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microeconomics principles

Principles Of Microeconomics: The Way We Live First 1st Edition Feigenbaum S.K., Hafer R.W. - Solutions

True, False, or Uncertain. As with a competitive firm, a monopoly’s short-run supply curve will be the portion of its marginal cost curve that sits above its average variable cost curve. Explain your answer.
Suppose that the government placed a price ceiling on a monopolist. Will this have the same impact on the quantity produced as it would if the market were competitive? Explain your answer.
Contrast the short-run and long-run impact of a per unit tax on a competitive industry versus a monopoly. Under which scenario (competition or monopoly)will consumers bear the greatest share of the tax?
(1) Many major airlines have employee travel cards that permit employees to fly“space available” (i.e., no reservations allowed) at substantial discounts.(2) Local theaters often have a half-price “rush hour show.” (3) Restaurants often offer special senior citizen menus and discounts. (4)
Suppose that due to prohibitively high import tariffs, U.S. steelmakers have a virtual monopoly in their home (U.S.) market. Show how they (together) would set price in this home market if (a) they do not export steel; (b) they export steel to the world market, where they face a given world price
A single buyer in a market (a monopsonist) faces an upward-sloping supply curve given by P 40 10Q. Graph the supply curve and the curve representing the marginal factor cost of buying an additional unit. Which is relevant to the buyer’s decision making?
Some local municipal governments provide trash collection for their residents;others license a number of private waste-collection companies that can then privately solicit business from these residents.a) Why do you think that both government and privately provided trashcollection services coexist
There has been a recent uptick in the number of young people in France who are jumping barriers to ride the public Metro subway system without buying a ticket.They argue that free transportation should be a basic right for everyone. On occasion, some of these people are caught riding without a
China has been loudly criticized by various U.S. and European industries (such as the rolled-steel and candle-making industries) for subsidizing Chinese producers to such an extent that they can “dump” their output in Western markets at prices that don’t even cover the cost of raw materials
Economists are proud of the fact that prices act as virtually costless signals to consumers and producers about how to allocate their scarce resources. In effect, prices “ration” these scarce resources in terms of what is produced, how it is produced, and who benefits from these goods and
To combat teenage obesity, Congress has proposed a tax on sugared sodas and other sugared drinks.a) Using two graphs—one for the sugared soda market and another for a typical soda producer—show the short-run and long-run impact of this tax on existing producers and on market price and
Suppose that the retail food industry in Miami is in long-run equilibrium.Assume further that the firms in this market—supermarkets—only use union labor. Using two graphs—one for the supermarket market and another for a typical supermarket—show what happens to equilibrium food prices when
In an effort to fund a health-insurance program for the uninsured, Congress may impose a 1 percent payroll tax on employers. Labor, business, and consumer groups are all fighting this new tax, believing that they will be the ones to ultimately bear the burden of the tax.a) Show the cost curves of a
Assume that the U.S. strawberry-production market is in long-run equilibrium.Using two graphs—one for the U.S. strawberry market and one for a typical U.S.strawberry grower—demonstrate the impact of increasing border patrols and thereby reducing the stream of low-cost Mexican farmworkers into
Assume that the market for chewing gum is in long-run equilibrium. Using two graphs—one for the market and one for a typical gum producer—trace through the impact of a federal law that prohibits smoking in all buildings and parking lots. (You can assume that the ban on smoking causes smokers to
Suppose that you are a government official who heads a large government agency, such as the Federal Drug Administration (FDA). Identify at least three decisions that you would make that would differ from those of a for-profit drug-licensing company if you are trying to (a) grow your annual
U.S.-based industries, such as steel, automobile, and agriculture, spend a lot of money lobbying the government to impose high tariffs or import quotas to block imports. Assume that the U.S. steel market is in long-run equilibrium and that high tariffs on imported steel are imposed. Explain how, if
The U.S. Consumer Safety Board is considering a regulation that would require automakers to increase the steel content of automobile frames from 42 percent to 54 percent. (a) Using two graphs—one for the U.S. steel market and one for a typical U.S. steel manufacturer—show the impact that this
Suppose that the city of Houston imposes a tax per unit of output on its local ballpoint pen producer BIK. Using firm cost curves for BIK, show the impact that this tax will have on BIK in the short run and long run. (Hint: Untaxed ballpoint pen producers exist in other cities.)
