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microeconomics principles applications

Microeconomics 2nd Canadian Edition Paul Krugman, Robin Wells, Iris Au, Jack Parkinson Publisher: Worth - Solutions

1.9. Damien Matthews is a busy actor. He allocates his free time to watching movies and working out at the gym. The accompanying table shows his utility from the number of times per week he watches a movie or goes to the gym. Quantity of gym visits per week 1 Utility from Utility from gym visits
1.8. Cal "Cool" Cooper has $200 to spend on cellphones and sunglasses.a. Each cellphone costs $100 and each pair of sunglasses costs $50. Which bundles lie on Cal's budget line?Draw a diagram like Figure 10-4 in which both the marginal utility per dollar spent on cellphones and the marginal utility
1.7. For each of the following situations, decide whether the bundle Lakshani is considering optimal or not. If it is not optimal, how could Lakshani improve her overall level of utility? That is, determine which good she should spend more on and which good should she spend less on.a. Lakshani has
1.6. Bruno, the consumer in Problem 5, is best friends with Bernie, who shares his love for notebooks and Drake CDs. The accompanying table shows Bernie's utilities from notebooks and Drake CDs.Utility from Utility from Quantity of notebooks Quantity of CDs notebooks(utils)CDs(utils)0 00 02 70 180
1.5. Bruno can spend his income on two different goods:Drake CDs and notebooks for his class notes. For each of the following three situations, decide if the given consumption bundle is within Bruno's consumption possibilities. Then decide if it lies on the budget line or not.a. CDs cost $10 each,
1.Suppose Brenda knows she will consume 2 cups of coffee for sure. However, she can choose to consume different quantities of bagels: she can choose either 0, 1, 2, 3, or 4 bagels.a. Calculate Brenda's marginal utility from bagels as she goes from consuming 0 bagel to 1 bagel, from 1 bagel to 2
1.3. Brenda likes to have bagels and coffee for breakfast. The accompanying table shows Brenda's total utility from various consumption bundles of bagels and coffee.Consumption bundle Quantity of Quantity of Total utility bagels coffee (cups)(utils)0 00 02 28 04 40 12 48 13 54 20 28 22 56 31 54 32
1.1. For each of the following situations, decide whetherc. Ali enjoys watching reruns of the old sitcom Corner Gas. He claims that these episodes are always funny, Ali has increasing, constant, or diminishing marginal but he does admit that the more he sees an episode, utility.the less funny it
1.3. What do you think accounts for McDonald's success? Relate this to concepts discussed in the chapter.
1.2. To induce fast-food customers to eat more healthful meals, what alternatives are there to bans? Do you think these alternatives would work? Why or why not?
1.2. In the example described in Question 1c, how would you determine whether or not caf-eteria meals are a Giffen good?
1.1. In each of the following cases, state whether the income effect, the substitution effect, or both are significant. In which cases do they move in the same direction? In opposite directions? Why?a. Orange juice represents a small share of Clare's spending. She buys more lemonade and less orange
1.1. In Table 10-3 you can see that marginal utility per dollar spent on wings and marginal utility per dollar spent on potatoes are equal when Sammy increases his consumption of wings from 3 kilograms to 4 kilograms and his consumption of potatoes from 9 kilograms to 10 kilograms. Explain why this
1.14. You have been hired as a consultant by a company to develop the company's retirement plan, taking into account different types of predictably irrational behaviour commonly displayed by employees. State at least two types of irrational behaviour employees might display with regard to the
1.13. In each of the following examples, explain whether the decision is rational or irrational. Describe the type of behaviour exhibited.a. Kookie's best friend likes to give her gift cards that Kookie can use at her favourite stores. Kookie, how-ever, often forgets to use the cards or loses
1.12. Assume De Beers is the sole producer of diamonds.When it wants to sell more diamonds, it must lower its price in order to induce shoppers to buy more.Furthermore, each additional diamond that is pro-duced costs more than the previous one due to the difficulty of mining for diamonds. De
1.11. Patty delivers pizza using her own car, and she is paid according to the number of pizzas she delivers. The accompanying table shows Patty's total benefit and total cost when she works a specific number of hours.Quantity of hours worked Total benefit Total cost 0 $0 So 1 30 10 2 55 21 3 75 34
