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microeconomics principles applications

Microeconomics 3rd Canadian Edition Hubbard, Glenn & O'Brien, Anthony Patrick & Serletis, Apostolos & Childs, Jason - Solutions

What is economic efficiency? How do the externalities affect the economic efficiency of a market equilibrium?
[Related to the Apply the Concept: How Is the Burden of Employment Insurance Premiums Shared between Workers and Firms? ] 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
[Related to Solved Problem 4.2] 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
[Related to Solved Problem 4.2] 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
As explained in the chapter, economic efficiency is a market outcome in which marginal benefit to consumers of the last unit produced is equal to its marginal cost of production. Using this explanation of economic efficiency, explain why a tax creates a deadweight loss.
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 to . The price of gasoline begins to rise, and
[Related to the Chapter Opener ] 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
[Related to the Chapter Opener ] 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
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
A student makes the following argument:A price floor reduces the amount of a product that consumers buy because it keeps the price above the competitive market equilibrium. A price ceiling, on the other hand, increases the amount of a product that consumers buy because it keeps the price below the
] Use the information on the market for apartments in Bay City in the table to answer the following questions.Rent Quantity Demanded Quantity Supplied $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. In the absence of rent
[Related to Solved Problem
Taxis operating in Montreal must have a licence issued by the Bureau du taxi de Montréal, 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 rides
The government of Venezuela imposed price ceilings on a wide variety of consumer goods from 2007 to at least 2019 (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. Draw a graph to illustrate
Provincial regulators control the price and supply of milk to ensure that dairy farmers receive a fair and consistent income.Is providing dependable income to dairy farmers a good policy goal for provincial governments? How are provincial governments likely to meet this policy objective? Do you
[Related to Apply the Concept: Price Floors in Labour Markets ] 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
The graph that follows shows the market for apples.Assume that the government has imposed a price floor of $10 per crate.a. How many crates of apples will be sold after the price floor has been imposed?b. Will there be a shortage or a surplus? If there is a shortage or a surplus, how large will it
What is a black market? Under what circumstances would you expect a black market to arise?
Do producers tend to favour price floors or price ceilings?Why?
Why do some consumers tend to favour price controls while others tend to oppose them?
Recently, the fast-food franchise A&W has begun advertising that it uses only hormone-free beef and is offering plant-based burger patties and sausage substitutes. Using these products raising increases A&W’s costs. Suppose that consumers react to this information by increasing their demand for
An article about record high avocado prices discussed how avocado crops had suffered from hot weather, droughts, and an invasive beetle that kills avocado trees. Use a demand and supply graph of the avocado market to illustrate the effect of the hot weather, droughts, and invasive beetles. How are
Using the graph below, explain why economic surplus would be smaller if or were the quantity produced than if were the quantity produced.
Does an increase in economic surplus in a market always mean that economic efficiency in the market has increased?Briefly explain.
Using a demand and supply graph, illustrate and briefly explain the effect on consumer surplus and producer surplus of a price below the equilibrium price. Show any deadweight loss on your graph.
Briefly explain whether you agree with the following statement: “Lower tuition will increase the economic efficiency in the market for university education.”
Uber is an app people use to arrange transportation with drivers who use their own cars for this purpose. Customers pay for their rides with the Uber smartphone app. Uber’s prices fluctuate with the demand for the service. This “surge pricing”can result in different prices for the same
[Related to Apply the Concept: The Consumer Surplus from Uber ] 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
The following graph illustrates the market for a breast cancer–fighting drug, without which breast cancer patients cannot survive. What is the consumer surplus in this market?How does it differ from the consumer surplus in the markets you have studied up to this point?
How does consumer surplus differ from the total benefit consumers receive from purchasing products? Similarly, how does producer surplus differ from the total revenue that firms receive from selling products? Under what special case will consumer surplus equal the total benefit consumers receive
Suppose that a drought in Saskatchewan reduces the size of the wheat crop, which causes the supply of wheat to shift to the left. Briefly explain whether consumer surplus will increase or decrease and whether producer surplus will increase or decrease. Use a demand and supply graph to illustrate
The following graphs show the supply and demand curves for two markets. One of the markets is for BMW automobiles, and the other is for a cancer-fighting drug, without which lung cancer patients will die. Briefly explain which graph most likely represents which market.
