Modern Principles Microeconomics 2nd Edition Tyler Cowen, Alex Tabarrok - Solutions

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Your study partner is confused by the upward-sloping shortrun aggregate supply curve and the vertical long-run aggregate supply curve. How would you explain why these slopes differ?
Suppose someone says, “Expansionary monetary or fiscal policy does nothing but temporarily overstimulate the economy—you get a brief high, but then you have the pain of inflation.”a. Explain what this means in terms of the AS–AD model.b. Is this a valid argument against stabilization
How the AS–AD model is used to analyze economic fluctuations
The importance of the multiplier, which determines the total change in aggregate output arising from a shift of the aggregate demand curve
The government is running a budget balance of zero when it decides to increase education spending by $200 billion and finance the spending by selling bonds. The accompanying diagram shows the market for loanable funds before the government sells the bonds. Assume the economy is closed.How will the
Use the market for loanable funds shown in the accompanying diagram to explain what happens to private savings, private investment spending, and the rate of interest if the following events occur. Assume the economy is closed.a. The government reduces the size of its deficit to zero.b. At any given
Given the following information about the open economy of Regalia, what is the level of investment spending and private savings, and what are the budget balance and capital inflow?What is the relationship among the four? There are no government transfers.GDP = $1,000 million G = $100 million C =
Illustrate with a diagram of the loanable funds market the effect of the following events on the equilibrium interest rate and investment spending.a. A closed economy becomes an open one. A capital inflow occurs.b. Retired people generally save less than working people at any interest rate. The
Suppose the government’s deficit becomes a budget surplus. Using a diagram like Figure 9-6, show the effects on private investment spending and the equilibrium interest rate.
The accompanying table shows data from the Penn World Table, Version 6.1, for real GDP per capita (1996 U.S. dollars) for Argentina, Ghana, South Korea, and the United States in 1960 and 2000. Complete the table. Have these countries converged economically?
The accompanying table shows data from the Penn World Table, Version 6.1, for real GDP per capita (1996 U.S. dollars)in France, Japan, the United Kingdom, and the United States in 1950 and 2000. Complete the table. Have these countries converged economically?
Over the next 100 years, real GDP per capita in Groland is expected to grow at an average annual rate of 2.0%. In Sloland, however, growth is expected to be somewhat slower, at an average annual growth rate of 1.5%. If both countries have a real GDP per capita today of $20,000, how will their real
Through its policies and institutions, how has the United States influenced U.S. long-run economic growth? Why might persistently large borrowing by the U.S. government ultimately limit long-run economic growth in the future?
The Bureau of Labor Statistics regularly releases the “Productivity and Costs” report for the previous month. Go to www.bls.gov and find the latest report. (On the Bureau of Labor Statistics home page, click on “Productivity” under Latest Numbers and then choose the latest “Productivity
The economy of Profunctia has estimated its aggregate production function, when holding human capital per worker and technology constant, as= 100 × √Y is real GDP, L is the number of workers, and K is the quantity of physical capital. Given that Profunctia has 1,000 workers, calculate real GDP
You are hired as an economic consultant to the countries of Albernia and Brittania. Each country’s current relationship between physical capital per worker (K/L) and output per worker (Y/L) is given by the curve labeled Productivity1 in the accompanying diagram. Albernia is at point A and
The accompanying table shows the average annual growth rate in real GDP per capita for Argentina, Ghana, and South Korea using data from the Penn World Table, Version 6.1, for the past few decades.a. For each decade and for each country, use the Rule of 70 where possible to calculate how long it
The accompanying table shows data from the Penn World Table, Version 6.1, for real GDP per capita in 1996 U.S. dollars for Argentina, Ghana, South Korea, and the United States for 1960, 1970, 1980, 1990, and 2000.
Many countries that once shunned foreign-owned factories now welcome them. Explain this change of attitude.
During the 1990s in the former U.S.S.R., a lot of property was seized and controlled by those in power. How might this have affected the country’s growth rate?
In recent years the United States has had a very low savings rate (the percentage of GDP that is saved nationally in a given year) but has attracted much foreign investment. Some economists say this is a danger to long-run growth, but others disagree. Why might both sides be right?