1.10. The Canadian National Advisory Committee on Immunization (NACI) has recommended against vacci-nating the whole population against the smallpox virus because the vaccination has undesirable, and some-times fatal, side effects. Suppose the accompanying table gives the data that are available
1.9. Georgia and Lauren are economics students who go to a karate class together. Both have to choose how many classes to go to per week. Each class costs $20.The accompanying table shows Georgia's and Lauren's estimates of the marginal benefit that each of them gets from each class per
1.8. You are the manager of a gym, and you have to decide how many customers to admit each hour. Assume that each customer stays exactly one hour. Customers are costly to admit because they inflict wear and tear on the exercise equipment. Moreover, each additional customer generates more wear and
1.7. Amy, Bill, and Carla all mow lawns for money. Each of them operates a different lawn mower. The accompany-ing table shows the total cost to Amy, Bill, and Carla of mowing lawns.Quantity of Amy's Bill's Carla's lawns mowed total cost total cost total cost 0$0$0$0 120 10 22 35 20 73 45 30 17 450
1.6. You have bought a $10 ticket in advance for a lacrosse game, a ticket that cannot be resold. You know that going to the lacrosse game will give you a benefit equal to $20. After you have bought the ticket, you hear that there will be a CFL football game at the same time. Tickets to the
1.5. New Brunswick, Ontario, and Quebec are the only provinces that have nuclear power plants. Recently, the nuclear plant at Darlington, Ontario, which was completed in 1993 at a price of $14.4 billion, was due for repairs to extend its useful life. According to esti-mates by Ontario's Ministry of
1.4. Suppose you have just paid a nonrefundable fee of$1000 for your meal plan for this academic term. This allows you to eat dinner in the cafeteria every evening.a. You are offered a part-time job in a restaurant where you can eat for free each evening. Your par-ents say that you should cat
1.3. You own and operate a bike store. Each year, you receive revenue of $200 000 from your bike sales, and it costs you $100 000 to obtain the bikes. In addition, you pay $20 000 for electricity, taxes, and other expenses per year. Instead of running the bike store, you could become an accountant
1.2. Jackie owns and operates a web-design business. To keep up with new technology, she spends $5000 per year upgrading her computer equipment. She runs the business out of a room in her home. If she didn't use the room as her business office, she could rent it out for $2000 per year. Jackie knows
1.1. Hiro owns and operates a small business that provides economic consulting services. During the year he spends $57 000 on travel to clients and other expenses.In addition, he owns a computer that he uses for busi-ness. If he didn't use the computer, he could sell it and earn yearly interest of
1.3. What do you think explains Ed Mclaughlin's optimism that his company will profit from the introduction of inControl?
1.2. Consider credit scores, the scores assigned to individuals by credit-rating agencies, based on whether you pay your bills on time, how many credit cards you have (too many is a bad sign), whether you have ever declared bankruptcy, and so on. Now consider people who choose inControl cards and
1.1. What aspects of decision making does the CreditSmart suite and inControl card address?Be specific.
1.3. Suppose you are approached by a corporation that asks you to go over Niagara Falls in their newly designed Barrel-o-Death. Your chance of survival is one in a million, but the corporation has guaranteed to pay you $10 million if you survive. If you are not successful you will be paid nothing
1.2. How would you determine whether a decision you made was rational or irrational?
1.1. Which of the types of irrational behaviour are suggested by the following events?a. Although the housing market has fallen and Jenny wants to move, she refuses to sell her house for any amount less than what she paid for it.b. Dan worked more overtime hours last week than he had expected.
1.1. You have decided to go into the ice-cream business and have bought a used ice-cream truck for $8000. Now you are reconsidering. What is your sunk cost in each of the fol-lowing scenarios?a. The truck cannot be resold.b. The truck can be resold, but only at a 50% discount.c. An ice-cream vendor
1.2. Suppose that Alex's school charges a fixed fee of $70 000 for four years of schooling. If Alex drops out before he finishes those four years, Quantity of he still has to pay the $70 000. Alex's total cost for schooling (years)Total cost different years of schooling is now given by the data 0$0
1.1. For each of the "how much" decisions listed in Table 9-3, describe the nature of the marginal cost and of the marginal benefit.
