Microeconomics Theory And Applications With Calculus 3rd Edition Jeffrey M. Perloff - Solutions

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1.4. What are three things that you'll buy less of once you graduate from college and get a good job? What kinds of goods are these called?
1.3. Your roommate just bought an iPod for $200.She would have been willing to pay $500 for a machine that could store and replay that much music. How much consumer surplus does your roommate enjoy from the iPod?
1.2. When will people search harder for substitutes for oil: When the price of oil is high or when the price of oil is low?
1.1. When the price of a good increases, the quantity demanded --· When the price of a good decreases, the quantity demanded --·
1.2. Go to www. Ted.com and watch Thomas Thwaites's talk, "How I built a toaster-from scratch." How much money and time do you think Thwaites spent building his toaster?How long do you think it would have taken Thwaites to earn enough money in, say, a minimum wage job to buy a toaster? Comment on
1.1. In the computers and shirts example from the chapter, the United States traded one computer to Mexico in exchange for three shirts. This is not just an arbitrary ratio of shirts to computers, however. Let's explore the terms of trade a little bit more.a. Why is trading away a computer for
1.7. Suppose the table below shows the number of labor hours needed to produce airplanes and automobile in the United States and South Korea, but one of the numbers is unknown.Number of Hours to Produce One Airplane South Korea United States 2,000 800 Number of Hours to Produce One Auto?5 26 •
1.6. Many people talk about manufacturing jobs leaving the United States and going to other places, like China. Why isn't it possible for all jobs to leave the United States and go overseas(as some people fear)?
1.5. Here's another specialization and exchange problem. This problem is wholly made-up, so that you won't be able to use your intuition about the names of countries or the products to figure out the answer.a. Consider the productivity table below:Which country has an absolute advantage at making
1.4. In this chapter, we've often emphasized how specialization and exchange can create more output. But sometimes the output from voluntary exchange is difficult to measure and doesn't show up in GDP statistics. In each of the following cases, explain how the two parties involved might be able to
1.3. The federal education reform law known as No Child Left Behind requires every state to create standardized tests that measure whether students have mastered key subjects. Since the same test is given to all students in the same grade in the state, this encourages all schools within a state to
1.2. Nobel laureate Paul Samuelson said that comparative advantage is one of the few ideas in economics that is both "true and not obvious." Since it's not obvious, we should practice with it a bit. In each of the cases below, who has the absolute advantage at each task, and who has the comparative
1.1. Fit each of the following examples into one of these reasons for trade:I.Division of knowledge II.Comparative advantagea. Two recently abandoned cats, Bingo and Tuppy, need to quickly learn how to catch mice in order to survive. If they also remain well groomed, they stand a better chance of
1.6. Conan O'Brien has been a talk show host since 1993, but he began his career in comedy as a writer: first at the Harvard Lampoon while in college, then eventually at Saturday Night Live and The Simpsons. Given that he is such an accomplished comedy writer, it might be surprising to learn that
1.5. According to the Wall Street Journal (August 30, 2007, "In the Balance"), it takes about 30 hours to assemble a vehicle in the United States. Let's use that fact plus a few invented numbers to sum up the global division of labor in auto manufacturing. In international economics, "North" is
1.4.a. American workers are typically paid much more than Chinese workers. True or false:This is largely because American workers are typically more productive than Chinese workers.b. Julia Child, an American chef (and World War II spy) who reintroduced French cook ing to Americans in the 1960s,
1.3. "Opportunity cost" is one of the tougher ideas in economics. Let's make it easier by starting with some simple examples. In the examples below, find the opportunity cost: Your answer should be a rate, as in "1.5 widgets per year" or"6 lectures per month." Ignoring Adam Smith's insight from the
1.2. In the Wealth of Nations, Adam Smith said that one reason specialization makes someone more productive is because "a man commonly saunters a little in turning his hand from one sort of employment to another." How can you use this observation to improve your pattern of studying for your four or
1.1. Use the idea ofthe "division ofknowledge" to answer the following questions:a. Which country has more knowledge:Utopia, where in the words ofKarl Marx, each person knows just enough about hunt ing, fishing, and cattle raising to "hunt in the morning, fish in the afternoon, [and] rear cattle in
1.4. Economics is sometimes called "the dismal science." Of the big ideas in this chapter, which sound "dismal"-like bad news?
