Microeconomic Theory Basic Principles And Extensions 8th Edition Walter Nicholson - Solutions

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How do we know growth over the very long run? The poorest countries in the world have a per capita income of about $600 today. We can reason-ably assume that it is nearly impossible to live on an income below half this level (below $300). Per capita income in the United States in 2000 was about
(Harder) An alternative way of computing growth rates? In exercise 6, the correct way to compute the average growth rate is to apply equation (3.9).An alternative way is to take the percentage change divided by the num-ber of years: for example,1 YT - yo T yo Compute the growth rates with this
Computing levels: Suppose x; grows at 2% per year and y, grows at 4% per year, with xo =2 and yo = 1. Calculate the numerical values of z, for t = 0, t=1, t = 2, t = 10, t = 17, and t = 35 for the following cases:(a) z = x(b) z = y(c) z = x3/4y1/4
Computing growth rates (II): Suppose k, I, and m grow at constant rates given by gk, gi, and gm. What is the growth rate of y in each of the follow-ing cases?(a) y = /1/3(b) y = /1/3/2/3(c) y = mk: 1/3/2/3(d) y = m/ 1/4/3/4(e) y = mk:3/4/1/4(f) y = (klm)1/2(g) y=(kl)1/4(1/m)3/4
Computing growth rates (I): Suppose x; = (1.05) and y, = (1.02). Calculate the growth rate of z, in each of the following cases:(a) z = xy(b) z = x/y(c) z = y/x(d) z = x1/2y1/2(e) z = (x/y)2(f) z =x-1/3/2/3
The costs of economic growth? In addition to the benefits of economic growth, there are also potentially costs. What are some of these costs? Write a paragraph arguing that the benefits exceed the costs. Write a paragraph arguing the opposite, that the costs exceed the benefits. Which argument do
Growth rates of per capita GDP: Compute the average annual growth rate of per capita GDP in each of the cases below. The levels are provided for 1980 and 2000, measured in constant 2000 dollars.1980 2000 United States 21,336 33,293 Canada 18,984 26,904 France 16,217 22,358 Germany 15,921 22.856
U.S. growth: On page 48, we noted that the growth rate of per capita GDP in the United States between 1870 and 1929 was slightly lower than 2.0%, while the growth rate between 1950 and 2004 was slightly higher. Using the following table, calculate the actual average annual growth rates dur-ing
The ratio scale: Plot the following scenarios for per capita GDP on a ra-tio scale. Assume that per capita GDP in the year 2000 is equal to $10,000.You should not need a calculator or computer program. Use the Rule of 70 to label the value of per capita GDP on the graph in the years listed
Stock returns and your retirement account: Suppose your retirement ac-count has a balance today of $10,000 and you are 20 years old. If you are invested in a diversified portfolio of stocks, you might hope that the histor-ical return of about 6% continues into the future. Consider how the balance
Interest on your bank balance: Suppose your bank account has a balance today of $100. Consider the following time periods: t = 0, t = 1, t = 2, t = 12, t = 24, t = 48, and t = 60. Assume there are no deposits or with-drawals in this account other than the interest that accumulates. (If you like,
Population growth: Suppose the world population today is 6 billion, and sup-pose this population grows at a constant rate of 3% per year from now on. (If you like, you can use a spreadsheet program to help you with this question.)(a) What would the population equal 100 years from now?(b) Compute
Growth and development: In 2000, Ethiopia had a per capita income of$635, less than $2 per day. Compute per capita income in Ethiopia for the year 2050 assuming average annual growth is(a) 1% per year.(b) 2% per year.(c) 4% per year.(d) 6% per year.(For comparison, per capita income in Mexico in
This question is not addressed in the chapter-and in fact is still debated among economists-but it is interesting to think about: Why do you suppose growth in living standards was virtually nonexistent for thousands of years?Why did this situation change in recent centuries?
When and where did sustained economic growth first begin? How much in-equality in per capita income was there throughout the countries of the world a thousand years ago? How much is there today?
