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microeconomics principles applications
Microeconomics 5th Global Edition R. Glenn Hubbard; Anthony Patrick O'Brien - Solutions
In discussing the reduction of air pollution in the developing world, Richard Fuller of the Blacksmith Institute, an environmental organization, observed, “It’s the 90/10 rule. To do 90 percent of the work only costs 10 percent of the money. It’s the last 10 percent of the cleanup that costs
If the marginal cost of reducing a certain type of pollution is zero, should all that type of pollution be eliminated?Briefly explain.
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 191.
What are transactions costs? When are we likely to see private solutions to the problem of externalities?roblems and pplications
Under what conditions would private solutions to the problem of externalities be possible? Briefly describe them.
It is widely believed that football grounds generate a number of negative externalities on their surrounding areas. This could probably be because they are located in high-density residential areas. Therefore, it has often been suggested that relocating football clubs to areas that have a
Fracking, or hydraulic fracturing, has been used more frequently in recent years to drill for oil and natural gas that previously was too expensive to obtain. According to an article in the New York Times, “horizontal drilling has enabled engineers to inject millions of gallons of high-pressure
Tom and Jacob are college students. Each of them will probably get married later and have two or three children.Each knows that if he studies more in college, he’ll get a better job and earn more money. Earning more will enable them to spend more on their future families for things such as
In a study at a large state university, students were randomly assigned roommates. Researchers found that, on average, males assigned to roommates who reported drinking alcohol in the year before entering college had GPAs one-quarter point lower than those assigned to nondrinking roommates. For
John Cassidy, a writer for the New Yorker magazine, wrote a blog post arguing against New York City’s having installed bike lanes. Cassidy complained that the bike lanes had eliminated traffic lanes on some streets as well as some on-street parking. A writer for the Economist magazine disputed
Every year at the beginning of flu season, many people, including the elderly, get a flu shot to reduce their chances of contracting the flu. One result is that people who do not get a flu shot are less likely to contract the flu.a. What type of externality (negative or positive) arises from
Yellowstone National Park is in bear country. The National Park Service, at its Yellowstone Web site, states the following about camping and hiking in bear country:Do not leave packs containing food unattended, even for a few minutes. Allowing a bear to obtain human food even once often results in
Would it be possible for an externality to be considered positive by some people and negative by others? For example, what if Bon Jovi was performing in an open stadium and people outside were able to hear the music?
Externalities are costs and benefits that affect people who are not directly involved in the production or consumption of a good or service. In some cases the existence of externalities is evident; for example, when individuals use motor vehicles they consume a transportation service and at the
Briefly explain the relationship between property rights and the existence of externalities.roblems and pplications
How do market failures relate to the necessity of government intervention in certain markets?
How are externalities related to the efficiency of the competitive market equilibrium?
When will the private cost of producing a good differ from the social cost? Give an example. When will the private benefit from consuming a good differ from the social benefit? Give an example.
The following graph shows the effect of a tax imposed on soft drinks. Use this graph to answer the questions:a. Which areas in the graph represent the excess burden(deadweight loss) of the tax?b. Which areas represent the revenues collected by the government from the tax?c. Would this tax on soft
[Related to the Making the onnection on page 167]Suppose the government imposes a payroll tax of $1 per hour of work and collects the tax from employers. Use a graph for the market for labor to show the effect of the payroll tax, assuming the special case of a vertical supply curve of labor. By how
[Related to the Making the onnection on page 167]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 collect a tax from sellers rather than from consumers?
[Related to Solved Problem 4.4 on page 166] Suppose the federal government decides to levy a sales tax of $1.00 per pie on pizza. Briefly explain whether you agree with the following statement, made by a representative of the pizza industry:The pizza industry is very competitive. As a result, pizza
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 hamburgers rises to $5.20, and the equilibrium quantity falls to 9
The autonomous Spanish community of Catalonia levies a tourist tax. At the moment tourists pay the tax while paying for accommodation; the local government collects this tax from the hotel owners. Would it make a difference to the local government if it collected the tax directly from the
Differentiate between people who are legally taxable and those who actually bear the burden.
