while the price elasticity of demand for Coca-Cola is — 1.22. Coca-Cola is a type of pop, so why isn’t its price elasticity the same as the price elasticity for pop as a product? Based on Kelly D. Brownell and Thomas R.
The publisher of a magazine gives his staff the following information. Current price $2.00 per issue Current sales 150 000 copies per month Current total costs $450 000 per month He tells the staff, “Our costs are currently $150 000 more than our revenues each month. I propose to eliminate this
In 1916, in the United States, the Ford Motor Company sold 500 000 Model T Fords at a price of $440 each. Henry Ford believed that he could increase sales of the Model T by 1000 cars for every dollar he cut the price. Use this information to calculate the price elasticity of demand for Model T
You own a hot-dog stand that you set up outside the student union every day at lunchtime. Currently, you are selling hot dogs for a price of $3 each, and you sell 30 hot dogs a day. You are considering cutting the price to $2. Following graph shows two possible increases in the quantity sold as a
The following table gives data on the price of rye and the number of bushels of rye sold in 2016 and 2017. Price (d o llars Q u a n tity Y ea r p e r bushel) (bushels) 2016 $3.00 8 million 2017 2.00 12 milliona. Calculate the change in the quantity of rye demanded divided by the change in the price
[R elated to the C hap ter O pener on page 134] According to a news story, during the summer of 2015, gasoline prices were expected to decline by 32 percent, while “U.S. drivers are expected to consume slightly more gasoline, a 1.6 percent increase, during the summer.” Given this information,
Define the income elasticity of demand. Use income elasticity to distinguish a normal good from an inferior good. Is it possible to tell from the income elasticity of demand whether a product is a luxury good or a necessity good?
What is the midpoint method for calculating price elasticity of demand? How else can you calculate the price elasticity of demand? What is the advantage of the midpoint method?
William Easterly, in The White Man’s Burden, shares the following account by New York University Professor Leonard Wantchekon of how Professor Wantchekon’s village in Benin, Africa, managed the local fishing pond when he was growing up. To open the fishing season, elders performed ritual
Put each of these goods or services into one of the boxes in Figure 5.7 on page 123. That is, categorize them as private goods, public goods, quasi-public goods, or common resources.a. A television broadcast of the Stanley Cup playoff gameb. Home mail deliveryc. Hiking in a park not surrounded by
The more frequently bacteria are exposed to antibiotics, the more quickly the bacteria will develop resistance to the antibiotics. Health Canada states: There is an increasing concern around the world that organisms like bacteria, viruses, fungi, and parasites are becoming resistant to the drugs
Suppose that Jill and Joe are the only two people in the small town of Andover. Andover has land available to build a park of no more than 9 hectares. Jill and Joes demand schedules for the park are as follows: Jo e P rice p e r H e cta re N u m b e r o f H ectares $10 0 9 1 8 2 7 3 6 4 5 5 4 6 3 7
As discussed in the Chapter Opener, British Columbia has introduced a tax on fossil fuels. Some people argue that the revenue generated from this tax should be spent on subsidies to firms developing “green” energy. What sort of positive externality would a “green” energy firm produce?
Draw a graph for the market for soft drinks and assume that consumption of sugary pop causes a negative externality by raising medical costs. Draw both the actual demand curve representing the marginal private benefits and the demand curve representing the marginal social benefit. Show the
Assume the private marginal benefit from a good can be represented by the inverse demand equation, P = 100 — Q. Assume the private marginal cost of producing the good can be represented by the supply equation, P = 3Q. If consuming the good generates a negative externality of $10 for each unit
Draw a graph showing the deadweight loss from a negative externality in production and illustrate how a Pigovian tax eliminates the deadweight loss. Draw another graph showing the deadweight loss from a positive externality in consumption and illustrate how a Pigovian subsidy eliminates the
Many antibiotics that once were effective in eliminating infections no longer are because bacteria have evolved to become resistant to them. Some bacteria are now resistant to all but one or two existing antibiotics. Some policymakers have argued that pharmaceutical companies should receive
[Related to the Making the Connection on page 115] We know that owners of apple orchards and owners of beehives are able to negotiate private agreements. Is it likely that as a result of these private agreements, the market supplies the efficient quantities of apple trees and beehives? Are there
[Related to the Making the Connection on page 112] Even though governments around the world have eliminated or drastically reduced the amount of CFCs released into the atmosphere, the excess risk of skin cancer due to depleted ozone has not fallen to zero. Should the government take further
Is it ever possible for an increase in pollution to make society better off? Briefly explain, using a graph like Figure 5.3 on page 113.