Earthquakes and GDP: Suppose the rural part of a country is hit by a ma-jor earthquake that destroys 10 percent of the country's housing stock. The government and private sector respond with a major construction effort to help rebuild houses. Discuss how this episode is likely to affect (a) the
How large is the economy of China? Chinese GDP in 2000 was 9.3 trillion yuan (U.S. GDP, again, was $9.8 trillion). The exchange rate in 2000 was 8.28 yuan per dollar. As was the case with India, China has lower prices than the United States: the price level in China (converted to dollars) di-vided
How large is the economy of India? Indian GDP in 2000 was 20.9 trillion rupees, while U.S. GDP was $9.8 trillion. The exchange rate in 2000 was 44.9 rupees per dollar. India turns out to have lower prices than the United States (this is true more generally for poor countries): the price level in
Inflation in the orange and boomerang economy: Consider the economy from exercise 4. Calculate the inflation rate for the 2009-2010 period using the GDP deflator based on the Laspeyres, Paasche, and chain-weighted indexes of GDP.
National accounting over time (II): Consider an economy that produces or-anges and boomerangs. The prices and quantities of these goods in two dif-ferent years are reported in the table below. Fill in the missing entries.Percentage change, 2009 2010 2009-2010 Quantity of oranges 100 105 Quantity of
National accounting over time (1): Look back at Table 2.3. Some missing en-tries are labeled with question marks. Compute the values that belong in these positions.
What counts as GDP (11)? By how much does GDP rise in each of the follow-ing scenarios? Explain.(a) A computer company buys parts from a local distributor for $1 million, assembles the parts, and sells the resulting computers for $2 million.(b) A real estate agent sells a house for $200,000 that
What counts as GDP (I)? By how much does GDP rise in each of the follow-ing scenarios? Explain.(a) You spend $4,000 on college tuition this semester.(b) You buy a used car from a friend for $2,500.(c) The government spends $100 million to build a dam.(d) Foreign graduate students work as teaching
Models: Apply the supply-and-demand model to the following markets. In each case, state the key endogenous variables in the market as well as some important exogenous variables or parameters. Also, express each model as a system of mathematical equations. As an example, Q = F(P,X) might be the
The labor market model (II): Now we add some parameter values to the la-bor market model:labor supply: L' = axw + 7 labor demand: Ld = f - w The parameters in this setup area, E, andf. (Notice that parameters are denoted with an overbar, a convention we will maintain throughout the book.)The
The labor market model (1): Suppose the following equations characterize supply and demand in the labor market model:labor supply: L' = 2 x w + 30 labor demand: Ld = 60 - w Equilibrium occurs at an employment level L* and a wage w *, so that the labor market clears. That is, supply is equal to
Making graphs (spreadsheet): Use the snapshots.pdf file, together with its hyperlinks to the underlying spreadsheet data. Use a spreadsheet program of your choice to complete the following.(a) Make a plot of per capita GDP (in dollars) for the years 1950 to 2000 for a country of your choice. Label
Country snapshots: Download the file snapshots.pdf from wwnorton.com/college/econ/chad and answer the following.(a) What was the ratio of per capita income in each of the following coun-tries to that in the United States in the year 2000: Ethiopia, Mexico, In-dia, and Japan?(b) Which country had
The macroeconomics of your favorite country: Pick a country that you find interesting, and learn some basic facts about its economy. Summarize these facts in a half-page essay. You may find the following resources to be help-ful; feel free to explore others on your own.The CIA World Factbook:
Macroeconomic questions and answers: Select one of the macroeconomic questions in this chapter. Describe what you think the answer is.
What is GDP, and why is it a useful measure? What are the most important components of GDP in the U.S. economy today?
