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microeconomics principles applications
Microeconomics 2nd Canadian Edition Paul Krugman, Robin Wells, Iris Au, Jack Parkinson Publisher: Worth - Solutions
1.14. Worldwide, the average coffee grower has increased the amount of land under cultivation over the past few years. The result has been that the average coffee plantation produces significantly more coffee than it did 10 to 20 years ago. Unfortunately for the growers, however, this has also been
1.13. There is a debate about whether sterile hypodermic needles should be passed out free of charge in cities with high drug use. Proponents argue that doing so will reduce the incidence of diseases, such as HIV/AIDS, that are often spread by needle sharing among drug users. Opponents believe that
1.11. Use an elasticity concept to explain each of the follow-ing observations.a. During economic booms, the number of new per-sonal care businesses, such as gyms and salons, is proportionately greater than the number of other new businesses, such as grocery stores.b. Cement is the primary building
1.10. In each of the following cases, do you think the price elasticity of supply is (i) perfectly elastic; (ii) perfectly inelastic; (iii) elastic, but not perfectly elastic; or (iv)inelastic, but not perfectly inelastic? Explain using a diagram.a. An increase in demand this summer for luxury
1.8. The accompanying table shows the price and yearly quantity sold of souvenir T-shirts in the town of Saint John according to the average income of the tourists visiting.Quantity of T-shirts Quantity of T-shirts demanded when demanded when Price of average tourist average tourist T-shirt income
1.7. Take a linear demand curve like the one shown in Figure 6-5, where the range of prices for which demand is elastic and inelastic is labelled. In each of the following scenarios, the supply curve shifts. Show along which portion of the demand curve (that is, the elastic or the inelastic
1.6. What can you conclude about the price elasticity of demand in each of the following statements?a. "The pizza delivery business in this town is very competitive. I'd lose half my customers if I raised the price by as little as 10%."b. "I owned both of the two Jerry Garcia autographed
1.5. The accompanying table lists the cross-price elastici-ties of demand for several goods, where the percentage quantity change is measured for the first good of the pair, and the percentage price change is measured for the second good.Cross-price elasticities Good of demand Air-conditioning
1.4. The accompanying table gives part of the supply sched-ule for personal computers in Canada.Price of computer Quantity of computers supplied$1100 12 000 900 8 000a. Calculate the price elasticity of supply when the price increases from $900 to $1100 using the mid-point method.b. Suppose firms
1.3. The following table shows the quantity of wheat flour demanded and the average price in Canada between 2011 and 2012.2011 2012 Quantity demanded (1000 kg)2 377 600 2 304 620 Average price (per kg)$1.98 $2.07 Source: Statistics Canada.a. Using the midpoint method, calculate the price
1.2. Do you think the price elasticity of demand for Ford sport-utility vehicles (SUVs) will increase, decrease, or remain the same when each of the following events occurs? Explain your answer,a. Other car manufacturers, such as General Motors, decide to make and sell SUVs.b. SUVs produced in
1.1. Nile.ca, the online bookseller, wants to increase its Group A Group B total revenue. One strategy is to offer a 10% discount(sales per week)(sales per week)on every book it sells. Nile.ca knows that its customers Volume of sales before 1.55 million 1.50 million can be divided into two distinct
1.4. Use an elasticity concept to explain under what conditions the airline industry will be able to maintain its high profitability in the future. Explain.
1.3. Using the concept of elasticity, explain why airlines have imposed fees on things such as checked bags. Why might they try to hide or disguise fees?
1.2. Using the concept of elasticity, explain why airlines would create such great variations in the price of a ticket depending on when it is purchased and the day and time the flight departs. Assume that some people are willing to spend time shopping for deals as well as fly at inconvenient
1.1. How would you describe the price elasticity of demand for airline flights given the informa-tion in this case? Explain.
1.2. True or false? If the demand for milk rose, then, in the long run, milk drinkers would be better off if supply were elastic rather than inelastic.
1.1. Using the midpoint method, calculate the price elasticity of supply for web-design ser-vices when the price per hour rises from $100 to $150 and the number of hours trans-acted increases from 300 000 to 500 000. Is supply elastic, inelastic, or unit-elastic?