The factors that explain why growth rates differ so much among countries
Why productivity is the key to long-run growth, and how productivity is driven by physical capital, human capital, and technological progress
How long-run growth can be measured by the increase in real GDP per capita, how this measure has changed over time, and how it varies across countries
The accompanying table contains two price indexes for the years 2002, 2003, and 2004: the GDP deflator and the CPI.For each price index, calculate the inflation rate from 2002 to 2003 and from 2003 to 2004.
Each month the Bureau of Labor Statistics releases the Consumer Price Index Summary for the previous month. Go to www.bls.gov and find the latest report. (On the Bureau of Labor Statistics home page, click on “CPI” under “Latest Numbers” and then choose “Consumer Price Index Summary.”)
The consumer price index, or CPI, measures the cost of living for the average consumer by multiplying the price for each category of expenditure (housing, food, and so on) times a measure of the importance of that expenditure in the average consumer’s market basket and summing over all
Eastland College is concerned about the rising price of textbooks that students must purchase. To better identify the increase in the price of textbooks, the dean asks you, the Economics Department’s star student, to create an index of textbook prices. The average student purchases three English,
Each month, usually on the first Friday of the month, the Bureau of Labor Statistics releases the Employment Situation Summary for the previous month. Go to www.bls.gov and find the latest report. (On the Bureau of Labor Statistics home page, click on “National unemployment rate” and then
In general, how do changes in the unemployment rate vary with changes in real GDP? After several quarters of a severe recession, explain why we might observe a decrease in the official unemployment rate. Could we see an increase in the official unemployment rate after several quarters of a strong
This table shows the Human Development Index (HDI) and real GDP per capita in U.S. dollars for six nations in 2002.Rank the nations according to HDI and according to real GDP per capita. Why do the two vary?
The accompanying table shows data on nominal GDP (in billions of dollars), real GDP (in billions of dollars) using 2000 as the base year, and population (in thousands) of the U.S. in 1960, 1970, 1980, 1990, 2000, and 2004, years in which the U.S. price level consistently rose.a. Why is real GDP
The economy of Britannica produces three goods: computers, DVDs, and pizza. The accompanying table shows the prices and output of the three goods for the years 2002, 2003, and 2004.a. What is the percent change in production of each of the goods from 2002 to 2003 and from 2003 to 2004?b. What is
A more complex circular-flow diagram for the economy of Macronia is shown at right.a. What is the value of GDP in Macronia?b. What is the value of net exports?c. What is the value of disposable income?d. Does the total flow of money out of households—the sum of taxes paid, consumer spending, and
At right is a simplified circular-flow diagram for the economy of Micronia.a. What is the value of GDP in Micronia?b. What is the value of net exports?c. What is the value of disposable income?d. Does the total flow of money out of households—the sum of taxes paid, consumer spending, and private
The consumer price index in the United States (base period 1982–1984) was 184.0 in 2003 and 188.9 in 2004. Calculate the inflation rate from 2003 to 2004.
Using what you have learned from Question 1, explain the effect of each of the following events on how well a CPI based on a market basket determined 10 years ago functions in measuring the change in prices today.a. A typical family owns more cars than it would have a decade ago. Over that time,
Which of the following are consistent with the observed relationship between growth in real GDP and changes in the unemployment rate? Which are not?a. A rise in the unemployment rate accompanies a fall in real GDP.b. A business recovery is associated with a greater percentage of the labor force
Suppose the advent of employment websites enables job-seekers to find a suitable job more quickly. What effect will this have on the unemployment rate over time? Also suppose that these websites encourage job-seekers who had given up their search to begin looking again.What effect will this have on
From 1990 to 2000, the price of electronic equipment fell dramatically and the price of housing rose dramatically. What are the implications of this in deciding whether to use 1990 or 2000 as the base year in calculating 2005 real GDP?
Assume there are only two goods in the economy, french fries and onion rings. In 2004, 1,000,000 servings of french fries were sold at $0.40 each and 800,000 servings of onion rings at $0.60 each. From 2004 to 2005, the price of french fries rose by 25% and the servings sold fell by 10%; the price
Consider Figure 7-2 and suppose you mistakenly believed that total value added was $30,500, the sum of the sales price of a car and a car’s worth of steel. What items would you be counting twice?