“Nonprofit organizations are just for-profit companies that spend all of their profits on their mission. For example, a medical-research charity spends its profits on medical research.” Do you agree or disagree with this statement? Explain your answer.
Suppose the government decides to levy a sales tax on a price-taking firm that is equal to a percent of the revenue collected by the firm. Using firm cost curves, show (a) the maximum tax the firm would be willing to pay without shutting down production in the short run, and (b) the impact of the
Assume that the print newspaper market is in long-run equilibrium. Using two graphs—one for the market and one for a typical price-taking newspaper firm(say, the L.A. Times)—show the impact that the introduction of online news sources has on (a) equilibrium price and the quantity of print
Why can an isoquant curve never intersect with another isoquant curve?
Could an isocost line ever be curved? Explain.
What does a straight-line isoquant “curve” tell you about a production process in terms of its two inputs, X and Y? Explain. If the isoquant curve is, in fact, a straight line, what would this mean in terms of finding the costminimizing bundle of inputs?
What would a producer’s isoquant curve look like if she was choosing between two “perfect” complementary inputs that have to be used together in a specific combination—say painters and paintbrushes? Explain.
What would a house painter’s isoquant curve look like if one of his inputs had a positive marginal product (labor) while the second input had a negative marginal product (smog)? Explain.
At one time, lawyers and paralegals generated an enormous amount of income by finding documents relevant to a lawsuit and reviewing their contents (a process called “discovery”). In the past few years, advances in artificial intelligence have led to the development of “e-discovery” software
One of the single greatest causes of unemployment among the poor is labor immobility. Jobs in one geographical area decline—due to changes in local employment conditions—but workers decide to stay put even though job vacancies exist elsewhere. To what extent do you believe that these workers
When the U.S. dollar gets weaker—in terms of purchasing power—relative to less-developed countries, would you predict outsourcing to increase, decrease, or remain at the same level as before the dollar weakened? Explain your answer.
Why is the distribution of people’s lifetime incomes more equal than the income distribution in any one year? Explain your answer.
The following table reports the net present value (NPV) of the lifetime earnings of college graduates by major. Why do you think that some majors are paid more than others? Do you think it makes economic “sense” that engineering majors will, on average, earn more than four times the lifetime
Since the start of the 2007 Great Recession, the wage gap between women and men has fallen to an all-time low of 17 percent. Do you think this is because women are doing better in the labor force or because men are doing worse in the labor force? Explain your answer.
Suppose that the demand for college-educated workers grows at only 2.6 percent per year in the first decades of the twenty-first century, as compared to 4.1 percent per year in the 1980s. If the growth in the supply of college-educated workers doesn’t change, what prediction would you make about
The federal government is hoping to stimulate economic growth by giving businesses a tax credit for investing in new plants and equipment. Will this necessarily reduce the nation’s unemployment rate? Why or why not? Explain your answer.
Suppose that a price ceiling is placed on the output of a particular industry. How does this affect the equilibrium wage and employment level for workers in this industry?
In the face of recent events, the U.S. military is grappling with a shortage of enlisted manpower (men and women). It is currently considering the following options to meet its recruitment requirements:a) raise the wage until the number of recruits voluntarily supplied just equals quantity
Suppose that a major Gulf Coast hurricane knocks out one-third of oil production in the United States.a) What is the impact on the price of domestic oil?b) How, if at all, does the marginal product of Gulf Coast oil-drilling workers change?c) Based on your answers to (a) and (b), can you predict
Assume that there are two markets for labor: the market for high-school graduates (unskilled labor) and the market for college graduates (skilled labor). Using a set of supply and demand curves for each labor market, show the impact on the college wage premium ofa) a state initiative that cuts back
Assume that the U.S. strawberry market is in equilibrium. Demonstrate using market supply and demand curvesa) the impact on equilibrium price and quantity in the U.S. strawberry market of increasing border patrols and thereby reducing the stream of illegal farm workers into the U.S.;b) the impact
Explain whether the following actions of a potential employer would likely be the result of signaling or economic discrimination. The employera) hires a male over a female applicant, assuming qualifications are the same;b) hires a married male over an unmarried male applicant, assuming
Signaling theory is crucial to the ongoing debate about whether to use racial and ethnic “profiling” for national-security purposes in the United States, for example, at airport-screening sites. Do you think that these are good signals for improving airport security?
