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Microeconomics 4th Edition R. Glenn Hubbard, Anthony Patrick O’Brien - Solutions

[Related to the Making the Connection on page 119]If the price consumers pay and the price sellers receive are not affected by whether consumers or sellers collect a tax on a good or service, why does the government usually require sellers and not consumers to collect a tax?
[Related to Solved Problem 4.4 on page 117] Suppose the federal government decides to levy a sales tax on pizza of $1.00 per pie. Briefly explain whether you agree with the following statement, made by a representative of the pizza industry:The pizza industry is very competitive. As a result, pizza
Consider the graph of the market for cigarettes in problem 4.5, where it is assumed that the government collects the tax from the producers of cigarettes.a. How would the graph be different if the tax were collected from the buyers of cigarettes?b. What would be the new equilibrium price that
Use the graph of the market for cigarettes below to answer the following questions.a. According to the graph, how much is the government tax on cigarettes?b. What price do producers receive after paying the tax?c. How much tax revenue does the government collect? Price (dollars per pack) Government
Suppose the current equilibrium price of a quarter-pound hamburger is $5, and 10 million quarter-pound hamburgers are sold per month. After the federal government imposes a tax of $0.50 per hamburger, the equilibrium price of hamburgers rises to $5.20, and the equilibrium quantity falls to 9
Does who is legally responsible for paying a tax—buyers or sellers—make a difference in the amount of tax each pays?Briefly explain.
An editorial in the Economist magazine discusses the fact that in most countries—including the United States—it is illegal for individuals to buy or sell body parts, such as kidneys.a. Draw a demand and supply graph for the market for kidneys. Show on your graph the legal maximum price of zero
Suppose that initially the gasoline market is in equilibrium, at a price of $3.00 per gallon and a quantity of 45 million gallons per month. Then a war in the Middle East disrupts imports of oil into the United States, shifting the supply curve for gasoline from S1 to S2. The price of gasoline
[Related to the Chapter Opener on page 101] The following newspaper article describes a journalist’s experience renting an apartment about thirteen years ago:. . . [A] lawyer suggested that I withhold my rent because my landlord had consistently failed to provide adequate heat, and my building
[Related to the Chapter Opener on page 101] The competitive equilibrium rent in the city of Lowell is currently$1,000 per month. The government decides to enact rent control and to establish a price ceiling for apartments of $750 per month. Briefly explain whether rent control is likely to make
[Related to the Chapter Opener on page 101] The cities of Peabody and Woburn are 5 miles apart. Woburn enacts a rent control law that puts a ceiling on rents well below their competitive market value. Predict the effect of this law on the competitive equilibrium rent in Peabody, which does not have
An advocate of medical care system reform makes the following argument:The 15,000 kidneys that are transplanted in the United States each year are received for free from organ donors.Despite this, because of hospital and doctor fees, the average price of a kidney transplant is $250,000. As a
University towns with major football programs experience an increase in demand for hotel rooms during home football weekends. Hotel management responds to the increase in demand by increasing the price they charge for a room.Periodically, there is an outcry against the higher prices and accusations
A student makes the following argument:A price floor reduces the amount of a product that consumers buy because it keeps the price above the competitive market equilibrium. A price ceiling, on the other hand, increases the amount of a product that consumers buy because it keeps the price below the
[Related to the Don’t Let This Happen to You on page 113]Briefly explain whether you agree or disagree with the following statement: “If there is a shortage of a good, it must be scarce, but there is not a shortage of every scarce good.”
[Related to Solved Problem 4.3 on page 114] Use the information on the market for apartments in Bay City in the table to answer the following questions:a. In the absence of rent control, what is the equilibrium rent, and what is the equilibrium quantity of apartments rented? Draw a demand and
[Related to the Chapter Opener on page 101] Writing in the New York Times, economist Paul Krugman commented on an article he read that concerned the trials of people who were searching for apartments in San Francisco.Krugman recounted the story’s “tales of would-be renters, pounding the
[Related to the Making the Connection on page 111]Some economists studying the effects of the minimum wage law have found that it tends to reduce the employment of black teenagers relative to white teenagers.Does the graph in the Making the Connection help you understand why black teenagers may
To drive a taxi legally in New York City, you must have a medallion issued by the city government. City officials have issued only 13,200 medallions. Let’s assume that this puts an absolute limit on the number of taxi rides that can be supplied in New York City on any day because no one breaks
Refer to problem 3.9. An article in the New York Times contained the following (Hugo Chávez is the president of Venezuela):José Vielma Mora, the chief of Seniat, the government’s tax agency, oversaw a raid this month on a warehouse here where officials seized about 165 tons of sugar. Mr. Vielma
During 2007, the Venezuelan government allowed consumers to buy only a limited quantity of sugar. The government also imposed a ceiling on the price of sugar. As a result, both the quantity of sugar consumed and the market price of sugar were below the competitive equilibrium price and quantity.