1.3. Suppose you have three alternatives-A, B, and C-and you can undertake only one of them. In comparing A versus B, you find that B has an economic profit and A yields an economic loss. But in comparing A versus C, you find that C has an economic profit and A yields an economic loss. How do you
1.2. Assume that Maria has a third alternative to consider: entering a two-year apprenticeship pro-gram for skilled machinists that would, upon completion, make her a licensed machinist. During the apprenticeship, she earns a reduced salary of $15 000 per year. At the end of the appren-ticeship,
1.Why people sometimes behave irrationally in predictable ways
1.) The principles of decision making that correspond to each type of economic decision
1.Why there are three different types of economic decisions: "either-or"decisions, "how much" decisions, and decisions involving sunk costs
1.) The difference between accounting profit and economic profit, and why economic profit is the correct basis for decisions
1.) The importance of implicit as well as explicit costs in decision making
1.v) Why good decision making begins with accurately defining costs and benefits
1.17. In Canada, producers of milk, poultry, and eggs are protected by government imposed supply management rules. This supply management system is made up of a combination of import controls, production planning quotas, and minimum prices for these products.a. Suppose the goal of the government is
1.16. Producers in import-competing industries often make the following argument: "Other countries have an advan-tage in production of certain goods purely because workers abroad are paid lower wages. In fact, Canadian workers are much more productive than foreign workers.So import-competing
1.15. In World Trade Organization (WTO) negotiations, if a country agrees to reduce trade barriers (tariffs or quotas), it usually refers to this as a concession to other countries. Do you think that this terminology is appropriate?
1.14. Canada is highly protective of its agricultural industry imposing import tariffs and import quotas on imports of agricultural goods. This chapter presented three arguments for trade protection. For each argument, discuss whether it is a valid justification for trade pro-tection of Canadian
1.12. The accompanying diagram illustrates the Canadian domestic demand curve and domestic supply curve for textiles.Price of textiles Domestic supply PA B : C : D PDomestic demand OST QOT Quantity of textiles
1.11. The Canadian domestic demand schedule and domestic supply schedule for apples was given in Problem 10.Suppose that the world price of apples is $0.30. Canada introduces an import quota of 3000 apples and assigns the quota rents to foreign apple exporters.a. Draw the domestic demand and supply
1.10. The accompanying table shows the Canadian domestic demand schedule and domestic supply schedule for apples. Suppose that the world price of apples is $0.30 per apple.Quantity of Quantity of apples demanded apples supplied Price of apples(thousands)(thousands)$1.00 211 0.90 410 0.80 69 0.70 88
1.9. The accompanying table indicates the Canadian domes-tic demand schedule and domestic supply schedule for commercial jet airplanes. Suppose that the world price of a commercial jet airplane is $100 million.Price of jet Quantity of jets Quantity of jets(millions)demanded supplied$120 100 1000
1.8. Before the North American Free Trade Agreement(NAFTA) gradually eliminated import tariffs on goods, the autarky price of tomatoes in Mexico was below the world price and in Canada was above the world price. Similarly, the autarky price of poultry in Mexico was above the world price and in
1.7. Shoes are labour-intensive and satellites are capital-intensive to produce, Canada has abundant capital.China has abundant labour. According to the Heckscher-Ohlin model, which good will China export? Which good will Canada export? In Canada, what will happen to the price of labour (the wage)
1.5. Industry Canada provides statistics on Canada's imports and exports on its website. The following steps will take you to the foreign trade statistics. Use them to answer the questions below.i. Go to Industry Canada's website at www.ic.gc.ca Il. At the top of the page, under All topics, look
1.3. Both Canada and the United States produce lumber and music CDs with constant opportunity costs. The United States can produce either 10 tonnes of lumber and no CDs, or 1000 CDs and no lumber, or any combi-nation in between. Canada can produce either 8 tonnes of lumber and no CDs, or 400 CDs
1.1. Assume Saudi Arabia and Canada face the production possibilities for oil and cars shown in the accompany-ing table.Saudi Arabia Canada Quantity of oil Quantity of oil(millions Quantity of(millions of Quantity of of barrels)cars (millions)barrels)cars (millions)0 40 10.0 200 3100 7.5 400 2200
1.4. What is the source of Li & Fung's success? Is it based on human capital, on ownership of a natural resource, or on ownership of capital?
1.3. Why do you think a retailer prefers to have Li & Fung arrange international production of its jeans rather than purchase them directly from a jeans manufacturer in mainland China?
1.2. What principle do you think underlies Li & Fung's decisions on how to allocate production of a good's inputs and its final assembly among various countries?
1.1. Why do you think it was profitable for Li & Fung to go beyond brokering exports to becom-ing a supply chain manager, breaking down the production process and sourcing the inputs from various suppliers across many countries?
1.2. Over the years, the WTO has increasingly found itself adjudicating trade disputes that involve not just tariffs or quota restrictions but also restrictions based on quality, health, and environmental considerations. Why do you think this has occurred? What method would you, as a WTO official,
1.1. In Canada, over half of the steel consumed domestically is imported and steel is an input in many Canadian industries. The federal government has imposed import controls on steel and a variety of consumer goods. Explain why political lobbying to eliminate import controls on steel is more
1.2. Suppose the government imposes an import quota rather than a tariff on butter.What quota limit would generate the same quantity of imports as a tariff of $2.00 per kilogram?