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 ] 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 as
[Related to Don’t Let This Happen to You ] 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
[Related to Solved Problem 3.2] 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
[Related to Solved Problem 3.2] The demand for watermelons is highest during summer and lowest during winter. Yet watermelon prices are normally lower in summer than in winter. Use a demand and supply graph to demonstrate how this is possible. Be sure to carefully label the curves in your graph and
According to a news article on bloomberg.com, the demand for coffee is increasing as “millennials’ seemingly unquenchable thirst for coffee is helping to push global demand to a record.”At the same time, coffee crops in Brazil and Asia have been hampered by dry weather and droughts. The
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 a demand and supply graph to analyze the
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
[Related to the Chapter Opener ] Suppose the demand for premium bottled water increases rapidly during 2018. At the same time, six more firms begin producing premium bottled water. A student remarks that, because of these events, we can’t know for certain whether the price of premium bottled
Draw a demand and supply graph to show the effect on the equilibrium price in a market in the following two situations:a. The demand curve shifts to the right.b. The supply curve shifts to the left.
If a market is in equilibrium, is it necessarily true that all buyers and all sellers are satisfied with the market price? Briefly explain.
[Related to Solved Problem 3.1] 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
What do economists mean by a shortage? By a surplus?
If the price of a good increases, is the increase in the quantity of the good supplied likely to be smaller or larger, the longer the time period being considered? Briefly explain.
Will each firm in the tablet computer industry always supply the same quantity as every other firm at each price?What factors might cause the quantity of tablet computers supplied by different firms to be different at a particular price?
Suppose that the following table shows the quantity supplied of UGG boots at five different prices in 2019 and in 2020:Quantity Supplied Price 2019 2020$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
What is the law of supply? What are the main variables that will cause a supply curve to shift? Give an example of each.
What is the difference between a change in supply and a change in the quantity supplied?
[Related to Apply the Concept: Forecasting the Demand for Premium Bottled Water ] An article on marketwatch.com stated, “While the fizzy soda drinks companies have experienced an annual volume sales decline since 2003, bottled water grew every year over the last two decades, except 2009 during
Richard Posner is a US federal court judge who also writes on economic topics. A newspaper reporter summarized Posner’s view on the effect of online bookstores and e-books on the demand for books:Posner’s [argument] is that the disappearance of bookstores is to be celebrated and not mourned,
Suppose the following table shows the price of 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.Year Price Quantity 2015 $24 880 35 265 2016 24 550 33 250 2017 25 250 36 466
[Related to Apply the Concept: Forecasting the Demand for Premium Bottled Water ] Name three products whose demand is likely 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
[Related to Apply the Concept: The Transformation of Lobster from Inferior to Normal Good .] A student makes the following argument:The chapter says that people in Ontario and other parts of Canada far from the ocean treat lobster as a normal good. I can’t stand the stuff—they look like alien
Imagine that the table below shows the quantity demanded of UGG boots at five different prices in 2019 and in 2020:Quantity Demanded Price 2019 2020$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 of UGG boots
[Related to the Chapter Opener ] In recent years, a number of American cities have passed taxes on carbonated soft drinks in efforts to help reduce obesity and to raise revenue for municipal governments. Provincial governments are coming under pressure to levy their own taxes on sugary soft drinks.
For each of the following pairs of products, state which are complements, which are substitutes, and which are unrelated.a. Gasoline and electric car batteriesb. Houses and household appliancesc. UGG boots and Kindle e-readersd. iPads and Kindle e-readers
What is the difference between a change in demand and a change in the quantity demanded?
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. The late economist William Baumol believed part of
Evaluate the following argument: “Adam Smith’s analysis is based on a fundamental flaw: He assumes that people are motivated by self-interest. But this isn’t true. I’m not selfish, and most people I know aren’t selfish.”
[Related to Apply the Concept: Too Little of a Good Thing ] 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
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
What are private property rights? What role do they play in the working of a market system? Why are independent courts important for a well-functioning economy?
Some people argue that Canada should import only products that cannot be produced here. Do you believe that this would be a good policy? Explain.
Are specialization and trade between individuals and countries more about having a job or about obtaining a higher standard of living? Individually, if you go from a situation of not trading with others (you produce everything yourself) to a situation of trading with others, do you still have a
If Nicaragua can produce twice as much coffee as Colombia even when both have exactly the same resources, explain how Colombia could have a comparative advantage in producing coffee.
