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microeconomics principles applications
Microeconomics 2nd Canadian Edition Paul Krugman, Robin Wells, Iris Au, Jack Parkinson Publisher: Worth - Solutions
1.1. Did AIG accurately assess the default risk that it insured? Why or why not?
1.3. True or false? Explain your answer, stating what concept analyzed in this chapter accounts for the feature.People with higher deductibles on their auto insurance:a. Generally drive more carefullyb. Pay lower premiumsc. Generally are wealthier ack of
1.1. Explain how each of the following events would change the equilibrium premium and quantity of insurance in the market, indicating any shifts in the supply and demand curves.a. An increase in the number of ships travelling the same trade routes and so facing the same kinds of risksb. An
1.2. Karma's income next year is uncertain: there is a 60% probability she will make $22 000 and a 40% probability she will make $35 000. The accompanying table shows some income and utility levels for Karma.a. What is Karma's expected income? Her expected utility?b. What certain income level,
1.1. Compare two families who own homes near the floodplain of the Red River in Manitoba.Which family is likely to be more risk-averse-(i) a family with income of $2 million per year or (ii) a family with income of $60 000 per year? Would either family be willing to buy an "unfair" insurance policy
1.3. Tamara has 80 hours per week that she can allocate to work or leisure. Her job pays a wage rate of $20 per hour, but Tamara is being taxed on her income in the following way. On the first $400 that Tamara makes, she pays no tax. That is, for the first 20 hours she works, her net wage-what she
1.2. Florence is a highly paid fashion consultant who carns$100 per hour. She has 16 hours per day that she can allocate to work or leisure, and she decides to work for 12 hours.a. Draw Florence's time allocation budget line for a typical day, and illustrate the indifference curve at her optimal
1.1. Leandro has 16 hours per day that he can allocate to work or leisure. His job pays a wage rate of $20. Leandro decides to consume 8 hours of leisure. His indifference curves have the usual shape: they slope downward, they do not cross, and they have the characteristic convex shape.a. Draw
1.15. A study by Employment and Social Development Canada showed that between 1976 and 2010 the average hours worked per week by a Canadian worker fell from 38 hours per week to 36.6 hours per week. Some believe that the fall in weekly working hours is driven by a rise in wage rate.a. Use the
1.14. You are the premier's economic policy adviser. The premier wants to put in place policies that encourage employed people to work more hours at their jobs and that encourage unemployed people to find and take jobs, Assess each of the following policies in terms of reaching that goal. Explain
1.13. Wendy works at a fast-food restaurant. When her wage rate was $5 per hour, she worked 30 hours per week.When her wage rate rose to $6 per hour, she decided to work 40 hours. But when her wage rate rose further to$7. she decided to work only 35 hours.a. Draw Wendy's individual labour supply
1.12. Greta is an enthusiastic amateur gardener and spends a lot of her free time working in her yard. She also has a demanding and well-paid job as a freelance advertising consultant. Because the advertising business is going through a difficult time, the hourly consulting fee Greta can charge
1.11. Research consistently finds that despite nondiscrimi-nation policies, visible minority workers on average receive lower wages than white workers do, What are the possible reasons for this? Are these reasons consis-tent with marginal productivity theory?
