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microeconomics principles
Principles Of Microeconomics: The Way We Live First 1st Edition Feigenbaum S.K., Hafer R.W. - Solutions
Recently the value of the U.S. dollar has been falling. This has made products produced in the United States less costly for foreigners. Is it possible for American suppliers to gain a comparative advantage in the production of certain goods simply because there has been a devaluation of the dollar?
Using the concept of comparative advantage, explain why the United States is:a) an exporter of computer technology.b) an importer of clothing.c) an exporter of wheat.d) an importer of oil.e) an exporter of higher education.
Because the state of Georgia is suffering from an unprecedented drought, it is considering filing suit to challenge the location of its border with Tennessee.Relocating the border would give Georgia control over the water flow of the Tennessee River. If Georgia is successful in its challenge, what
Show how the PPF in Figure 10.4 would change if California:a) invests some of its current resources into plant research and development.b) implements drip-irrigation hothouse technologies.c) discovers a low-cost way to extract salt from seawater.d) increases the number of immigrant workers it
Courts often have to estimate the value of nonmarket production. This occurs, for example, when a homemaker is severely disabled or killed by a negligent driver. We call this estimate the “imputed value” of the homemaker’s future, forgone services. Indicate whether you think this imputed
A.J. and J.J. have set up housekeeping with each other, and must decide who will take care of their eight-month-old child and who will go to work to “put bread on the table.” Suppose that their PPFs are as follows (assume that their nonsleeping hours are spent either working or taking care of
In 2010, American Airlines decided it no longer wanted to sell its tickets through online ticket brokers such as Orbitz and Expedia. It said that it wanted to cultivate its own brand and customer loyalty. How do you think online brokers of airline tickets affect the price elasticity of demand for
A new innovation has recently occurred in the college textbook distribution industry: “rent-a-textbook.” Do you think that the cross-price elasticity between rented books and new books is high? What about between rented books and books resold on Amazon? Explain. Do you think there will be a lot
As the director of finance for the city’s MetroLink subway system, you are asked for your opinion as to whether fares should be raised to cover a large increase in fuel prices that the system faces. You have read that the price elasticity of demand for such commuter services is approximately
In years where there is a drought or late freeze, the total output of American farmers declines. When weather conditions are optimal, farmers reap substantially larger, bumper crops. If the price elasticity of demand for agricultural products is less than one, predict what happens to the income of
Suppose the government increases the “sin” tax on such goods as cigarettes and liquor. Do you think increasing this tax will increase or decrease tax revenues?[Hint: First answer for current smokers and drinkers and then for future smokers and drinkers.]
We have proven that the price elasticity of demand varies along a straight-line demand curve. Can you construct a demand curve along which the price elasticity of demand is constant?
Mortgage lenders often advise home buyers that their mortgage, real-estate taxes, and home insurance should be no more than 28 percent of their family income.a) If home buyers follow this advice, what can you say about their price elasticity of demand for housing, assuming their income doesn’t
True, False, or Uncertain: If the cross-price elasticity of demand between goods X and Y is positive, and the cross-price elasticity of demand between goods Y and Z is negative, then the cross-price elasticity of demand between goods X and Z must also be negative. Explain your answer.
If the demand curve facing a price-taking supplier is horizontal (perfectly price elastic), what is the price elasticity of demand facing a supplier who has no current or potential competitors?
In the United States, the cross-price elasticity of demand for U.S.-trained engineers versus German-trained engineers is very high, whereas the cross-price elasticity of demand for U.S.-trained doctors versus German-trained doctors is very low. Why do you think this is so?