1.3. As Nobel Prize winner and New York Times columnist Paul Krugman has noted, the field of economics is a lot like the field of medicine: They are fields where knowledge is limited (both are new as real scientific disciplines), and where many cures are quite painful ("opportunity cost"), but
1.2. Some problems that economists try to solve are easy as economic problems but hard as political problems. Medical doctors face similar kinds of situations: Preventing most deaths from obesity or lung cancer is easy as a medical problem (eat less, exercise more, don't smoke)but hard as a
1.1. We claim that part of the reason the Great Depression was so destructive is because economists didn't understand how to use government policy very well in the 1930s. In your opinion, do you think that economists during the Great Depression would have agreed? In other words, if you had asked
1.5. According to the United Nations, there were roughly 300 million humans on the planet a thousand years ago. Essentially all of them were poor by modem standards: They lacked antibiotics, almost all lacked indoor plumbing, and none traveled faster than a horse or a river could carry them. Today,
1.4. Nobel Prize winner Milton Friedman said that a bad central banker is like a "fool in the shower." In a shower, of course, when you turn the faucet, water won't show up in the showerhead for a few seconds. So if a "fool in the shower" is always making big changes in the temperature based on how
1.3. Let's connect Big Ideas Six and Nine: Do you think that people in poor countries are poor because they don't have enough money? In other words, could a country get richer by printing more pieces of paper called "money"and handing those out to its citizens?
1.2. Some people worry that machines will take jobs away from people, making people permanently unemployed. In the United States, only 150 years ago most people were farmers. Now, machines do almost all of the farm work and fewer than 2% of Americans are farmers, yet that 2% produces enough food to
1.1. In recent year , Zimbabwe has had hyperinflation, with prices tripling (or more!)every month. According to what you learned in this chapter, what do you think the government can do to end this hyperinflation?
1.6. In the discussion ofBig Idea Five, the chapter says that "self-sufficiency is death" because most of us would not be able to produce for ourselves the food and shelter that we need to survive. In addition to death, however, one could also say that self-sufficiency i boredom or ignorance. How
1.5. Who has a better incentive to work long hours in a laboratory researching new cures for diseases: a scienti t who earns a percentage of the profits from any new medicine she might invent, or a scientist who will get a handshake and a thank you note from her boss if he invents a new medicine?
1.4. The chapter lists four things that entrepreneurs save and invest in. Which of the four are actual objects, and which are more intangible, like concepts or ideas or plans? Feel free to use Wikipedia or some other reference source to get definitions of unfamiliar terms.
1.3. How much did national output fall during the Great Depression? According to the chapter, which government agency might have helped to avoid much of the Great Depression had it acted more quickly and appropriately?
1.2. When bad weather in India destroys the crop harvest, does this sound like a fall in the total"supply" of crops or a fall in people's "demand"for crops? Keep your answer in mind a you learn about economic booms and busts later on.
1.1. A headline5 in the New York Times read: "Study Finds Enrollment Is Up at College Despite Recession." How would you rewrite this headline now that you understand the idea of opportunity cost?
How can we determine the effect of a change in one variable on another if many other variables are changing at the same time?
How confident are we in our results?
How can we best fit an economic relationship to actual data?