1.10. For each of the following situations in which similar workers are paid different wages, give the most likely explanation for these wage differences.a. Test pilots for new jet aircraft earn higher wages than airline pilots.b. College and university graduates usually have high-er earnings in
1.9. Kendra is the owner of Wholesome Farms, a commer-cial dairy. Kendra employs labour, land, and capital.In her operations, Kendra can substitute between the amount of labour she employs and the amount of capital she employs. That is, to produce the same quantity of output she can use more labour
1.8. In 2007 the wage of farmworkers in Mexico was $11 an hour but the wage of immigrant Mexican farmworkers in California was $9 an hour.a. Assume that the output sells for the same price in the two countries. Does this imply that the mar-ginal product of labour of farmworkers is higher in Mexico
1.7. Dale and Dana work at a self-service gas station and convenience store. Dale opens up every day, and Dana arrives later to help stock the store. They are both paid the current market wage of $9.50 per hour. But Dale feels he should be paid much more because the revenue generated from the gas
1.6. Jameel runs a driver education school. The more driv-ing instructors he hires, the more driving lessons he can sell. But because he owns a limited number of training automobiles, each additional driving instruc-tor adds less to Jameel's output of driving lessons. The accompanying table shows
1.5. Patty's Pizza initially had the production function given in the table in Problem 3. A worker's hourly wage rate was $10, and pizza sold for $2. Now Patty buys a new high-tech pizza oven that allows her workers to become twice as productive as before. That is, the first worker produces 18
1.4. The production function for Patty's Pizza is given in the table in Problem 3. The price of pizza is $2, but the hourly wage rate rises from $10 to $15. Use a diagram to determine how Patty's demand for workers responds as a result of this wage rate increase.
1.3. Patty's Pizza has the production function per hour shown in the accompanying table. The hourly wage rate for each worker is $10. Each pizza sells for $2.Quantity of labour(workers)Quantity of pizza 00 19 215 319 422 524a. Calculate the marginal product of labour for each worker and the value
1.2. Marty's Frozen Yogourt has the production function per day shown in the accompanying table. The equilib-rium wage rate for a worker is $80 per day. Each cup of frozen yogourt sells for $2.Quantity of labour Quantity of frozen yogourt(workers)(cups)0 01 110 2200 3270 4300 5320 6330a. Calculate
1.1. In 2012, national income in Canada was $1819.97 bil-lion. In the same year, 17.73 million workers were employed, at an average wage of $45 204 per worker per year (excluding employers' social contributions).a. How much direct compensation of employees was paid in Canada in 2012?b. Analyze the
1.3. What factors does the success or failure of Alta Gracia depend on? What should Knights Apparel do to improve its chances of success?
1.2. From the point of view of Knights Apparel, what are the pros and cons of paying the Alta Gracia workers a living wage? What are the pros and cons from the point of view of workers generally?
1.1. Use the marginal productivity theory of income distribution to explain how the prevailing wage for apparel workers can fall below a living wage in the Dominican Republic.
1.1. Assess each of the following statements. Do you think they are true, false, or ambigu-ous? Explain.a. The marginal productivity theory of income distribution is inconsistent with the pres-ence of income disparities associated with gender, ethnicity, or immigration status.b. Companies that
1.1. In the following cases, state the direction of the shift of the demand curve for labour and what will happen, other things equal, to the market equilibrium wage rate and quantity of labour employed as a result.a. Service industries, such as retailing and banking, experience an increase in
1.1. Suppose that the government places price controls on the market for university pro-fessors, imposing a wage that is lower than the market wage. Describe the effect of this policy on the production of university degrees. What sectors of the economy do you think will be adversely affected by
1.) How labour supply arises from a worker's decision about time allocation
1.) About the sources of wage disparities and the role of discrimination
1.) How the marginal productivity theory of income distribution is used to determine factor prices
1.How factors of production-resources like land, labour, physical capital, and human capital-are traded in factor markets, determining the factor distribution of income
1.8. In a private insurance market, there are two different kinds of people: some who are more likely to require expensive medical treatment and some who are less likely to require medical treatment and who, if they do, require less expensive treatment. One health insurance policy is offered,
1.7. In the city of Notchingham, each worker is paid a wage rate of $10 per hour. Notchingham administers its own unemployment benefit, which is structured as follows: If you are unemployed (that is, if you do not work at all), you get unemployment benefits (a transfer from the government) of $50
1.6. The tax system in Taxilvania includes a negative income tax. For all incomes below $10 000, individuals pay an income tax of -40% (that is, they receive a payment of 40% of their income). For any income above the $10 000 threshold, the tax rate on that additional income is 10%. For the first
1.5. The country of Marxland has the following income tax and social insurance system. Each citizen's income is taxed at an average tax rate of 100%. A social insurance system then provides transfers to each citizen such that each citizen's after-tax income is exactly equal. That is, each citizen
1.4. There are 100 households in the economy of Equalor.Initially, 99 of them have an income of $10 000 each, and one household has an income of $1 010 000.a. What is the median income in this economy? What is the mean income?Through its social welfare programs, the government of Equalor now
1.3. The accompanying table presents data from Statistics Canada on median and mean income of male workers for the years 1976 and 2011. The income figures are adjusted to eliminate the effect of inflation.Year Median income Mean Income(in 2011 dollars)1976$42 400$47 700 2011 37 100 48 700 Source:
1.2. In the city of Metropolis, there are 100 residents, each of whom lives until age 75. Residents of Metropolis have the following incomes over their lifetime: Through age 14, they earn nothing. From age 15 until age 29, they earn 200 metros (the currency of Metropolis) per year.From age 30 to
1.1. The accompanying table contains data on the Canadian economy for the years 1980 and 2011. The second col-umn shows the poverty line using the LIM in constant dollars. The third column shows Canada's GDP per capita, a measure of the real standard of living.Poverty line Real GDP per capita
1.4. Briefly explain how this case influences the care one should use when making international comparisons of competitiveness based on a single indicator such as labour costs (hourly wages) or (highest marginal) personal income tax rates.
