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microeconomics principles applications

Microeconomics Principles Applications And Tools 9th Edition Arthur O'Sullivan, Steven Sheffrin, Stephen Perez - Solutions

Suppose the marginal utility of a video game is 48 utils and the marginal utility of an iTunes song is 2 utils. The price of a video game is $12 and the price of a song is $1. The opportunity cost of a video game is ________ songs and the marginal cost of a video game is ________ utils. The
The fuel for cognition is _________, and the depletion of this fuel increases the likelihood that a person will base a decision on _________.
Neuroscientists have discovered that the brain’s dopamine reward system of a gambler treats a ________ almost the same as a real ________. The evolutionary purpose is that the reward encourages ________.
Suppose Maxine initially watches six movies at a price of $3 each and buys nine books at a price of $1 each, and then the price of movies increases to $5. To make Maxine’s original bundle just affordable, her income must ________ (increase/decrease) by ________. Her utility-maximizing consumption
According to the equimarginal rule, a consumer chooses the combination of two goods that equalizes the ________ per ________ on each product consumed.
In the Pepsi Challenge, a majority of consumers favored Pepsi in _________ taste tests, but Coke _________ taste tests.
To counteract the effects of present bias in smoking behavior, the tax per pack of cigarettes is roughly ________ ($1, $3, $11, $35) per pack. (Related to Application 4) Application 4 TAXING CIGARETTES TO OFFSET PRESENT BIAS APPLYING THE CONCEPTS #4: What is the appropriate cigarette tax? The
If the typical consumer buys 200 gallons of gasoline and the gasoline tax increases by $3, revenue neutrality requires that the consumer’s income tax must ________ (increase/decrease) by ________.
Under the Common Agricultural Policy (CAP) the European Union uses a number of policies to support the agricultural sectors of member countries. Under a minimum-price policy the government sets a price above the market-equilibrium price.The EU guarantees farmers minimum prices for products such as
The conditions for utility maximization area. ________ b. ________
Brain imaging provides evidence for the law of ________ utility. Application 1 MEASURING DIMINISHING MARGINAL UTILITY APPLYING THE CONCEPTS #1: How does marginal utility change with the quantity consumed? Neuroscientists have used brain imaging techniques to provide some insights into the law of
One possible reason for curse words is that they give us opportunities to exercise our ________.
Using Figure 7.8 as a starting point, suppose cognition shifts the MU per dollar curve downward by a larger amount, as shown in the figure below. How many donuts and how many apples will the consumer choose? 21 Utils 12 Utils 2 12 درا b a 9 Gut-feeling MU per $ Cognitive MU per
Petrov initially pays $2,200 in income taxes and consumes 600 gallons of gasoline per year at a price of $3 per gallon. The price of the other good is $1. For Petrov’s initial product bundle, the marginal utility of gas is 30 utils and the marginal utility of the other good is 10 utils. a. For
Using Figure 7.8 as a starting point, consider the effect of a donut tax equal to $2 per donut, which increases the price of a donut from $1!to $3. In the figure below, assume that the new (posttax) equilibrium is shown by points e and d. Fill the blanks (shown by horizontal lines) with numbers.
In Table 7.1, suppose the marginal utility numbers for books change: for each quantity of books, the marginal utility is 6 utils higher. For example, for 24 books, the marginal utility is 8 utils instead of 2 utils, and for 21 books, the marginal utility is 10 utils instead of 4 utils. Determine
Using Figure 7.9 as a starting point, suppose the consumer chooses point e (spend $13 now) and point d (save $7). Suppose the government imposes a 20 percent tax on spending (consumption now), meaning that for every dollar spent now, $0.20 goes to the government, leaving only $0.80 to purchase
For many workers, participation in the sharing economy as a driver for Uber or Lyft is an attractive way to earn an income. The cost of driving for Uber includes the opportunity cost of time diverted from working at a regular job. If a regular job pays a salary of $3,000 per month, that’s only
The presence of _________ explains the negatively sloped portion of a long-run average-cost curve, and the notion of _________ explains the horizontal portion of the curve.
How does the marginal cost of producing crude oil for the world market change as the volume of oil increases? For the first 40!million barrels per day, the marginal cost is less than $10!per barrel. The marginal cost increases at a moderate rate for the next 25 million barrels per day, up to
The opportunity cost of driving for Uber or Lyft includes the ________ and ________ from a regular job. Application 1 OPPORTUNITY COST AND ENTREPRENEURSHIP APPLYING THE CONCEPTS #1: What is the Opportunity Cost of an Entrepreneur? For many workers, participation in the sharing economy as a driver
The marginal-cost curve for producing crude oil is _________ sloped, reflecting variation in the cost of extracting oil from different sources. Application 2 THE RISING MARGINAL COST OF CRUDE OIL APPLYING THE CONCEPTS #2: Why is the Marginal-cost curve positively sloped? How does the marginal
Economic profit equals ________ minus ________.