1.3. As the price of margarine rises by 20%, a manufacturer of baked goods increases its quantity of butter demanded by 5%. Calculate the cross-price elasticity of demand between butter and margarine. Are butter and margarine substitutes or complements for this manufacturer?Solutions book
1.2. For the following goods, what is the elasticity of demand? Explain. What is the shape of the demand curve?a. Demand for a blood transfusion by an accident victimb. Demand by students for green erasers Solutione hack of book
1.1. For each case, choose the condition that characterizes demand: elastic demand, inelas-tic demand, or unit-elastic demand.a. Total revenue decreases when price increases.b. The additional revenue generated by an increase in quantity sold is exactly offset by revenue lost from the fall in price
1.3. The price elasticity of demand for ice cream sandwiches is 1.2 at the current price of $0.50 per sandwich and the current consumption level of 100 000 sandwiches.Calculate the change in the quantity demanded when price rises by $0.05. Use Equations 6-1 and 6-2 to calculate percentage changes
1.2. At the present level of consumption, 4000 movie tickets, and at the current price, $5 per ticket, the price elasticity of demand for movie tickets is 1. Using the midpoint method, calculate the percentage by which the owners of movie theatres must reduce price in order to sell 5000 tickets.
1.1. The price of strawberries falls from $1.50 to $1.00 per carton and the quantity demand-ed goes from 100 000 to 200 000 cartons. Use the midpoint method to find the price elasticity of demand.
1.13. This question uses the algebraic method of determining equilibrium from Appendix 3A. In Canada, producers of milk, poultry, and eggs are protected by government-imposed supply management rules. This supply man-agement system is made up of a combination of import controls, production planning
1.12. In Canada, all provinces except Alberta have a mini-mum legal retail price for beer (a price floor). Part of the rationale for this policy is to discourage immoder-ate consumption of alcohol.Suppose the fictitious province of Beerlandia has the following annual demand and supply schedule for
1.11. The accompanying diagram shows data from the U.S.Bureau of Labor Statistics on the average price of an airline ticket in the United States from 1975 until 1985, adjusted to eliminate the effect of inflation (the general increase in the prices of all goods over time). In 1978, the United
1.10. In the Atlantic provinces and Quebec, you must have a licence to harvest lobster commercially; these licences are issued yearly. Suppose the federal Department of Fisheries and Oceans is concerned about the dwindling supplies of lobsters. This department decides to place a yearly quota of 80
1.9. The waters off the North Atlantic coast were once teem-ing with fish, but because of overfishing by the commer-cial fishing industry, the stocks of fish became seriously depleted. In 1991, the International Commission for the Conservation of Atlantic Tunas (ICCAT) implemented an international
1.8. For the last 70 years the Canadian government has used price supports to provide income assistance to Canadian farmers. To implement these price supports, at times the government has used price floors, which it maintains by buying up the surplus farm products. At other times, it has used
1.7. Until recently, the standard number of hours worked per week for a full-time job in France was 39, just as in Canada. But in response to social unrest over high levels of involuntary unemployment, the French govern-ment instituted a 35-hour workweek-a worker could not work more than 35 hours
1.6. European governments tend to make greater use of price controls than does the Canadian government.For example, the French government sets minimum starting yearly wages for new hires who have com-pleted le bac, certification roughly equivalent to a high school diploma. The demand schedule for
1.5. The accompanying table shows hypothetical demand and supply schedules for milk per year. The Canadian government decides that the incomes of dairy farmers should be maintained at a level that allows the tradi-tional family dairy farm to survive. So it implements a price floor of $1 per litre
1.4. The Canadian Dairy Commission (CDC) administers the price floor for butter, which was set at $7.28 per kilogram in 2012. At that price, according to data from the CDC, the quantity of butter supplied in 2012 was 114.3 million kilograms, and the quantity demanded was 97.5 million kilograms. To
1.3. In the mid-eighteenth century, the government of New France (modern-day Quebec) controlled the price of bread, which was set at a predetermined price below the free market price.a. Draw a diagram showing the effect of the policy. Did the policy act as a price ceiling or a price floor?b. What
1.2. In order to ingratiate himself with voters, the mayorb. Use a second diagram to show the additional effect of Gotham City decides to lower the price of taxi rides.of the income-supplement policy on the market.Assume, for simplicity, that all taxi rides are the same distance and therefore cost
1.1. Suppose it is decided that rent control in a city will What effect does it have on the market rent and be abolished and that market rents will now prevail.quantity of rental housing supplied in comparison to Assume that all rental units are identical and so are your answers to part (a)?offered
1.3. Predict the effect on Medallion Financial's business if New York City eliminates restric-tions on the number of taxis.