1.3. How would the incentives of people like Wiggo Dalmo be affected if Norwegian health care was means-tested instead of available to all?
1.2. This case suggests that government-paid health care helps entrepreneurs. How does this relate to the arguments we made for social insurance in the text?
1.1. Why does Norway have to have higher taxes overall than Canada?
1.2. Over the past 40 years, has the polarization in the Canadian Parliament increased. decreased, or stayed the same? Solutions appear at back of book,
1.1. Explain how each of the following policies creates a disincentive to work or undertake a risky investment.a. A high sales tax on consumer itemsb. The complete loss of a housing subsidy when yearly income rises above $25 000
1. 2. According to its critics, what accounts for the higher costs of the U.S. health care sys- tem compared to those of other wealthy countries? Solutions anpas
1.1. Jiro is an international student enrolled in a four-year degree program. He is required to enroll in a health insurance program run by his school.a. Explain how Jiro and his parents benefit from this health insurance program even though, given his age, it is unlikely that he will need
1.2. According to Table 18-4, what effect does the Canadian welfare state have on the over- all poverty rate? Solutions appear at back of book.
1.1. Explain how the negative income tax avoids the disincentive to work that characterizes social welfare programs that simply give benefits based on low income.
1.4. Which of the following statements more accurately reflects Oskar 28 000 the principal source of rising inequality in Canada today?a. The salary of the manager of the local branch of Sunrise Bank has risen relative to the salary of the neighbourhood gas station attendant.b. The salary of the
1.3. The accompanying table gives the distribution of income for Income a very small economy.a. What is the mean income? What is the median income?Sephora$39 000 Which measure is more representative of the income of Kelly 17 500 the average person in the economy? Why?Raul 900 000b. What income
1.2. Is the poverty line, as defined by an after-tax LICO, a relative or an absolute measure of poverty? That is, does it define poverty according to how poor someone is relative to others or according to some fixed measure that doesn't change over time? Explain.