The Canadian Radio-television and Telecommunications Commission (CRTC) decided in 2012 that people should be able to subscribe to individual channels rather than being forced to purchase bundles or packages of channels, which is the practice for many cable TV providers. However, the fewer channels
The Rocky Mountains are bear country. Parks Canada states the following about camping and fishing in bear country: “Dispose of fish offal in fast moving streams or the deep part of a lake, never along stream sides or lake shores.” What negative externality does disposing of fish remains near
The chapter states that your consuming a Tim Hortons coffee does not create an externality. But suppose you arrive at your favourite Tim’s and get in a long line to be served. By the time you reach the counter, there are 10 people in line behind you. Because you decided to have a decaf
If the price consumers pay and the price sellers receive are not affected by whether consumers or sellers collect a tax on a good or service, why does the government usually require sellers and not consumers to collect a tax?
Consider the graph of the market for cigarettes in problem 4.2, where it is assumed that the government collects the tax from the producers of cigarettes.a. How would the graph be different if the tax were collected from the buyers of cigarettes?b. What would be the new equilibrium price that
Use the graph of the market for cigarettes below to answer the following questions.a. According to the graph, how much is the government tax on cigarettes?b. What price do producers receive after paying the tax?c. How much tax revenue does the government collect?
Suppose the current equilibrium price of a quarter-pound hamburger is $5, and 10 million quarter-pound hamburgers are sold per month. After the federal government imposes a tax of $0.50 per hamburger, the equilibrium price of a hamburger rises to $5.20, and the equilibrium quantity falls to 9
An editorial in The Economist magazine discusses the fact that in most countries—including Canada—it is illegal for individuals to buy or sell body parts, such as kidneys.a. Draw a demand and supply graph for the market for kidneys. Show on your graph the legal maximum price of zero and
Suppose that initially the gasoline market is in equilibrium, at a price of $1.50 per litre and a quantity of 45 million litres per month. Then a war in the Middle East disrupts exports from the region, shifting the supply curve for gasoline from Sj to S,. The price of gasoline begins to rise, and
The competitive equilibrium rent in the city of Lowell is currently $1500 per month. The government decides to enact rent control and to establish a price ceiling for apartments of $1250 per month. Briefly explain whether rent control is likely to make each of the following people better or worse
The cities of Peabody and Woburn are 10 kilometres apart. Woburn enacts a rent control law that puts a ceiling on rents well below their competitive market value. Predict the effect of this law on the competitive equilibrium rent in Peabody, which does not have a rent control law. Illustrate your
The Calgary Stampede draws millions of people to Calgary each year. Demand for hotel rooms during Stampede week rises dramatically. Hotel management responds to the increase in demand by increasing the price for a room. Periodically, there is an outcry against the higher prices and accusations of
Use the information on the market for apartments in Bay City in the table to answer the following questions. R en t Q u a n tity D e m a n d e d Q u a n tity S u p p lie d $500 375 000 225 000 600 350 000 250 000 700 325 000 275 000 800 300 000 300 000 900 275 000 325 000 1000 250 000 350 000a.
Taxis operating in Montreal must have a licence issued by the Bureau du taxi et du remorquage, which regulates both taxis and towing. This branch of the government has limited the number of vehicles licensed as taxis to 4440. Let’s assume that this puts an absolute limit on the number of taxi
The government of Venezuela imposed price ceilings on a wide variety of consumer goods from 2007 to at least 2015 (the time of writing). The markets for flour, sugar, and cooking oil were subject to strong price controls that required they be sold below the market price. As a result of these price
Suppose that the government sets a price floor for milk that is above the competitive equilibrium price.a. Draw a graph showing this situation. Be sure your graph shows the competitive equilibrium price, the price floor, the quantity that would be sold in competitive equilibrium, and the quantity
Using the graph below, explain why economic surplus would be smaller if or Q1 were the quantity produced than if Q, were the quantity produced.