Fill with “economic” or “accounting”: Because ________ cost typically exceeds ________ cost, ________ profit typically exceeds ________ profit.
Suppose there are two pencil producers with identical production facilities—identical factories and equipment. The firms pay the same wages and pay the same prices for materials. Sam has a small workforce and produces 1,000 pencils per minute; Marian has a medium-size workforce and produces 2,000
A firm’s short-run supply curve shows the relationship between _________ on the horizontal axis and _________ on the vertical axis.
To draw a firm’s short-run supply curve, you need its ________ curve and its ________ price.
Zinc is a vital input to the production of steel. Because the cost of mining zinc varies from one mine to another, the shutdown price varies too. The world price of zinc decreased from roughly $2,300 per ton in 2010–2011 to $1,900 in early 2012. The lower price was below the shutdown prices of
When the price of zinc dropped below $1,900, the price dropped below Alcoa’s price, the company. Application 3 STRADDLING THE ZINC COST CURVE APPLYING THE CONCEPTS: What is the shutdown price? Zinc is a vital input to the production of steel. Because the cost of mining zinc varies from one mine
Consider the supply of shipping services. The law of supply suggests that as the price of shipping increases, the quantity of shipping services will increase. At a relatively low freight rate of $2 per ton, only the most efficient ships operate, and they economize on fuel by traveling at a
Pu’er is a city in southern China that is famous for its tea, but is now getting a reputation for its coffee. Between 2009 and 2012, the world price of coffee beans nearly doubled. Farmers in Pu’er responded to the higher price by doubling the acreage of coffee, and cleared forested hillsides
As the price of shipping services increases, the quantity supplied ________ as firms deploy ships and as each ship travels ________. Application 4 SHORT-RUN SUPPLY CURVE FOR CARGO APPLYING THE CONCEPTS #4: Why is the short-run supply curve positively sloped? THE TEE Consider the supply of
As we saw in the chapter opener, publicity about the health benefits of antioxidants in blueberries increased the demand for blueberries. In the short run, the supply of blueberries is inflexible because the number of bushes is fixed, and eager consumers competed for the limited supply, so prices
An increase in the price of coffee increased the quantity supplied as land was converted from growing ________ to growing coffee. Application 5 CHINESE COFFEE GROWERS OBEY THE LAW OF SUPPLY APPLYING THE CONCEPTS #5: How do producers respond to an increase in price? Pu'er is a city in southern
Between 2000 and 2009, concerns about the health effects of trans-fatty acids decreased the demand for margarine. Although total consumption in the United States decreased by roughly half, the price of margarine in 2009 was roughly the same, in real terms, as the price in 2000. Why didn’t the
A reliable predictor of a consumer’s willingness to pay for a movie is the consumption of. Application 4 WHY DOES MOVIE POPCORN COST SO MUCH? APPLYING THE CONCEPTS #4: When do firms have an opportunity to charge different prices to different consumers? Pope That $4 bucket of popcorn you get in
If the market price equals a firm’s break-even price, the firm earns _________ economic profit because _________ equals _________.
In 1993, seven Native American Tribes in Michigan cut a deal with the state. In exchange for being granted a monopoly in Vegas-style casino gambling, the tribes agreed to pay the state and local governments a share of its profits. By 1998, the profit sharing totaled more than $183 million. In 1998,
We expect the owner of a major league baseball (MLB) team to choose the quantity (the number of fans at the game) at which marginal revenue equals marginal cost (MR = MC). The marginal cost of an additional fan is close to zero, so the profitmaximization rule simplifies to MR = 0. And yet for the
The profit-sharing agreement between Michigan and the Native American tribes for casinos is an example of . Application 2 RENT SEEKING FOR TRIBAL CASINOS APPLYING THE CONCEPTS #2: What is the value of a monopoly? OHKAY CASINO In 1993, seven Native American Tribes in Michigan cut a deal with the
When a patent expires, new firms enter the market, and the resulting competition for consumers decreases prices and increases quantities. In the pharmaceutical drug market, when the patent for a brand-name drug expires, other firms introduce generic versions of the drug. The generics are virtually
That $4 bucket of popcorn you get in the movie theater costs less than $0.10 to produce. What explains the 4,000 percent markup? Economists have struggled with this question for years, and now we have an answer. Moviegoers vary in their willingness to pay for seeing a movie, and a movie theater has
Recall the Application on Native American casinos in Michigan. Why aren’t similar deals proposed for new clothing stores, music stores, or auto repair shops? Application 2 RENT SEEKING FOR TRIBAL CASINOS APPLYING THE CONCEPTS #2: What is the value of a monopoly? OHKAY CASINO In 1993, seven Native
The marginal cost of an additional baseball fan is zero, so the profit-maximizing condition simplifies to _________. Application 1 MARGINAL REVENUE FROM A BASEBALL FAN APPLYING THE CONCEPTS #1: How does a monopolist maximize profit? We expect the owner of a major league baseball (MLB) team
Consider a baseball team that has a ticket price of $45 and sells 30,000 tickets at this price. The slope of the demand curve is - $0.002. The typical fan purchases $25 worth of merchandise that costs the owner $5 to provide.a. The marginal revenue from ticket sales is _________.b. Including both
Consider the market for television signals provided to residential consumers. How will an existing cable-TV provider respond to the entry of a firm that provides TV signals via satellite? In most cases, the entry of a satellite firm causes the cable firm to improve the quality of service and
Perfectly competitive firms sell a product, while monopolistically competitive firms sell a product.
