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microeconomics principles applications
Microeconomics 15th Canadian Edition Campbell R. Mcconnell, Stanley L. Brue, Sean M. Flynn, Thomas P. Barbiero - Solutions
4. After specialization and international tradea. Canada can obtain units of soybeans at less cost than before tradeb. Brazil can obtain more than 20 tonnes of soybeans, if it so choosesc. Canada no longer has a comparative advantage in producing steeld. Brazil can benefit by prohibiting soybean
3. After specialization and trade, the world output of steel and soybeans isa. 20 tonnes of steel and 20 tonnes of soybeansb. 45 tonnes of steel and 15 tonnes of soybeansc. 30 tonnes of steel and 20 tonnes of soybeansd. 10 tonnes of steel and 30 tonnes of soybeans
2. Before specialization, the domestic opportunity cost of producing 1 unit of steel isa. 1 unit of soybeans in both Canada and Brazilb. 1 unit of soybeans in Canada and 2 units of soybeans in Brazilc. 2 units of soybeans in Canada and 1 unit of soybeans in Brazild. 1 unit of soybeans in Canada and
1. The production possibilities curves in graphs (a) and(b) implya. Increasing domestic opportunity costsb. Decreasing domestic opportunity costsc. Constant domestic opportunity costsd. First decreasing, then increasing, domestic opportunity costs
2. Imagine an economy with only two people. Larry earns$20,000 per year, while Roger earns $80,000 per year. As shown in the following figure, the Lorenz curve for this twoperson economy consists of two line segments. The first runs from the origin to pointa, while the second runs from point a to
1. In 2015, Forbes magazine listed Bill Gates, the founder of Microsoft, as the richest person in the United States. His personal wealth was estimated to be $76 billion. Given that there were about 322 million people living in the United States that year, how much could each person have received if
6. In the taste-for-discrimination model, an increase in employer prejudice against visible minorities workers would cause the discrimination coefficient to ________ and the demand curve for visible minorities labour to shift ________. [LO18B.6]a. Decrease; rightb. Decrease; leftc. Increase;
5. If women are crowded into elementary education and away from fire fighting, wages in firefighting will tend to be ________ than if women weren’t crowded into elementary education. [LO18B.6]a. Higherb. Lower
4. Suppose that the last dollar that Victoria receives as income brings her a marginal utility of 10 utils while the last dollar that Fredrick receives as income brings him a marginal utility of 15 utils. If our goal is to maximize the combined total utility of Victoria and Fredrick, we should
3. Suppose that a society contains only two members, a lawyer named Monique and a handyman named James. Five years ago, Monique made $100,000 while James made $50,000.This year, Monique will make $300,000 while James will make$100,000. Which of the following statements about this society’s income
2. Some part of income inequality is likely to be the result of discrimination. But other factors responsible for inequality include(select one or more answers from the choices shown): [LO18B.1]a. Differences in abilities and talentsb. Differences in education and trainingc. Different preferences
1. Suppose that Canada has a Gini ratio of 0.41 while Sweden has a Gini ratio of 0.31. Which country has a more equal distribution of income? [LO18B.1]a. Canadab. Swedenc. They are actually equal
9. Males under the age of 25 must pay far higher auto insurance premiums than females in this age group. How does this fact relate to statistical discrimination? [LO18B.6]10. Use a demand and supply model to explain the effect of occupational segregation or crowding on the relative wage rates and
8. Comment on or explain the following: [LO18B.4]a. To endow everyone with equal income will certainly make for very unequal enjoyment and satisfaction.b. Equality is a superior good: the richer we become, the more of it we can afford.c. The mob goes in search of bread, and the means it employs is
6. Should a nation’s income be distributed to its members according to their contributions to the production of that total income or according to the members’ needs? Should society attempt to equalize income or economic opportunities? Are the issues of equity and equality in the distribution of
5. Briefly discuss the major causes of income inequality. With respect to income inequality, is there any difference between inheriting property and inheriting a high IQ? Explain. [LO18B.2]
4. Why is the lifetime distribution of income more equal than the distribution in any specific year? [LO18B.1]
3. How does the Gini ratio relate to the Lorenz curve? Why can’t the Gini ratio exceed 1? What is implied about the direction of income inequality if the Gini ratio declines from 0.42 to 0.35?How would one show that change of inequality in the Lorenz diagram? [LO18B.1]
2. Assume Syed, Beth, Sabine, David, and Mikkel receive incomes of $500, $250, $125, $75, and $50 respectively.Construct and interpret a Lorenz curve for this five-person economy. What percentage of total income is received by the richest quintile and by the poorest quintile? [LO18B.1]
1. Use quintiles to briefly summarize the degree of income inequality in Canada. How and to what extent does government reduce income inequality? [LO18B.1]
LO18B.6 Discuss labour market discrimination and how it affects income inequality.