25.5 Suppose there are two individuals in an economy. Utilities of those individuals under five possible social states are shown in the following table:Individuals do not know which number (1 or 2) they will be assigned when the economy begins operating, hence they are uncertain about the actual
If a number of actors compete in the same rent-seeking activity, it is possible that all available rent will be dissipated into rent seekers' costs. Suppose, for example, a monopoly might earn profits of irm per period and a franchise for the monopoly can be obtained from a pliant government
Does candidate 2 also select a utilitarian optimal platform? How would this result change if/ differed among voters? Although it is generally difficult to quantify the various dimensions of candidates'platforms, one simple illustration is provided by "net value" platforms under which each candidate
Would progressive taxation be more likely to raise or lower t* in this model? Suppose voters were considering adoption of a lump-sum transfer to be paid to every person and financed through proportional taxation. If we denote the perperson transfer by g, each individual's utility is now given by Ut
Might the degree of risk aversion exhibited by the teens change their voting in the Rawlsian situation, or has it already been accounted for in the calculation? A father arrives home carrying an eight-piece pizza. How should he share it between his two ravenous teenagers? Suppose teen 1 has a
Suppose the production possibility frontier for an economy that produces one public good(P) and one private good (G) is given by G2 + 100P2 = 5,000.This economy is populated by 100 identical individuals, each with a utility function of the form utility =where G, is the individual's share of private
Suppose there are iVindividuals in an economy with three goods. Two of the goods are pure(nonexclusive) public goods, whereas the third is an ordinary private good.a. What conditions must hold for resources to be allocated efficiently between either of the public goods and the private good?b. What
Suppose there are only two individuals in society. The demand curve for mosquito control for person A is given by qa = 100 - P.For person B the demand curve for mosquito control is given by qb = 200 - P.a. Suppose mosquito control is a pure public good; that is, once it is produced, everyone
Suppose a monopoly produces a harmful externality. Use the concept of consumer surplus to analyze whether an optimal tax on the polluter would necessarily be a welfare improvement.
Lindahl pricing provides a conceptual solution to the roommates' problem of buying paintings in Example 24.3. If "the government" (or perhaps social convention)suggests that each roommate will pay half of painting purchases, each would face an effective price of paintings of $50. Because the
Suppose a — +.1. What would that imply about the relationship between the firms? How would such an externality affect the allocation of labor?
23.10 Optimal control theory can be used to generalize the model of intertemporal consumption choice contained in Example 23.1. Consider the following simple life cycle model: An individual receives wages (w) each period and a return on his or her invested capital. Let k =capital, r = market
23.8 Suppose an individual has W dollars to allocate between consumption this period (Co) and consumption next period (Q) and that the interest rate is given by r.a. Graph the individual's initial equilibrium and indicate the total value of current-period savings (W— Co).b. Suppose that after the
23.6 This problem focuses on the interaction of the corporate profits tax with firms' investment decisions.a. Suppose (contrary to fact) that profits were denned for tax purposes as what we have called pure economic profits. How would a tax on such profits affect investment decisions?b. In fact,
23.4 As in Example 23.2, suppose trees are produced by applying one unit of labor at time 0. The value of the wood contained in a tree is given at any time (t) by f(t). If the market wage rate is w and the instantaneous rate is r, what is the PDV of this production process and how should t be
Suppose all prices (including those of trees) were rising at 10 percent per year. How would this change the optimal harvesting results in this problem?
22.8 Universal Fur is located in Clyde, Baffin Island, and sells high-quality fur bow ties throughout the world at a price of $5 each. The production function for fur bow ties (Q) is given by Q= 240X- 2X2 , where Xis the quantity of pelts used each week. Pelts are supplied only by Dan's Trading
22.5 A family with two adult members seeks to maximize a utility function of the form U(C, Hu H2), where C is family consumption and Hx and H2 are hours of leisure of each family member.Choices are constrained by C = 10,(24 - H,) + w2(24 - H2) + N, where w1 and w2 are the wages of each family
Suppose the firm's total revenue function differed depending on whether the economy was in an expansion or a recession. What kinds of labor contract might be Pareto optimal?
Which, if any, of the three wage contracts described in this example might represent a Nash equilibrium as described in Chapters 10 and 20?
