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microeconomics principles
Modern Principles Macroeconomics 2nd Edition Tyler Cowen ,Alex Tabarrok - Solutions
1.4. Police officer: "I pulled you over for speeding.You were going 80 miles per hour."Driver: "But that's impossible, officer! I've only been driving for 15 minutes!"The government reports GDP numbers every quarter. How does this story illustrate the meaning of "GDP per year" when the GDP number
1.3. What happened to spending on medical services and recreational activities after 1950?
1.2. What is included in GDP: all goods, all services, or both?
1.1. According to Table 6.1, what country has the highest GDP? What country on the list has the highest GDP per person? What countries on the list have the second highest GDP and the second highest GDP per person?
1.7. Labor unions are some of the strongest proponents of the minimum wage. Yet in 2008, the median full-time union member earned$886 per week, an average of over $22 per hour(http://www.bls.gov/news.release/union2.nr0.htm). Therefore, a rise in the minimum wage doesn't directly raise the wage of
1.6. In a command economy such as the old Soviet Union, there were no prices for almost all goods. Instead, goods were allocated by a"central planner." Suppose that a good like oil becomes more scarce. What problems would a central planner face in reallocating oil to maximize consumer plus producer
1.5. Antibiotics are often given to people with colds (even though they are not useful for that purpose), but they are also used to treat life-threatening infections. If there was a price control on antibiotics, what do you think would happen to the allocation of antibiotics across these two uses?
1.4. Let's measure consumer surplus if the govern ment imposes price controls and goods ended up being randomly allocated among those consumers willing to pay the controlled price. If the demand and supply curves are as in the figure below, then:Controlled price 1000 4000 Quantitya. What is
1.3. Suppose that the market for coats can be described as follows:Quantity Demanded Quantity Supplied Price$120$100$80$60(millions)16 18 20 22(millions)20 18 16 14 V>iii 0:::0 uz z
1.2. In New York City, some apartments are under strict rent control, while others are not. T his is a theme in many novels and movies about N ew York, including Bonfire of the Vanities and When Harry Met Sally. One predictable side effect of rent control is the creation of a black market.Let's
1.1. If a governm.ent decided to impose price controls on gasoline, what could it do to avoid the time wasted waiting in lines? There is surely more than one solution to this problem.
1.17. We noted that in the 1970s price floors on airline tickets caused wasteful increases in the quality of airline trips. Does the minimum wage cause wasteful increases in the quality of workers? If so, how? In other words, how are minimum-wage workers like airplane trips?
1.16. In the market depicted below there is either a price ceiling or a price floor-surprisingly, it doesn't matter which one it is: Whether it's an$80 price floor or a $30 price ceiling, the chart looks the same.Price$80 30 Demand 100 200 Quantity In the chart, there's a rectangle and a
1.15. Suppose you're doing some history research on shoe production in ancient Rome, during the reign of the famous Emperor Diocletian.Your records tell you how many shoes were produced each year in the Roman Empire, but it doesn't tell you the price of shoes.You find a document that says that in
1.14. President Jimmy Carter didn't just deregulate airline prices. He also deregulated much of the trucking industry, as well. Trucks carry almost all of the consumer goods that you purchase, so almost every time you purchase something, you're paying money to a trucking company.a. Based on what
1.13. In the 1970s, AirCal and Pacific Southwest Airlines flew only within California. As we mentioned, the federal price floors didn't apply to flights within just one state. A major route for these airlines was flying from San Francisco to Los Angeles, a distance of 350 miles. This is about the
1.12. Rent control creates a shortage of housing, which makes it hard to find a place to live.In a price-controlled market, people have to waste a lot of time trying to find these scarce, artificially cheap products. Yet Congressman Charles B. Rangel, the chairman of the powerful House Ways and
1.11. Consider Figure 5. 9. Your classmate looks at that chart and says, "Apartment construction slowed down years before rent control was passed, and after rent control was passed, more apartments were built. Rent control didn't cut the number of new apartments, it raised it. This proves that rent
1.10. In the late 1990s, the town of Santa Monica, California, made it illegal for banks to charge people ATM fees. As you probably know, it's almost always free to use your own bank's ATMs, but there's usually a fee charged when you use another bank's ATM. (Source: The war on ATM fees, Time,
1.9. In the town of Freedonia, the government declares that all street parking must be free:There can be no parking meters. In an almost identical town of Meterville, parking costs$5 per hour (or $1.25 per 15 minutes).a. Where will it be easier to find parking: in Freedonia or Meterville?90 •
1.8.a. As we noted, Assar Lindbeck once said that short of aerial bombardment, rent control is the best way to destroy a city. What do you think Lindbeck might mean by this?b. How does paying "key money" to a landlord reduce the severity ofLindbeck's"bombardment"?