LO18B.5 Identify the conflicts that arise in designing welfare policy.
LO18B.4 Describe how poverty is measured and its incidence according to several characteristics.
LO18B.3 Explain the trade-off between income equality and economic efficiency.
LO18B.2 Discuss the extent and sources of income inequality.
LO18B.1 Explain how income inequality in Canada is measured and described.
5. You are currently a worker earning $60,000 per year but are considering becoming an entrepreneur. You will not switch unless you can expect to earn an accounting profit that is, on average, at least as great as your current salary. You look into opening a small grocery store. Suppose that the
4. Suppose that the interest rate is 4 percent. What is the future value of $100 four years from now? How much of the future value is total interest? By how much would total interest be greater at a 6 percent interest rate than at a 4 percent interest rate? [LO18.4]
3. To fund its wars against Napoleon, the British government sold consol bonds. They were referred to as “perpetuities”because they would pay £3 every year in perpetuity (forever).If a citizen could purchase a consol for £25, what would its annual interest rate be? What if the price were
2. Suppose that the demand for loanable funds for car loans in the Vancouver area is $10 million per month at an interest rate of 10 percent per year, $11 million at an interest rate of 9 percent per year, $12 million at an interest rate of 8 percent per year, and so on. If the supply of loanable
1. Suppose that you own a 10-hectare plot of land that you would like to rent out to wheat farmers. For them, bringing in a harvest involves $30 per hectare for seed, $80 per hectare for fertilizer, and $70 per hectare for equipment rentals and labour. With these inputs, the land will yield 40
5. Entrepreneurs are the residual claimants at their respective firms. This means that they [LO18.6]a. Only get paid if there is any money left over after all the other factors of production have been paidb. Must bear the financial risks of running their firmsc. Receive whatever accounting profits
4. As shown in Table 18-2, $1000 invested at 10 percent compound interest will grow into $1331 after three years. What is the present value of $2662 in three years if it is discounted back to the present at a 10 percent compound interest rate?(Hint: $2662 is twice as much as $1331.) [LO18.4]
3. Angela puts $1000 in a savings account that pays 3 percent per year. What is the future value of her money one year from now? [LO16.4]a. $970b. $1000c. $1003d. $1030
2. In the 1980s land prices in Japan surged upward in a speculative bubble. Land prices then fell for eleven straight years between 1990 and 2001. What can we safely assume happened to land rent in Japan over those eleven years? Use graphical analysis to illustrate your answer. [LO18.1]
1. When using a supply-and-demand model to illustrate how land rents are set, economists typically draw the supply curve as a vertical line because [LO18.1]a. The supply of land is fixedb. The supply of land is perfectly inelasticc. The quantity supplied of land does not increase when rents go upd.
