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business
microeconomics principles

Questions and Answers of Microeconomics Principles

Select all of the following that are true. To an economist, a coercive government can be useful in order to:a. Reallocate resources in order to improve efficiency.b. Fight negative
Critique: “Thank goodness we have so many government regulatory agencies. They keep Big Business in check.”
Discuss the political incentives that helped motivate federal politicians to approve budget deficits in all but four years between 1960 and 2012.
What is rent seeking and how does it differ from the kinds of profit maximization and profit seeking that we discussed in previous chapters? Provide an actual or hypothetical example of rent seeking
Jean Baptiste Colbert was the Minister of Finance under King Louis XIV of France. He famously observed, “The art of taxation consists in so plucking the goose as to obtain the largest possible
Why might citizens interested in maximizing economic efficiency be happy to invest their government with the right to coerce them in at least some situations?
Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles are worth but have no way of credibly demonstrating those values to potential
True or False: A market may collapse and have relatively few transactions between buyers and sellers if buyers have more information than sellers.
Government inspectors who check on the quality of services provided by retailers as well as government requirements for licensing in various professions are both attempts to resolve:a. The moral
People drive faster when they have auto insurance. This is an example of:a. Adverse selection.b. Asymmetric information.c. Moral hazard.
Because medical records are private, an individual applying for health insurance will know more about his own health conditions than will the insurance companies to which he is applying for coverage.
Assume the following values for Figures 4.4a and 4.4b. Q1 = 20 bags. Q2 = 15 bags. Q3 = 27 bags. The market equilibrium price is $45 per bag. The price at a is $85 per bag. The price at
Look at Tables 4.1 and 4.2 together. What is the total surplus if Bob buys a unit from Carlos? If Barb buys a unit from Courtney? If Bob buys a unit from Chad? If you match up pairs of buyers and
Match each of the following characteristics or scenarios with either the term negative externality or the term positive externality.a. Overallocation of resources.b. Tammy installs a very nice front
Efficiency losses ____________________________. a. Are not possible if suppliers are willing to produce and sell a product.b. Can only result from underproduction.c. Can only result from
Assume that candle wax is traded in a perfectly competitive market in which the demand curve captures buyers’ full willingness to pay while the supply curve reflects all production costs. For each
The LoJack car recovery system allows the police to track stolen cars. As a result, they not only recover 90% of LoJack-equipped cars that are stolen but also arrest many auto thieves and shut down
Explain the two causes of market failures. Given their definitions, could a market be affected by both types of market failures simultaneously?Explain the two causes of market failures. Given their
The table below shows two demand schedules for a given style of men€™s shoes€”that is, how many pairs per month will be demanded at various prices at a men€™s clothing
Demand and supply often shift in the retail market for gasoline. Here are two demand curves and two supply curves for gallons of gasoline in the month of May in a small town in Maine. Some of the
Governments can use subsidies to increase demand. For instance, the government can pay farmers to use organic fertilizers rather than traditional fertilizers. That subsidy increases the demand for
Will the the equilibrium price of orange juice increase or decrease in each of the following situations? a. A medical study reporting that orange juice reduces cancer is released at the same
When asked for investment advice, humorist Will Rogers joked that people should "[b]uy land. They ain't making any more of the stuff." Explain his advice in terms of the supply and demand
Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as given in the table below.a. What is the market equilibrium rental price per month and the market
Refer to the expanded table below from review question 8.a. What is the equilibrium price? At what price is there neither a shortage nor a surplus? Fill in the surplus-shortage column and use it
The figure below shows the supply curve for tennis balls,S1, for Drop Volley tennis, a producer of tennis equipment. Use the figure and the table below to give your answers to the following
A price ceiling will result in a shortage only if the ceiling price is ____________ the equilibrium price. a. Less thanb. Equal toc. Greater thand. Louder than
Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as shown in the table below. Suppose that the government establishes a price ceiling of
Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is $55 per chip, then there will be ______________ of memory chips. a. A
True or False: A “change in quantity demanded” is a shift of the entire demand curve to the right or to the left.
In some countries, such as France, every corpse is available for doctors to “harvest” for organs unless the deceased, while still alive, signed a form forbidding the organs to be harvested. In
Let’s put dollar amounts on the flows in the circular flow diagram of Figure 2.2.a. Suppose that businesses buy a total of $100 billion of the four resources (labor, land, capital, and
Suppose Natasha currently makes $50,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to
Table 2.1 contains information on three techniques for producing $15 worth of bar soap. Assume €œ$15 worth of bar soap€ means the selling price of soap is $3 per bar and all
Ted and Fred are the owners of a gas station. They invested $150,000 each and pay an employee named Lawrence $35,000 per year. This year revenues are $900,000, while costs are $940,000. Who is
Franklin, John, Henry, and Harry have decided to pool their financial resources and business skills in order to open up and run a coffee shop. They will share any profits or losses that the business
True or False: Households sell finished products to businesses.