One way to enter a monopolistically competitive market is to get a franchise for a nationally advertised brand. If you’d like to get into the economy motel market, you could pay a $35,000 franchise fee to Accor, the owner of the Motel 6 brand. The term of the renewable franchise agreement is 15
Consider the phenomenon of “happy hour.” Many bars and restaurants near workplaces face an increase in demand for food and drink around 5:00 P.M., and many cut their prices for an hour or two. According to the model of perfect competition, an increase in demand will lead to higher, not lower
To enter the motel market by opening a Motel 6, you’ll pay a one-time franchise fee of $ and then pay percent of your sales. Application 2 OPENING A MOTEL APPLYING THE CONCEPTS #2: Are monopolistically competitive firms profitable? One way to enter a monopolistically competitive market is
Arrows up or down. In the application on consumer loans in South Africa, the loan uptake rate as the interest rate decreased and when the model on the offer was switched from a man to a woman. Application 4 PICTURE OF MAN VERSUS PICTURE OF WOMAN APPLYING THE CONCEPT #4: How does advertising affect
In the long-run equilibrium in a perfectly competitive market, price is equal to both ________ and ________.
Consider the numbers provided in Application 4 on South African consumer loans. Suppose a lender initially charges an interest rate of 10 percent and uses male models in its advertisements.The firm wants to increase its uptake rate among male consumers. Suppose the firm switches to female models in
A South African consumer lender decided to use a mass mailing of 53,000 loan offers to test the sensitivity of consumers to variations in interest rates and other features of loan offers. The interest rates in the offer letters ranged from 3.75% to 11.75% per month. As expected, the uptake rate
The phenomenon of “happy hour” pricing (________ prices when demand is relatively high) results from relatively ________ (elastic/inelastic) demand. Application 3 HAPPY HOUR PRICING APPLYING THE CONCEPTS #3: How does monopolistic competition compare to perfect competition? Happy
Arrows up or down: The entry of a satellite TV firm consumer surplus, in part because the cable company the quality of service while either price or price by a relatively small amount. Application 1 SATELLITE VERSUS CABLE APPLYING THE CONCEPTS #1: How does market entry affect prices? Consider the
Consider the “Satellite versus Cable” Application. Use a graph to show that the entry of satellite TV decreases the profit-maximizing price of a cable TV company from $40 to $35. Application 1 SATELLITE VERSUS CABLE APPLYING THE CONCEPTS #1: How does market entry affect prices? Consider the
At the beginning of the nineteenth century, high overland transportation costs protected salt producers from competition with one another, generating local salt monopolies. Over the course of the nineteenth century, decreases in overland transportation costs increased competition between salt
In two successive months (November and December), a Florida tire retailer listed prices for 35 types of tires in newspaper advertisements. In November the average price was $45, and in December the average price was $55. The December advertisement was different in another way: it included a
An economics professor discovered three students cheating on the final exam. Speaking to the students individually in his office, he gave each student two options:1 If the student confessed, he or she would receive a zero on the final exam, but suffer no other consequences.2 If the student did not
A careful study of the retail tire market suggests that low-price guarantees __________ (increase/decrease) prices by about __________ (1, 10, 25, 37) percent. Application 2 LOW-PRICE GUARANTEE INCREASES TIRE PRICES APPLYING THE CONCEPTS #2: Do low-price guarantees generate higher or lower
