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Principles Of Microeconomics 12th Global Edition Karl E. Case, Sharon E. Oster, Ray C. Fair - Solutions
1. Apart from those mentioned in this case, what other inputs and technological decisions do manufacturing firms have to make to minimize its costs and, therefore, maximizes profits?
1A.6 The following graph shows three indifference curves and the accompanying budget constraints for products X and Y. The graph represents the price of product X falling from P1x to P2x and then to P3x. Explain how a demand curve for product X can be derived from this graph and draw a graph
1A.5 Carmen has $84 to spend on California rolls and eel sashimi, and the data in the following table represent an indifference curve for these two products. If California rolls are $4.00 each and eel sashimi is $6.00 each, draw a graph showing Carmen’s indifference curve and her budget
1A.4 Assume Alex is a rational consumer who consumes only two goods—bananas (B) and walnuts (W). Assume that his marginal rate of substitution of bananas for walnuts is given by the following formula:MRS = MUW/MUB = B/W That is, Alex’s MRS is equal to the ratio of the number of bananas consumed
1A.3 If Tony’s marginal rate of substitution of X for Y is 12—that is, MUX / MUY = 12—the price of X is $39, and the price of Y is $3, he is spending too much of his income on Y. Do you agree or disagree? Explain.
1A.2 Assume a household receives a weekly income of $300. If Figure 2 represents the choices of that household as the price of X changes, plot three points on the household demand curve.
1A.1 Which of the four assumptions made at the beginning of the Appendix are violated by the indifference curves in Figure 1?Explain.
4.4 [related to the Economics in Practice on p. 161]As Uber continues to become a more convenient, and in many cases, less costly alternative to traditional taxi service for many of its customers, the income and substitution effects have an impact on the demand side of the market. Also, because a
4.3 Explain why in product markets the substitution and income effects work in the same direction for normal goods, but in the labor market, the income and substitution effects work in opposite directions when leisure is considered a normal good.
4.2 In July 2015, U.K. finance minister George Osborne pledged to tackle tax evasion, ease the tax burden on workers, and lift the threshold on the 40 percent tax bracket(known as “Tory cuts”.) According to Osborne, this measure would mean that around 29 million people would pay less tax. By
4.1 For each of the following events, consider how you might react. What things might you consume more or less of? Would you work more or less? Would you increase or decrease your saving? Are your responses consistent with the discussion of household behavior in this chapter?a. The price of
3.3 For most normal goods, the income effect and the substitution effect work in the same direction; so when the price of a good falls, both the income and substitution effects lead to a higher quantity demanded. How would this change if the good is an inferior good?
3.2 The average cost of living is approximately the same in the following three cities in the United Kingdom:Nottingham, Manchester and Bristol. Use the information you have learned about marginal utility and the substitution effect to explain whether you believe your purchasing choices would
3.1 Jonas is a German native who has lived for the past 4 years in the UK pursuing his undergraduate study in Economics. For each of the last 4 years, he has made trips back to Germany for Christmas, Easter and the summer.During 2015, the price of a round-trip train ticket from London to Frankfurt
2.6 The table shows Darlene’s marginal utility numbers for ice cream sundaes and milkshakes. Darlene is trying to decide which item to purchase first, a sundae or a milkshake, knowing that she wants to receive the most utility for each dollar she spends. Assuming she has enough money in her
2.5 Adrian has $21 to spend on energy drinks and protein bars and wants to maximize his utility on his purchase.Based on the data in the table, how many energy drinks and protein bars should Adrian purchase, and what is his total utility from the purchase? Does the utilitymaximizing rule hold true
2.4 Michelle keeps fit by either doing yoga or Thai boxing. She has a budget of $72 per month. One yoga session costs Michelle$6, and one Thai boxing session costs Michelle $6. Use the information in the following graphs to determine how many yoga sessions and Thai boxing sessions Michelle should