Identify each of the following quotes as being an example of either: the coordination problem, the invisible hand, creative destruction, or the incentive problem. a. "If you compare a list
True or False: Money must be issued by a government for people to accept it.
Match each term with the correct definition. Private propertyFreedom of enterpriseMutually agreeableFreedom of choiceSelf-interestCompetitionMarketa. An institution that brings buyers and
Decide whether each of the following descriptions most closely corresponds to being part of a command system, a market system, or a laissez-faire system. a. A woman who wants to start a flower
The accompanying graph shows curve XX €™ and tangents at points A , B , and C . Calculate the slope of the curve at these three points.
Indicate how each of the following might affect the data shown in the table and graph in Figure 2 of this appendix:a. GSU’s athletic director schedules higher-quality opponents.b. An NBA
Look back at Figure 2, which shows the inverse relationship between ticket prices and game attendance at Gigantic State University. (a) Interpret the meaning of both the slope and the
Because investment and capital goods are paid for with savings, higher savings rates reflect a decision to consume fewer goods for the present in order to be able to invest in more goods for the
What are the two major ways in which an economy can grow and push out its production possibilities curve? a. Better weather and nicer cars.b. Higher taxes and lower spending.c. Increases in
Indicate whether each of the following relationships is usually a direct relationship or an inverse relationship.a. A sports team's winning percentage and attendance at its home games.b. Higher
Look back at Figure 2, which shows the inverse relationship between ticket prices and game attendance at Gigantic State University . (a) Interpret the meaning of both the slope and the
Look at Figure 1.3. Suppose that the cost of cheese falls, so that the marginal cost of producing pizza decreases. Will the MC curve shift up or down? Will the optimal amount of pizza increase or
What are the two major ways in which an economy can grow and push out its production possibilities curve? a. Better weather and nicer cars.b. Higher taxes and lower spending.c. Increases in
Suppose that a car factory initially hires 1500 workers at $30 per hour and that each worker works 40 hours per week. Then the factory unionizes, and the new union demands that wages be raised by 10
Suppose that a delivery company currently uses one employee per vehicle to deliver packages. Each driver delivers 50 packages per day, and the firm charges $20 per package for delivery.a. What
True or false. “To the extent that they succeed in their goals, unions only ever reduce productivity and efficiency.” 5 9
Look back at Figure 2. In the union sector, the union’s ability to raise wages from Wn to Wu decreases total employment from N1 to N2. Thus N1 – N2 workers are displaced from the union sector
True or false. In the United States, unions have been gaining in membership and power for several decades.
Suppose that a car dealership wishes to see if efficiency wages will help improve its salespeople’s productivity. Currently, each salesperson sells an average of one car per day while being paid
Suppose that low‐skilled workers employed in clearing woodland can each clear one acre per month if each is equipped with a shovel, a machete, and a chainsaw. Clearing one acre brings in $1,000 in
Complete the following labor supply table for a firm hiring labor competitively:a. Show graphically the labor supply and marginal resource (labor) cost curves for this firm. Are the curves the
Workers are compensated by firms with “benefits” in addition to wages and salaries. The most prominent benefit offered by many firms is health insurance. Suppose that in 2000 workers at one steel
A principal is worried that her agent may not do what she wants. As a solution, she should consider:a. Commissions.b. Bonuses.c. Profit sharing.d. All of the above.
Manny owns a local fast-food franchise. Angel runs it for him. So in this situation, Manny is the ____________ and Angel is the ________________.a. Free rider; entrepreneur.b. Agent; principal.c.
On average, 50-year old workers are paid several times more than workers in their teens and twenties. Which of the following options is the most likely explanation for that huge differencein average
The market equilibrium wage is currently $12 per hour among hairdressers. At that wage, 17,323 hairdressers are currently employed in the state. The state legislature then sets a minimum wage of
True or false. When a labor market consists of a single monopsony buyer of laborinteracting with a single monopoly seller of labor (such as a trade union), the resulting quantityof labor that is
Because a perfectly competitive employer’s MRC curve is ______________, it will hire ____________ workers than would a monoposony employer with the same MRP curve. a. Upsloping; more.b.
