Macroeconomics 3rd Canadian Edition Paul Krugman, Robin Wells, Iris Au, Jack Parkinson - Solutions

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Take a linear demand curve like that shown in Figure 6-5, where the range of prices for which demand is elastic and inelastic is labeled. In each of the following scenarios, the supply curve shifts. Show along which portion of the demand curve (that is, the elastic or the inelastic portion) the
What can you conclude about the price elasticity of demand in each of the following statements?a. “The pizza delivery business in this town is very competitive. I’d lose half my customers if I raised the price by as little as 10%.”b. “I owned both of the two Jerry Garcia autographed
The accompanying table lists the cross-price elasticities of demand for several goods, where the percent quantity change is measured for the first good of the pair, and the percent price change is measured for the second good.a. Explain the sign of each of the cross-price elasticities.What does it
The accompanying table gives part of the supply schedule for personal computers in the United States.a. Calculate the price elasticity of supply when the price increases from $900 to $1,100 using the midpoint method.b. Suppose firms produce 1,000 more computers at any given price due to improved
U.S. winter wheat production increased dramatically in 1999 after a bumper harvest. The supply curve shifted rightward; as a result, the price decreased and the quantity demanded increased (a movement along the demand curve). The accompanying table describes what happened to prices and the quantity
Do you think the price elasticity of demand for Ford sportutility vehicles (SUVs) will increase, decrease, or remain the same when each of the following events occurs? Explain your answer.a. Other car manufacturers, such as General Motors, decide to make and sell SUVs.b. SUVs produced in foreign
Nile.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10% discount on every book it sells. Nile.com knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the
The accompanying diagram shows data from the U.S. Bureau of Labor Statistics on the average price of an airline ticket in the United States from 1975 until 1985, adjusted to eliminate the effect of inflation (the general increase in the prices of all goods over time). In 1978, the United States
The Venezuelan government has imposed a price ceiling on the retail price of roasted coffee beans. The accompanying diagram shows the market for coffee beans. In the absence of price controls, the equilibrium is at point E, with an equilibrium price of PE and an equilibrium quantity bought and sold
In Maine, you must have a license to harvest lobster commercially; these licenses are issued yearly. The state of Maine is concerned about the dwindling supplies of lobsters found off its coast. The state fishery department has decided to place a yearly quota of 80,000 pounds of lobsters harvested
The waters off the North Atlantic coast were once teeming with fish. Now, due to overfishing by the commercial fishing industry, the stocks of fish are seriously depleted. In 1991, the National Marine Fishery Service of the U.S. government implemented a quota to allow fish stocks to recover. The
For the last 70 years the U.S. government has used price supports to provide income assistance to American farmers. To implement these price supports, at times the government has used price floors, which it maintains by buying up the surplus farm products. At other times, it has used target prices,
Until recently, the standard number of hours worked per week for a full-time job in France was 39 hours, just as in the United States. But in response to social unrest over high levels of involuntary unemployment, the French government instituted a 35-hour workweek—a worker could not work more
As noted in the text, European governments tend to make greater use of price controls than does the U.S. government.For example, the French government sets minimum starting yearly wages for new hires who have completed le bac, certification roughly equivalent to a high school diploma. The demand
The accompanying table shows hypothetical demand and supply schedules for milk per year. The U.S. government decides that the incomes of dairy farmers should be maintained at a level that allows the traditional family dairy farm to survive.So it implements a price floor of $1 per pint by buying
The U.S. Department of Agriculture (USDA) administers the price floor for milk, set at $0.10 per pound of milk. (The price floor is officially set at $9.90 per hundredweight of milk. One hundredweight is 100 pounds.) At that price, according to data from the USDA, the quantity of milk produced in
In the late eighteenth century, the price of bread in New York City was controlled, set at a predetermined price above the market price.a. Draw a diagram showing the effect of the policy. Did the policy act as a price ceiling or a price floor?b. What kinds of inefficiencies were likely to have
In order to ingratiate himself with voters, the mayor of Gotham City decides to lower the price of taxi rides. Assume, for simplicity, that all taxi rides are the same distance and therefore cost the same. The accompanying table shows the demand and supply schedules for taxi rides.a. Assume that
Suppose it is decided that rent control in New York City will be abolished and that market rents will now prevail. Assume that all rental units are identical and so are offered at the same rent. To address the plight of residents who may be unable to pay the market rent, an income supplement will
On November 18, 2006, the New York Times reported that“The Universal Music Group, the world’s largest music company, filed a copyright infringement lawsuit yesterday against MySpace, the popular social networking Web site, for allowing users to upload and download songs and music videos. . . .