1.2. What will be the effect on Medallion Financial if New York companies resume widespread use of limousine services for their employees? What is the economic motivation that prompts companies to offer this perk to their employees? (Note that it is very difficult and expensive to own a personal
1.1. How does Medallion Financial benefit from the restriction on the number of New York taxi medallions?
1.3. Assume that the quota limit is 8 million rides. Suppose demand decreases due to a decline in tourism. What is the smallest parallel leftward shift in demand that would result in the quota no longer having an effect on the market? Illustrate your answer using Figure 5-9.
1.2. Suppose the quota limit on taxi rides is increased to 9 million. What happens to the quota rent?
1.1. Suppose that the supply and demand for taxi rides is given by Figure 5-9 but the quota is set at 6 million rides instead of 8 million. Find the following and indicate them on Figure 5-9.a. The price of a rideb. The quota rentc. deadweight loss
1.1. A provincial legislature mandates a price floor for gasoline of PF per litre. Assess the following statements and illustrate your answer using the fig-ure provided.a. Proponents of the law claim it will increase the income of gas Price of gas station owners. Opponents claim it will hurt gas
1.3. Which of the following create deadweight loss? Which do not and are simply a transfer of surplus from one person to another? Explain your answer.a. You have been evicted from your rent-controlled apartment after the landlord discov-ered your pet boa constrictor. The apartment is quickly rented
1.2. True or false? Explain your answer. A price ceiling below the equilibrium price of an otherwise efficient market does the following:a. Increases quantity suppliedb. Makes some people who want to consume the good worse offc. Makes all producers worse off
1.1. On game nights, homeowners near Middletown Arena used to rent parking spaces in their driveways to fans at a going rate of $11. A new town ordinance now sets a maximum parking fee of $7. Use the accompanying supply and demand diagram to explain how each of the following corresponds to a
1.11. On May 10, 2010, a judge ruled in a copyright infringe-ment lawsuit against the popular file-sharing web-site LimeWire and in favour of the 13 major record companies that had brought the lawsuit. The companies, including Sony, Virgin, and Warner Brothers, had alleged that the file-sharing
1.10. The accompanying diagram illustrates a taxi driver's individual supply curve (assume that each taxi ride is the same distance).Price of 5taxi ride$8 40 60 80 Quantity of taxi ridesa. Suppose the city sets the price of taxi rides at $4 per ride, and at $4 the taxi driver is able to sell as
1.9. You are the manager of Fun World, a small amusement park. The accompanying diagram shows the demand curve of a typical customer at Fun World.Price of ride$10 5D 010 20 Quantity of rides (per day)a. Suppose that the price of each ride is $5. At that price, how much consumer surplus does an
1.8. On Thursday nights, a local restaurant has a pasta special.Ari likes the restaurant's pasta, and his willingness to pay for each serving is shown in the accompanying table.Quantity of pasta Willingness to pay for(servings)pasta (per serving)1$10 28 36 44 52 60a. If the price of a serving of
1.7. The accompanying table shows the supply and demand schedules for used copies of the first edition of this textbook. The supply schedule is derived from offers at Amazon.com. The demand schedule is hypothetical.Price of used Quantity of used Quantity of used book books demanded books
1.6. Hollywood screenwriters negotiate a new agreement with movie producers stipulating that they will receive 10% of the revenue from every video rental of a movie they authored. They have no such agreement for movies shown on on-demand television.a. When the new writers' agreement comes into
1.5. According to Statistics Canada, due to an increase in demand, the average domestic airline fare increased from $182.18 in 2010 to $190.92 in 2011, an increase of$8.74. The number of passenger tickets sold in 2010 was 65.8 million. Assume that over the same period, the air-lines' costs remained
1.4.a. In an auction, potential buyers compete for a good by submitting bids. Adam Galinsky, a social psychologist at Northwestern University, compared eBay auctions in which the same good was sold. He found that, on average, the larger the number of bidders, the higher the sales price. For
1.2. Determine the amount of producer surplus generated in consumer 4 is willing to pay $25, consumer 5 is willing each of the following situations.to pay $20, and consumer 6 is willing to pay $15.a. Gordon lists his old Lionel electric trains on eBay.a. Suppose the market price is $29. What is the
1.3. There are six potential consumers of computer games, a bottle of mineral water. The 7-Eleven sells mineral each willing to buy only one game. Consumer 1 is will-water for $2.25 per bottle, so she declines to purchase it.ing to pay $40 for a computer game, consumer 2 is willing to pay $35,
1.1. Determine the amount of consumer surplus generated reserve price, of $75. After five days of bidding, the in each of the following situations.final high bid is exactly $75. He accepts the bid.a. Leon is willing to pay up to $10 for a new T-shirt.b. So-Hee advertises her car for sale in the
1.3. Draw a diagram to show the effect of resellers on the allocation of consumer surplus and producer surplus in the market for concert tickets. What are the implications of the Internet for all such exchanges?