1.1. Indicate whether each of the following programs is a social welfare program or a social insurance program.a. A pension guarantee program, which provides pensions for retirees if they have lost their employment-based pension due to their employer's bankruptcyb. The federal program known as the
1.v) Why there are political differences and debate over the size of the welfare state
1.) The special concerns presented by health care insurance
1.) How programs like Old Age Security affect poverty and income inequality
1.) How income inequality in Canada has changed over time
1.13. In developing a vaccine for the SARS virus, a pharma-ceutical company incurs a very high fixed cost. The marginal cost of delivering the vaccine to patients, how-ever, is negligible (consider it to be equal to zero). The pharmaceutical company holds the exclusive patent to the vaccine. You
1.12. Software has historically been an artificially scarce good-it is nonrival because the cost of replication is negligible once the investment to write the code is made, but software companies make it excludable by charging for user licences. But then open-source soft-ware emerged, most of which
1.11. Butchart Gardens is a very large garden in Victoria, British Columbia, renowned for its beautiful plants. It is so large that it could hold many times more visitors than currently visit it. The garden charges an admis-sion fee of approximately $30. At this price, 1000 people visit the garden
1.10. The accompanying table shows six consumers' willing-ness to pay (his or her individual marginal benefit) for one MP3 file copy of a Hedley album. The marginal cost of making the file accessible to one additional con-sumer is constant, at zero.Consumer Individual marginal benefit Adnana $2
1.9. Prior to 2003, the city of London, England was often one big parking lot. Traffic jams were common, and it could take hours to travel a few kilometres. Each additional commuter contributed to the congestion, which can be measured by the total number of cars on London roads. Although each
1.8. The village of Upper Bigglesworth has a village "com-mons," a piece of land on which each villager, by law, is free to graze his or her cows. Use of the commons is meas-ured in units of the number of cows grazing on it. Assume that the marginal private cost curve of cow-grazing on the commons
1.7. Your economics professor assigns a group project for the course. Describe the free-rider problem that can lead to a suboptimal outcome for your group. To com-bat this problem, the instructor asks you to evaluate the contribution of your peers in a confidential report. Will this evaluation have
1.6. Anyone with a radio receiver can listen to public radio, which is funded largely by donations.a. Is public radio excludable or nonexcludable? Is it rival in consumption or nonrival? What type of good is it?b. Should the government support public radio?Explain your reasoning.c. In order to
1.5. The accompanying table shows Tanisha's and Ari's indi-vidual marginal benefit of different amounts of street cleanings per month. Suppose that the marginal cost of street cleanings is constant at $9 each.Quantity of Tanisha's Ari's street cleanings individual individual per month marginal
1.4. A residential community has 100 residents who are con-cerned about security. The accompanying table gives the total cost of hiring a 24-hour security service as well as each individual resident's total benefit.Quantity of Total individual benefit security guards Total cost to each resident
1.3. In many planned communities, various aspects of community living are subject to regulation by a home-owners' association. These rules can regulate house architecture; require snow removal from sidewalks;exclude outdoor equipment, such as backyard swim-ming pools; require appropriate conduct in
1.2. An economist gives the following advice to a museum director: "You should introduce 'peak pricing.' At times when the museum has few visitors, you should admit vis-itors for free. And at times when the museum has many visitors, you should charge a higher admission fee."a. When the museum is
1.1. The government is involved in providing many goods and services. For each of the goods or services listed, determine whether it is rival or nonrival in consump-tion and whether it is excludable or nonexcludable.What type of good is it? Without government involve-ment, would the quantity
1.3. What regulations should be imposed on a rancher who sells opportunities to trophy hunt?Relate these to the concepts in the chapter.
1.2. Compare the economic incentives facing John Hume with those facing a Kenyan rancher.
1.1. Using the concepts you learned in this chapter, explain the economic incentives behind the huge losses in Kenyan wildlife.
1.1. Xena is a software program produced by Xenoid. Each year Xenoid produces an upgrade that costs $300 000 to produce. It costs nothing to allow customers to down-load it from the company's website. The demand schedule for the upgrade is shown in the accompanying table.a. What is the efficient
1.2. You are an advisor to the Minister of Natural Resources and have been instructed to come up with ways to preserve the forest for the general public. Name three different methods you could use to maintain the efficient level of tree harvesting and explain how each would work. For each method,
1.1. Rocky Mountain Forest is Crown land (government-owned) from which private citizens were allowed in the past to harvest as much timber as they wanted free of charge. State in economic terms why this is problematic from society's point of view.