9. Why is the distinction between insurable and uninsurable risks significant for the theory of profit? Carefully evaluate the following statement: “All economic profit can be traced to either uncertainty or the desire to avoid it.” What are the major functions of economic profit? [LO18.6]
8. How do accounting profit and economic profit differ? Why is economic profit smaller than accounting profit? What are the three basic sources of economic profit? Classify each of the following according to those sources: [LO18.6]a. A firm’s profit from developing and patenting a new medication
7. Distinguish between nominal and real interest rates. Which is more relevant in making investment and R&D decisions? If the nominal interest rate is 12 percent and the inflation rate is 8 percent, what is the real rate of interest? [LO18.5]
6. What are the major economic functions of the interest rate?How might the fact that many businesses finance their investment activities internally affect the efficiency with which the interest rate performs its functions? [LO18.5
5. Here is the deal: You can pay your college or university tuition at the beginning of the academic year or the same amount at the end of the academic year. You either already have the money in an interest-bearing account or will have to borrow it.Which situation would you choose? Explain your
4. Why is the supply of loanable funds upsloping? Why is the demand for loanable funds downsloping? Explain the equilibrium interest rate. List some factors that might cause it to change. [LO18.3]
3. If money is not an economic resource, why is interest paid and received for its use? What considerations account for the fact that interest rates differ greatly on various types of loans? Use those considerations to explain the relative sizes of the interest rates on the following: [LO18.2]a. A
2. Explain why economic rent is a surplus payment when viewed by the economy as a whole, but is a cost of production from the standpoint of individual firms and industries. Explain: Land rent performs no incentive function in the economy. [LO18.1]
1. How does the economist’s use of the term rent differ from everyday usage? Explain the following statement: Though rent need not be paid by society to make land available, rental payments are very useful in guiding land into the most productive uses. [LO18.1]
LO18.5 Explain the role of interest rates in allocating capital, allocating R&D spending, and helping to determine the economy’s total output of goods and services.
5. Suppose that a car dealership wishes to see if efficiency wages will help improve its salespeople’s productivity. Currently, each salesperson sells an average of one car per day while being paid $20 per hour for an eight-hour day. [LO17.8]a. What is the current labour cost per car sold?b.
4. Suppose that low-skill workers employed in clearing woodland can each clear one hectare per month if they are each equipped with a shovel, a machete, and a chainsaw. Clearing one hectare brings in $1000 in revenue. Each worker’s equipment costs the worker’s employer $150 per month to rent
3. Assume a firm is a monopsonist that can hire its first worker for $6 but must increase the wage rate by $3 to attract each successive worker (so that the second worker must be paid$9, the third $12, and so on). [LO17.3]a. Draw the firm’s labour supply and marginal resource cost curves. Are the
2. Complete the following labour supply table for a firm hiring labour competitively: [LO17.2]Units of labour Wage rate Total labour cost Marginal factor(labour) cost 0 $14 $_____ 1 14 _____ $_____ 2 14 _____ _____ 3 14 _____ _____ 4 14 _____ _____ 5 14 _____ _____ 6 14 _____ _____a. Show
4. The market equilibrium wage is currently $12 per hour among hairdressers. At that wage, 17,323 hairdressers are currently employed in the province. The provincial legislature then sets a minimum wage of $11.50 per hour for hairdressers. If there are no changes to either the demand or supply for
3. True or False? When a labour market consists of a single monopsony buyer of labour interacting with a single monopoly seller of labour (such as a trade union), the resulting quantity of labour that is hired will always be inefficiently low. [LO17.3]
2. Because a perfectly competitive employer’s MFC curve is, it will hire workers than would a monoposony employer with the same MRP curve. [LO17.3]a. Upsloping; moreb. Upsloping; fewerc. Flat; mored. Flat; fewere. Downsloping; moref. Downsloping; fewer
1. Brenda owns a construction company that employs bricklayers and other skilled tradesmen. Her firm’s MRP for bricklayers is $22.25 per hour for each of the first seven bricklayers,$18.50 for an eighth brick layer, and $17.75 for a ninth bricklayer. Given that she is a price-taker when hiring
9. What is the principal–agent problem? Have you ever worked in a setting where this problem arose? If so, do you think increased monitoring would have eliminated the problem?Why don’t firms simply hire more supervisors to eliminate shirking? [LO17.8]
8. What is meant by investment in human capital? Use this concept to explain (a) wage differentials and (b) the long-run rise of real wage rates in Canada. [LO17.7]
6. Have you ever worked for the minimum wage? If so, for how long? Would you favour increasing the minimum wage by a dollar? By two dollars? By five dollars? Explain your reasoning.[LO17.6]
4. Suppose the formerly competing firms in question 3 form an employers’ association that hires labour as a monopsonist would. Describe verbally the effect on wage rates and employment. Adjust the graph you drew for question 3, showing the monopsonistic wage rate and employment level as W2 and
3. Describe wage determination in a labour market in which workers are unorganized and many firms actively compete for the services of labour. Show this situation graphically, using W1 to indicate the equilibrium wage rate and Q1 to show the number of workers hired by the firms as a group. Show the
2. Why is a firm in a perfectly competitive labour market a wagetaker? What would happen if that firm decided to pay less than the going market wage rate? [LO17.2]
1. Explain why the general level of wages is high in Canada and other industrially advanced countries. What is the single most important factor underlying the long-run increase in average real-wage rates in Canada? [LO17.1]
4. A rightward shift of the labour supply curve in graph(a) would shift curvea. d = mrp leftward in graph (b)b. d = mrp rightward in graph (b)c. s = MFC upward in graph (b)d. s = MFC downward in graph (b)
3. In employing five workers, the firm represented in graph (b)a. Has a total wage cost of $6000b. Is adhering to the general principle of undertaking all actions for which the marginal benefit exceeds the marginal costc. Uses less labour than would be ideal from society’s perspectived.