What is meant by tax incidence?
An editorial in the Economist magazine discusses the fact that in most countries—including the United States—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
Suppose that initially the gasoline market is in equilibrium, at a price of $3.50 per gallon and a quantity of 45 million gallons per month. Then a war in the Middle East disrupts imports of oil into the United States, shifting the supply curve for gasoline from S1 to S2. The price of gasoline
University towns with major football programs experience an increase in demand for hotel rooms during home football weekends. Hotels respond to the increase in demand by increasing the prices they charge for rooms. Periodically, there is an outcry against the higher prices and accusations of
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, though, increases the amount of a product that consumers buy because it keeps the price below the competitive
[Related to Solved Problem 4.3 on page 162] 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 1,000
[Related to the Don’t Let This Happen to You on page 161] Briefly explain whether you agree with the following statement: “If there is a shortage of a good, it must be scarce, but there is not a shortage of every scarce good.”
[Related to the hapter Opener on page 149] The competitive equilibrium rent in the city of Lowell is currently $1,000 per month. The government decides to enact rent control and establish a price ceiling of $750 per month for apartments. Briefly explain whether rent control is likely to make each
[Related to the hapter Opener on page 149] If San Francisco were to repeal its rent control law, would the prices for short-term rentals in the city listed on Airbnb and other peer-to-peer sites be likely to rise or fall? Briefly explain.
[Related to the hapter Opener on page 149] Recently Argentina’s government, after talks with suppliers and supermarkets, implemented certain price-controls to regulate and limit the prices of a range of goods, such as cooking oil, milk, and tomatoes. How would you justify such an intervention,
[Related to the Making the onnection on page 159]Throughout the world, countries like France, Taiwan, and Ecuador—which are very different from one another and yet diverse in themselves—have some form of a minimum wage policy in place. Despite this, why is minimum wage policy considered to be a
According to an article in the New York Times, the Venezuelan government “imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to find.”a. Why would imposing price controls on
The existence of government policies and regulations always carries with it a certain amount of risk; the interventions may encourage large sections of the society to engage in unproductive and inefficient activities, such as lobbying and rent-seeking. Explain how such a situation would affect the
Suppose that the government sets a price floor for milk that is above the competitive equilibrium price and that the government does not purchase any surplus milk.a. Draw a graph showing this situation. Be sure your graph shows the competitive equilibrium price, the price floor, the quantity that
Use the information on the kumquat market in the table to answer the following questions:Price(per Crate)Quantity Demanded(Millions of Crates per Year)Quantity Supplied(Millions of Crates per Year)$10 120 20 15 110 60 20 100 100 25 90 140 30 80 180 35 70 220a. What are the equilibrium price and
The following graph 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 to consumers 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
Can economic analysis provide a final answer to the question of whether the government should intervene in markets by imposing price ceilings and price floors?Briefly explain.roblems and pplications
Why are black markets crucial for the success of government policies, such as price floors and price ceilings?
Provide an example of a price ceiling. Why should governments enforce price ceilings?
“All individuals are satisfied by the competitive market equilibrium outcome because it is efficient. Therefore, there is no need for government intervention.” Discuss.
Using the following graph, explain why economic surplus would be smaller if Q1 or Q3 were the quantity produced than if Q2 is the quantity produced.
A student argues: “Economic surplus is greatest at the level of output where the difference between marginal benefit and marginal cost is largest.” Do you agree?Briefly explain.
Using the following graph, show the effects on consumer surplus and producer surplus of an increase in supply from S1 to S2. By how much does economic surplus increase?
If a market is in equilibrium, would it be desirable to move to a different market outcome with a lower economic surplus, but a higher consumer surplus?
Briefly explain whether you agree with the following statement: “If consumer surplus in a market increases, producer surplus must decrease.”