1.1. The town of Centreville, population 16, has two types of residents, Homebodies and Revellers. Using the accompanying table, the town must decide how much to spend on its New Year's Eve party. No individual resident expects to directly bear the cost of the party.a. Suppose there are 10
1.1. Classify each of the following goods according to whether they are excludable and whether they are rival in consumption. What kind of good is each?a. Use of a public space such as a parkb. A cheese burritoc. Information from a website that is password-protectedd. Publicly announced information
1.1 How government intervention in the production and consumption of these types of goods can make society better off
1.) A way to classify goods that predicts whether or not a good is a private good-a good that can be efficiently provided by markets
1.10. Which of the following are characterized by network externalities? Which are not? Explain.a. The choice between installing 110-volt electrical cur-rent in structures rather than 220-voltb. The choice between purchasing a Toyota versus a Fordc. The choice of a printer, where each printer
1.9.a. EAuction and EMarketplace are two competing Internet auction sites, where buyers and sellers transact goods. Each auction site earns money by charging sellers for listing their goods. EAuction has decided to eliminate fees for the first transaction for sellers that are new to its site.
1.8. The two dry-cleaning companies in Lafacville, Savon Cleaners and Big Green Cleaners, are a major source of air pollution. Together they currently produce 350 units of air pollution, which the town wants to reduce to 200 units. The accompanying table shows the current pollution level produced
1.7. Fishing for sablefish has been so intensive that sable-fish were threatened with extinction. After considering banning such fishing, the Canadian Department of Fisheries and Oceans introduced individual tradable quotas in 1990, each of which entitles its holder to a catch of a certain size.
1.6. The district municipality of Delta, south of Vancouver, provides free trees planted on municipal property adja-cent to the side or front of homeowners' yards when requested.a. Using concepts in the chapter, explain why a munici-pality would provide free trees planted near some-one's home.b.
1.5. According to a report from the Association of Universities and Colleges of Canada, "university gradu-ates will on average earn $1.3 million more during their careers [lifetime earnings] than a high school graduate and $1 million more than a college grad." This indi-cates that there is a
1.4. Voluntary environmental programs have been extreme-ly popular in Canada, the United States, Europe, and Japan. Part of their popularity stems from the fact that these programs do not require legislative authority, which is often hard to obtain. The volun-tary Memorandum of Understanding (MOU)
1.3. Some Canadian dairy farmers are adopting a new tech-nology that allows them to produce their own electricity from methane gas captured from animal wastes. (One cow can produce up to 2 kilowatts a day.) This practice reduces the amount of methane gas released into the atmosphere. In addition to
1.2. The loud music coming from the house next door is a negative externality that can be directly quantified. The accompanying table shows the marginal social benefit and the marginal social cost per decibel (dB, a measure of volume) of music.Volume of Marginal social Marginal social music
1.1. What type of externality (positive or negative) is present in each of the following examples? Is the marginal social benefit of the activity greater than or equal to the marginal private benefit to the indi-vidual? Is the marginal social cost of the activity greater than or equal to the
1.3. In hindsight, what could Apollo Computers have done to maintain its advantage in mini-computers? What does this tell you generally about research clusters?
1.2. What factors made Silicon Valley such a fertile place for startups? How did these factors interact with one another? What inhibited startups in Route 128?
1.1. What positive externalities were common to both Silicon Valley and Route 128? What positive externalities were not common to both? Explain.
1.1. For each of the following goods, explain the nature of the network externality present.a. Appliances using a particular voltage, such as 110 volts versus 220 voltsb. 8%-by-11-inch paper versus 8-by-121/2-inch paper
1.2. In each of the following cases, determine whether an external cost or an external benefit is imposed and what an appropriate policy response would be.a. Trees planted in urban areas improve air quality and lower summer temperatures.b. Water-saving toilets reduce the need to pump water from
1.1. In 2010-2011, government grants to Canadian universities and colleges totalled almost$20 billion. The federal government channelled another $3 billion in grants and loans to students. Provincial and territorial governments also provided grants and loans to post-secondary students. Explain why
1.2. Explain the following.a. Why an emissions tax smaller than or greater than the marginal social cost at QOPT leads to a smaller total surplus compared to the total surplus generated if the emis-sions tax had been set optimallyb. Why a system of tradable emissions permits that sets the total
1.1. Some opponents of tradable emissions permits object to them on the grounds that pol-luters that sell their permits benefit monetarily from their contribution to polluting the environment. Assess this argument.
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