1.7. So, knowing what you know now about price controls, are you in favor of setting a $2 per gallon price ceiling on gasoline? Create a pro-price control and an anti-price control answer.
1.6. A "black market" is a place where people make illegal trades in goods and services. For instance, during the Soviet era, it was common for American tourists to take a few extra pairs of Levi's jeans when visiting the Soviet Union:They would sell the extra pairs at high prices on the illegal
1.5. During a crisis such as Hurricane Katrina, governments often make it illegal to raise the price of emergency items like flashlights and bottled water. In practice, this means that these items get sold on a first-come, first-served basis.a. If a person has a flashlight that she values at$5, but
1.4. Let's count the value oflost gains from trade in a regulated market. The government decides it wants to make basic bicycles more affordable, so it passes a law requiring that all one-speed bicycles sell for $30, well below the market price. Use the data below to calculate the lost gains from
1.3. On January 31, 1990, the first McDonald's opened in Moscow, capital of the then Soviet Union. Economists often described the Soviet Union as a "permanent shortage economy,"where the government kept prices permanently low in order to appear "fair.""An American journalist on the scene reported
1.2. When the United States had price controls on oil and gasoline, some parts of the United States had a lot of heating oil, while other states had long lines. As in the chapter, let's assume that winter oil demand is higher in New Jersey than in California. If there had been no price controls,
1.1. In rich countries, governments almost always set the fares for taxi rides. The prices for taxi rides are the same in safe neighborhoods and in dangerous neighborhoods. Where is it easier to find a cab?Why? If these taxi price controls were ended, what would probably happen to the price and
1.14. The basic idea of deadweight loss is a willing buyer and a willing seller can't find a way to make an exchange. In the case of the minimum wage law, the reason they can't make an exchange is because it's illegal for the buyer (the firm) to hire the seller (the worker)at any wage below the
1.13. How do U.S. business owners change their behavior when the minimum wage rises?How does this impact teenagers?
1.12. A review of the jargon: Is the minimum wage a"price ceiling" or a "price floor"? What about rent control?
1.11.a. If the government forced all bread manufac turers to sell their products at a "fair price"that was half the current, free-market price, what would happen to the quantity supplied of bread?b. To keep it simple, assume that people must wait in line to get bread at the controlled price. Would
1.10. Business leaders often say that there is a"shortage" of skilled workers, and so they argue that immigrants need to be brought in to do these jobs. For example, a recent AP article was entitled "New York farmers fear a shortage of skilled workers," and went on to point out that a special U.S.
1.9.a. Consider Figure 5.8. In a price-controlled market like this one, when will consumer surplus be larger: in the short run or in the long run?b. In this market, supply is more elastic, more flexible, in the long run. In other words, in the longer term, landlords and homebuilders can find
1.8. In the chapter, we discussed how price ceilings can put goods in the wrong place, as when too little heating oil wound up in New Jersey during a harsh winter in the 1970s. Price controls can also put goods in the wrong time a well. If there are price controls on gasoline, can you think of some
1.7. Price controls distribute resources in many unintended ways. In the following cases, who will probably spend more time waiting in line to get scarce, price-controlled goods? Choose one from each pair:a. Working people or retired people?b. Lawyer who charge $800 per hour or fastfood employees
1.6. Between 2000 and 2008, the price of oil increased from $30 per barrel to $140 per barrel, and the price of gasoline in the United States rose from about $1.50 per gallon to more than$4.00 per gallon. Unlike in the 1970s when oil prices spiked, there were no long lines outside gas stations. Why?