Using a demand and supply graph, illustrate and briefly explain the effect on consumer surplus and producer surplus of the price in a market being below the equilibrium price. Show any deadweight loss on your graph.
Do deadweight losses occur in a competitive market which is in equilibrium? Briefly explain your reasoning.
Why is equilibrium in a competitive market considered to be efficient?roblems and pplications
Movies, songs, and books are covered by copyrights, which allow the creators of these works to keep other people from reproducing them without permission. Many people, though, violate copyright laws by using file-sharing services that allow them to download copies of songs and movies at a zero
Consider a situation where consumers are allowed to participate in auctions as bidders in order to determine prices, rather than paying fixed prices for different goods and services. Would this lead to an increase or a decrease in consumer surplus? How would the producer surplus be affected in this
The following 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?0 Price 15,000 Quantity PSupply Demand
[Related to the Making the onnection on page 152]The Making the Connection states that the value of the area representing consumer surplus from broadband Internet service is $890.4 million. Use the information from the graph in the Making the Connection to show how this value was calculated. (For a
Assume that 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?
In the graph below, is the consumer surplus larger with demand curve D1 or demand curve D2? Briefly explain.Compare the producer surplus with demand curve D1 and with demand curve D2.
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
Illustrate the producer surplus and the consumer surplus when the market for a good is at equilibrium. Does every consumer in the market experience a positive consumer surplus? What type of surplus do producers experience?
Suppose that a frost in Florida reduces the size of the orange crop, which causes the supply curve for oranges 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
Suppose Wolfram has been looking for a vintage Fender Telecaster for years, but has never found one in good condition.He is prepared to pay a considerable amount for it; one day he finds one at a street market in Berlin at a bargain of €1,000.What is Wolfram’s consumer surplus?
Define producer surplus. Draw a graph to show the area that represents producer surplus.roblems and pplications
Define consumer surplus and draw a graph to show the area representing consumer surplus.
The following graphs show the supply and demand curves for two markets. One of the markets is for Tesla 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.
Following are four graphs and four market scenarios, each of which would cause either a movement along the supply curve for Pepsi or a shift of the supply curve. Match each scenario with the appropriate graph.a. A decrease in the supply of Cokeb. A drop in the average household income in the United
[elated to the Don’t Let This Happen to You on page 138] A student was asked to draw a demand and supply graph to illustrate the effect on the market for smartphones of a fall in the price of displays used in smartphones, holding everything else constant. She drew the following graph and
[elated to the Don’t Let This Happen to You on page 138] A student writes: “When the producer of a good lowers the price of that good, the demand curve shifts rightward and the price goes back to the initial level.” Explain your stand on this statement.
Suppose that an unknown parasite have been damaging the corn crops grown by a farmer; however, it seems that no one has adequate knowledge to be able to devise a remedy for this problem. How would you expect this event to affect the equilibrium price and quantity of corn in the following year?