A study estimates that the total consumer surplus gained by people participating in auctions on eBay in a year was $7 billion. Is it likely that the total consumer surplus for the items bought in these auctions was higher or lower than it would have been if consumers had purchased these items for
The graph shows the market for tickets to a concert that will be held in a local arena that seats 15 000 people. What is the producer surplus in this market? How does it differ from the producer surplus in the markets you have studied up to this point?
W hat do economists mean by an efficient taxi
Proposals have been made to increase government regulation of firms providing child-care services by, for instance, setting education requirements for child-care workers. Suppose that these regulations increase the quality of child-care and cause the demand for child-care services to increase. At
[Related to Don't Let This Happen to You on page 70] A student was asked to draw a demand and supply graph to illustrate the effect on the tablet computers market of a fall in the price of displays used in tablet computers, holding everything else constant. She drew the graph below and explained it
A student writes the following: “Increased production leads to a lower price, which in turn increases demand.” Do you agree with the student’s reasoning? Briefly explain.
An article in the Wall Street Journal noted that the demand for Internet advertising was declining at the same time that the number of websites accepting advertising was increasing. After reading the article, a student argues: “From this information, we know that the price of Internet ads should
Tourism is an important part of the economies of the Maritime provinces. The tourist season is generally the summer months, with June, July, and August the most popular. Shediac, New Brunswick, and Prince Edward Island as a whole are particularly popular with tourists. The lobster fishing season
[Related to Making the Connection on page 66] During 2015, the price of oil was near record lows, trading as low as $40 a barrel. This low price of oil reduced the demand for solar energy. At the same time, some speculated that a number of existing makers of solar panels might exit the market. Use
As oil prices rose during 2006, the demand for alternative fuels increased. Ethanol, one alternative fuel, is made from corn. According to an article in the Wall Street Journal, the price of tortillas, which are made from corn, also rose during 2006: “The price spike [in tortillas] is part of a
In The Wealth of Nations, Adam Smith discussed what has come to be known as the “diamond and water paradox”: Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a
Briefly explain whether you agree with the following statement: “When there is a shortage of a good, consumers eventually give up trying to buy it, so the demand for the good declines, and the price falls until the market is finally in equilibrium.”
Suppose that the following table shows the quantity supplied ofUGG boots at five different prices in 2015 and in 2016: Quantity Supplied Price 2015 2016 $160 300 000 200 000 170 350 000 250 000 180 400 000 300 000 190 450 000 350 000 200 500 000 400 000 Name two different variables that would cause
Briefly explain whether each of the following statements describes a change in supply or a change in the quantity supplied:a. To take advantage of high prices for snow shovels during a snowy winter, Alexander Shovels, Inc., decides to increase output.b. The success of the Apple iPad leads more
Richard Posner is a US federal court judge who also writes on economic topics. A newspaper reporter summarized Posners view on the effect of online bookstores and e-books on the demand for books: Posners [argument] is that the disappearance of bookstores is to be celebrated and not mourned, partly
Suppose the following table shows the price o f a base model Toyota Prius hybrid and the quantity of Priuses sold for three years. Do these data indicate that the demand curve for Priuses is upward sloping? Explain. Y e a r Price Q u a n tity 2015 $24 880 35 265 2016 24 550 33 250 2017 25 250 36 466
Name three products whose demand is hkely to increase rapidly if the following demographic groups increase at a faster rate than the population as a whole:a. Teenagersb. Children under age fivec. Recent immigrants
[R elated to Making the Connection on page 55] A student makes the following argument: The chapter says that people in O ntario and other parts o f Canada far from the ocean treat lobster as a normal good. I can’t stand the stuff— they look like alien bugs and they take too much work to eat.