2.3 For this problem, assume that Kendrick has $144 to spend on cigars and brandy each month and that both goods must be purchased whole (no fractional units). Cigars cost $6 each, and brandy costs $30 per bottle. Kendrick’s preferences for cigars and brandy are summarized by the following
2.2 [related to the Economics in Practice on p. 155] Duty charges and VAT on alcohol vary across different parts of Europe. For example, a bottle of wine bought in Britain incurs a £1.90 duty charge and 20 percent in VAT. A bottle of wine in Italy incurs no duty charge, but slightly higher VAT at
2.1 The following table gives a hypothetical total utility schedule for the Cookie Monster (CM):# Of Cookies Per Day Total Utility Per Day 0 0 1 100 2 200 3 275 4 325 5 350 6 360 7 360
1.5 Kristine is a fan of both romantic movies and classical concerts. This month she has $480 to spend on the two activities. The original budget constraint is shown in the graph below. Let X represent romantic movies and Y represent classical concerts.a. What is the equation of the original budget
1.4 Suppose the price of X is $5 and the price of Y is $10 and a hypothetical household has $500 to spend per month on goods X and Y.a. Sketch the household budget constraint.b. Assume that the household splits its income equally between X and Y. Show where the household ends up on the budget
1.3 Assume that Diego has $400 per month to divide between playing paintball and playing golf. Assume that playing paintball costs $40 and playing golf costs $20.Suppose Diego plays paintball six times per month and plays golf eight times per month.a. Draw Diego’s budget constraint and show that
1.2 On January 1, Professor Smith made a resolution to lose some weight and save some money. He decided that he would strictly budget $100 for lunches each month. For lunch, he has only two choices: the faculty club, where the price of a lunch is $5, and Alice’s Restaurant, where the price of a
1.1 Sketch the following budget constraints:PX PY Incomea. $ 100 $ 25 $ 5,000.00b. 200 125 5,000.00c. 50 400 2,000.00d. 40 16 800.00e. 3 2 12.00f. 0.125 0.75 3.00 g. 0.75 0.125 3.00
1. Why is Uber willing to let drivers be flexible in the number of hours they work?
1. An employer decides to transfer one of her executives to Europe. “Don’t worry,” she says, “I will increase your salary so that you can afford exactly the same things in your new home city as you can buy here.” Is this the right salary adjustment?
1. Using the utility-maximizing rule, illustrate how consumers who are affected by the soda tax policy make choices to achieve an optimal decision.
3. How much to spend today and how much to save for the future?
2. How much labor to supply?
1. How much of each product, or output, to demand?
5.2 [related to the Economics in Practice on p. 136] In 2014, the Spanish government passed a law to change a regulation, known as the “Beckham law,” on foreign athletes. This new law will require foreign professional athletes to pay the standard Spanish tax rate of 52 percent on earnings of
5.1 World famous Pirates’ Candies are manufactured in the Pirate Town of Croatia. Currently, the Pirate Town levies a €1 per-bag tax on all Pirates’ Candies, and the candy shop sells 15,000 bags of candies a year at a total price of €15 per bag. The governor of Pirate Town decided to build
4.4 Income elasticity of demand measures the responsiveness of demand to changes in income. Explain what is happening to demand and what kind of good is being represented in the following situations.a. Income is rising, and income elasticity of demand is positive.b. Income is rising, and income
4.3 The cross-price elasticity values for three sets of products are listed in the table below. What can you conclude about the relationships between each of these sets of products?Products A and B Products C and D Products E and F Cross-price -8.7 +5.5 0.0 elasticity
4.1 Prior to 2008, it seemed like house prices in China always rose and never fell. When the demand for housing increases the prices in the housing market also rise, but not by much. For prices to rise substantially, the supply of housing must be relatively inelastic. That is, if the quantity
3.1 [related to the Economics in Practice on p. 133]At Frank’s Delicatessen, Frank noticed that the elasticity of customers differed in the short and longer term. Frank also noticed that his increase in the price of sandwiches had other effects on his store. In particular, the number of sodas
2.10 Using the midpoint formula and the following graph, calculate the price elasticity of demand when the price changes from $3 to $8 and when the price changes from$8 to $14.