The significance of the unemployment rate and how it moves over the business cycle
The difference between real GDP and nominal GDP and why real GDP is the appropriate measure of real economic activity
What is special about the macroeconomics of an open economy, an economy that trades goods, services, and assets with other countries
What long-run growth is and how it determines a country’s standard of living
The importance of the business cycle and why policy makers seek to diminish the severity of business cycles
An overview of macroeconomics, the study of the economy as a whole, and how it differs from microeconomics
The difference between positive economics, which tries to describe the economy and predict its behavior, and normative economics, which tries to prescribe economic policy
Three simple but important models: the production possibility frontier, comparative advantage, and the circular-flow diagram
The difference between movements along a curve and shifts of a curve
What the demand curve is and what the supply curve is
Why the deadweight loss of a tax means that its true cost is more than the amount of tax revenue collected
What an excise tax is and why its effect is similar to a quantity control
Why economists are often deeply skeptical of attempts to intervene in markets
How price and quantity controls create problems and make a market inefficient
The meaning of price controls and quantity controls, two kinds of government intervention in markets
Draw the appropriate curve in each of the following cases. Is it like or unlike the curves you have seen so far? Explain.a. The demand for cardiac bypass surgery, given that the government pays the full cost for any patientb. The demand for elective cosmetic plastic surgery, given that the patient
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
Some points on a demand curve for a normal good are given here:Do you think that the increase in quantity demanded (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.
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
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
In a supply and demand diagram, draw the shift in demand 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 falls in
A survey indicated that chocolate ice cream is America’s favorite ice-cream flavor. For each of the following, indicate the possible effects on demand and/or supply and 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
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 identicala. Which variable is the independent variable?
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
In the accompanying figures, the numbers on the axes have been lost. All you know is that the units shown on the vertical axis are the same as the units on the horizontal axis.a. If the price of movies increases, fewer consumers go to see movies.b. More experienced workers typically have higher
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?b. What would tax
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
On the east side of the Hatatoochie River lives the Hatfield family, while the McCoy family lives on the west side. Each family’s diet consists of fried chicken and corn-on-the-cob, and each is self-sufficient, raising their own chickens and growing their own corn. Explain the conditions under
Use the concept of opportunity cost to explain the following.a. More people choose to get graduate degrees when the job market is poor.b. More people choose to do their own home repairs when the economy is slow.c. There are more parks in suburban areas than in urban areas.d. Convenience stores,
When markets fail and do not achieve efficiency, government intervention can improve society’s welfare.Shipping Delivery method time Charge Standard shipping 3–7 days $3.99 Second-day air 2 business days 1$$8.98 Next-day air 1 business day $13.98
Markets usually lead to efficiency, with some welldefined exceptions.
An economy is efficient if all opportunities to make someone better off without making others worse off are taken. Resources should be used as efficiently as possible to achieve society’s goals. But efficiency is not the sole way to evalulate an economy: equity, or fairness, is also desirable,
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.f. You realize that you can graduate a semester early by forgoing a semester of study abroad.g. 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 nine 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 vacation trip, your budget is limited to$35 a day.c. The
Explain how each of the following situations illustrates one of the five principles of interaction.a. Using the college website, any student who wants to sell a used textbook for at least $X is able to sell it to another who is willing to pay $X.b. At a college tutoring co-op, students can arrange
1.4. There are two special cases that might result in indifference curves that look a little different from the ones discussed in the text.a. If two goods are perfect substitutes, that means the consumer would always be will ing to trade one for the other in a certain, fixed proportion. In this
1.3. Currently, if you join Columbia House's DVD club, you get 3 DVDs for $1 each, but you have to commit to buying at least 3 more DVDs at $20 each over the next year. Suppose the normal market price of a DVD is $16.a. Construct two budget constraints: one for a consumer who joins Columbia House
1.2. Refer to Thinking and Problem-Solving question 1. In that question, we assumed that the consumer earned $50 in period 1 and $150 in period 2, and that saving and borrowing were both interest-free. Let's see if we can't add even more real-life detail to this problem.a. Draw a new budget
1.1. This chapter argues that the ideal membership fee from Costco's point of view would leave consumers indifferent between shopping at Costco and shopping elsewhere. Do you think most of the shoppers at Costco are indifferent?What prevents Costco from setting its ideal fee?