2. This firm’s labour demand curve d in graph (b) slopes downward becausea. The law of diminishing marginal utility appliesb. The law of diminishing returns appliesc. The firm must lower its price to sell additional units of its productd. The firm is a competitive employer, not a monopsonist
1. The supply of labour curve S slopes upward in graph(a) becausea. The law of diminishing marginal utility appliesb. The law of diminishing returns appliesc. Workers can afford to buy more leisure when the wage rate increasesd. Higher wages are needed to attract workers away from other labour
LO17.6 Discuss how minimum wage laws affect labour markets.
LO17.2 Show how wages rates and employment are determined in a competitive labour market.
LO17.1 Explain why labour productivity and real hourly compensation track so closely over time.
4. Consider a small landscaping company run by Mr. Viemeister.He is considering increasing his firm’s capacity. If he adds 1 more worker, the firm’s total monthly revenue will increase from $50,000 to $58,000. If he adds 1 more tractor, monthly revenue will increase from $50,000 to $62,000.
3. Suppose a monopoly firm finds that its MR is $50 for the first unit sold each day, $49 for the second unit sold each day, $48 for the third unit sold each day, and so on. Further suppose that the first worker hired produces 5 units per day, the second 4 units per day, the third 3 units per day,
2. Suppose that marginal product tripled while product price fell by one-half in Table 16-1. What would be the new MRP values in the table? What would be the net impact on the location of the factor demand curve in Figure 16-1? [LO16.2]
1. A delivery company is considering adding another vehicle to its delivery fleet, all the vehicles of which are rented for $100 per day. Assume that the additional vehicle would be capable of delivering 1500 packages per day and that each package that is delivered brings in ten cents ($0.10) in
6. A software company in Silicon Valley uses programmers(labour) and computers (capital) to produce apps for mobile devices. The firm estimates that when it comes to labour, MPL = 5 apps per month while PL = $1000 per month. And when it comes to capital, MPC = 8 apps per month while PC = $1000 per
5. Suppose the productivity of capital and the productivity of labour are as shown in the table that follows. The output of these factors sells in a perfectly competitive market for $1 per unit. Both capital and labour are hired under perfectly competitive conditions at $3 and $1, respectively.
3. Alice runs a shoemaking factory that uses both labour and capital to make shoes. Which of the following would shift the factory’s demand for capital? Select one or more answers from the choices shown. [LO16.3]a. Many consumers decide to walk barefoot all the time.b. New shoemaking machines are
2. Complete the following labour demand table for a firm that is hiring labour competitively and selling its product in a competitive market. [LO16.2]
3. What are the determinants of the elasticity of factor demand?What effect will each of the following have on the elasticity or the location of the demand for factor C, which is being used to produce commodity X? Where there is any uncertainty as to the outcome, specify the causes of that
2. In 2009 General Motors (GM) announced that it would reduce employment by 21,000 workers. What does this decision reveal about how it viewed its marginal revenue product(MRP) and marginal factor cost (MFC)? Why didn’t GM reduce employment by more than 21,000 workers? By fewer than 21,000
1. What is the significance of factor pricing? Explain how the determinants of factor demand differ from those underlying product demand. Explain the meaning and significance of the fact that the demand for a factor is a derived demand. Why do factor demand curves slope downward? [LO16.1]
LO16.4 Discuss the determinants of elasticity of factor demand.
LO16.3 List the causes that increase or decrease factor demand.