The accompanying diagram illustrates a taxi driver’s individual supply curve (assume that each taxi ride is the same distance).a. Suppose the city sets the price of taxi rides at $4 per ride, and at $4 the taxi driver is able to sell as many taxi rides as he desires. What is this taxi driver’s
You are the manager of Fun World, a small amusement park.The accompanying diagram shows the demand curve of a typical customer at Fun World.a. Suppose that the price of each ride is $5. At that price, how much consumer surplus does an individual consumer get? (Recall that the area of a right
On Thursday nights, a local restaurant has a pasta special. Ari likes the restaurant’s pasta, and his willingness to pay for each serving is shown in the accompanying table.a. If the price of a serving of pasta is $4, how many servings will Ari buy? How much consumer surplus does he receive?b.
The accompanying table shows the supply and demand schedules for used copies of the first edition of this textbook. The supply schedule is derived from offers at amazon.com. The demand schedule is hypothetical.a. Calculate consumer and producer surplus at the equilibrium in this market.b. Now the
Hollywood screenwriters negotiate a new agreement with movie producers stipulating that they will receive 10% of the revenue from every video rental of a movie they authored.They have no such agreement for movies shown on pay-perview television.a. When the new writers’ agreement comes into
According to the Bureau of Transportation Statistics, due to an increase in demand, the average domestic airline fare increased from $367.17 in the fourth quarter of 2005 to$381.99 in the first quarter of 2006, an increase of $14.82.The number of passenger tickets sold in the fourth quarter of 2005
a. In an auction, potential buyers compete for a good by submitting bids. Adam Galinsky, a social psychologist at Northwestern University, compared eBay auctions in which the same good was sold. He found that, on average, the higher the number of bidders, the higher the sales price. For example, in
There are six potential consumers of computer games, each willing to buy only one game. Consumer 1 is willing to pay$40 for a computer game, consumer 2 is willing to pay $35, consumer 3 is willing to pay $30, consumer 4 is willing to pay$25, consumer 5 is willing to pay $20, and consumer 6 is
Determine the amount of producer surplus generated in each of the following situations.a. Gordon lists his old Lionel electric trains on eBay. He sets a minimum acceptable price, known as his reserve price, of$75. After five days of bidding, the final high bid is exactly$75. He accepts the bid.b.
Determine the amount of consumer surplus generated in each of the following situations.a. Leon goes to the clothing store to buy a new T-shirt, for which he is willing to pay up to $10. He picks out one he likes with a price tag of exactly $10. When he is paying for it, he learns that the T-shirt
Although he was a prolific artist, Pablo Picasso painted only 1,000 canvases during his “Blue Period.” Picasso is now dead, and all of his Blue Period works are currently on display in museums and private galleries throughout Europe and the United States.a. Draw a supply curve for Picasso Blue
The small town of Middling experiences a sudden doubling of the birth rate. After three years, the birth rate returns to normal. Use a diagram to illustrate the effect of these events on the following.a. The market for an hour of babysitting services in Middling todayb. The market for an hour of
Will Shakespeare is a struggling playwright in sixteenth-century London. As the price he receives for writing a play increases, he is willing to write more plays. For the following situations, use a diagram to illustrate how each event affects the equilibrium price and quantity in the market for
Demand twisters: Sketch and explain the demand relationship in each of the following statements.a. I would never buy a Britney Spears CD! You couldn’t even give me one for nothing.b. I generally buy a bit more coffee as the price falls. But once the price falls to $2 per pound, I’ll buy out the
After several years of decline, the market for handmade acoustic guitars is making a comeback. These guitars are usually made in small workshops employing relatively few highly skilled luthiers. Assess the impact on the equilibrium price and quantity of handmade acoustic guitars as a result of each
The accompanying table gives the annual U.S. demand and supply schedules for pickup trucks.a. Plot the demand and supply curves using these schedules.Indicate the equilibrium price and quantity on your diagram.b. Suppose the tires used on pickup trucks are found to be defective. What would you
In Rolling Stone magazine, several fans and rock stars, including Pearl Jam, were bemoaning the high price of concert tickets. One superstar argued, “It just isn’t worth $75 to see me play. No one should have to pay that much to go to a concert.” Assume this star sold out arenas around the
Aaron Hank is a star hitter for the Bay City baseball team. He is close to breaking the major league record for home runs hit during one season, and it is widely anticipated that in the next game he will break that record. As a result, tickets for the team’s next game have been a hot commodity.