A newspaper headline reads: “State Officials Take on Pricing Regulations to Try to Provide Better, Dependable Income to Dairy Farmers.” Is providing dependable income to dairy farmers a good policy goal for government officials?How are government officials likely to try to achieve this goal
Suppose that the government sets a price floor for milk that is above the competitive equilibrium price.a. Draw a graph showing this situation. Be sure your graph shows the competitive equilibrium price, the price floor, the quantity that would be sold in competitive equilibrium, and the quantity
Use the information on the kumquat market in the table to answer the following questions:a. What are the equilibrium price and quantity? How much revenue do kumquat producers receive when the market is in equilibrium? Draw a graph showing the market equilibrium and the area representing the revenue
The graph below shows the market for apples. Assume that the government has imposed a price floor of $10 per crate.a. How many crates of apples will be sold after the price floor has been imposed?b. Will there be a shortage or a surplus? If there is a shortage or a surplus, how large will it be?c.
Can economic analysis provide a final answer to the question of whether the government should intervene in markets by imposing price ceilings and price floors? Briefly explain.
Using a demand and supply graph, illustrate and briefly explain the effect on consumer surplus and producer surplus of a price below the equilibrium price. Show any deadweight loss on your graph.
Briefly explain whether you agree with the following statement:“If at the current quantity marginal benefit is greater than marginal cost, there will be a deadweight loss in the market. However, there is no deadweight loss when marginal cost is greater than marginal benefit.”
Movies, songs, and books are covered by copyrights, which allow the creators of these works to keep other people from reproducing them without permission. Many people, though, violate copyright laws by using file-sharing services that allow them to download copies of songs and movies at a zero
A study estimates that the total consumer surplus gained by people participating in auctions on eBay in a recent year was $7 billion. Is it likely that the total consumer surplus for the items bought in these auctions was higher or lower than it would have been if consumers had purchased these
The graph on the next page shows the market for tickets to a concert that will be held in a local arena that seats 15,000 people. What is the producer surplus in this market? How does it differ from the producer surplus in the markets you have studied up to this point? Price Supply P Demand 0
[Related to the Making the Connection on page 104]The Making the Connection states that the value of the area representing consumer surplus from broadband Internet service is $890.5 million. Use the information from the graph in the Making the Connection to show how this value was calculated. (For
The following graph illustrates the market for a breast cancer–fighting drug, without which breast cancer patients cannot survive. What is the consumer surplus in this market?How does it differ from the consumer surplus in the markets you have studied up to this point? Price P Demand Supply 0
How does consumer surplus differ from the total benefit consumers receive from purchasing products? Similarly, how does producer surplus differ from the total revenue that firms receive from selling products? Under what special case will consumer surplus equal the total benefit consumers receive
A student makes the following argument: “When a market is in equilibrium, there is no consumer surplus. We know this because in equilibrium, the market price is equal to the price consumers are willing to pay for the good.” Briefly explain whether you agree with the student’s argument.
Suppose that a frost in Florida reduces the size of the orange crop, which causes the supply curve for oranges to shift to the left. Briefly explain whether consumer surplus will increase or decrease and whether producer surplus will increase or decrease. Use a demand and supply graph to illustrate
What is producer surplus? How does producer surplus change as the equilibrium price of a good rises or falls?
What is consumer surplus? How does consumer surplus change as the equilibrium price of a good rises or falls?