Brenda owns a construction company that employs bricklayers and other skilled tradesmen. Her firm’s MRP for bricklayers is $22.25 per hour for each of the first seven bricklayers, $18.50 for an
Assume a monopsonistic employer is paying a wage rate of Wm and hiring Qm workers, as indicated in Figure 15.8. Now suppose an industrial union is formed that forces the employer to
Consider a small landscaping company run by Mr. Viemeister. He is considering increasing his firm’s capacity. If he adds one more worker, the firm’s total monthly revenue will increase from
Suppose that a monopoly firm finds that its MR is $50 for the first unit sold each day, $49 for the second unit sold each day, $48 for the third unit sold each day, and so on. Further suppose that
Suppose that marginal product tripled while product price fell by one ‐ half in Table 14.1. What would be the new MRP values in Table 14.1? What would be the net impact on the location of the
A delivery company is considering adding another vehicle to its delivery fleet, all the vehicles of which are rented for $100 per day. Assume that the additional vehicle would be capable of
A software company in Silicon Valley uses programmers (labor) and computers (capital) to produce apps for mobile devices. The firm estimates that when it comes to labor, MPL = 5 apps per month
Suppose the productivity of capital and labor are as shown in the accompanying table. The output of these resources sells in a purely competitive market for $1 per unit. Both capital and labor are
FreshLeaf is a commercial salad maker that produces “salad in a bag” that is sold at many local supermarkets. Its customers like lettuce but don’t care so much what type of lettuce is included
Alice runs a shoemaking factory that utilizes both labor and capital to make shoes. Which of the following would shift the factory’s demand for capital? You can select one or more answers from the
Complete the following labor demand table for a firm that is hiring labor competitively and selling its product in a competitive market.a. How many workers will the firm hire if the market wage
Cindy is a baker and runs a large cupcake shop. She has already hired 11 employees and is thinking of hiring a 12th. Cindy estimates that a 12th worker would cost her $100 per day in wages and
A firm faces the following costs. Its total cost of capital = $1,000; its price paid for labor = $12 per labor unit; and its price paid for raw materials = $4 per raw‐material
Which statement about market structure and innovation is true?a. Innovation helps only dominant firms.b. Innovation keeps new firms from ever catching up with leading firms.c. Innovation often leads
The inverted-U theory suggests that R&D expenditures as a percentage of sales __________ with industry concentration after the four-firm concentration ratio exceeds about 50 percent.a. Rise.b.
An additional unit of Old Product X will bring Cindy an MU of 15 utils; an additional unit of New Product Y will bring Cindy an MU of 30 utils; and an additional unit of New Product Z will bring
A firm is considering three possible one-year investments, which we will name X, Y, and Z.Investment X would cost $10 million now and would return $11 million next year, for a net gain of $1
How could spending less on Social Security now lead to an ability to increase Social Security in the future? Why don't businesses devote more of their R&D spending toward basic scientific
Explain: “The success of a new product depends not only on its marginal utility but also on its price.”
Answer the following lettered questions on the basis of the information in this table:a. If the interest € rate cost of funds is 8 percent, what will be the optimal amount of R&D
Consider whether the promises and threats made toward each other by duopolists and oligopolists are always credible (believable). Look at the figure below. Imagine that the two firms will play this
Consider a “punishment” variation of the two ‐ firm oligopoly situation shown in Figure 13.3 in the chapter. Suppose that if one firm sets a low price while the other sets a high price, then
Property developers who build shopping malls like to have them “anchored” with the outlets of one or more famous national retail chains, like Target or Nordstrom. Having such “anchors” is
True or false. Potential rivals may be more likely to collude if they view themselves as playing a repeated game rather than a one-time game. 0
Collusive agreements can be established and maintained by:a. Credible threats. b. One-time games. c. Empty threats. d. First-mover advantage.
Refer to the payoff matrix below.Assuming this is a sequential game with no collusion, what is the outcome if Firm A moves first to build a new type of commercial aircraft? Explain why first-mover
Is the game shown by Figure 13.3 in the chapter (not this appendix) a zero-sum game or is it a positive-sum game? How can you tell? Are there dominant strategies in this game? If so, what are they?
Suppose that a monopolistically competitive restaurant is currently serving 230 meals per day (the output where MR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay
Suppose that the most popular car dealer in your area sells 10 percent of all vehicles. If all other car dealers sell either the same number of vehicles or fewer, what is the largest value that the
Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 23%, 22%, 18%, 12%, 11%, 8%, and 6%. What is the
Some analysts consider oligopolies to be potentially less efficient than monopoly firms because at least monopoly firms tend to be regulated. Arguments in favor of a more benign view of oligopolies
In an oligopoly, each firm’s share of the total market is typically determined by: a. Scarcity and competition.b. Kinked demand curves and payoff matrices.c. Homogeneous products and import
Consider an oligopoly industry whose firms have identical demand and cost conditions. If the firms decide to collude, then each one will want to produce the amount of output that it would if it
Faceblock, Gargle+, and MyMace are rival firms in an oligopoly industry. If kinked-demand theory applies to these three firms, Faceblock’s demand curve will be: a. More elastic above the
Which of the following apply to oligopoly industries? Select one or more answers from the choices shown. a. A few large producers.b. Many small producers.c. Strategic behavior.d. Price

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