A die-hard St. Louis Cardinals fan placed a $50 bet in Las Vegas near the end of the baseball season that the Cardinals would win the 2011 National Baseball League’s pennant, even though the team was 10 games back at that time. In fact, the Cardinals did go on to win the NLB pennant (and the
People often get “residual” well-being from the fond memories they have of their past consumption activities. Baby boomers still talk about their Woodstock and hippie experiences 50 years later. Does this mean that these consumption activities are also investment activities? Explain your answer.
Why do you think that the interest rates that are charged for credit card balances, automobile loans, housing loans, and “payday” loans differ? Explain your answer.
What do you think happens, if anything, to the discount rate of teenagers when their weekly allowance is replaced by a monthly allowance? Explain your answer.
We observe that people who live in countries experiencing hyperinflation tend to spend all of their current income on consumables. Why? What do you think happens to the supply of consumables during times of hyperinflation? Explain your answer.
College is often viewed as a “recession” industry: full-time enrollments typically rise during recessionary times and fall during expansions. Using principles learned in this chapter, explain why this is the case, and identify situations that might run counter to this enrollment pattern.
Treasury Inflation Protected Securities (TIPS) offer lower yields than traditional fixed-interest Treasuries with the same time to maturity. What factors would impact the magnitude of this “gap” in the yields of these two types of government investments? Explain your answer.
Suppose that the tuition and fees are $13,500 per year at a public university, and$33,700 per year at a private university. Explain why anyone would ever opt to attend a private university.
Many states have imposed “term limits” on their state legislators. Explain how, if at all, this would change politicians’ political discount rate in those states.Design a test of your prediction based on comparing states with and without term limits.
What would happen to the rate of return from investing in beauty capital if health-insurance companies agreed to cover plastic-surgery procedures? Explain your answer.
Some states have usury laws which set the maximum amount of interest that can be charged on loans to individuals and businesses.a) Using supply and demand curves, show the impact of these laws on loanable funds.b) Show what happens when there is an increase in the inflation rate.c) Now show what
Explain how private discount rates differ across two countries, one of which has a 100 percent confiscatory estate tax (leaving nothing to be inherited), and another that has a 5 percent estate tax. How will these different tax systems impact the consumption/investment decisions of individuals?
Suppose that the federal government introduces a program to provide each and every high-school graduate with a college education. What will happen to the net present value of a bachelor’s degree? Explain your answer.
Two couples are discussing their plans to start a family. Both are two-worker couples and expect that the lower-paid partner will stay home for two years with the new baby. One of these is a college graduate with a higher wage than the other, who has a high-school diploma. Which couple will have a
You have $100 you want to invest and are offered two options at the bank: the first will pay you 10.3 percent interest compounded annually, while the second will offer you 10 percent compounded quarterly. Which is the better one-year investment?
Once in a great while, we see the Treasury bond yield “curve” invert; that is, short-term Treasuries pay more than longer-term Treasuries. Offer an explanation for this phenomenon that does not violate the principles of investing discussed in this chapter.
A grape grower who converts his grapes into wine is an investor. How can this be if all he is doing is taking one consumption good (grapes) and converting it into a second consumption good (wine)? Explain your answer.
Indicate how the following events will change (increase; decrease; no change)the present discounted value of an accountant’s earning stream:a) elimination of mandatory retirement at age 65;b) introduction of a simplified flat income tax;c) increases in price inflation;d) introduction of tougher
For many years, state and local governments borrowed funds to finance capital projects (prisons, parks, roads, etc.) by issuing tax-free bonds. These bonds have attracted lenders by offering interest payments that are free from federal and local income taxation. The federal government recently
In an effort to curb obesity and rein in medical costs, Congress is considering the introduction of a $1 tax on each Big Mac (and similar fast-food sandwiches)purchased. Using the following diagram, calculate the deadweight loss that would result from this tax.