2.8 Studies have fixed the short-run price elasticity of demand for HPV vaccines at -0.25. Suppose that transportation issues lead to a sudden cutoff of vaccine supplies.As a result, supplies of HPV vaccines drop 20 percent.a. If HPV vaccines were selling for $130 per dose before the cutoff, how
2.7 In 2000, all major newspapers in Hong Kong raised their prices from HK$5 to HK$6, representing a 20 percent increase. They anticipated that revenues would also increase by about 20 percent as a result. They were disappointed, however, that after the price hike,
2.5 For each of the following scenarios, decide whether you agree or disagree and explain your answer.a. Suppose the elasticity of demand for hospital service is-0.15. In April 2015, the UK started charging non-EU patients 50 percent more. The Department of Health hoped the changes would help it
2.3 Using the midpoint formula, calculate elasticity for each of the following changes in demand.
2.2 Use the table in the preceding problem to defend your answers to the following questions:a. Would you recommend that Apple raise or lower its price for the iWatch to increase revenue?b. Would you recommend that florists raise their prices for roses on Valentine’s Day if their only goal is to
2.1 Fill in the missing amounts in the following table:% Change In Price% Change In Quantity Elasticity Demand for the Apple iWatcha. - 25% - 1.0 Demand for roses on Valentine’s Day+ 50%b. - 0.2 Demand for electronic cigarettes- 10% + 38% c.
3.3 On April 20, 2010, an oil-drilling platform owned by British Petroleum exploded in the Gulf of Mexico, causing oil to leak into the gulf at estimates of 1.5 to 2.5 million gallons per day for well more than 2 months. As a result
2.1 Suppose that the world price of oil is $60 per barrel and that the United States can buy all the oil it wants at this price. Suppose also that the demand and supply schedules for oil in the United States are as follows:
1.12 The following graph represents the market for wheat. The equilibrium price is $20 per bushel and the equilibrium quantity is 14 million bushels.
1.11 [related to the Economics in Practice on p. 115] Lines for free tickets to see free Shakespeare in Central Park are often long. A local politician has suggested that it would be a great service if the park provided music to entertain those who are waiting in line. What do you think of this
1.10 Many cruise lines offer 5-day trips. A disproportionate number of these trips leave port on Thursday and return late Monday. Why might this be true?
1.9 In Jul 2015, the World Bank upped its Brent crude oil price forecast for 2015 to $57 per barrel. Do some research on oil price. Has this projection been accurate?What is the price of regular-grade oil today in your city or town? If it is below $57 per barrel, what are the reasons?Similarly, if
1.8 The taxi app Uber has a price hike mechanism called“surge pricing”, and when effective the minimum fare and per-kilometer fare will be set at a multiple of the normal level. Assume that in one of the cities it operates, the drivers have agreed the maximum multiple is 1.2x, i.e. 20 percent
1.6 Illustrate the following with supply or demand curves:a. In Joseph Heller’s iconic novel, Catch 22, one of the characters was paid by the government to not grow alfalfa.According to the story’s narrator, “The more alfalfa he did not grow, the more money the government gave him, and he
1.5 The per-night rate for a 5-star hotel room in Macau has fallen from an average of MOP 1,992 in August 2014 to MOP 1,857 in August 2015. Demand for 5-star hotel rooms in Macau was falling during this period as well.This is hard to explain because the law of demand says that lower prices should
1.4 In an effort to support the price of raw milk and dairy products, some dairy farmers advocate a subsidy in cash for every cow that they leave “unused”. They argue that the subsidy increases the “cost” of dairy farming and that it will reduce supply and increase the price of
1.1 Illustrate the following with supply and demand curves:a. In June 2015, a Chinese gaming company won a charity auction for lunch with Warren Buffett on a Friday night with a bid of $2,345,678.b. In August 2015, the Global Dairy Trade (GDT) Price Index was 514, down from 880 a year before. This
5.12 [related to the Economics in Practice on p. 100] The demand for delicacies and goodies increase prior to the Chinese New Year was because of increased wages, popularity, and quantity supplied. Think of two other plausible stories that would result in this demand curve shifting to the right
5.11 The following table represents the market for solar wireless keyboards. Plot this data on a supply and demand graph and identify the equilibrium price and quantity. Explain what would happen if the market price is set at $60, and show this on the graph. Explain what would happen if the market
5.10 [related to the Economics in Practice on p. 99] The growing popularity of quinoa has had an impact on the market for brown rice. With its higher fiber, protein, and iron content, quinoa is replacing brown rice as a staple food for many health-conscious individuals. Draw a supply and demand
5.7 Suppose the demand and supply curves for rice in Japan are given by the following equations:Qd = 120 - 30P Qs = 40 + 10P where Qd = million tons of rice the Japanese would like to buy each year; Qs = million tons of rice Japanese farmers would like to sell each year; and P = price per ton of
5.5 During the period 2007 through 2012, passenger car production in the EU fell from a rate of 17 million units per year to a rate of less than 15 million, a decrease of greater than 10 percent. At the same time, the number of new passenger car registrations slowed down too. The replacement cycle
5.4 In July 2015, Beijing was selected by the International Olympic Committee as the host city of the 2022 Winter Olympics. The Beijing government is implementing several projects that will affect the demand and supply of the winter sport facilities. A variety of winter sports facilities will be
5.3 Do you agree or disagree with each of the following statements? Briefly explain your answers and illustrate each with supply and demand curves.a. The price of a good rises, causing the demand for another good to fall. Therefore, the two goods are substitutes.b. A shift in supply causes the
5.2 In Hong Kong, the Accident & Emergency (A&E) departments of public hospitals provide emergency services with a very low price of $100 for each attendance. It has been heavily subsidized by the government. As a result, patients should wait for a long time to see the doctor due to the service is
5.1 Illustrate the following with supply and demand curves:a. With increased access to wireless technology and lighter weight, the demand for tablet computers has increased substantially. Tablets have also become easier and cheaper to produce as new technology has come online. Despite the shift of
4.2 The following sets of statements contain common errors.Identify and explain each error:a. Supply decreases, causing prices to rise. Higher prices cause supply to increase. Therefore, prices fall back to their original levels.