1.2. Explain how the rise of the Internet has disrupted this exchange.
1.1. Use the concepts of consumer surplus and producer surplus to analyze the exchange between Bruce Springsteen and his fans. Draw a diagram to illustrate.
1.3. What is wrong with the following statement? "Markets are always the best way to orga-nize economic activity. Any policies that interfere with markets reduce society's welfare."f bank
1.2. Suppose that in the market for used textbooks the equilibrium price is $30, but it is mis-takenly reported that the equilibrium price is $300. How does this affect the efficiency of the market? Be specific.
1.1. In some jurisdictions that are rich in natural resources, such as oil, the law separates the right to above ground use of the land from the right to drill below ground (called "mineral rights"). Someone who owns both the above ground rights and the mineral rights can sell the two rights
1.2. Show how each of the following three actions reduces total surplus:a. Having Josey consume one fewer pepper, and Casey one more pepper, than in the market equilibriumb. Having Cara produce one fewer pepper, and Jamie one more pepper, than in the mar-ket equilibriumc. Having Josey consume one
1.1. Consider again the market for Quantity of cheese-stuffed jalapeno peppers.peppers Cara's cost Jamie's cost There are two producers, Cara and Jamie, and their marginal (or incre-1st pepper$0.10$0.30 mental) costs of producing each 2nd pepper 0,10 0.50 pepper are given in the accompa-3rd pepper
1.Why markets typically lead to efficient outcomes despite the fact that they sometimes fail
1.) Why property rights and prices as economic signals are critical to smooth functioning of a market
1.) What total surplus is and how it can be used both to measure the gains from trade and to illustrate why markets work so well
1.+ What producer surplus is and its relationship to the supply curve
1.› What consumer surplus is and its relationship to the demand curve
1.2. Suppose the monthly demand and supply for iPods are given by the following equations;P =500-0.001Q Demand Curve P = 200 + 0.00050$Supply Curvea. Use the demand and supply curves to solve for the equilibrium price and quantity. Create a diagram to depict this equilibrium.b. Rewrite the demand
1.1. Suppose that the demand and supply for maple syrup are given by the following equations:P = 53.25 - 1.25QªDemand Curve P = 12.75 + 0.250$Supply Curve In each case below, compute the new equilibrium price and quantity exchanged. Has there been an increase/decrease in demand or supply? An
1.18. Draw the appropriate curve in each of the following cases. Is it like or unlike the curves you have seen so far? Explain.a. The demand for cardiac bypass surgery, given that the government pays the full cost for any patientb. The demand for elective cosmetic plastic surgery, given that the
1.17. Although he was a prolific artist, Pablo Picasso painted only 1000 canvases during his "Blue Period." Picasso is now dead, and all of his Blue Period works are currently on display in museums and private galleries throughout Europe, Asia, and North America.a. Draw a supply curve for Picasso
1.16. Use a diagram to illustrate how each of the following events affects the equilibrium price and quantity of pizza. Assume that pizza is an inferior good.a. The price of mozzarella cheese rises.b. A new study reveals hamburgers are unhealthy.c. The price of tomato sauce falls.d. The incomes of
1.15. The small town of Middling experiences a sudden dou-bling of the birth rate. After three years, the birth rate returns to normal. Use a diagram to illustrate the effect of these events on the following.a. The market for an hour of babysitting services in Middling todayb. The market for an
1.14. Demand twisters: Sketch and explain the demand rela-tionship in each of the following statements.a. I would never buy a Justin Bieber CD! You couldn't even give me one for nothing.b. I generally buy a bit more coffee as the price falls.But once the price falls to $10 per kilogram, I'll buy
1.12. The accompanying table gives the annual Canadian demand and supply schedules for pickup trucks.Quantity of Quantity of trucks demanded trucks supplied Price of truck(millions)(millions)$20 000 2.0 1.4 25.000 1.8 1.30 000 1.6 1.6 35 000 1.4 1.7 40 000 1.2 1.8a. Plot the demand and supply
1.11. In Rolling Stone magazine, several fans and rock stars, including Pearl Jam, were bemoaning the high price of concert tickets. One superstar argued, "It just isn't worth $75 to see me play. No one should have to pay that much to go to a concert." Assume this star sold out arenas around the