Using supply and demand graphs, show how a tax that is a percentage of sales revenue (rather than a per unit tax) affects a market’s equilibrium price and quantity. Is it still the case that the burden of the tax will be shared between consumers and suppliers in the same way, regardless of who
The U.S. Social Security and Medicare payroll tax is paid by both employees and employers: 7.65 percent of wages is paid directly to the government by employers and 7.65 percent is withheld from employee paychecks. Using supply and demand graphs, showa) the impact of this “dual” tax on
In 2011, Congress debated the merits of continuing its 41 cents a gallon subsidy paid to ethanol gas refiners (ethanol is produced from corn). A major proponent for renewing the subsidy was the corn growers’ trade association.a) Using a supply and demand diagram, show why corn growers were so
In 1989, the United States’ Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) radically changed its subsidy structure, replacing subsidies for infant formula with subsidies for enriched infant cereals, eggs, and other dairy products. Why do you think it made this
If grocery stores install self-checkout registers and lay off their cashiers, they no longer will have to pay federal payroll taxes on cashier wages. What would you predict will happen to other grocery-store employees as payroll taxes continue to rise? Will your prediction hold for all grocery
True, False, or Uncertain: To stimulate demand for its products during a housing slump, Corning introduced a $500 rebate to be paid directly to purchasers of its fiberglass insulation. As a result, the price after rebate paid by consumers dropped by $500. Explain your answer.
Suppose that the U.S. government decides to subsidize oil exploration and production to eventually reduce gas prices in the United States. Who will actually benefit from this subsidy? Explain your answer.
In an effort to balance the budget of the U.S. federal government, Congress has discussed dropping its hefty subsidy of U.S. farm products. Using supply and demand graphs, show the impact this change would have on equilibrium price and quantity ina) the corn market;b) the market for agricultural
When gasoline prices soar, the federal government often considers temporarily suspending the 18.4 cent per gallon federal tax on gasoline. Using supply and demand diagrams, show how removing this tax would affect the equilibrium quantity and price ina) the gasoline market;b) the automobile tire
England is considering funding hospital care for the poor by imposing a 6 percent tax on prescription drugs sold at private pharmacies throughout the country. Using supply and demand graphs, show the impact this tax would have ona) the equilibrium price and quantity of pharmacy prescription
Suppose the government agrees to pay a $5 per hour subsidy per child to parents who use licensed child-care providers. Graph the effect this will have on the equilibrium quantity and price of child care ina) the licensed child-care market andb) the unlicensed babysitting market.c) Show how the
To finance research on the effects of smoking, then-California governor Arnold Schwarzenegger successfully campaigned for a law that increased the state tax on cigarettes to $3 per pack. Using supply and demand graphs,a) show how much of this tax is borne by California cigarette buyers versus
Environmentalists are pushing the government to impose a tax on disposable diapers because after they are used, they take up space in landfills and are nonbiodegradable. Using supply and demand diagrams, show the effect that such a tax would have on the equilibrium price and quantity ofa)
Some local municipalities have, or are now considering, a wheel tax that is levied on each automobile and lightweight pickup registered in the city. The state adds a $10–$20 tax when it collects its annual license plate renewal fee and issues a sticker that goes on the vehicle. Is this a
We know that in the overall economy, the income elasticity of demand for farm products is low, while the income elasticity of demand for education, health, and other services is high. What does this tell you about the “importance” of the agricultural sector vis-à-vis the service sector as per
Mr. Huntley and Mr. Brinkley are partners in an accounting firm. How does their bargaining power—when it comes to such things as where to locate the office, employee hiring, and hours of business—compare if:a) Mr. Huntley has a CPA and Mr. Brinkley does not.b) Mr. Brinkley has grown up in the
In some countries, polygamy is still legal or, at the very least, condoned (police“look the other way”). Let’s say that we are talking about a household with one man and several wives. Explain how, if at all, the bargaining power of each wife varies with the total number of wives. Do you
A “lump-sum” tax is a fixed-dollar tax that is collected from every person or household. It is sometimes called a “head tax.” Is this tax regressive, proportional, or progressive? What kinds of government services do you think should be funded through a lump-sum tax? Why? Explain your
Indicate whether you think the following taxes are regressive, proportional, or progressive. Explain your answers.a) A payroll taxb) A tax on consumptionc) A property taxd) A gasoline taxe) An estate tax (a tax on your wealth when you die)Which of these taxes do you think is the “fairest”? Why?