3.4 [related to the Economics in Practice on p. 85] In 2015, it was disclosed that water supplies at several Hong Kong public housing estates contained dangerous amounts of lead. The level of lead in the water samples taken from the area exceeded the World Health Organization’s guideline of 10
3.1 [related to the Economics in Practice on p. 84] Some airplane manufacturers have merchandise sales the souvenirs such as airplane models. They are available on the official online store. Suppose you are a huge fan of airplane models and wish to purchase an authentic Boeing airplane model. Go to
1. When demand and supply curves shift simultaneously, what would be the factors that determine the magnitude of the changes in equilibrium price and quantity?
2.2 Suppose that a simple society has an economy with only one resource, labor. Labor can be used to produce only two commodities—X, a necessity good(food), and Y, a luxury good (music and merriment).Suppose that the labor force consists of 100 workers.One laborer can produce either 5 units of
2.1 Describe a command economy and a laissez-faire economy. Do any economic systems in the world reflect the purest forms of command or laissez-faire economies?Explain.
1.13 The nation of Billabong is able to produce surfboards and kayaks in combinations represented by the data in the following table. Each number represents thousands of units.Plot this data on a production possibilities graph and explain why the data shows that Billabong experiences increasing
1.12 Punting is arguably more popular in Cambridge and Oxford than in any other region of the United Kingdom. During the warmer seasons, it is common to see rivers filled with punts—a flat-bottomed boat, square at both ends, propelled by a long pole. Punting to Grantchester and back, with a lunch
1.11 Established in 1903 by Cecil Rhodes, the Rhodes Scholarship is considered to be one of the world’s most prestigious scholarships, awarded to selected foreign students for postgraduate studies at the University of Oxford. A Rhodes Scholarship covers all university and college fees, offers a
1.10 Betty Lou has a car washing and detailing business. She charges $20 to wash a car, a process that takes her 20 minutes and requires no help or materials. For car detailing, a process requiring 1 hour, she charges $50 net of materials. Again, no help is required. Is anything puzzling about
1.9 [related to the Economics in Practice on p. 59] A study presented at the annual congress of the European Economic Association in Mannheim, Germany, concluded that retired people are 10 percent more likely to exercise frequently than people who are working. Use the concept of opportunity cost to
1.8 A nation with fixed quantities of resources is able to produce any of the following combinations of carpet and carpet looms:Yards of carpet(Millions)Carpet looms(Thousands)0 45 12 42 24 36 36 27 48 15 60 0 These figures assume that a certain number of previously produced looms are available in
1.7 Match each diagram in Figure 1 with its description here.Assume that the economy is producing or attempting to produce at point A and that most members of society like meat and not fish. Some descriptions apply to more than one diagram, and some diagrams have more than one description.a.