The following graphs show the supply and demand curves for two markets. One of the markets is for BMW automobiles, and the other is for a cancer-fighting drug, without which lung cancer patients will die. Briefly explain which graph most likely represents which market. Price D 0 S Price S D
Proposals have been made to increase government regulation of firms providing childcare services by, for instance, setting education requirements for childcare workers. Suppose that these regulations increase the quality of childcare and cause the demand for childcare services to increase. At the
Following are four graphs and four market scenarios, each of which would cause either a movement along the supply curve for Pepsi or a shift of the supply curve. Match each scenario with the appropriate graph.a. A decrease in the supply of Cokeb. A drop in the average household income in the United
[Related to the Don’t Let This Happen to You on page 90]A student was asked to draw a demand and supply graph to illustrate the effect on the tablet computers market of a fall in the price of displays used in tablet computers, holding everything else constant. She drew the graph below and
[Related to the Don’t Let This Happen to You on page 90]A student writes the following: “Increased production leads to a lower price, which in turn increases demand.”Do you agree with his reasoning? Briefly explain.
Briefly explain whether each of the following statements is true or false.a. If the demand and supply for a product both increase, the equilibrium quantity of the product must also increase.b. If the demand and supply for a product both increase, the equilibrium price of the product must also
Historically, the production of many perishable foods, such as dairy products, was highly seasonal. Thus, as the supply of those products fluctuated, prices tended to fluctuate tremendously—typically by 25 to 50 percent or more—over the course of the year. One impact of mechanical
An article in the Wall Street Journal noted that the demand for Internet advertising was declining at the same time that the number of Internet sites accepting advertising was increasing.After reading the article, a student argues: “From this information, we know that the price of Internet ads
Years ago, an apple producer argued that the United States should enact a tariff, or a tax, on imports of bananas.His reasoning was that “the enormous imports of cheap bananas into the United States tend to curtail the domestic consumption of fresh fruits produced in the United States.”a. Was
[Related to Solved Problem 3.4 on page 88] According to one observer of the lobster market: “After Labor Day, when the vacationers have gone home, the lobstermen usually have a month or more of good fishing conditions, except for the occasional hurricane.” Use a demand and supply graph to
[Related to Solved Problem 3.4 on page 88] The demand for watermelons is highest during summer and lowest during winter. Yet watermelon prices are normally lower in summer than in winter. Use a demand and supply graph to demonstrate how this is possible. Be sure to carefully label the curves in
[Related to the Making the Connection on page 86]During 2009, the demand for LCD televisions appeared to be falling. At the same time, some industry observers expected that several smaller television manufacturers might exit the market. Use a demand and supply graph to analyze the effects of these
As oil prices rose during 2006, the demand for alternative fuels increased. Ethanol, one alternative fuel, is made from corn. According to an article in the Wall Street Journal, the price of tortillas, which are made from corn, also rose during 2006: “The price spike [in tortillas] is part of a
According to an article in the Wall Street Journal about the effect of increases in the demand for corn: “Farmers are likely to cut back on some crops, such as soybeans and rice, to make room for the additional corn.” Use a demand and supply graph to analyze the effect on the equilibrium price
The following is from an article in the Wall Street Journal:Fuel prices tend to rise [during the summer] for a number of reasons, from the use of more expensive fuel additives in warm weather to maintenance shutdowns at refineries that tend to tighten the supply. Demand for gasoline also
If, over time, the demand curve for a product shifts to the right more than the supply curve does, what will happen to the equilibrium price? What will happen to the equilibrium price if the supply curve shifts to the right more than the demand curve? For each case, draw a demand and supply graph
Draw a demand and supply graph to show the effect on the equilibrium price in a market in the following two situations:a. The demand curve shifts to the right.b. The supply curve shifts to the left.
During the summer of 2011, General Motors (GM) had trouble selling pickup trucks. According to an article in USA Today:General Motors dealers had a 122-day supply of Chevrolet Silverado and GMC Sierra pickups in June, more than 50% above what’s considered optimum.. . . Behind the glut: The year
[Related to Solved Problem 3.3 on page 84] An article discusses the market for autographs by Mickey Mantle, the superstar centerfielder for the New York Yankees during the 1950s and 1960s: “At card shows, golf outings, charity dinners, Mr. Mantle signed his name over and over.”One expert on
[Related to Solved Problem 3.3 on page 84] In The Wealth of Nations, Adam Smith discussed what has come to be known as the “diamond and water paradox”:Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the
Briefly explain whether you agree with the following statement:“When there is a shortage of a good, consumers eventually give up trying to buy it, so the demand for the good declines, and the price falls until the market is finally in equilibrium.”