1.5. The Canadian government has wage controls for medical doctors. To keep things simple, let's assume that they set one wage for all doctors: $100,000 per year. It take about 6 years to become a general practitioner or a pediatrician, but it takes about 8 or 9 year to become a specialist like a
1.4. If a government decides to make health insurance affordable by requiring all health insurance companies to cut their prices by 30%, what will probably happen to the number of people covered by health insurance?
1.3. Suppose that the quantity demanded and quantity supplied in the market for milk is as follows:Price per Gallon$5$4$3$2$1 Quantity Demanded 1000 2000 3500 4100 6000 Quantity Supplied 5000 4500 3500 2000 1000a. What is the equilibrium price and quantity of milk?b. If the government place a price
1.2. When a price ceiling is in place keeping the price below the market price, what's larger:quantity demanded or quantity supplied? Ho does this explain the long lines and wasteful searches we see in price-controlled market ?
1.1. How does a free market eliminate a hortage?
1.7. Let's take the idea from the previous question and use it to explain why businesses sometimes try to make their employees happy. If a business can make a job seem fun (by offering inexpensive pizza lunches) or at least safe (by nagging the city government to put police patrols around the
1.6. When the crime rate falls in the area around a factory, what probably happens to wages at that factory?
1.5. Economists often say that prices are a "rationing mechanism." If the supply of a good falls, how do prices "ration" these now-scarce goods in a competitive market?
1.4.a. If oil executives read in the newspaper that massive new oil supplies have been discovered under the Pacific Ocean but will likely only be useful in 10 years, what is likely to happen to the supply of oil today?What is the likely equilibrium impact on the price and quantity of oil today?b.
1.3. Many clothing stores often have clearance sales at the end of each season. Using the tools you learned in this chapter, can you think of an explanation why?
1.2. Think about two products: "safe cars" (a heavy car such as a BMW 530xi with infrared night vision, four-wheel antilock brakes, and electronic stability control), and "dangerous cars" (a lightweight car such as ____ _[name removed for legal reasons, but you can fill in as you wish]).a. Are
1.1. For many years, it was illegal to color margarine yellow (margarine is naturally white). In some states, margarine manufacturers were even required to color margarine pink! Who do you think supported these laws? Why? Hint: Your analysis in question 8 from the previous section is relevant!
1.12. In recent years, there have been news reports that toys made in China are unsafe. When those news reports show up on CNN and Fox News, what probably happens to the demand for toys made in China? What probably happens to the equilibrium price and quantity of toys made in China? Are Chinese
1.11. In 2002, the Atkins diet, which emphasized eating more meat and fewer grains, became very popular. What do you suppose that did to the price and quantity of bread? Use supply and demand analysis to support your answer.
1.10. If a snowstorm was forecast for the next day, what would happen to the demand for snow shovels? Is this a change in quantity demanded or a change in demand? This shift in the demand curve would affect the price; would this cause a change in quantity supplied or a change in supply?
1.9. The market for sugar is diagramed below:a. What would happen to the equilibrium quantity and price if the wages of sugar cane harvesters increased?b. What if a new study was published that emphasized the negative health effects of consuming sugar?Price per 1,000 lb$30 Demand 50 Quantity(1,000s
1.8. If the price of margarine decreases, what happens to the demand for butter? What happens to the equilibrium quantity and price for butter? What would happen ifbutter and margarine were not substitutes? Use a supply and demand diagram to support your answer.
1.7. Suppose you decided to follow in Vernon Smith's footsteps and conducted your own experin1ent with your friends. You give out 10 cards, 5 cards to buyers with the figures for willingness to pay of$1, $2, $3, $4, and $5, and 5 cards to sellers with the amounts for costs of$1, $2, $3, $4, and $5.