1.6 The countries of Orion and Scorpius are small mountainous nations. Both produce granite and blueberries. Each nation has a labor force of 800. The following table gives production per month for each worker in each country. Assume productivity is constant and identical for each worker in each
1.5 Briefly describe the trade-offs involved in each of the following decisions. List some of the opportunity costs associated with each decision, paying particular attention to the trade-offs between present and future consumption.a. After graduating from a university, Victor decides to take a gap
1.4 Alexi and Tony own a food truck that serves only two items, street tacos and Cuban sandwiches. As shown in the table, Alexi can make 80 street tacos per hour but only 20 Cuban sandwiches. Tony is a bit faster and can make 100 street tacos or 30 Cuban sandwiches in an hour. Alexi and Tony can
1.3 You are an intern at a newspaper organization in Los Angeles. The editor-in-chief asks you to write the first draft of an editorial for this next edition. Your assignment is to describe the costs and the benefits of building a new highspeed rail from Los Angeles to Las Vegas. Currently, it
1.2 “As long as all resources are fully employed and every firm in the economy is producing its output using the best available technology, the result will be efficient.” Do you agree or disagree with this statement? Explain your answer.
1.1 For each of the following, describe some of the potential opportunity costs:a. Going home for Thanksgiving vacationb. Riding your bicycle 20 miles every dayc. The federal government using tax revenue to purchase 10,000 acres in Florida for use as a bird sanctuaryd. A foreign government
1. Under what circumstances could measuring opportunity cost prevent you from making a rational decision?
■ Who gets what is produced?
■ How is it produced?
■ What gets produced?
1A.5 Calculate the slope of the demand curve at point A and at point B in the following figure.
1A.4 The following table shows the relationship between the price of airline tickets from London to New York and the number of passengers.a. Is the relationship between the price of airline tickets from London to Los Angeles and the number of passengers a positive relationship or a negative
1A.3 For each of the graphs in Figure 1, determine whether the curve has a positive or negative slope. Give an intuitive explanation for what is happening with the slope of each curve.
1A.2 Plot the income and consumption data in the following table on a graph, with income on the X-axis. Does the data indicate a positive or negative relationship between income and consumption?households by Percentage Average Income Before taxes Average consumption Expenditures Bottom fifth $
1A.1 Graph each of the following sets of numbers. Draw a line through the points and calculate the slope of each line.1 2 3 4 5 6 X Y X Y X Y X Y X Y X Y 2 8 2 40 0 0 0 12 0 0 0.1 160 4 16 4 32 3 3 3 9 3 3 0.2 120 6 24 6 24 6 6 6 6 6 6 0.3 80 8 32 8 16 9 9 9 3 9 3 0.4 40 10 40 10 8 12 12 12 0 12 0
3.5 Explain the pitfalls in the following statements.a. People who like playing golf are more likely to have a luxury car than people who do not play golf. Therefore, having a luxury car causes people to play golf.b. Michael noted that when he buys new shares of a company’s stock, the stock price
3.4 [related to the Economics in Practice on p. 43] Most college students either currently have, or at one time have had, roommates or housemates. Think about a time when you have shared your living space with one or more students, and describe the effect this person (or people) had on your college
3.3 In 2012, Colorado and Washington became the first states to legalize marijuana for recreational use, and have since been joined by Oregon, Alaska and Washington, D.C. In 2014, Colorado is reported to have received more than $50 million in tax revenue from the sale of recreational marijuana,
3.2 Which of the following statements are examples of positive economic analysis? Which are examples of normative analysis?a. An effective minimum wage policy in Japan would result in an excess labor supply.b. A drought in a rural area of Brazil that produces corn would cause the price of alcohol
3.1 In the summer of 2007, the housing market and the mortgage market were both in decline. Housing prices in most U.S. cities began to decline in mid-2006. With prices falling and the inventory of unsold houses rising, the production of new homes fell to around 1.5 million in 2007 from 2.3 million
2.2 Explain whether each of the following is an example of a macroeconomic concern or a microeconomic concern.a. Japan is considering legalizing the casino industry, and a bill to allow the opening of casino-based integrated resorts was submitted to the country’s parliament in April.b. In 2015,
2.1 [related to the Economics in Practice on p. 39] Visit Fortune’s website. You will find a list of the world’s 500 largest companies. While going through the list, are you surprised by anything in particular? Is there any firm that you are interested in? Click on the company’s name and read
1.4 On the Forbes 2015 list of the World’s Billionaires, Bill Gates ranks at the top with a net worth of $79.2 billion.Does this “richest man in the world” face scarcity, or does scarcity only affect those with more limited incomes and lower net worth?
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