Historically, the production of many perishable foods, such as dairy products, was highly seasonal. As the supply of those products fluctuated, prices tended to fluctuate tremendously—typically by 25 to 50 percent or more—over the course of the year. One effect of mechanical refrigeration,
An article in the Wall Street Journal noted that the demand for video Internet advertising was increasing at the same time that the number of Internet sites accepting advertising was also increasing. After reading the article, a student argues: “From this information, we know that the price of
Years ago, an apple producer argued that the United States should enact a tariff, or a tax, on imports of bananas. His reasoning was that “the enormous imports of cheap bananas into the United States tend to curtail the domestic consumption of fresh fruits produced in the United States.”a. Was
[elated to Solved Problem 3.4 on page 136] An article in the Wall Street Journal discussed the market for gasoline in the United States during the summer of 2013. Compared with the previous summer, the article stated that there will be “lower demand, as cars become more efficient” and “growth
[elated to Solved Problem 3. on page 136] The demand for typical Christmas cakes such as pandoro and panettone is very high before and during the Christmas holidays. Once the holidays have passed, however, there is very little market for this type of products. Use a demand and supply graph to
[elated to Solved Problem 3.4 on page 136] 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
[elated to the Making the Connection on page 134]More than half of homes in the United States are heated by burning natural gas. According to an article in the Wall Street Journal, demand for natural gas decreased during the winter of 2012 because of unusually warm weather. At the same time,
According to an article on the wine market in the Wall Street Journal, “many farmers in recent years stopped planting new [grape] vines, and some even switched to nuts, vegetables and other fruit.” But at the same time, “Americans kept drinking more wine.” Use demand and supply graphs to
According to an article in the Wall Street Journal, one of the effects of an increase in the demand for corn was a decline in the number of U.S. farmers growing rice: “The number of acres dedicated to rice likely will decline 3% this spring compared with last year, to 2.61 million acres.” Use a
Explain what happens to the equilibrium price, and the quantity of a good, if both the demand curve and the supply curve show a shift towards the right? Briefly explain what would happen if the shift of the supply curve is seen to be greater than that of the demand curve?roblems and pplications
Illustrate the demand and supply curves for lemonades and show what happens to the equilibrium price, and quantity in the market, in the following situations:a. The price of fresh juice goes up.b. The price of sugar goes down.
During 2013, an article in the Wall Street Journal stated: “Steel prices have slumped this month, setting off a scramble among steelmakers to maintain prices … despite a nationwide glut.”a. What does the article mean by a “glut”? What does a glut imply about the quantity demanded of steel
Is it true that once a market has reached its equilibrium price it will never move away from it? Briefly explain your reasons.
[elated to Solved Problem 3.3 on page 132] Comic book fans eagerly compete to buy copies of Amazing Fantasy No. 15, which contains the first appearance of the superhero Spider-Man. At the same time the publisher printed copies of the comic for the U.S. market, with the price printed on the cover in
[elated to Solved Problem 3.3 on page 132] An article discusses the market for autographs by Mickey Mantle, the superstar centerfielder for the New York Yankees during the 1950s and 1960s: “At card shows, golf outings, charity dinners, Mr. Mantle signed his name over and over.” One expert on
[elated to Solved Problem 3.3 on page 132] 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
Given that a market will reach its equilibrium price, following a firm’s considerations over surpluses and shortages, do you think it would be correct to state that supply of goods and services is more important than the demand in such a situation?
Explain how market equilibrium is reached starting from a point at which the price of a good is above the equilibrium price.roblems and pplications
What do economists mean by a shortage? By a surplus?
Briefly explain the reasons for the demand curve of a particular good to immediately shift to its left, given that the expected price of that same good increases..
Will each firm in the smartphone industry always supply the same quantity as every other firm at each price? What factors might cause the quantity of smartphones 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 2014 and 2015:Quantity Supplied(thousands of pairs of boots)Price 2014 2015$160 3,000 2,000 170 3,500 2,500 180 4,000 3,000 190 4,500 3,500 200 5,000 4,000 Name two different variables that would
The figure below illustrates two different supply curves for kopi in a Malaysian town. Provide examples of three different variables. Explain why they are capable of shifting the supply curve for kopis rightward (from S to S’).Source: Robyn Ekhardt, “Asia’s Best Coffee — Malaysia,” Wall
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 iPhone 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.problems and applications
What is the difference between a change in supply and a change in the quantity supplied?
[elated to the Making the Connection on page 125]An article in the Wall Street Journal in 2013 was titled “In India, iPhone Lags Far Behind.” According to the article, the difficulty Apple was having selling iPhones in India was “no small matter as Apple’s growth slows in the U.S.and other
Richard Posner is a federal court judge who also writes on economic topics. A newspaper reporter summarized Posner’s views 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,
Giffen goods are said to violate the law of demand, as people consume more of those goods as their price rises. Could you provide an example of a Giffen good? How would you draw the demand curve of such a good?
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 2012 $31,880 35,265 2013 30,550 33,250 2014 33,250 36,466
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