1.1. Suppose the world price of butter is $2.00 per kilogram and the domestic price in autarky is $4.00 per kilogram. Use a diagram similar to Figure 8-10 to show the following.a. If there is free trade, domestic butter producers want the government to impose a tariff of no less than $2.00 per
1.2. What effect do you think this event will have on Mexican grape producers? Mexican grape pickers? Mexican grape consumers? Canadian grape pickers?
1.1. Due to a strike by truckers, trade in food between Canada and Mexico is halted. In autarky, the price of Mexican grapes is lower than that of Canadian grapes. Using a dia-gram of the Canadian domestic demand curve and the Canadian domestic supply curve for grapes, explain the effect of these
1.1. In Canada, the opportunity cost of 1 tonne of wheat is 50 bicycles. In China, the oppor-tunity cost of 1 bicycle is 0.01 tonne of wheat.a. Determine the pattern of comparative advantage.b. In autarky, Canada can produce 200 000 bicycles if no wheat is produced, and China can produce 3000
1.) How comparative advantage leads to mutually beneficial international trade The sources of international comparative advantage
1.19. This question uses the algebraic method to solve prob-lems from Appendix 3A and Appendix 6A. Suppose the monthly demand and supply for iPods are given by the following equations:P = 500 - 0.001Q Demand Curve P = 200 + 0.000505 Supply Curvea. Use the demand and supply curves to solve for the
1.18. This question uses the algebraic method to solve prob-lems from Appendix 3A and Appendix 6A. Suppose that the demand and supply for maple syrup are given by the following equations:P = 53.25 - 1.250₫Demand Curve P = 12.75 + 0.250$Supply Curve where Q is the quantity in millions of litres
1.17. In extreme cases the supply or demand curve can be either vertical (perfectly inelastic) or horizontal (per-fectly elastic). In such extreme situations the burden of a per-unit excise tax falls entirely on one side of the market. Using a diagram in each case, explain why each of the following
1.16. Suppose the government decides to levy a small excise tax on consumers in a perfectly competitive market in which the elasticity of demand is greater than the elas-ticity of supply. Who will bear more of the tax burden:the suppliers or the consumers? Explain why.
1.15. You work for the Saskatoba Treasury Board and Finance, providing economic advice to the finance minister. The premier wants to overhaul the personal income tax system and asks your advice. The current income tax system in Saskatoba consists of a pro-portional tax of 10% on all income. Suppose
1.11. Assess the following four tax policies in terms of the benefits principle versus the ability-to-pay principle.a. A tax on gasoline that finances maintenance of pro-vincial roadsb. An 8% tax on imported goods valued in excess of$800 per household brought in on passenger flightsc.
1.9. A province needs to raise money, and the finance min-ister has a choice of imposing an excise tax of the same amount on one of two previously untaxed goods: the province can tax sales of either restaurant meals or gasoline. Both the demand for and the supply of restau-rant meals are more
1.8. Consider the original market for pizza in Lafacville, illustrated in the accompanying table. Lafacville offi-cials decide to impose an excise tax on pizza of $4 per pizza.Quantity of pizza Quantity of pizza Price of pizza demanded supplied $10 0 6 9 1 5 8 2 4 7 3 3 6 4 2 5 5 1 4 6 0 3 7 0 2 8
1.7. The accompanying diagram shows the market for cigarettes. The current equilibrium price per pack is$4, and every day 40 million packs of cigarettes are sold. In order to recover some of the health care costs associated with smoking, the government imposes a tax of $2 per pack. This will raise
1.6. In each of the following cases involving taxes, explain:(i) whether the incidence of the tax falls more heavily on consumers or producers, (ii) why government revenue raised from the tax is not a good indicator of the true cost of the tax, and (iii) how deadweight loss arises as a result of
1.5. In Canada, each provincial and territorial government can impose its own excise tax on the sale of cigarettes.Suppose that in the province of Upper Canada, the provincial government imposes a tax of $2.00 per pack sold within the province. In contrast, the neighbour-ing province of Lower
1.4. All provinces impose excise taxes on gasoline. According to the Alberta Treasury Board and Finance, Alberta imposes an excise tax of $0.09 per litre of gasoline. In 2012, gasoline sales in Alberta totalled 6 billion litres.What was Alberta's tax revenue from the gasoline excise tax? If Alberta
1.3. Suppose, in order to raise additional revenue and hope-fully make sales taxes more progressive, the federal government imposes a tax on sales of new luxury cars.For simplicity, assume that the tax is an excise tax of$6000 per car. The accompanying figure shows hypo-thetical demand and supply
1.2. The Canadian government would like to help the North American auto industry compete against over-seas automakers that sell trucks in Canada. It can do this by imposing an excise tax on each foreign truck sold in Canada. The hypothetical pre-tax demand and supply schedules for imported trucks
1.1. To help fund airport security, Canada imposes the Air Quantity of trips Quantity of trips Travellers Security Charge (ATSC), an excise tax on the Price of a trip demanded (millions)supplied (millions)sale of domestic airline tickets. In 2011 the total excise$250.00 66.0 82.4 tax was $14.96 per
1.3. How do you think Amazon's tax strategy has distorted its business behaviour? What tax policy would eliminate those distortions?