1.6. The market for marbles is repre ented in the graph below. What is the total producer surplus? The total consumer surplus? What are the total gains from trade?Price$11 5Supply Quantity
1.5. In the figure below, how many pounds of sugar are sellers willing to sell at a price of $20? How much is demanded at this price? What is the buyer's willingness to pay when the quantity is 20 lb? Is this combination of $20 per pound and a quantity of 20 lb an equilibrium? If not, identifY the
1.4. Determine the equilibrium quantity and price without drawing a graph.Price of Quantity Quantity Good X Supplied Demanded$22 100 225$25 115 200$30 130 175$32 150 150$40 170 110 Equilibrium: How Supply and Demand Determine Prices • CHAPTER 4 • 63
1.3. If the price of a one-bedroom apartment in Washington, D.C., is currently $1,000 per month, but the supply and demand curves look as follows, then is there a shortage or surplus of apartments?What would we expect to happen to prices? Why?Rent for apartments(per month)100,000 apartments
1.2. Consider the following supply and demand tables for bread. Draw the supply and demand curves for this market. What is the equilibrium price and quantity?Price of Quantity Quantity One Loaf Supplied Demanded$0.50 10 75$1 20 55$2 35 35$3 50 25$5 60 10
1.1. Suppose the market for batteries looks as follows:Quantity What is the equilibrium price and quantity?
1.11. What's the best way to think about the rise in oil prices in the last 10 years, as China and India have become richer: Was it a rise in demand, a fall in demand, a rise in supply, or a fall in supply?
1.10. What's the best way to think about the rise in oil prices in the 1970s, when wars and oil embargoes wracked the Middle East? Was it a rise in demand, a fall in demand, a rise in supply, or a fall in supply?
1.9.a. When demand increases, what happens to price and quantity in equilibrium?b. When supply increases, what happens to price and quantity in equilibrium?c. When supply decreases, what happens to price and quantity in equilibrium?d. When demand decreases, what happens to price and quantity in
1.8.a. When demand increases, what happens to price and quantity in equilibrium?b. When supply increases, what happens to price and quantity in equilibrium?c. When supply decreases, what happens to price and quantity in equilibrium?d. When demand decreases, what happens to price and quantity in
1.7. When supply falls, what happens to quantity demanded in equilibrium? (This should get you to notice that both suppliers and demanders change their behavior when one curve shifts.)
1.6. "What happened in Vernon Smith's lab? Choose the right answer:a. The price and quantity were close to equi librium but gains from trade were far from the maximum.b. The price and quantity were far from equilibrium and gains from trade were far from the maxin1um.c. The price and quantity were
1.5. Jules wants to purchase a Royale with cheese from Vincent. Vincent is willing to offer this tasty burger for $3. The most Jules is willing
1.4. Now, Jon is in Japan, trying to get a job as a full-time translator; he wants to translate English TV shows into Japanese and vice versa.He notices that the wage for translators is very low. Who is the "competition" that is pu hing the wage down: Does the competition come from busine ses who
1.3. Jon is on eBay, bidding for a fir t edition of the influential Frank Miller graphic novel Batman:The Dark Knight R eturns. In this market, who is Jon competing with: the seller of the graphic novel or the other bidders?to pay for the tasty burger is $8 (after all, his girlfriend is a
1.2. When the price is above the equilibrium price, does greed (in other words, self-interest) tend to push the price down or does it push it up?
1.1. If the price in a market is above the equilibrium price, does this create a urplus or a shortage?
1.5. The industrial areas in northeast Washington, D.C., were relatively dangerous in the 1980s.Over the last two decades, the area has become a safer place to work (although there are still several times more violent crimes per person in the e areas compared with another D.C. neighborhood,
1.4. What should happen to the "demand for speed"(measured by the average speed on highways)once airbag are included on cars?
1.3. For most young people, working full time and going to school are substitutes: You tend to do one or the other. When it's tough to find a job, does that raise the opportunity cost of going to college or does it lower it? When it's tough to find a job, does the demand for college rise or fall?
1.2. The economist Bryan Caplan recently found a pair of $10 arch supports that saved him from the pain of major foot surgery. As he stated on his blog (econlog.econlib.org), he would have been willing to pay $100,000 to fix his foot problem, but instead he only paid a few dollars.a. How much
1.1. Michael is an economist. He loves being an economist so much that he would do it for a living even if he only earned $30,000 per year.Instead, he earns $80,000 per year. (Note: This is the average salary of new economists with a Ph.D. degree.) How much producer surplus doe Michael enjoy?
1.14. Suppose that the upply curve for solar panel 1s as shown in the diagram:0 20 40 60 80 100 Quantity The government decides that it would like to increase the quantity of solar panels in use, so it offer a 20 sub idy per panel to producers. Draw the new supply curve. As a hint, remember our
1.13. Cars and gasoline are complements. What will happen to the demand curve for gasoline if the price of car decreases? Why? (Hint: What happens to the quantity demanded of cars?)Price $80 70 60 50 40 30 20 10
1.12. Assume that butter and margarine are substitutes.What will happen to the demand curve for butter if the price of margarine increases? Why?
