Microeconomics Theory And Applications With Calculus 4th Global Edition Jeffrey M. Perloff - Solutions

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1. 12 Can a monopoly ever be good for society?
1. 11 Is there discrimination in the labor market?
1.10 What is the optimal size of government?
1. 9 How can the Queen of England lower her commute time to Wembley Stadium?
1. 8 Will free trade cause you to lose your job? What can the government do to lower the number of earthquakes in Oklahoma?
1.7 Can markets composed of only self-interested people maximize the overall well-being of society? Do companies like Uber make use of the invisible hand?
1. 6 How would an ethanol subsidy affect ethanol producers?
1. 5 Would a smoker quit the habit for $100 a month?
1. 4 How much more gasoline would people buy if its price were lower?
1. 3 How does location affect the rental cost of housing?
1. 2 How much more do workers with a college education earn? How much do wages increase when mandatory schooling laws force people to get an extra year of schooling?
1.1 Is Facebook free?
1. 9. It is the night before your economics final exam and you must decide how many hours to study. The total benefits in the following table shows how many more points you will earn because of increased knowledge. The total cost column shows how many points you will lose because of careless errors
1. 8. An economist observes that many students spend $100,000 to go to college. This researcher could ask whether such spending is worth it, or she could assume that it is worth it. In other words, she could assume that students are optimizing and that the education system is in equilibrium. If we
1. 7. In 2014, California was in its third year of a major drought. With water supplies dwindling, Governor Brown issued a plea for a voluntary 20 percent reduction in water use. This target was not reached. In early 2015 Governor Brown issued an executive order requiring local water agencies to
1. 6. Consider the following three statements:a. You can either stand during a college football game or you can sit. You believe that you will see the game very well if you stand and others sit but that you will not be able to see at all if you sit and others stand. You therefore decide to stand.b.
1. 5. Suppose you are ready to check out and see two lines: Line A has 3 people, while line B has 5 people.a. Assume people just chose lines at random and have not yet had a chance to switch lines. Would you consider this situation to be in equilibrium? Why or why not?b. Assume that all 8 shoppers
1. 4. You have decided that you are going to consume 600 calories of beer and snacks at a party Saturday night. A beer has 150 calories and a snack has 75 calories.a. Create a table that shows the various combinations of beer and snacks you can consume. To keep things simple, use only round numbers
1. 3. You have 40,000 frequent flier miles. You could exchange your miles for a round-trip ticket to Bermuda over spring break. Does that mean your flight to Bermuda would be free? Explain your reasoning.
1. 2. You are thinking about buying a house. You find one you like that costs $200,000. You learn that your bank will give you a mortgage for $160,000 and that you will have to use all of your savings to make the down payment of $40,000. You calculate that the mortgage payments, property taxes,
1.1. You have already purchased (non-refundable and unsellable)tickets to a concert on Friday night. A friend also invites you to her birthday party on Friday. While you like your friend, you politely decline because you really want to go to the concert.a. You learn that your friend is serving
1. 11. Identify cause and effect in the following examples:a. A rise in the worldwide price of peaches and a drought in California;b. A surge in cocoa prices and a pest attack on the cocoa crop.
1. 10. Explain the concept of causation with the help of a simple real-life example.
1. 9. Economists are often concerned with the free-rider problem.a. What is meant by free riding? Explain with an example.b. Explain why dropping trash on a city street is an example of the free-rider problem.
1.8. Suppose the market price of corn is $3.50 per bushel. What are the three conditions that will need to be satisfied for the corn market to be in equilibrium at this price?
1. 7. The costs of many environmental regulations can be calculated in dollars—for instance, the cost of “scrubbers” that reduce the amount of air pollution emitted by a coal factory. The benefits of environmental regulations often are most directly expressed in terms of lives saved (reduced
1. 6. This chapter introduced the idea of opportunity cost.a. What is meant by opportunity cost?b. What is the opportunity cost of taking a year after graduating from high school and backpacking across Europe? Are people who do this being irrational?
1. 5. What does a budget constraint represent? How do budget constraints explain the trade-offs that consumers face?
1. 4. How does microeconomics differ from macroeconomics? Would the supply of iPhones in the United States be studied under microeconomics or macroeconomics? What about the growth rate of total economic output in the national economy?
1. 3. Examine the following statements and determine whether they are normative or positive in nature. Explain your answers.a. Car sales in Europe rose 9.3 percent from 2014 to 2015.b. The U.S. government should increase carbon taxes to reduce carbon emissions that cause global warming.
1. 2. Many people believe that the study of economics is focused on money and financial markets. Based on your reading of the chapter, how would you define economics?