Suppose the government sets A^at $4 but reduces iVby half of each dollar earned; that is, iV=4- wL Would this scheme increase or decrease labor supply relative to a flat grant of $4 regardless of labor supply?
21.9 The Ajax Coal Company is the only hirer of labor in its area. It can hire any number of female workers or male workers it wishes. The supply curve for women is given by Lf= 100wf and for men by Lm = 9u£, where wf and wm are the hourly wage rates paid to female and male workers,
21.6 Suppose there are a fixed number of 1,000 identical firms in the perfectly competitive concrete pipe industry. Each firm produces the same fraction of total market output, and each firm's production function for pipe is given by q=VKL.Suppose also that the market demand for concrete pipe is
21.4 The mowing of lawns requires only labor (gardeners) and capital (lawn mowers). These factors must be used in the fixed proportions of one worker to one lawn mower, and production exhibits constant returns to scale. Suppose the wage rate of gardeners is $2 per hour, lawn mowers rent for $5 per
21.3 A landowner has three farms (A, B, and C) of differing fertility. The levels of output for the three farms with one, two, and three laborers employed are as given:For example, if three laborers are hired, one for each farm, the total output would be 10 +8 + 5 = 23. This would represent a poor
For an industry characterized by a Cobb-Douglas production function, how is the elasticity of demand for labor determined solely by the price elasticity of demand for the output and by (3, the exponent of labor in the production function?(Hint: See footnote 5 later in this chapter.)
The "output elasticity" of demand for labor in Equation 21.32 is 2—a 10 percent increase in output requires a 20 percent increase in labor input. Why do increases in q require so much added labor input in this example?
20.10 In Example 20.5 we showed that the Nash equilibrium in this first-price, sealed bid auction was for each participant to adopt a bidding strategy of b{v) = [ ( n — l)/n] v. The total revenue a seller might expect to receive from such an auction will obviously be [ { n — l)/n] v*—where v*
20.8 Suppose the demand for steel bars in Example 20.1 fluctuates with the business cycle. During expansions demand is Q= 7,000- 100P, and during recessions demand is Q= 3,000 - 100P.Assume also that expansions and recessions are equally likely and that firms know what the economic conditions are
20.4 Two firms (A and B) are considering bringing out competing brands of a healthy cigarette.Payoffs to the companies are as shown in the table (A's profits are given first):a. Does this game have a Nash equilibrium?b. Does this game present any first-mover advantages for either firm A or firm
Could a seller mitigate the low valuations that arise when there are few bidders by specifying a reservation price, r, such that no sale is made if the maximal bid falls below r?
Let's return again to Cournot's natural spring duopoly we studied in Examples 19.1 and 19.2. Under the Stackelberg version of this model, each firm has two possible strategies—to be a leader (produce qt = 60) or a follower (produce ^, = 30).Payoffs under these strategies were denned in Example
How does the (common) discount factor, 8, determine the maximum number of firms that can successfully collude in this problem? What is the maximum if 8 = .8? How about the case when 8 = .9? Explain your results intuitively.
19.6 S. Salop provides an instructive model of product differentiation. He asks us to conceptualize the demand for a product group as varying along a circular spectrum of characteristics(the model can also be thought of as a spatial model with consumers located around a circle).Demanders are
19.2 A monopolist can produce at constant average (and marginal) costs of AC — MC = 5. The firm faces a market demand curve given by Q = 53 - P.a. Calculate the profit-maximizing price-quantity combination for this monopolist. Also calculate the monopolist's profits.b. Suppose a second firm
What is the Pareto efficient solution for this market? How might the efficient solution depend on the nature of demanders' utility? The zero-profit equilibrium illustrated in Figure 19.5 was first described by Edward Chamberlin, who termed his model monopolistic competition.10 In this model, each
In this problem would it matter if ice cream cones could be produced at constant marginal cost? Suppose cone production were subject to increasing marginal cost?