Microsoft has a virtual monopoly in the market for personal computer operating systems and business software. But there is a constant threat that another firm will launch competing products, so Microsoft engages in limit pricing to deter entry into its key markets. A recent study revealed some of
Between 1993 and 2014, the National Fluid Milk Producers, an industry group financed by a tax on milk producers, ran the Got Milk? advertising campaign. Milk is a standardized good, so advertising by one producer increases demand and benefits other producers. No single firm has an incentive to
Microsoft is a(n) _________ (secure/insecure) monopolist, and the limit price is roughly _________ (10, 20, 40, 60, 90, 100) percent of the pure monopoly price. Application 4 MICROSOFT AS AN INSECURE MONOPOLIST APPLYING THE CONCEPT #4: How does a monopolist respond to the threat of entry? Microsoft
The salt cartels of the nineteenth century were _________ (short/long) lived, in part because individual firms _________ on the cartel. 1 Application FAILURE OF THE SALT CARTEL THE CONCEPTS #1: Why do cartels sometimes fail to keep prices high? At the beginning of the nineteenth century, high
In 2008, the nation’s only two satellite radio providers, Sirius Satellite Radio and XM Satellite Radio, merged into a single firm. Together the two firms had 14 million subscribers, each paying $13 per month for dozens of channels, most of which are free of advertisements. Both firms were losing
In 1998, Pennzoil Motor Oils purchased Quaker State Motor Oils in an acquisition valued at $1 billion. The merger brought together two of the five brands of premium motor oil, with a combined market share of 38% (29% for Pennzoil and 9% for Quaker State). The antitrust agencies approved the merger
In 2013 the Federal Trade Commission (FTC) approved the merger of office supply superstores Office Depot and OfficeMax. The FTC concluded that the merger of the second and third largest office supply superstores was unlikely to substantially reduce competition in the retail office-supply market.
The merger of companies with two of the top five brands of motor oil (Pennzoil and Quaker State) increased the price of one of the brands by roughly ________ (1, 5, 20, 50) percent. Application 3 MERGER OF PENNZOIL AND QUAKER STATE APPLYING THE CONCEPTS # 3: How does a merger affect prices? In
The FTC ________ the merger of the second and third largest office supplies superstores because of increased competition in the office-supplies market from ________. Application 4 MERGER OF OFFICE DEPOT AND OFFICEMAX APPLYING THE CONCEPTS #4: What is the role of competition in the regulation of
The Genetic Information Nondiscrimination Act (GINA) protects people from genetic discrimination in insurance, but not in insurance. Application 3 GENETIC DISCRIMINATION APPLYING THE CONCEPTS #3: What is adverse selection for sellers? Genetic discrimination occurs when an insurance company treats
Genetic discrimination occurs when an insurance company treats a person differently because he or she has a gene mutation that increases the risk of an inherited disorder. At the national level, the Genetic Information Nondiscrimination Act (GINA) is designed to protect people from genetic
A recent study explores the relationship between consumer search and income. The opportunity cost of search depends on income because 1 hour of search means 1 less hour available for earning income. The study examines search behavior for liquid detergents, and shows that a doubling of income
Professional baseball pitchers are like used ________ because there is ________ information: A player’s ________ has better information about the pitcher’s health and likelihood of injury. Application 1 ARE BASEBALL PITCHERS LIKE USED CARS? APPLYING THE CONCEPTS #1: What is adverse selection
A study of consumer search for liquid detergents estimated that a doubling of income decreased the amount of search by roughly _________ (1, 14, 50, 70) percent. Application 5 INCOME AND CONSUMER SEARCH APPLYING THE CONCEPTS #5: How does opportunity cost affect consumer search? P A recent study
Car insurance increases traffic because insured drivers _________.