1.1. Why do we have to pay a price for most of the goods we consume?
7.4 Curtis manages an electronics store in Wichita, Kansas. He considers carrying either cameras from Nikon Americas that come with a U.S. warranty or gray market Nikon cameras from a European supplier, which are the same cameras but their warranties are only good in Europe. The gray market cameras
7.3 Adrienne, a manager of a large firm, must decide whether to launch a new product or make a minor change to an existing product. The new product has a 30% chance of being a big success and generating profits of $20 million, a 40% chance of being fairly successful and generating profits of $5
7.2 In 2012, Hewlett-Packard Co. announced that its new chief executive, Meg Whitman, would receive
7.1 In the Challenge Solution, show that shareholders’expected earnings are higher with the new compensation scheme than with the original one.
6.1 In the Application “Layoffs Versus Pay Cuts,” the firm uses either a pay cut or layoffs. Can you derive a superior approach that benefits both the firm and the workers? (Hint: Suppose that the firm’s profit or some other variable is observable.)
5.1 List some necessary conditions for a firm to be able to sort potential employees by providing them with a choice of contracts.
4.6 Many substandard condo developments have been built by small corporations that declare bankruptcy or go out of business when legal actions are started against them by condo buyers. What legal remedies might reduce this moral hazard problem? If you were considering buying a condo in a new
4.5 Used cars receive lower prices if they were rental cars than if they were owned by individuals. Does this price difference reflect adverse selection or moral hazard? Could car rental companies reduce this problem by carefully inspecting rental cars for damage when renters return such cars? Why
4.4 A firm presently fines its employees who steal company property, but is considering paying an efficiency wage as an alternative to discourage theft.Suppose that an employee can gain €800 from stealing and the probability of getting caught is 20%.a. What is the optimal fine for a risk-neutral
4.3 Suppose a company’s policy is to fine employees if caught stealing from the company. Employees are monitored to prevent theft. If the gain from stealing is ;200 and the probability of being caught is 2%, what would be the minimum fine necessary to prevent a risk-neutral employee from
*4.2 In Solved Problem 19.5 a firm calculates the optimal level of monitoring to prevent stealing. If G = $500 and θ = 20%, what is the minimum bond that deters stealing? M
4.1 Many law firms consist of partners who share profits. On being made a partner, a lawyer must post a bond, a large payment to the firm that will be forfeited on bad behavior. Why?
3.6 A health insurance company tries to prevent the moral hazard of “excessive” dentist visits by limiting the number of compensated visits that a patient can make in a year. How does such a restriction affect moral hazard and risk bearing? Show in a graph.(Hint: See Solved Problem 19.4.)
3.4 Louisa is an avid cyclist who is currently working on her business degree. She normally rides an $800 bike to class. If Louisa locks her bike carefully—locks both wheels—the chance of theft for the term is 5%, but this careful locking procedure is time consuming.If she is less
3.3 If the terms of a franchise agreement are not met, it can damage the reputation of the business. In such a situation, the franchisor may seek to terminate the agreement to recover the trust of its customers and prevent further damage. What effect would a law that limited the ability of a
3.2 Padma has the rights to any treasure on the sunken ship the Golden Calf. Aaron is a diver who specializes in marine salvage. If Padma is risk averse and Aaron is risk neutral, does paying Aaron a fixed fee result in efficiency in risk bearing and production?Does your answer turn on how
2.6 In the duck-carving example with limited information (summarized in the third and fourth columns of Table 19.1), is a fixed-fee contract efficient? If so, why? If not, what additional steps, if any, can Paula take to ensure efficiency?
1.5 On detecting public health risks in food, rapid information-sharing between member states in the European Union (EU) is an important tool for maintaining food safety. When a member country identifies a serious health risk, an alert notification, for example, is issued to take necessary measures
5.2 Can you change the payoffs in the table in the Challenge Solution so that the firms choose to invest in safety? Explain. M
5.1 In the Challenge Solution, what is the minimum fine that the government could levy on firms that do not invest in safety that would lead to a Nash equilibrium in which both firms invest?
4.8 When is statistical discrimination privately inefficient?When is it socially inefficient? Does it always harm members of the discriminated-against group? Explain.