Why does the first spring owner's decision to increase output raise profits here whereas it did not in the case proposed in the query to Example 19.1?
Given that one spring owner's output is 40 in the Cournot model, why can't the other owner gain by producing more than 40 units of output? Does this conclusion conflict with our discussion of cartels where we expected chiseling whenever P > MC? (See Chapter 20 for a further discussion of this
18.9 Suppose the government wished to combat the undesirable allocational effects of a monopoly through the use of a subsidy.a. Why would a lump-sum subsidy not achieve the government's goal?b. Use a graphical proof to show how a per-unit-of-output subsidy might achieve the gov ernment's goal.c.
What pricing strategy should the monopoly pursue if it can choose a different two-part tariff for each market? In Example 18.4 we looked at the possibility for third-degree price discrimination in two separated markets characterized by the demand curves Qr = 24 - P, (18.45)and Q2 = 24 - 2P2 .
What is the maximum price any Frisbee buyer pays in this case? Use this to obtain a geometric definition of profits. Consider again the Frisbee monopolist in Example 18.1. Because there are relatively few high-quality Frisbees sold, the monopolist may find it possible to discriminate perfectly
How would an increase in fixed costs from 10,000 to 12,500 affect the monopoly's output plans? How would profits be affected? Suppose total costs were to shift to TC= .075Q2 + 10,000. How would the equilibrium change?
17.7 How would the answers to Problem 17.6 change for the following initial endowments?Explain the reason for these varying results. Smith's Endowment Jones's Endowment X Y X Y a. 0 1000 1000 0 b. 600 600 400 400 C. 400 400 600 600 d. 1000 1000 0 0
17.4 Suppose all of the firms in Utopia obey the Pareto conditions for efficiency except General Widget (GW). That firm has a monopoly in production of widgets and is the only hirer of widget makers in the country. Suppose the production function for widgets is Q=2L,(where L is the number of widget
17.2 Consider an economy with just one technique available for the production of each good:a. Suppose land is unlimited, but labor equals 100. Write and sketch the production possi bility frontier.b. Suppose labor is unlimited, but land equals 150. Write and sketch the production possi bility
Would different preferences for the two people in this example offer greater scope for equalizing outcomes from voluntary transactions? Are there any preferences for Smith and Jones for which voluntary transactions would lead to equality even from very unequal initial allocations?
Would the violin makers' situation be improved if they opted to base their expectations on the average price observed in the two previous periods:E(Pt) =
Allocations such as X = 8, Y = 3 or X = 5, Y = 4.33 are clearly inefficient.How would you measure the degree of inefficiency involved in such alternative allocations?
In this example (as in most cases involving linear production possibility frontiers), England's resource allocation has been "completely specialized" in cloth production. Would any output pattern short of complete specialization promise an unambiguous improvement over this allocation? If production
16.6 Suppose two individuals (Smith and Jones) each have 10 hours of labor to devote to producing either ice cream (X) or chicken soup (F). Smith's utility function is given by Us = X-3Y7, whereas Jones' is given by Uj = X5Y5.The individuals do not care whether they produce X or Y, and the
16.3 Suppose an economy produces only two goods, X and Y. Production of good X is given by where Kx and Lx are the inputs of capital and labor devoted to X production. The production function for good Fis given by V— JS>-l/3 T 2/3 /— iv y Ajy j where KYa.nd LFare the inputs of capital and labor
Is the silver market still in equilibrium given the new supplies of gold and platinum? The economy of Oz is composed only of three precious metals: (1) silver, (2) gold, and (3) platinum. There are 10 (thousand) ounces of each metal available. The demand for gold is given by D2=-2y + y+U (16.35)and
Suppose all possibilities for war cease and utility shifts to U = X1/4F3/4. What would the relative prices of guns and butter become? How does the allocation of labor between these two goods change from wartime to peacetime?