Many churches encourage their members to “tithe” 10 percent of their income to the church. If a church member scrupulously follows this rule, what is her income elasticity of demand with respect to church donations?
The Laffer curve—shown below—makes the argument that increasing income tax rates can lead to a decline in total tax revenues collected by the government.Explain under what conditions this could happen and whether you think that Laffer’s prediction makes sense.
Suppose that the principle of diminishing benefits applies to money; that is, the last dollar earned and spent generates less additional well-being than the dollar before. Explain how this principle can be used to promote the introduction of a progressive income tax system.
If the United States ever adopts a flat income tax to replace its current tax system, it will likely exempt families with income below a certain level. Will the resulting tax system be proportional, regressive, or progressive? Explain your answer.
Suppose that a city introduces an entrance fee for its publicly owned swimming pool and that more lower-income people use the pool than higher-income people(who have their own private pools). Would you consider this entrance fee a regressive tax? Why or why not. Explain your answer.
Identify whether the income elasticity of demand is perfectly inelastic, inelastic, unitary elastic, or elastic in the following situations:a) The number of household workers hired increases by 50 percent when household incomes double.b) Amy always spends $18 a week eating out.c) Marni always
Suppose that two household partners, Ed and Jane, have different income elasticities when it comes to red wine. Ed’s income elasticity equals zero—he drinks one glass of wine daily only to achieve the health benefits from red wine. Jane’s income elasticity is unitary. If both partners
Explain how you would apply the divorce-threat model to a law firm with two partners. What do you think would happen to your outcome as additional partners are added to the firm? Explain your answer.
Suppose that Steve prefers golfing vacations, while Emily prefers visiting major metropolitan areas (e.g., New York City). Explain how, if at all, the probability of going on a golfing vacation changes (increases or decreases) if:a) Emily has a PhD in economics rather than a PhD in philosophy.b)
Using what you have learned about specialization and trade, explain why an economic boycott of a country that “misbehaves”—such as Cuba or Iran—can have a significant impact on the standard of living of U.S. residents. How likely do you think it is that the United States would boycott China
At one time or another, many developing countries have pledged to become selfsufficient, thereby reducing their dependence on foreign natural resources such as oil. What would you say to the residents of these countries about the “goodness” of this goal with respect to overall well-being?
Why do you think that countries vary so much in unpaid household production as a percentage of GDP? Explain your answer.
There is an old adage about marriage that says that “opposites attract.” Can you restate this saying within the context of comparative advantage?
Within the animal kingdom, researchers have observed a division of labor among wolves according to gender: females typically care for their young while males forage for food. In contrast, in an ant colony, the division of labor—breeding, foraging, caring for the queen, and so on—is according to
Suppose that a country adopts a progressive income tax system that calls for:■ a 10 percent tax on the first $25,000 earned.■ a 25 percent tax on the next $25,000 earned.■ a 50 percent tax on the next $50,000 earned.■ a 90 percent tax on all additional dollars earned.If you spend 16 hours a
Suppose that Fred and Wilma live in a country where women are not allowed to work in places that have male employees, nor can they interact with male customers (e.g., in a supermarket). What would Wilma’s PPF now look like? What would you predict that she would specialize in—producing C or H?
China has enjoyed an ever-growing trade surplus with the rest of the world, including the United States. President Obama has cried “foul” over the Chinese government’s policies that keep the Chinese currency (yuan) “undervalued.” Explain carefully what the difference is between a country
European companies have invested heavily in manufacturing technologies to create or preserve their comparative advantage in the production of such things as turbines.13 In contrast, U.S. companies have exploited the comparative advantage of producing abroad, locating newer plants overseas and
Nobel Laureate George Stigler once wrote that the division of labor is limited by the size of a market. Explain the meaning of Stigler’s statement.

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