4.7 In Exercises 4.5 and 4.6, describe the equilibrium if cl … ch. (Hint: See Solved Problem 18.4.) M
4.6 In Exercise 4.5, under what conditions is a pooling equilibrium possible? (Hint: See Solved Problem 18.4.) M
4.5 Education is a continuous variable, where eh is the years of schooling of a high-ability worker and el is the years of schooling of a low-ability worker. The cost per period of education for these types of workers is ch and cl, respectively, where cl 7 ch. The wages they receive if employers
4.4 Suppose that you are given wh, wl, and θ in the education signaling model. For what value of c are both a pooling equilibrium and a separating equilibrium possible? For what value of c are both types of equilibria possible, and do high-ability workers have higher net earnings in a separating
4.3 Some firms are willing to hire only high school graduates. Based on past experience or statistical evidence, these companies believe that, on average, high school graduates perform better than nongraduates.How does this hiring behavior compare to statistical discrimination by employers on the
4.2 Some universities do not give letter grades. One rationale is that eliminating the letter-grade system reduces pressure on students, thus enabling them to learn more.Does this policy help or hurt students? (Hint: Consider the role grades play in educating and signaling.)
4.1 In the education signaling model, suppose that firms can pay c* to have a worker’s ability determined by a test. Does it pay for a firm to make this expenditure?
3.3 The advertising of prescription-only medicines direct to consumers is prohibited by the Therapeutic Goods Act 1989 in Australia, but advertising to health professionals is permitted. What effect should such restraints have on equilibrium prices?
3.2 Sometimes a firm sells the same product under two brand names. For example, the Chevy Tahoe and the GMC Yukon are virtually twins (although the Yukon sells for $490 more than the Tahoe). Give an asymmetric information explanation as to why the firm might use pairs of brand names and why one
*3.1 In Solved Problem 18.3, if the vast majority of all consumers knows the true prices at all stores and only a few shoppers have to incur a search cost to learn the prices, is the equilibrium a single-price at the monopoly level, pm?
2.5 How does John Hancock Life Insurance use modern communications technology to reduce adverse selection? (Hint: See the Application “Discounts for Data.”)
2.4 According to Edelman (2011), the widely used online “trust” authorities issue certifications without adequate verification, giving rise to adverse selection. Edelman finds that TRUSTe certified sites are more than twice as likely to be untrustworthy as uncertified sites. Explain why.
*2.3 A firm spends a great deal of money in advertising to inform consumers of the brand name of its mushrooms. Should consumers conclude that its mushrooms are likely to be of higher quality than unbranded mushrooms? Why or why not?
*2.2 In July 2016, China implemented its first earthquake insurance policy. It allows homeowners to buy insurance from private Chinese insurers to cover loss and damage to residential property caused by earthquakes of magnitude of 4.7 or over. The maximum payout is 1 million yuan. Premium rates
2.1 Some states prohibit insurance companies from using car owners’ home addresses to set auto insurance rates. Why do insurance companies use home addresses? What are the efficiency and equity implications of forbidding such practices?
1.13 Many wineries in the Napa Valley region of California enjoy strong reputations for producing highquality wines and want to protect those reputations.Fred T. Franzia, the owner of Bronco Wine Co., sold Napa-brand wines that do not contain Napa grapes (Flynn, Julia, “In Napa Valley,
1.12 In Solved Problem 18.2, will any of the firms produce high-quality wallets if the cost of producing a higher-quality wallet is only $11? Explain. M
1.11 In Solved Problem 18.2, show that, if all the other firms produce a high-quality wallet, it pays for one firm to start producing a low-quality wallet. M
1.10 It costs $12 to produce a low-quality electric stapler and $16 to produce a high-quality stapler. Consumers cannot distinguish good staplers from poor staplers when they make their purchases. Four firms produce staplers. Consumers value staplers at their cost of production and are risk
1.9 Suppose that everyone in the used-car example in the text is risk neutral, potential car buyers value lemons at $2,000 and good used cars at $10,000, the reservation price of lemon owners is $1,500, and the reservation price of owners of high-quality used cars is $8,000. The share of current
1.8 Suppose that potential used-car buyers value highquality used cars at €10,000 and low-quality used cars at €3,000. Owners of high-quality used-cars have a reservation price of €8,600, while the reservation price for owners of low-quality used cars is€2,000. Everyone is risk neutral. The
*1.7 Many potential buyers value high-quality used cars at the full-information market price of p1 and lemons at p2. A limited number of potential sellers value high-quality cars at ν1 … p1 and lemons at ν2 … p2.Everyone is risk neutral. The share of lemons among all the used cars that might
1.6 What are the answers to Solved Problem 18.1 if customers are willing to pay $10,000 for a good used car?
1.5 If you buy a new car and try to sell it in the first year—indeed, in the first few days after you buy it—the price that you get is substantially less than the original price. Use your knowledge about signaling and Akerlof’s lemons model to explain this muchlower price.