According to the New York Times (November 18, 2006), the number of car producers in China is increasing rapidly. The newspaper reports that “China has more car brands now than the United States. . . . But while car sales have climbed 38 percent in the first three quarters of this year, automakers
The following table shows a demand schedule for a normal good.a. Do you think that the increase in quantity demanded (say, from 90 to 110 in the table) when price decreases (from $21 to $19) is due to a rise in consumers’ income?Explain clearly (and briefly) why or why not.b. Now suppose that the
Find the flaws in reasoning in the following statements, paying particular attention to the distinction between shifts of and movements along the supply and demand curves. Draw a diagram to illustrate what actually happens in each situation.a. “A technological innovation that lowers the cost of
Suppose that the supply schedule of Maine lobsters is as follows:Suppose that Maine lobsters can be sold only in the United States. The U.S. demand schedule for Maine lobsters is as follows:Price of lobster Quantity of lobster supplied(per pound) (pounds)$25 800$20 700$ $15 600$ $10 500$ $ 5
The U.S. Department of Agriculture reported that in 1997 each person in the United States consumed an average of 41 gallons of soft drinks (nondiet) at an average price of $2 per gallon.Assume that, at a price of $1.50 per gallon, each individual consumer would demand 50 gallons of soft drinks. The
Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events.a. The market for newspapers in your town Case 1: The salaries of journalists go up.Case 2: There is a big news event in your town, which is
The market for many goods changes in predictable ways according to the time of year, in response to events such as holidays, vacation times, seasonal changes in production, and so on. Using supply and demand, explain the change in price in each of the following cases. Note that supply and demand
In a supply and demand diagram, draw the shift of the demand curve for hamburgers in your hometown due to the following events. In each case show the effect on equilibrium price and quantity.a. The price of tacos increases.b. All hamburger sellers raise the price of their french fries.c. Income
A survey indicated that chocolate is Americans’ favorite ice cream flavor. For each of the following, indicate the possible effects on demand, supply, or both as well as equilibrium price and quantity of chocolate ice cream.a. A severe drought in the Midwest causes dairy farmers to reduce the
The accompanying table illustrates annual salaries and income tax owed by five individuals. Apart from the fact that they receive different salaries and owe different amounts of income tax, these five individuals are otherwise identical.a. If you were to plot these points on a graph, what would be
An insurance company has found that the severity of property damage in a fire is positively related to the number of firefighters arriving at the scene.a. Draw a diagram that depicts this finding with number of firefighters on the horizontal axis and amount of property damage on the vertical axis.
Studies have found a relationship between a country’s yearly rate of economic growth and the yearly rate of increase in airborne pollutants. It is believed that a higher rate of economic growth allows a country’s residents to have more cars and travel more, thereby releasing more airborne
The accompanying table shows the relationship between workers’ hours of work per week and their hourly wage rate. Apart from the fact that they receive a different hourly wage rate and work different hours, these five workers are otherwise identical.a. Which variable is the independent variable?
Answer each of the following questions by drawing a schematic diagram.a. Taking measurements of the slope of a curve at three points farther and farther to the right along the horizontal axis, the slope of the curve changes from −0.3, to−0.8, to −2.5, measured by the point method. Draw a
During the Reagan administration, economist Arthur Laffer argued in favor of lowering income tax rates in order to increase tax revenues. Like most economists, he believed that at tax rates above a certain level, tax revenue would fall because high taxes would discourage some people from working
Study the four accompanying diagrams. Consider the following statements and indicate which diagram matches each statement. Which variable would appear on the horizontal and which on the vertical axis? In each of these statements, is the slope positive, negative, zero, or infinity?a. If the price of
The mayor of Gotham City, worried about a potential epidemic of deadly influenza this winter, asks an economic adviser the following series of questions. Determine whether a question requires the economic adviser to make a positive assessment or a normative assessment.a. How much vaccine will be in
Evaluate the following statement: “It is easier to build an economic model that accurately reflects events that have already occurred than to build an economic model to forecast future events.” Do you think that this is true or not? Why?What does this imply about the difficulties of building
Are the following statements true or false? Explain your answers.a. “When people must pay higher taxes on their wage earnings, it reduces their incentive to work” is a positive statement.b. “We should lower taxes to encourage more work” is a positive statement.c. Economics cannot always be
A representative of the American clothing industry recently made the following statement: “Workers in Asia often work in sweatshop conditions earning only pennies an hour.American workers are more productive and as a result earn higher wages. In order to preserve the dignity of the American
Your dormitory roommate plays loud music most of the time;you, however, would prefer more peace and quiet. You suggest that she buy some earphones. She responds that although she would be happy to use earphones, she has many other things that she would prefer to spend her money on right now. You