Imagine that the table below shows the quantity demanded of UGG boots at five different prices in 2015 and in 2016: Q u a n tity D e m a n d e d Price 2015 2016 $160 5000 4000 170 4500 3500 180 4000 3000 190 3500 2500 200 3000 2000 Name two different variables that could cause the quantity demanded
[R ela ted to th e C h ap ter O p en er o n p a g e 50] Many people are concerned about the health effects o f consuming large quantities o f energy drinks. A recent study by Anna Svatikova and her team asked people who were over 18, non-smokers, and healthy to drink either a can of Rockstar
The 2014 International Property Rights Index examines the relationship between the protection of property rights in a country and that country’s economic output. The authors of this report found that countries with the strongest protection of property rights are also the countries with the
Some economists have been puzzled that although entrepreneurs take on the risk of losing time and money by starting new businesses, on average their incomes are lower than those of people with similar characteristics who go to work at large firms. Economist William Baumol believes part of the
In The Wealth of Nations, Adam Smith wrote the following (Book I, Chapter II): “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” Briefly discuss what he meant by this.
Identify whether each of the following transactions will take place in the factor market or in the product market and whether households or firms are supplying the good or service or demanding the good or service:a. George buys a Toyota Camry hybrid.b. Toyota increases employment at its Cambridge
Some people argue that Canada should import only products that could not be produced here. Do you believe that this would be a good policy? Explain.
Suppose that France and Germany both produce schnitzel and wine. The following table shows combinations of the goods that each country can produce in a day:France G e rm a n y W in e S c h n itze l W in e S c h n itze l (b o ttles) (kilo g ra m s) (bo ttles) (kilo g ra m s) 0 8 0 15 1 6 1 12 2 4 2
In 2015, one of the largest multilateral trade deals in history was struck (but not ratified at the time of writing) by negotiators representing 12 countries (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, New Zealand, Peru, Singapore, the United States, and Vietnam). The
Look again at the information in Figure 2.4 on page 37. Choose a rate of trading cherries for apples different from the rate used in the text (15 kilograms of cherries for 10 kilograms of apples) that will allow you and your neighbour to benefit from trading apples and cherries. Prepare a table
Suppose your provincial government is deciding which of two sports programs it will pay for (assuming that only one program will be funded). The choices are Sport A, which will allow 24 students to play for 8 months and costs $37 500 per year, and Sport B, which will allow 20 students to play for 8
Suppose the minister responsible for Health Canada is trying to decide whether the federal government should spend more on research to find a cure for heart disease. She asks you, one of her economic advisers, to prepare a report discussing the relevant factors she should consider. Use the
You have exams in economics and chemistry coming up, and you have five hours available for studying. The following table shows the trade-offs you face in allocating the time you will spend in studying each subject: H ours S p e n t S tu d y in g M id te rm Score C h o ice Eco n o m ics C h e m
[Related to the Chapter Opener on page 29] One of the trade-offs Toyota faces is between safety and gas mileage. For example, adding steel to a car makes it safer but also heavier, which results in lower gas mileage. Draw a hypothetical production possibilities frontier that Toyota engineers face
What is absolute advantage? What is comparative advantage? Is it possible for a cftuntry to have a comparative advantage in producing a good without also having an absolute advantage? Briefly explain.
Calculate the slope of the total cost curve at point A and at point B in the following figure. (millions per month) $2.50 1.25 100 000 200 000
W hat is the area o f the blue triangle shown in the following figure?
Assume that the demand curve for Pepsi passes through the following two points: Price per Bottle of Pepsi Number of Bottles Demandeda. Draw a graph with a linear demand curve that passes through these two points.b. Show on the graph the areas representing total revenue at each price. Give the value
Real GDP in 2008 was $13 162 billion. Real GDP in 2009 was $12 703 billion. What was the percentage change in real GDP from 2008 to 2009? W hat do economists call the percentage change in real GDP from one year to the next?
Using the information in Figure 1A.2 on page 20, calculate the percentage change in auto sales from one year to the next. Between which years did sales fall at the fastest rate?
The following table gives information on the quantity of glasses of lemonade demanded ion sunny and overcast days: Price Quantity (glasses (dollars per glass) of lemonade per day) Weather $0.80 30 Sunny 0.80 10 Overcas 0.70 40 Sunn 0.70 20 Overcast 0.60 50 Sunny 0.60 30 Overcast 0.50 60 Sunn
The following table shows the relationship between the price of custard pies and the num ber o f pies Jacob buys per week: Price Quantity of Pies Week $3.00 6 July 22.00 7 July 95.00 4 July 166.00 3 July 23 1.00 8 July 30 4.00 5 August 6a. Is the relationship between the price of pies and the

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