If the price of a good increases, is the increase in the quantity of the good supplied likely to be smaller or larger, the longer the time period being considered?Briefly explain.
Will each firm in the tablet computer industry always supply the same quantity as every other firm at each price? What factors might cause the quantity of tablet computers supplied by different firms to be different at a particular price?
Suppose that the following table shows the quantity supplied of UGG boots at five different prices in 2012 and in 2013:Name two different variables that would cause the quantity supplied of UGG boots to change as indicated in the table from 2012 to 2013. Quantity Supplied Price 2012 2013 $160
Suppose that the curves at the top of the next column represent two supply curves for rib eye steaks. What would cause a movement from point A to point B on S1? Name two variables that would cause a movement from point A to point C. Price (dollars per steak) B C S 52 0 Quantity of rib eye steaks
Briefly explain whether each of the following statements describes a change in supply or a change in the quantity supplied:a. To take advantage of high prices for snow shovels during a snowy winter, Alexander Shovels, Inc., decides to increase output.b. The success of the Apple iPad leads more
What is the law of supply? What are the main variables that will cause a supply curve to shift? Give an example of each.
[Related to the Making the Connection on page 77] In early 2011, financial journalist Wolfgang Gruener made the following observation about forecasts of the future demand for tablet computers:The conclusion can only be that the market is too young to sustain a reliable short-, mid- or long-term
Richard Posner is a federal court judge who also writes on economic topics. A newspaper reporter summarized Posner’s views on the effect of online bookstores and e-books on the demand for books:Posner’s [argument] is that the disappearance of bookstores is to be celebrated and not mourned,
Suppose the following table shows the price of a base model Toyota Prius hybrid and the quantity of Priuses sold for three years. Do these data indicate that the demand curve for Priuses is upward sloping? Explain. Year Price Quantity 2010 $24,880 35,265 2011 24,550 33,250 2012 25,250 36,466
[Related to the Making the Connection on page 74]Since 1979, China has had a policy that allows couples to have only one child. This policy has caused a change in the demographics of China. Between 2000 and 2010, the share of the population under age 14 decreased from 23 percent to 17 percent, and,
[Related to the Making the Connection on page 74]Name three products whose demand is likely to increase rapidly if the following demographic groups increase at a faster rate than the population as a whole:a. Teenagersb. Children under age fivec. Recent immigrants
[Related to the Making the Connection on page 73] A student makes the following argument:The chapter says that for consumers as a group, Quiznos sandwiches are normal goods, and Subway sandwiches are inferior goods. But I like the taste of Subway sandwiches better than I like the taste of Quiznos
Suppose that the curves in the graph below represent two demand curves for rib eye steaks. What would cause a movement from point A to point B on D1? Name two variables that would cause a movement from point A to point C. Price (dollars per steak) B C 0 D D Quantity of rib eye steaks
Imagine that the table below shows the quantity demanded of UGG boots at five different prices in 2012 and in 2013:Name two different variables that could cause the quantity demanded of UGG boots to change as indicated from 2012 to 2013. Quantity Demanded Price 2012 2013 $160 5,000 4,000 170 4,500
State whether each of the following events will result in a movement along the demand curve for McDonald’s Big Mac hamburgers or whether it will cause the curve to shift.If the demand curve shifts, indicate whether it will shift to the left or to the right and draw a graph to illustrate the
[Related to the Chapter Opener on page 69] When tablet computers based on the Android operating system were first introduced, there were relatively few applications, or “apps,” available for them. Now, there are many more apps available for Android-based tablets. Are these apps substitutes or
What is the law of demand? Use the substitution effect and the income effect to explain why an increase in the price of a product causes a decrease in the quantity demanded.
The 2009 International Property Rights Index study states:Data shows that countries that protect the physical and intellectual property of their people enjoy nearly nine times higher [income per person] . . . than countries ranking lowest in property rights protections. The study. . . compared the
Some economists have been puzzled that although entrepreneurs take on the risk of losing time and money by starting new businesses, on average their incomes are lower than those of people with similar characteristics who go to work at large firms. Economist William Baumol believes part of the
Writing in the New York Times, Michael Lewis argued that“a market economy is premised on a system of incentives designed to encourage an ignoble human trait: self-interest.”Do you agree that self-interest is an “ignoble human trait”? What incentives does a market system provide to encourage
Evaluate the following argument: “Adam Smith’s analysis is based on a fundamental flaw: He assumes that people are motivated by self-interest. But this isn’t true. I’m not selfish, and most people I know aren’t selfish.”