In the Application “Layoffs Versus Pay Cuts,” the firm either uses a pay cut or layoffs. Can you derive a superior approach that benefits both the firm and the workers? (Hint: Suppose that the firm’s profit or some other variable is observable.)7. Challenge
List some necessary conditions for a firm to be able to sort potential employees by providing them with a choice of contracts.6. Checks on Principals
Adrienne, a manager of a large firm, must decide whether to launch a new product or make a minor change to an existing product. The new product has a 30% chance of being a big success and generating profits of $20 million, a 40% chance of being fairly successful and generating profits of $5
In 2012, Hewlett-Packard Co. announced that its new chief executive, Meg Whitman, would receive a salary of $1 and about $16.1 million in stock options, which are valuable if the stock does well(marketwatch.com, February 3, 2012). How would you feel about this compensation package if you were a
When rental cars are sold on the used car market they are sold for lower prices than cars of the same model and year that were owned by individuals.Does this price difference reflect adverse selection or moral hazard? Could car rental companies reduce this problem by carefully inspecting rental
Starting in 2008, Medicare would not cover the cost of a surgeon leaving an instrument in a patient, giving a patient transfusions of the wrong blood type, certain types of hospital-acquired infections, or other “preventable” mistakes (Liz Marlantes,“Medicare Won’t Cover Hospital Mistakes:
In Exercise 4.2, suppose that, for each extra $1,000 of bonding the firm requires a worker to post, the firm must pay that worker $10 more per period to get the worker to work for the firm. What is the minimum bond that deters stealing? (Hint: See Solved Problem 19.3.) M
In Solved Problem 19.3, a firm calculates the optimal level of monitoring to prevent stealing. If G = $500 and θ = 20%, what is the minimum bond that deters stealing? M
Many law firms consist of partners who share profits. On being made a partner, a lawyer must post a bond, a large payment to the firm that will be forfeited on bad behavior. Why?
Louisa is an avid cyclist who is currently working on her business degree. She normally rides an$800 bike to class. If Louisa locks her bike carefully—locks both wheels—the chance of theft for the term is 5%, but this careful locking procedure is time consuming. If she is less careful—just
Fourteen states have laws that limit whether a franchisor (such as McDonald’s) can terminate a franchise agreement. Franchisees (such as firms that run individual McDonald’s outlets) typically pay the franchisor a fixed fee or a share of revenues. What effects do such laws have on production
Padma has the rights to any treasure on the sunken ship the Golden Calf. Aaron is a diver who specializes in marine salvage. If Padma is risk averse and Aaron is risk neutral, does paying Aaron a fixed fee result in efficiency in risk bearing and production? Does your answer turn on how predictable
Book retailers can return unsold copies to publishers. Effectively, retailers pay for the books they order only after they sell them. Dowell’s Books believes that it will sell, with 1 2 probability each, either zero or one copy of The Fool’s Handbook of Macroeconomics. The bookstore also
In the National Basketball Association (NBA), the owners share revenue but not costs. Suppose that one team, the L.A. Clippers, sells only generaladmission seats to a home game with the visiting Philadelphia 76ers (Sixers). The inverse demand for the Clippers-Sixers tickets is p = 100 - 0.004Q.The
John manages Rachel’s used CD music store. To provide John with the incentive to sell CDs, Rachel offers him 50% of the store’s profit. John has the opportunity to misrepresent sales by fraudulently recording sales that actually did not take place. Let t represent his fraudulent profit.
Suppose now that the publisher in Exercise 2.6 faces a downward-sloping demand curve. The revenue is R(Q), and the publisher’s cost of printing and distributing the book is C(Q). Compare the equilibria for the following compensation methods in which the author receives the same total compensation
In the duck-carving example with limited information (summarized in the third and fourth columns of Table 19.1), is a fixed-fee contract efficient? If so, why? If not, are there additional steps that Paula can take to ensure efficiency?
In the duck-carving example with full information(summarized in the second column of Table 19.1), is a contract efficient if it requires Paula to give Arthur a fixed-fee salary of $168 and leaves all the decisions to Arthur? If so, why? If not, are there additional steps that Paula can take to
Zhihua and Pu are partners in a store in which they do all the work. They split the store’s business profit equally (ignoring the opportunity cost of their own time in calculating this profit). Does their business profit-sharing contract give them an incentive to maximize their joint economic
In 2012, a California environmental group found that 14 plum and ginger candies imported from Asia contained 4 to 96 times the level of lead allowed under California law (Lee, Stephanie M., “Lead Found in Asian Candies,” San Francisco Chronicle, August 14, 2012). Some observers predicted that
A study by Jean Mitchell found that urologists in group practices that profit from tests for prostate cancer order more of them than doctors who send samples to independent laboratories. Doctors’groups that perform their own lab work bill Medicare for analyzing 72% more prostate tissue samples
A promoter arranges for various restaurants to set up booths to sell Cajun-Creole food at a fair. Appropriate music and other entertainment are provided.Customers can buy food using only “Cajun Cash,”which is scrip that has the same denominations as actual cash and is sold by the fair promoter.