1.11. If income increases and the demand for good X shifts as shown below, then is good X a normal or inferior good? Give an example of a good like good X.Price Quantity
1.10. Let's think about the demand for plasma TVs.a. If the price for a 50" plasma TV is $2,010, and Newhart would be willing to pay$3,000, what is Newhart's consumer surplus?b. Consider the figure below for the total de mand for plasma TVs. At $2,010 per TV, 1,200 TVs were demanded. What would be
1.9. If the price of glass dramatically increases, what are we likely to see a lot less of: glass windows or glass bottles? Why?
1.8. From the following chart, draw the demand curve for pencils (in hundreds):Quantity Demanded Price$5$15$25$35(in hundreds)60 45 35 20
1.7. Consider the following demand curve for oil:Price of oil per barrel$40 25 15 10 Price 10 20 40 55 Quantity of oil (MBD)b. If the price was $10, how much oil would be demanded?c. What is the maximum price (per barrel)demanders will pay for 20 million barrels of oil?
1.6. Consider the fam1ers talked about in the chapter who have land that is suitable for growing both wheat and soybeans. Suppose all farmers are currently farming wheat but the price of soybeans rises dramatically.a. Doe the opportunity cost of producing wheat rise or fall?44 • PART 1 • Supply
1.5. In Sucrosia, the supply curve for sugar is as follows:Price(per 100 pound bag)$30$50$70 Price of sugar$70 50 30 Quantity 10,000 15,000 20,000 10 15 20 Quantity of sugar(1000s)Under pressure from nutrition activists, the government decides to tax sugar producers with a $5 tax per 100 pound bag.
1.4. Using the following diagram, identify and calculate total producer surplus if the price of oil is $50 per barrel. R ecall that for a triangle, Area = (1 /2) X Base X Height. (You never thought you'd use that equation unless you became an engineer, did you?)Supply of oil$60 40 20
1.3. Suppose LightBright and Bulbs4Y ou were the only two suppliers of 60-watt lightbulb in Springfield. Draw the supply curve for the 60-watt lightbulb industry in Springfield from the following tables for the two companie . To create this "light bulb indu try supply curve," note that you'll add
1.2. From the following table of prices per 100 pencils and quantities supplied (in hundreds of pencils), draw the supply curve for pencil :Quantity Price$5$15$25$35 Supplied 20 40 50 55
1.1. Consider the following supply curve for oil.Note that MBD stands for "millions ofbarrels per day," the usual way people talk about the supply of oil:Price of oil per barrel$50 30 20 15 12 20 25 30 40 48 Quantity of oil(MBD)a. Based on the above supply curve, fill in the table below:Price$12
1.13. Do taxes usually increase the supply of a good or reduce the supply?THINKING AND PROBLEM SOLVING
1.12. When oil companies expect the price of oil to be higher next year, what happens to the supply of oil today?
1.11. Imagine that a technological innovation reduces the costs of producing high-quality steel. What happens to the supply curve for steel?
1.10. When is a pharmaceutical business more likely to hire highly educated, cutting-edge workers and use new, experimental research methods:When the business expects the price of its new drug to be low or when it expects the price to be high?
1.9. If the price of cars falls, are carmakers likely to make more cars or fewer cars, according to the supply curve? (Notice that the "person on the street" often thinks the opposite is true!)
1.8. Along a supply curve, if the price of oil falls, what will happen to the quantity of oil supplied? Why?
1.7.a. If everyone thinks that the price of tomatoes will go up next week, what is likely to happen to demand for tomatoes today?b. If everyone thinks that the price of gasoline will go up next week, what is likely to happen to the demand for gasoline today?(Note: Is this change in demand caused by
1.6.a. When the price of olive oil goes up, what probably happens to the demand for corn oil?b. When the price of petroleum goes up, what probably happens to the demand for natural gas? To the demand for coal? To the demand for solar power?
1.5. When the price of Apple computers goes down, what probably happens to the demand for Windows-based computers?
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