1.3 You want to determine whether a lemons problem occurs in the market for single-engine airplanes. Can you use any of the following information to help answer this question? If so, how?a. Repair rates for original-owner planes versus resold planes.b. The fraction of planes resold in each year
1.2 A grocery advertises a low price on its milk as a“loss leader” to induce customers to shop there. It finds that some people buy only milk there and do their other grocery shopping elsewhere. Is that an example of adverse selection or moral hazard?
1.1 An insurance company insures many motorists, some who are very good drivers and some who are not so good. If it insures a motorist who then drives carelessly, is this an example of adverse selection or moral hazard?
*7.2 In the Challenge Solution, if society does not have a pollution problem (as in panel a of the figure), how do we know that winners from trade can compensate losers and still have enough left over to benefit themselves?
*7.1 Redraw panel b of the Challenge Solution figure to show that it is possible for trade to increase welfare even when pollution is not taxed or otherwise regulated.
6.13 Anna and Bess are assigned to write a joint paper within a 24-hour period about the Pareto optimal provision of public goods. Let A denote the number of hours that Anna contributes to the project and B the number of hours that Bess contributes. The numeric grade that Anna and Bess earn is a
6.12 In the analysis of the optimal level of a public good, suppose that each person’s utility function is quasilinear: Ui(G) + Pi. Show that the optimal G is unique and independent of P1 and P2 if society has adequate resources. (Hint: See Solved Problem 17.3.) M
6.11 Two tenants of a mall are protected by the guard service, q. The number of guards per hour demanded by the electronics store is q1 = a1 + b1p, where p is the price of one hour of guard services. The icecream parlor’s demand is q2 = a2 + b2p. What is the social demand for this service? M
6.10 Guards patrolling a mall protect the mall’s two stores. The electronics store’s demand curve for guards is greater at all prices than that of the icecream parlor. The marginal cost of a guard is $10 per hour. Use a diagram to show the equilibrium, and compare that to the socially optimal
*6.9 According to the “What’s Their Beef?” application, collective generic advertising produces $5.67 in additional marginal revenue for every dollar contributed by producers. Is the industry advertising optimally(see Chapter 12)? Explain.
6.8 Vaccinations help protect the unvaccinated from disease. Boulier et al. (2007) find that the marginal externality effect can be greater than one case of illness prevented among the unvaccinated. Is vaccination a public good? If so, what might the government do to protect society optimally?
6.7 Do publishers sell the optimal number of intermediate microeconomics textbooks? Discuss in terms of public goods, rivalry, and exclusion.
6.6 You and your roommate have a stack of dirty dishes in the sink. Either of you would wash the dishes if the decision were up to you; however, neither will do it, in the expectation (hope?) that the other will deal with the mess. Explain how this example illustrates the problem of public goods
6.5 The French autoroute network is composed of toll motorways with entrances marked as such.A motorist entering the network obtains a ticket from a toll booth and pays a toll when leaving the motorway. Given the number of vehicles traveling these routes, congestion at both entrances and exits is
6.4 To prevent overfishing, could one set a tax on fish or on boats? Explain and illustrate with a graph.
6.3 Are broadcast TV and cable TV public goods? Is exclusion possible? If either is a public good, why is it privately provided?
6.2 City roads can become very congested during peak traffic hours as people travel to and from work. Are these roads common property resources? If so, what can be done to mitigate externality problems?
6.1 List three examples of goods that do not fit neatly into the categories in Table 17.3 because they are not strictly rivalrous or exclusive.
5.3 Austin is going on holiday with his infant daughter and has a first class air ticket. He values being in first class instead of coach at $300. A CEO has the seat adjacent to him and is considering offering to pay Austin to move to one of the empty seats in coach.a. The CEO values quiet at $600.
5.2 Many European countries generate energy (steam, electricity, or hot water) by burning household and similar waste, reducing their reliance on fossil fuels and diverting waste from scarce landfill space.According to the Confederation of European Wasteto-Energy Plants (http://www.cewep.eu/), 88
5.1 List three specific examples where Coasian bargaining may result in the social optimum.
4.2 In the following, use the model in Exercise 3.8.a. What is the unregulated monopoly equilibrium?b. How could you optimally regulate the monopoly? What is the resulting (socially optimal) equilibrium? (Hint: See Solved Problem 17.2.) M
4.1 Suppose that the only way to reduce pollution from paper production is to reduce output. The government imposes a tax on the monopoly producer that is equal to the marginal harm from the pollution. Show that the tax may raise welfare. (Hint:See Solved Problem 17.2.)

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Microeconomics Theory And Applications With Calculus 4th Global Edition Jeffrey M. Perloff - Solutions

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