An economist might say that colleges and universities “produce” education, using faculty members and students as inputs. According to this line of reasoning, education is then“consumed” by households. Construct a circular-flow diagram to represent the sector of the economy devoted to
The inhabitants of the fictional economy of Atlantis use money in the form of cowry shells. Draw a circular-flow diagram showing households and firms. Firms produce potatoes and fish, and households buy potatoes and fish. Households also provide the land and labor to firms. Identify where in the
You are in charge of allocating residents to your dormitory’s baseball and basketball teams. You are down to the last four people, two of whom must be allocated to baseball and two to basketball. The accompanying table gives each person’s batting average and free-throw average.a. Explain how
Peter Pundit, an economics reporter, states that the European Union (EU) is increasing its productivity very rapidly in all industries. He claims that this productivity advance is so rapid that output from the EU in these industries will soon exceed that of the United States and, as a result, the
According to the U.S. Census Bureau, in July 2006 the United States exported aircraft worth $1 billion to China and imported aircraft worth only $19,000 from China. During the same month, however, the United States imported $83 million worth of men’s trousers, slacks, and jeans from China but
In the ancient country of Roma, only two goods, spaghetti and meatballs, are produced. There are two tribes in Roma, the Tivoli and the Frivoli. By themselves, the Tivoli each month can produce either 30 pounds of spaghetti and no meatballs, or 50 pounds of meatballs and no spaghetti, or any
According to data from the U.S. Department of Agriculture’s National Agricultural Statistics Service, 124 million acres of land in the United States were used for wheat or corn farming in 2004. Of those 124 million acres, farmers used 50 million acres to grow 2.158 billion bushels of wheat and 74
Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fish. The accompanying table shows the maximum annual output combinations of potatoes and fish that can be produced. Obviously, given their limited resources and available technology, as they use
Two important industries on the island of Bermuda are fishing and tourism. According to data from the World Resources Institute and the Bermuda Department of Statistics, in the year 2000 the 307 registered fishermen in Bermuda caught 286 metric tons of marine fish. And the 3,409 people employed by
In August 2007, a sharp downturn in the U.S. housing market reduced the income of many who worked in the home construction industry. A Wall Street Journal news article reported that Wal-Mart’s wire-transfer business was likely to suffer because many construction workers are Hispanics who
In his January 31, 2007, speech on the state of the economy, President George W. Bush said that “Since we enacted major tax relief into law in 2003, our economy has created nearly 7.2 million new jobs. Our economy has expanded by more than 13 percent.” Which two of the three principles of
In each of the following situations, explain how government intervention could improve society’s welfare by changing people’s incentives. In what sense is the market going wrong?a. Pollution from auto emissions has reached unhealthy levels.b. Everyone in Woodville would be better off if
Governments often adopt certain policies in order to promote desired behavior among their citizens. For each of the following policies, determine what the incentive is and what behavior the government wishes to promote. In each case, why do you think that the government might wish to change
In each of the following cases, explain whether you think the situation is efficient or not. If it is not efficient, why not?What actions would make the situation efficient?a. Electricity is included in the rent at your dorm. Some residents in your dorm leave lights, computers, and appliances on
Which of the following situations describes an equilibrium?Which does not? If the situation does not describe an equilibrium, what would an equilibrium look like?a. Many people regularly commute from the suburbs to downtown Pleasantville. Due to traffic congestion, the trip takes 30 minutes when
This morning you made the following individual choices: you bought a bagel and coffee at the local café, you drove to school in your car during rush hour, and you typed your roommate’s term paper because you are a fast typist—in return for which she will do your laundry for a month. For each
Liza needs to buy a textbook for the next economics class. The price at the college bookstore is $65. One online site offers it for $55 and another site, for $57. All prices include sales tax.The accompanying table indicates the typical shipping and handling charges for the textbook ordered
The lab supervisor assigns lab time to each student based on when that student is able to come.h. You realize that you can graduate a semester early by forgoing a semester of study abroad.i. At the student union, there is a bulletin board on which people advertise used items for sale, such as
In each of the following situations, identify which of the twelve principles is at work.a. You choose to shop at the local discount store rather than paying a higher price for the same merchandise at the local department store.b. On your spring break trip, your budget is limited to$35 a day.c. The
You make $45,000 per year at your current job with Whiz Kids Consultants. You are considering a job offer from Brainiacs, Inc., which will pay you $50,000 per year. Which of the following are elements of the opportunity cost of accepting the new job at Brainiacs, Inc.?a. The increased time spent
Explain how each of the following situations illustrates one of the four principles of individual choice.a. You are on your third trip to a restaurant’s all-you-can-eat dessert buffet and are feeling very full. Although it would cost you no additional money, you forgo a slice of coconut cream pie
13. Your study partner asks you, “If central banks lose the ability to use discretionary monetary policy under fixed exchange rates, why would nations agree to a fixed exchange rate system?” How do you respond?