The clearing of space debris is an example of a _________ that suffers from the _________ problem. Application 1 CLEARING SPACE DEBRIS APPLYING THE CONCEPTS #1: How can we respond to the free-rider problem? The National Atmospheric and Space Administration (NASA) estimates that over 20,000 pieces
The labor agreements of the National Basketball Association favor players with close to the (lowest/average/median/highest) salaries. 5 THE MEDIAN VOTER IN THE NBA APPLYING THE CONCEPTS #5: What is the median-voter rule? Application Finals The National Basketball Association (NBA) uses labor
The National Basketball Association (NBA) uses labor agreements between players and owners to control player salaries. In the absence of a collective bargaining agreement regarding salaries, the market equilibrium would generate very high salaries for a small number of superstar players. Labor
One option to address the problem of CO2 in the atmosphere is large machines to wash CO2 out of the air. The removal of carbon will at least partly offset current emissions, and could actually be used to reduce the carbon content of the atmosphere and restore historic levels of atmospheric
If a CO2 washing machine can trap CO2 at a cost of $30 per ton, a gasoline tax of roughly __________ per gallon of gasoline would cover the cost of capturing the CO2 it generates. Application 2 WASHING CARBON OUT OF THE AIR APPLYING THE CONCEPTS #2: What are the possible responses to a pollution
International shipping is responsible for about 3% of global CO2 emissions, and there are many ways to reduce (abate) CO2 emissions. As a tool for comparing the cost of alternative reduction methods, policy analysts compute the marginal abatement cost (MAC) of each method, defined as the cost per
Arrange the following CO2 abatement techniques for international shipping in order of increasing MAC (marginal abatement cost): reduce speed, switch to gas-powered engines, propeller maintenance, tap wind power with sails and wings. Application 3 OPTIONS FOR REDUCING CO2 EMISSIONS FROM
In 2011, the average salary in Major League Baseball (MLB) was $3.3 million. Are players really worth that much? A team will pay $3.3 million for a player only if the player’s marginal revenue product (MRP) is at least $3.3 million. The MRP of a player equals his contribution to the firm’s
Under President Barak Obama’s 2014 plan to expand EITC, most of the additional workers are _________ or _________ and do not have _________. Application 5 EXPANDING THE EITC APPLYING THE CONCEPTS #5: How do government policies affect the distribution of income? In response to stagnant wages for
Fill the blanks with 75, 100, 117, 200, or 360. In major league baseball, the marginal revenue product of the typical free agent is roughly ________ percent of his salary, compared to ________ percent for a journeyman and ________ percent for an apprentice. Application 1 MARGINAL REVENUE PRODUCT IN
In response to stagnant wages for low-income workers, policymakers have proposed the expansion of wage subsidy programs. Under President Barack Obama’s 2014 plan, EITC coverage would be expanded to increase payments to 7.7 million workers and extend coverage to 5.8 million additional workers.
The wage premium for beautiful people is about _________ percent, while the wage penalty for unattractive people is about _________ percent. Application 3 THE BEAUTY PREMIUM APPLYING THE CONCEPTS # 3: What explains differences in wages? 9000 How does physical attractiveness affect earnings?
Economists have found that tariffs in the United States fall most heavily on lower-income consumers. In the United States, tariffs are very high on textiles, apparel items, and footwear. These goods represent a higher fraction of the consumption of lower-income households than higher-income
Do imports from China really make a difference in U.S. labor markets? Economists David Autor, David Dorn, and Gordon Hanson examined detailed data on Chinese imports into local communities. Some local communities are more heavily impacted by Chinese imports than others depending on the mix of
In July 2014, the World Trade Organization ruled that the United States had violated international trade laws by imposing excessive tariffs on Chinese imports on a range of goods, including solar panels. The WTO asked the U.S. to conform its countervailing duties against dumping to international
From the perspective of the government, a quota is better than a tariff because you raise money. _________ (True/False)
During the recent financial crisis, the U.S. government took strong steps to keep the automobile industry alive. These efforts appeared to be a great success story, with record U.S. exports of automobiles in 2014. But U.S. manufactured cars are not what they were even 5 years ago. There has been an
Countries will always export the goods in which they have comparative advantage. _________ (True/False)
If it rains very hard during a major storm, the drains in the streets may not be able to handle all the water and flooding will temporarily occur. Use this analogy to explain why the pace of imports into a community may be important in the short run for economic adjustment. Application 2 CHINESE
In Chapter 7 of the 2015 Economic Report of the President (http://www.gpo.gov/fdsys/pkg/ERP-2015/pdf/ERP-2015-chapter7.pdf), the authors of the report present evidence that free-trade agreements have led to more overall trade. Discuss the evidence that they present.
Trade in international property (for example, patents, licenses, royalty agreements) has been particularly controversial. The 2015 Economic Report of the President discusses this issue in Chapter 7 (http://www.gpo.gov/fdsys/pkg/ERP- 2015/pdf/ERP-2015-chapter7.pdf). What are their main points?
In a famous tale, French economist Frédéric Bastiat (1801–1850) wrote a fake petition for relief from trade for the candle makers. They were complaining that the sun was hurting their business. What lesson do you draw from this tale?
The National Atmospheric and Space Administration (NASA) estimates that over 20,000 pieces of junk at least as large as a softball are orbiting the earth. There are roughly 300,000 pieces of orbiting junk that are large enough to destroy an operating satellite on impact. This debris left over from
As price decreases and we move downward along the market demand for cigarettes, the quantity of cigarettes demanded increases for two reasons. First, people who smoked cigarettes at the original price respond to the lower price by smoking more. Second, some people start smoking.In the United

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