California provides earthquake insurance. Because the state agency in charge has few staff members, it pays private insurance carriers to handle claims for earthquake damage. These insurance firms receive 9% of each approved claim. Is this compensation scheme likely to lead to opportunistic
What is the minimum fine that the government could levy on firms that do not invest in safety that would lead to a Nash equilibrium in which both firms invest?
When is statistical discrimination privately inefficient? When is it socially inefficient? Does it always harm members of the discriminated-against group?Explain.6. Challenge
In Exercises 5.5 and 5.6, describe the equilibrium if cl … ch. (Hint: See Solved Problem 18.4.) M
In Exercise 5.5, under what conditions is a pooling equilibrium possible? (Hint: See Solved Problem 18.4.) M
Education is a continuous variable, where eh is the years of schooling of a high-ability worker and el is the years of schooling of a low-ability worker.The cost per period of education for these types of workers is ch and cl , respectively, where cl 7 ch.The wages they receive if employers can
Suppose that you are given wh, wl, and θ in the education signaling model. For what value of c are both a pooling equilibrium and a separating equilibrium possible? For what value of c are both types of equilibria possible, and do high-ability workers have higher net earnings in a separating
Sometimes a firm sells the same product under two brand names. For example, the Chevy Tahoe and the GMC Yukon are virtually twins (although the Yukon sells for $490 more than the Tahoe). Give an asymmetric information explanation as to why the firm might use pairs of brand names and why one product
Many wineries in the Napa Valley region of California enjoy strong reputations for producing highquality wines and want to protect those reputations.Fred T. Franzia, the owner of Bronco Wine Co., sold Napa-brand wines that do not contain Napa grapes (Flynn, Julia, “In Napa Valley, Winemaker’s
In the world of French haute cuisine, a three-star rating from the Michelin Red Guide is a widely accepted indicator of gastronomic excellence.French consumers consider Gault Milleau, another restaurant guide, to be less authoritative than the Michelin guide because Gault Milleau, unlike Michelin,
It costs $12 to produce a low-quality electric stapler and $16 to produce a high-quality stapler. Consumers cannot distinguish good staplers from poor staplers when they make their purchases. Four firms produce staplers. Consumers value staplers at their cost of production and are risk neutral.
Suppose that everyone in the used-car example in the text is risk neutral, potential car buyers value lemons at $2,000 and good used cars at $10,000, the reservation price of lemon owners is $1,500, and the reservation price of owners of high-quality used cars is $8,000. The share of current owners
Many potential buyers value high-quality used cars at the full-information market price of p1 and lemons at p2. A limited number of potential sellers value high-quality cars at v1 … p1 and lemons at v2 … p2. Everyone is risk neutral. The share of lemons among all the used cars that might
If you buy a new car and try to sell it in the first year—indeed, in the first few days after you buy it—the price that you get is substantially less than the original price. Use your knowledge about signaling and Akerlof’s lemons model to explain this much-lower price.
According to Edelman (2011), the widely used online “trust” authorities issue certifications without adequate verification, giving rise to adverse selection. Edelman finds that TRUSTe certified sites are more than twice as likely to be untrustworthy as uncertified sites. Explain why.3. How
You want to determine whether there is a lemons problem in the market for single-engine airplanes.Can you use any of the following information to help answer this question? If so, how?a. Repair rates for original-owner planes versus planes that have been resold,b. The fraction of planes resold in
While self-employed workers have the option to purchase private health insurance, many—especially younger—workers do not, due to adverse selection. Suppose that half the population is healthy and the other half is unhealthy. The cost of getting Exercises = exercise is available on MyEconLab; *
California set up its own earthquake insurance program for homeowners. The rates vary by zip code, depending on the proximity of the nearest fault line.However, critics claim that the people who set the rates ignored soil type. Some houses rest on bedrock; others sit on unstable soil. What are the
million U.S. consumers were victims of weight-loss fraud, ranging from a tea that promised to help people shed pounds to fraudulent clinical trials and fat-dissolving injections. Do these frauds illustrate adverse selection or moral hazard?