1.2. Suppose, as proposed by the Marketplace Fairness Act, sales tax is collected on all online books sales in the United States. From the evidence in this case, what do you think is the incidence of the tax between seller and buyer? What does this imply about the elasticity of supply of books by
1.1. What effect do you think the difference in state sales tax collection has on Amazon's sales versus BarnesandNoble.com's sales?
1.2. When comparing households at different income levels, economists find that consump-tion spending grows more slowly than income. Assume that when income grows by 50%, from $10 000 to $15 000, consumption grows by 25%, from $8000 to $10 000.Compare the percent of income paid in taxes by a family
1.1. Assess each of the following taxes in terms of the benefits principle versus the ability-to-pay principle. What, if any, actions are distorted by the tax? Assume for simplicity in each case that the purchaser of the good bears 100% of the burden of the tax.a. A federal tax of $500 for each new
1.1. The accompanying table shows Willingness five consumers' willingness to Consumer to pay Producer Cost pay for one can of diet cola each$0,70 as well as five producers' costs Ana Zhang$0.10 of selling one can of diet cola Bernice 0.60 Yves 0.20 each. Each consumer buys at Chizuko 0.50 Xavier
1.5. True or false? Other things equal, consumers would prefer to face a less elastic supply curve for a good or service when an excise tax is imposed.of book Solutions appear at back
1.4. The supply of bottled spring water is very inelastic, but the demand for it is somewhat elastic. What does this imply about the incidence of a tax? Illustrate with a diagram.
1.3. True or false? When a substitute for a good is readily avail-able to consumers, but it is difficult for producers to adjust the quantity of the good produced, then the burden of a tax on the good falls more heavily on producers.
1.2. The demand for economics textbooks is very inelastic, but the supply is somewhat elastic. What does this imply about the incidence of an excise tax? Illustrate with a diagram.
1.1. Consider the market for butter, shown in the accompanying figure. The government imposes an excise tax of $0.30 per kilogram of butter. What is the price paid by consumers post-tax? What is the price received by producers post-tax? What is the quantity of butter transacted? How is the
1.2. This question uses the algebraic method of determining equilibrium from Appendix 3A. Suppose the monthly demand and supply for iPods are given by the following equations:P = 500 - 0.0010ªDemand Curve P = 200 + 0.000505 Supply Curvea. Use the supply and demand curves given above to solve for
1.1. This question uses the algebraic method of determin-ing equilibrium from Appendix 3A. Suppose that the demand and supply for maple syrup is given by the fol-lowing equations:P = 53.25 - 1.25QªDemand Curve P = 12.75 + 0.25Q$Supply Curvea. Solve for the equilibrium price and quantity.Determine
1.17. According to data from auto sales data website, Good Car Bad Car (www.goodcarbadcar.net), Canadian sales of the fuel-efficient Toyota Prius hybrid rose from 1581 vehicles sold in 2011 to 3371 in 2012. Over the same period, according to data from Natural Resources Canada, the average price of
1.16. The U.S. government is considering reducing the amount of carbon dioxide that firms are allowed to produce by issuing a limited number of tradable allow-ances for carbon dioxide (CO2) emissions. In an April 25, 2007, report, the U.S. Congressional Budget Office(CBO) argues that "most of the
1.15. Anindya Sen and May Luong studied the relationship between the price of beer and rates of sexually trans-mitted infections (STIs) in Canada. Their result indicat-ed that there is a significant relationship between beer price and STI rates. Their findings suggest that "higher beer prices do

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