4. Suppose a proposed merger of firms would simultaneously lessen competition and reduce unit costs through economies of scale. Do you think such a merger should be allowed?[LO15.1]
3. How would you expect competition authorities to react to [LO15.1]a. A proposed merger of Ford and General Motorsb. Evidence of secret meetings by contractors to rig bids for highway construction projectsc. A proposed merger of a large shoe manufacturer and a chain of retail shoe storesd. A
2. Explain how strict enforcement of competition laws might conflict with (a) promoting exports to achieve a balance of trade and (b) encouraging new technologies. Do you see any dangers in using selective competition enforcement as part of a broader policy to increase exports? [LO15.78]
2. A firm faces the following costs: total cost of capital = $1000;price paid for labour = $12 per labour unit; and price paid for raw materials = $4 per raw-material unit. [LO14.4]a. Suppose the firm can produce 5000 units of output this year by combining its fixed capital with 100 units of labour
1. Suppose a firm expects that a $20 million expenditure on R&D in the current year will result in a new product that can be sold next year. Selling that product next year would increase the firm’s revenue next year by $30 million and its costs next year by $29 million. [LO14.3]a. What is the
5. Which statement about market structure and innovation is true? [LO14.7]a. Innovation helps only dominant firms.b. Innovation keeps new firms from ever catching up with leading firms.c. Innovation often leads to creative destruction and the replacement of established firms by new firms.d.
4. The inverted-U theory suggests that R&D expenditures as a percentage of sales ____________ with industry concentration after the four-firm concentration ratio exceeds about 50 percent. [LO14.6]a. Riseb. Fallc. Fluctuated. Flatline
3. An additional unit of Old Product X will bring Cindy an MU of 15 utils, an additional unit of New Product Y will bring Cindy an MU of 30 utils, and an additional unit of New Product Z will bring Cindy an MU of 40 utils. If a unit of Old Product X costs$10, a unit of New Product Y costs $30, and
2. A firm is considering three possible one-year investments, which we will name X, Y, and Z.• Investment X would cost $10 million now and would return$11 million next year, for a net gain of $1 million.• Investment Y would cost $100 million now and would return $105 million next year, for a
1. Listed below are several possible actions by firms. Write “INV”beside those that reflect invention, “INN” beside those that reflect innovation, and “DIF” beside those that reflect diffusion. [LO14.1]a. An auto manufacturer adds “heated seats” as a standard feature in its luxury
10. Evaluate: “Society does not need laws outlawing monopolization and monopoly. Inevitably, monopoly causes its own selfdestruction, since its high profit is the lure for other firms or entrepreneurs to develop substitute products.” [LO14.7]
9. Make a case that neither perfect competition nor monopoly is conducive to a great deal of R&D spending and innovation.Why might oligopoly be more favourable to R&D spending and innovation than either perfect competition or monopoly?What is the inverted-U theory of R&D, and how does it relate to
8. Do you think the overall level of R&D would increase or decrease over the next 20 to 30 years if the lengths of new patents were extended from 20 years to, say, “forever”? What if the duration were reduced from 20 years to 3? [LO14.5]
7. Why might a firm making a large economic profit from its existing product employ a fast-second strategy in relationship to new or improved products? What risks does it run in pursuing this strategy? What incentive does a firm have to engage in R&D when rivals can imitate its new product? [LO14.5]
6. Learning how to use software takes time. So once customers have learned to use a particular software package, it is easier to sell them software upgrades than to convince them to switch to new software. What implications does this have for expected rates of return on R&D spending for software
5. Explain: “The success of a new product depends not only on its marginal utility but also on its price.” [LO14.4]
4. Answer the following lettered questions on the basis of the information in this table: [LO14.3]Amount of R&D, millions Expected rate of return on R&D, %$10 16 20 14 30 12 40 10 50 8 60 6a. If the interest-rate cost of funds is 8 percent, what will be the optimal amount of R&D spending for this
3. Consider the effect that corporate profit taxes have on investing. Look back at Figure 14-3. Suppose that the r line is the rate of return a firm earns before taxes. If corporate profit taxes are imposed, the firm’s after-tax returns will be lower(and the higher the tax rate, the lower the
2. Contrast the older and the modern views of technological advance as they relate to the economy. What is the role of entrepreneurs and other innovators in technological advance?How does research by universities and government affect innovators and technological advance? Why do you think some
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