1.10. Aaron Hank is a star hitter for his baseball team. It is widely anticipated that in the next game he will break the major league record for home runs hit during one season. As a result, tickets for the team's next game have been a hot commodity. But today it is announced that, due to a knee
1.9. According to the New York Times (November 18, 2006), the number of car producers in China is increasing rapidly. The newspaper reports that "China has more car brands now than the United States. ... But while car sales have climbed 38 percent in the first three quarters of this year,
1.8. The following demand schedule is for a normal good.Price Quantity demanded$23 70 21 90 19 110 17 130a. Do you think that the increase in quantity demand-ed (say, from 90 to 110 in the table) when price decreases (from $21 to $19) is due to a rise in con-sumers' income? Explain clearly (and
1.7. Find the flaws in reasoning in the following statements, paying particular attention to the distinction between shifts of and movements along the supply and demand curves. Draw a diagram to illustrate what actually hap pens in each situation.a. "A technological innovation that lowers the cost
1.*Commercially, lobatera are priced in dollars per pound.Suppose that Nova Scotia lobsters can be sold only in Canada. The Canadian demand schedule for Nova Scotia lobsters is as follows:Price of lobster Quantity of lobster(per pound)demanded (pounds)$25 200 20 400 15 600 10 800 51000a. Draw the
1.6. Suppose that the supply schedule of Nova Scotia lob-sters is as follows:Price of lobster Quantity of lobster (per pound)"supplied (pounds)$25 800 20 700 15 600 10 500 5 400
1.5. Statistics Canada reported that in 2009 each person in Canada consumed an average of 85 L of soft drinks at an average price of $0.72 per litre. Assume that, at a price of $0.55 per litre, each individual consumer would demand 102 L of soft drinks. The Canadian population in 2009 was 33.7
1.4. Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilib-rium quantity of each of the following events.a. The market for newspapers in your town Case 1: The salaries of journalists go up.Case 2: There is a big news event in your town, which is
1.3. The market for many goods changes in predictable ways according to the time of year, in response to events such as holidays, vacation times, seasonal changes in production, and so on. Using the supply and demand model, explain the change in price in each of the fol-lowing cases. Note that
1.2. In a supply and demand diagram, draw the shift of the demand curve for hamburgers in your hometown due to the following events. In each case, show the effect on equilibrium price and quantity.a. The price of tacos increases.b. All hamburger sellers raise the price of their french fries.c.
1.1. A survey indicated that chocolate is Canadians' favourite ice-cream flavour. For each of the following, indicate the possible effects on demand, supply, or both as well as equilibrium price and quantity of chocolate ice cream.a. A severe drought in Ontario causes dairy farmers to reduce the
1.3. Based on what you have learned from this case, explain why eBay is like a commodity exchange. Why has it been so successful as a marketplace for second-hand items com-pared to a market composed of various flea markets and dealers?
1.2. What was the advantage to buyers from buying their wheat in the Chicago pit instead of in St. Louis? What was the advantage to sellers?
1.1. In the chapter we mention how prices can vary in a tourist trap. Which market, St. Louis or Chicago, was more likely to behave like a tourist trap? Explain.
1.2. When a new, faster computer chip is introduced, demand for computers using the older, slower chips decreases. Simultaneously, computer makers increase their production of computers containing the old chips in order to clear out their stocks of old chips.Draw two diagrams of the market for
1.1. In each of the following examples, determine (i) the market in question; (ii) whether a shift in demand or supply occurred, the direction of the shift, and what induced the shift; and(iii) the effect of the shift on the equilibrium price and the equilibrium quantity.a. As the price of gasoline
1.1. In the following three situations, the market is initially in equilibrium. Explain the changes in either supply or demand that result from each event. After each event described below, does a surplus or shortage exist at the original equilibrium price?What will happen to the equilibrium price
1.3. Why does the market price rise if it is below the equilibrium price?
1. 2. Why does the market price fall if it is above the equilibrium price?
1.1. Why do all sales and purchases in a market take place at the same price?
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