[Related to Solved Problem 2.2] 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 Germany Wine (bottles)Schnitzel (kilograms)Wine (bottles)Schnitzel (kilograms)0 8 0 15 1 6 1 12 2 4 2 9
[Related to Don’t Let This Happen to You ] 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, Mexico, New Zealand, Peru,
Using the same amount of resources, the United States and Canada can both produce lumberjack shirts and lumberjack boots, as shown in the following production possibilities frontiers:a. Which country has a comparative advantage in producing lumberjack boots? Which country has a comparative
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 like
[Related to Apply the Concept: Facing the Trade-offs of Health Care Spending ] 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
[Related to Apply the Concept: Facing the Trade-offs of Health Care Spending ] 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
[Related to Solved Problem 2.1] 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:Hours Spent Studying Midterm Score Choice Economics
Suppose you win free tickets to a movie plus all you can eat at the snack bar for free. Would there be a cost to you to attend this movie? Explain.
[Related to the Chapter Opener ] 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 that shows
Draw a production possibilities frontier that shows the trade-off between the production of cotton and the production of soybeans.a. Show the effect that a prolonged drought would have on the initial production possibilities frontier.b. Suppose genetic modification makes soybeans resistant to
What is a production possibilities frontier? How can we show economic efficiency on a production possibilities frontier?How can we show inefficiency? What causes a production possibilities frontier to shift outward?
Briefly explain whether you agree with the following assertion: “Microeconomics is concerned with things that happen in one particular place, such as the unemployment rate in one city. In contrast, macroeconomics is concerned with things that affect the country as a whole, such as how the rate of
Briefly explain whether each of the following is primarily a microeconomic issue or a macroeconomic issue:a. The effect of higher cigarette taxes on the quantity of cigarettes soldb. The effect of higher income taxes on the total amount of consumer spendingc. The reasons for the economies of East
[Related to Don’t Let This Happen to You ] Explain which of the following statements represent positive analysis and which represent normative analysis:a. The legalization of marijuana will lead to an increase in marijuana use by teenagers.b. The federal government should spend more on AIDS
[Related to the Chapter Opener ] In every El Niño year, coffee crops are likely to be damaged, reducing the amount of coffee available.a. How might a company, like Tim Hortons, that is part of a market economy deal with the fact there was less coffee available?b. How might a reduction in the
[Related to Apply the Concept: Should the Government of Saskatchewan Increase Its Minimum Wage? ] This Apply the Concept feature explains that there are both positive and normative elements to the debate over raising the minimum wage. What economic statistics would be most useful in evaluating the
What is the difference between normative analysis and positive analysis? Is economics concerned mainly with normative analysis or with positive analysis? Briefly explain.
Describe the five steps by which economists arrive at a useful economic model.
Suppose that your college decides to give away 1000 tickets to the hockey game against your school’s biggest rival. The athletic department elects to distribute the tickets by giving them away to the first 1000 students who show up at the department’s office at 10 A.M. the following Monday.a.
In a paper, economists Patricia M. Flynn and Michael A.Quinn state the following:We find evidence that Economics is a good choice of major for those aspiring to become a CEO [chief executive officer]. When adjusting for size of the pool of graduates, those with undergraduate degrees in Economics
Centrally planned economies have been less efficient than market economies.a. Has this difference in efficiency happened by chance, or is there some underlying reason?b. If market economies are more economically efficient than centrally planned economies, would there ever be a reason to prefer
According to Forbes magazine, in 2017, Bill Gates was the world’s richest person, with wealth of $86 billion. Does Bill Gates face scarcity? Does everyone? Are there any exceptions?“The World’s Billionaires,” forbes.com, March 20, 2017.
What are the three economic questions that every society must answer? Briefly discuss the differences in how centrally planned, market, and mixed economies answer these questions.
[Related to Solved Problem 1.1] Late in the semester, a friend tells you, “I was going to drop my psychology course so I could concentrate on my other courses, but I had already put so much time into the course that I decided not to drop it.” What do you think of your friend’s reasoning?
[Related to Solved Problem 1.1] Two students are discussing Solved Problem 1.1:Joe: “I think the key additional information you need to know in deciding whether or not you should watch another episode is the grade you’re currently getting and the grade you would get if you watched the extra
[Related to Apply the Concept: Does Canada’s Health Care System Contribute to Obesity? ] Lizzy Pope and Jean Harvey found that offering first-year university students money to go to the gym on a regular basis increased gym attendance in the fall semester by between 49 and 51 percent and by 36
The Canadian federal government has insisted that all provinces implement a price on carbon. The price started at $10 per tonne in 2018 and will rise to $50 per tonne by 2022. One of the goals of a carbon price is to increase the cost of carbonintensive things like gasoline. Proponents of this
The grading system is a powerful resource for teachers. In their book Effective Grading: A Tool for Learning and Assessment,Barbara Walvoord and Virginia Anderson state that “teachers must manage the power and complexity of the grading system”and that “teachers must consider grading in their

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