According to a 2007 study by the Federal Trade Commission,
In the analysis of the optimal level of a public good, suppose that each person’s utility function is quasilinear: Ui(G) + Pi. Show that the optimal G is unique and independent of P1 and P2 if society has adequate resources. (Hint: See Solved Problem 17.3.) M
According to the “What’s Their Beef?” application, collective generic advertising produces $5.67 in additional marginal revenue for every dollar contributed by producers. Is the industry advertising optimally (see Chapter 12)? Explain.
Do publishers sell the optimal number of intermediate microeconomics textbooks? Discuss in terms of public goods, rivalry, and exclusion.
Are heavily used bridges, such as the Bay Bridge, Brooklyn Bridge, and Golden Gate Bridge, commons? If so, what can be done to mitigate externality problems?
because they are not strictly rivalrous or exclusive.
List three examples of goods that do not fit neatly into the categories in Table
In the following, use the model in Exercise 3.7.a. What is the unregulated monopoly equilibrium?b. How could you optimally regulate the monopoly? What is the resulting (socially optimal)equilibrium? (Hint: See Solved Problem 17.2.) M 5. Allocating Property Rights to Reduce Externalities
Suppose that the only way to reduce pollution from paper production is to reduce output. The government imposes a tax on the monopoly producer that is equal to the marginal harm from the pollution.Show that the tax may raise welfare. (Hint: See Solved Problem 17.2.)
Suppose that the government knows the marginal cost, MC, curve of reducing pollution but is uncertain about the marginal benefit, MB, curve. With equal probability, the government faces a relatively high or a relatively low MB curve, so its expected MB curve is the same as the one in Figure
Suppose that the inverse demand curve for paper is p = 200 - Q, the private marginal cost (unregulated competitive market supply) is MCp = 80 + Q, and the marginal harm from gunk is MCg = Q.a. What is the unregulated competitive equilibrium?b. What is the social optimum?c. What specific tax (per
In Figure 17.3, the government may optimally regulate the paper market by taxing output. Given that the output tax remains constant, what are the welfare implications of a technological change that drives down the private marginal cost of production?
In Figure 17.1, could the government use a price ceiling or a price floor to achieve the optimal level of production?
In the paper mill example in this chapter, what are the optimal emissions fee and the optimal tax on output (assuming that only one fee or tax is applied)?
Applying the model in Exercise 2.3, use calculus to determine the optimal level of H. M 3. Regulating Externalities
Let H = G - G be the amount that gunk, G, is reduced from the competitive level, G. The benefit of reducing gunk is B(H) = AHα. The cost is C(H) = Hβ. If the benefit is increasing but at a diminishing rate as H increases, and the cost is rising at an increasing rate, what are the possible ranges
In Figure 17.1, explain why area D + E + H is the externality cost difference between the social optimum and the private equilibrium.
Why isn’t zero pollution the best solution for society?Can there be too little pollution? Why or why not?
According to the digital media company Captivate Network, employees viewing the 2012 Olympics instead of working caused a $1.38 billion loss in productivity for U.S. companies. Is this productivity loss an example of a negative externality?Explain.2. The Inefficiency of Competition with
In 2009, when the world was worried about the danger of the H1N1 influenza virus (swine flu), Representative Rosa DeLauro and Senator Edward Kennedy proposed the Healthy Families Act in Exercises = exercise is available on MyEconLab; * = answer appears at the back of this book; M = mathematical
When Star Wars Episode III: Revenge of the Sith opened at 12:01 a.m., Thursday, May 19, 2005, the most fanatical Star Wars fans paid $50 million for tickets to stay up until 3:00 to 4:00 a.m. Businesses around the country, especially those tied to high-tech industries, suffered reduced productivity
According to a study in the New England Journal of Medicine, your friendships or “social networks” are more likely than your genes to make you obese (Jennifer Levitz, “Can Your Friends Make You Fat?”Wall Street Journal, July 26, 2007, D1). If it is true that people who have overweight

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Microeconomics Theory And Applications With Calculus 3rd Edition Jeffrey M. Perloff - Solutions

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