In a speech at the New York University Law School, Federal Reserve Chairman Ben Bernanke stated:Writing in the eighteenth century, Adam Smith conceived of the free-market system as an “invisible hand” that harnesses the pursuit of private interest to promote the public good. Smith’s
In many parts of Europe during the mid-1770s, governments gave guilds, or organizations of producers, the authority to control who was allowed to produce a good, the amount of the good produced, and the price charged for the good. Would you expect more competition among producers in a guild system
[Related to the Making the Connection on page 55] According to an article in the Wall Street Journal, the parts contained in the BlackBerry Torch smartphone include a power management chip made by Texas Instruments(United States), a memory chip made by Samsung (South Korea), a GPS receiver made by
[Related to the Making the Connection on page 55]In The Wealth of Nations, Adam Smith wrote the following(Book I, Chapter II): “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” Briefly discuss what
Identify whether each of the following transactions will take place in the factor market or in the product market and whether households or firms are supplying the good or service or demanding the good or service:a. George buys a BMW X6 hybrid.b. BMW increases employment at its Spartanburg plant.c.
What are private property rights? What role do they play in the working of a market system? Why are independent courts important for a well-functioning economy?
What are the two main categories of participants in markets?Which participants are of greatest importance in determining what goods and services are produced?
During the 1928 presidential election campaign, Herbert Hoover, the Republican candidate, argued that the United States should import only products that could not be produced here. Do you believe that this would be a good policy?Explain.
In colonial America, the population was spread thinly over a large area, and transportation costs were very high because it was difficult to ship products by road for more than short distances. As a result, most of the free population lived on small farms, where they not only grew their own food
Is specialization and trade between individuals and countries more about having a job or about obtaining a higher standard of living? Individually, if you go from a situation of not trading with others (you produce everything yourself)to a situation of trading with others, do you still have a job?
Imagine that the next time the Indianapolis Colts play the New England Patriots at Lucas Oil Stadium in Indianapolis, Colts star quarterback Peyton Manning has a temporary lack of judgment and plans to sell Colts memorabilia during the game because he realizes that he can sell five times more Colts
If Country A can produce with the same amount of resources twice as much coffee as Country B, explain how Country B could have the comparative advantage in producing coffee.
Suppose that France and Germany both produce schnitzel and wine. The following table shows combinations of the goods that each country can produce in a day:a. Who has a comparative advantage in producing wine?Who has a comparative advantage in producing schnitzel?b. Suppose that France is currently
Suppose Iran and Iraq both produce oil and olive oil, which sell for the same prices in both countries. The following table shows combinations of both goods that using the same amounts of capital and labor each country can produce in a day, measured in thousands of barrels:a. Who has the
[Related to Don’t Let This Happen to You on page 49] In the 1950s, the economist Bela Balassa compared 28 manufacturing industries in the United States and Britain. In every one of the 28 industries, Balassa found that the United States had an absolute advantage. In these circumstances, would
Using the same amount of resources, the United States and Canada can both produce lumberjack shirts and lumberjack boots, as shown in the following production possibilities frontiers:a. Who has a comparative advantage in producing lumberjack boots? Who has a comparative advantage in producing
Look again at the information in Figure 2.4 on page 47.Choose a rate of trading cherries for apples different from the rate used in the text (15 pounds of cherries for 10 pounds of apples) that will allow you and your neighbor to benefit from trading apples and cherries. Prepare a table like Table
What is the basis for trade: absolute advantage or comparative advantage? How can an individual or a country gain from specialization and trade?
In The Wonderful Wizard of Oz and his other books about the Land of Oz, L. Frank Baum observed that if people’s wants were limited enough, most goods would not be scarce. According to Baum, this was the case in Oz:There were no poor people in the Land of Oz, because there was no such thing as
[Related to the Making the Connection on page 43]Lawrence Summers served as secretary of the treasury in the Clinton administration from 1999 to 2001 and as director of the National Economic Council in the Obama administration from 2009 to 2010. He has been quoted as giving the following moral

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