1.4. There are two special cases that might result in indifference curves that look a little different from the ones discussed in the text.a. If two goods are perfect substitutes, that means the consumer would always be will ing to trade one for the other in a certain, fixed proportion. In this
1.3. Currently, if you join Columbia House's DVD club, you get 3 DVDs for $1 each, but you have to commit to buying at least 3 more DVDs at $20 each over the next year. Suppose the normal market price of a DVD is $16.a. Construct two budget constraints: one for a consumer who joins Columbia House
1.2. Refer to Thinking and Problem-Solving question 1. In that question, we assumed that the consumer earned $50 in period 1 and $150 in period 2, and that saving and borrowing were both interest-free. Let's see if we can't add even more real-life detail to this problem.a. Draw a new budget
1.1. This chapter argues that the ideal membership fee from Costco's point of view would leave consumers indifferent between shopping at Costco and shopping elsewhere. Do you think most of the shoppers at Costco are indifferent?What prevents Costco from setting its ideal fee?
1.6. In this chapter, we focused a lot on budget constraints, but time is an additional constraint that consumers face. Jackson has $40 per week to spend on leisure activities. He likes to bowl and to play racquetball. Bowling costs $4 per game, and a day pass to the racquet club costs$8. Jackson
1.5. eMusic is a popular subscription MP3 Web site. For a monthly membership fee, you can download MP3s for a price that's about half of what MP3s cost at iTunes or Amazon.Consider someone with $50 worth of income to spend on entertainment each month and who can choose to buy MP3s or "other stuff'
1.4. With inferior goods (like ramen noodles), the income effect works in the opposite direction from the income effect discussed in the text. If a consumer feels richer, she would buy less of an inferior good. If she feels poorer, more.a. Suppose that a consumer eats two different foods: potatoes
1.3. Consider Facts and Tools question 2. Explain the income and substitution effects of the price changes on your optimal consumption bundle when the latte and scone prices increased, but your income did not.
1.2. In Major League Baseball, teams in the American League use a designated hitter (DH)to bat in place of the pitcher, while teams in the National League require their pitchers to bat. Sports economists have noted that in the National League, batters are hit by pitches 15% less often than in the
1.1. Suppose we wanted to investigate the saving and borrowing behavior of consumers. It's not that difficult to extend our basic model. We can use the same framework as before, but define our two goods as "consumption in period 1"(horizontal axis) and "consumption in period 2"(vertical axis).a.
1.7. Is marginal utility always diminishing? Con ider playing cards. If playing cards were purchased one at a time, what would be true about the marginal utility of the 51st playing card compared with the marginal utility of the 52nd playing card? Why do you think it's okay for economists to assume
1.6. The utility-maximizing bundle of goods is found at the point of tangency between the budget constraint and an indifference curve.In the diagram below, the utility-maximizing bundle is the one labeled point K. There are two different, but equally important, ways to interpret this point.Budget
1.5. Suppose Haya has $120 of income left each week after she pays her bills and puts some money away in a savings account, and she has two ways to spend this extra money: go to the movies, which costs $18 including popcorn and a soda, or go out to a club with several friends, which costs $33
1.4. Fill in the blanks below with either "good X"or "goodY," where good X is measured on the x-axis and good Y is measured on the y-axis.a. If the price of __ is $8 and the price of __ is $12, then the price ratio (also the slope of the budget constraint) is 1.5.b. A price ratio of 1.5 means that
1.3. You learned in the chapter that the process of utility maximization involves a comparison of marginal utilities per dollar, which are calculated as marginal utility divided by price.Consider two goods that most people consume at least some of during their lives: apples and cars.a. If utility
1.2. Imagine that for the past two years, you've con umed only two goods: lattes and scones. As you're probably aware, prices tend to go up over time. If the price of your latte increased from$2 to $3 over the last two years, and the price of scones increased from $1.50 to $2.25, what impact would
1.1. The table at right shows the marginal On-Demand Marginal Movies 23 Utility Thai Takeout Marginal Meals 50 30 20 45 67 utility a consumer receives from the weekly consumption of On-Demand movie rentals and Thai takeout meals. One On-Demand movie rental costs $5, and Thai takeout cost 10 per

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Modern Principles Microeconomics 2nd Edition Tyler Cowen, Alex Tabarrok - Solutions

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