12. Access the Discovering Data exercise for Chapter 18 online to answer the following questions.a. Using the most current data available, how has the exchange rate changed for Mexico, the United Kingdom, and Switzerland?b. By how much did each of these three currencies appreciate and depreciate
11. Suppose that Albernia’s central bank has fixed the value of its currency, the bern, to the dollar (at a rate of $1.50 to 1 bern) and is committed to that exchange rate. Initially, the foreign exchange market for the bern is also in equilibrium, as shown in the accompanying diagram. However,
10. Starting from a position of equilibrium in the foreign exchange market under a fixed exchange rate regime, how must a government react to an increase in the demand for the nation’s goods and services by the rest of the world to keep the exchange rate at its fixed value?
9. In eachhoroizfothnetaflollowing scenarios, suppose that the two nations are the only trading nations in the world. Given inflation and the change in the nominal exchange rate, which nation’s goods become more attractive?a. Inflation is 10% in Canada and 5% in Japan; the Canadian
8. In January 2001, the Canadian target for the overnight interest rate was 5.75%, falling to 2.5% in November 2004. During the same period, the marginal lending rate at the European Central Bank fell from 5.75% to 3%.a. Considering the change in interest rates over the period and using the
7. Go to http://fx.sauder.ubc.ca. Using the table labelled “The Most Recent Cross-Rates of Major Currencies,” determine whether the British pound (GBP), the Canadian dollar (CAD), the Japanese yen (JPY), the euro (EUR), and the Swiss franc (CHF) have appreciated or depreciated against the U.S.
6. Based on the exchange rates for the trading days of 2016 and 2017 shown in the accompanying table, did the Canadian dollar appreciate or depreciate over the year? Did the movement in the value of the Canadian dollar make Canadian goods and services more or less attractive to foreigners? April 1,
5. Suppose that Northlandia and Southlandia are the only two trading countries in the world, that each nation runs a balance of payments on both current and financial accounts equal to zero, and that each nation sees the other’s assets as identical to its own. Using the accompanying diagrams,
4. In the economy of Popania in 2016, total Popanian purchases of assets in the rest of the world equalled $300 billion, purchases of Popanian assets by the rest of the world equalled $400 billion, and Popania exported goods and services equal to $350 billion. What was Popania’s balance of
3. In the economy of Scottopia in 2016, exports equalled $400 billion of goods and $300 billion of services, imports equalled $500 billion of goods and $350 billion of services, and the rest of the world purchased $250 billion of Scottopia’s assets. What was the merchandise trade balance for
2. The accompanying diagram shows foreign-owned assets in Canada and Canadianowned assets abroad, both as a percentage of Canadian GDP. As you can see from the diagram, both increased, with foreign-owned assets in Canada rising by 2.4 times and Canadian-owned assets abroad rising by about fivefold
1. How would the following transactions be categorized in the Canadian balance of payments accounts? Would they be entered in the current account (as a payment to or from a foreigner) or the financial account (as a sale of assets to or purchase of assets from a foreigner)? How will the balance of
How should domestic macroeconomic policy be adjusted as a consequence of international economic considerations?
Why do countries choose different exchange rate regimes, such as fixed exchange rates and floating exchange rates?
What roles do the foreign exchange market and the exchange rate play? How do real exchange rates affect the current account?
What determines international capital flows?
What are the balance of payments accounts?
10. In response to the Great Recession, the U.S. Federal Reserve Bank took drastic and largely untested measures to stabilize both the financial system and the macroeconomy. These measures caused the U.S. monetary base to increase from approximately US$850 billion to over US$4 trillion. What would
9. Monetarists believed for a period of time that the velocity of money was stable within a country. However, with financial innovation, the velocity began shifting around erratically after 1980. As would be expected, the velocity of money is different across countries depending upon the

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Macroeconomics 3rd Canadian Edition Paul Krugman, Robin Wells, Iris Au, Jack Parkinson - Solutions

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