Why do the other allocations on the guns-butter production possibility frontier calculated in Example 16.1 yield lower utility than the allocation calculated here? At each of these other points, is Xin excess supply or in excess demand? In Example 16.1 we saw that the production possibility
Suppose the citizens of this simple economy were able to trade with the rest of the world at the rate of four guns for one unit of butter. What outputs should they produce in order to take maximum advantage of this trading opportunity? As a simple example of concavity arising from diminishing
15.5 Returning once more to the broccoli market described in Problem 15.1, suppose the government instituted a $45 per-hundred-bushel tax on broccoli.a. How would this tax affect equilibrium in the broccoli market?b. How would this tax burden be shared between buyers and sellers of broccoli?c. What
15.1 Suppose that the demand for broccoli is given by d= 1,000 - 5P, where Q is quantity per year measured in hundreds of bushels and P is price in dollars per hundred bushels. The long-run supply curve for broccoli is given by Q = 4P - 80.a. Show that the equilibrium quantity here is Q = 400. At
What is the total transfer from consumers to producers as a result of the auto tariff or quota in this problem? Who would ultimately receive this transfer? These various aspects of trade policy can be illustrated with our simplified model of the automobile market. As we have shown previously, with
14.8 Suppose that the long-run total cost function for the typical mushroom producer is given by TC = wq2 ~ lOq + 100, where q is the output of the typical firm and w represents the hourly wage rate of mushroom pickers. Suppose also that the demand for mushrooms is given by Q= - l,000P+40,000,
14.7 Suppose that the demand for stilts is given by Q= 1,500-50P and that the long-run total operating costs of each stilt-making firm in a competitive industry are given by TC = 0.5q2 - lOq.Entrepreneurial talent for stilt making is scarce. The supply curve for entrepreneurs is given by Qs =
14.6 A perfectly competitive industry has a large number of potential entrants. Each firm has an identical cost structure such that long-run average cost is minimized at an output of 20 units(qt = 20). The minimum average cost is $10 per unit. Total market demand is given by Q= 1,500 -50P.a. What
14.5 Wheat is produced under perfectly competitive conditions. Individual wheat farmers have U-shaped, long-run average cost curves that reach a minimum average cost of $3 per bushel when 1,000 bushels are produced.a. If the market demand curve for wheat is given by QD = 2,600,000 - 200,000P, where
14.4 Suppose the demand for frisbees is given by g = 1 0 0 - 2 P and the supply by Q=20 + 6P.a. What will be the equilibrium price and quantities for frisbees?b. Suppose the government levies a tax of $4 per frisbee. Now what will be the equilibrium quantity, the price consumers will pay, and the
14.3 A perfectly competitive market has 1,000 firms. In the very short run, each of the firms has a fixed supply of 100 units. The market demand is given by Q= 160,000 - 10,000P.a. Calculate the equilibrium price in the very short run.b. Calculate the demand schedule facing any one firm in this
14.2 Suppose there are 1,000 identical firms producing diamonds and the total cost curve for each firm is given by C = q2 + wq, where q is the firm's output level and w is the wage rate of diamond cutters.a. If w = 10, what will be the firm's (short-run) supply curve? What is the industry's supply
14.1 Suppose there are 100 identical firms in a perfectly competitive industry. Each firm has a short-run total cost curve of the form C= 3^0 93 + 0.2q2 + 4q+l0.a. Calculate the firm's short-run supply curve with q as a function of market price (P).b. On the assumption that there are no interaction
How do the total, marginal, and average functions derived from Equation 14.56 differ from those in Example 14.4? Are costs always greater (for all levels of q) for the former cost curve? Why is long-run equilibrium price higher with the former curves? (See footnote 7 for a formal discussion.) A
Presumably, the entry of frame makers in the long run is motivated by the short-run profitability of the industry in response to the increase in demand. Suppose each firm's short-run costs were given by STC = 50q2 — 1,500^ + 20,000. Show that short-run profits are zero when the industry is in

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Microeconomic Theory Basic Principles And Extensions 8th Edition Walter Nicholson - Solutions

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