Over the past few years, the U.S. government has pushed for the production of more ethanol-based fuels in lieu of fossil fuels. A major component of ethanol is corn. The result has been that the price of corn has increased astronomically.What does this tell you about corn’s price elasticity of
Assume that the demand for cocaine is perfectly price inelastic and that users get the funds to pay for cocaine primarily by stealing. Suppose, too, that the U.S.Drug Enforcement Agency successfully intercepts shipments of the drug from foreign sources and, therefore, reduces the availability of
The dean of admissions at UZ State argues that increasing students’ tuition will reduce the university’s total revenue.a) What is she implying about the price elasticity of demand for course credit hours at UZ state?b) If, in fact, admissions fall but revenues rise after tuition increases, what
Suppose that Norm, a college student, spends all of his income on two goods:gasoline and credit hours.a) If a $2 increase in the price of gasoline does not change the amount of credit hours the student purchases, what is the price elasticity of demand for gasoline?b) If the price increase in
Indicate whether the price elasticity of demand is perfectly inelastic, inelastic, unitary elastic, or elastic in the following situations:a) The price of babysitters goes up. Mary responds by hiring babysitters less frequently, but she still has less money to spend on other things.b) A new law
Suppose the federal government imposes a tax on suppliers of soft drinks that contain sugar or corn syrup—soda, sports drinks, and so on—to discourage consumption and reduce obesity.a) Using supply-and-demand analysis, show the impact of this tax on equilibrium price and quantity in the regular
Describe at least one mechanism that can be used to allocate economic goods when price is below equilibrium and there is excess demand. Explain the rationale for the government keeping prices below equilibrium (e.g., rent control); and private suppliers keeping prices below equilibrium (e.g.,
Assume that the demand for cocaine is totally unresponsive to price, and assume further that users get the funds to pay for cocaine by stealing. Suppose the government is successful in intercepting shipments of the drug and, therefore, is able to reduce supply.a) Using supply-and-demand analysis,
Political leaders in Los Angeles are leading a campaign to raise the minimum wage in the city (for all employment in the city) to a higher, “living” wage.Using supply-and-demand analysis, show the impact on:a) the skilled labor market in the city.b) the unskilled, teenage-worker market in the
In response to the rapid rise in the price of gasoline, some politicians have argued for a temporary or permanent suspension of the federal tax on gasoline(18.4 cents per gallon). Using supply and demand diagrams, show the impact of removing this tax on equilibrium quantity and price:a) for the
Using supply and demand diagrams, show the impact of removing the price ceiling on natural gas on quantity and price in:a) the natural gas market.b) the electric-furnace market.c) the natural gas oven market.d) the heating-oil market.
To generate voting support from dairy producers, Congressional representatives from dairy-producing states have supported the use of price supports (floors) on milk and cheese. Using supply and demand diagrams, show the impact of such policies on price and quantity in:a) the milk market.b) the
In response to recent corporate financial scandals, the Federal government has enacted laws that make accountants personally liable for inaccuracies reported in audited financial statements, irrespective of the source of the error. Accountants must not only sign their name to any and all audited
As a result of the Iraq War and rebuilding effort, the worldwide demand for U.S.raw materials such as lumber and steel has skyrocketed. Using supply and demand diagrams, show the impact of the war on equilibrium price and quantity in:a) the U.S. automobile market.b) the U.S. carpet market.c) the
Suppose that U.S. lumber companies are successful in ending current limits on the amount of trees that can be harvested in our national forests. Using supply and demand diagrams, show the impact on equilibrium price and quantity in:a) the lumber market.b) the new housing market.c) the carpet
Using consumer demand curves, explain why it makes economic sense for a cell-phone company to virtually give away its phones to cell-phone users.True, false, uncertain. Explain: The price of cellular phones increases when:a) cell-phone numbers are transferable between cell-phone companies at no
Using supply and demand diagrams, show the impact of reductions in international supplies of crude oil on equilibrium price and quantity in:a) the U.S. gasoline market.b) the SUV market.c) the car tire market.d) the hybrid car market.e) the mass-transit market.
Using supply and demand diagrams, show the impact of an economic contraction on equilibrium price and quantity in the:a) jewelry market.b) used car market.c) new car market.d) store-brand toilet paper market.
Using supply and demand diagrams, show how cost-saving improvements in the production technology for plasma screens impact equilibrium price and quantity in:a) the plasma TV market.b) the high-definition cable-services market.c) the movie theater market.d) the LCD TV market.
Using supply and demand curves, show the impact on the equilibrium quantity and the price of menu items when restaurants:a) introduce free delivery to homes and businesses.b) introduce the acceptance of credit cards in lieu of cash-only.c) provide self-serve soda machines.d) eliminate reservations
U.S. residents have increasingly turned to Canada as a cheap source of prescription drugs. They are traveling across the border and using mail order Web sites to buy these drugs. Using supply and demand curves, show the impact of these activities on the equilibrium quantity and price of:a)
A price ceiling only works when the market-clearing, equilibrium price is higher than the regulated price. Why?
A price floor only works when the market-clearing, equilibrium price is lower than the regulated price. Why?
Using supply-and-demand analysis, show what happens if the going price in a market is below the equilibrium price. Explain how pressures on price will lead the market to its equilibrium price and quantity.
When the United States eliminates tariffs on steel and chemical imports, more of the steel and chemicals that U.S. customers use are produced overseas. This means that the amount of pollution generated by these industries in the United States is lessened. How, if at all, do you think that pollution
At what wage rate would you consider working fewer hours each week? What types of considerations would factor into your answer? Explain.
Environmental-protection groups are delighted that plastic-bag manufacturers have become more attuned to environmental concerns and are now producing bags containing 40 percent recycled materials. Can you think of another reason that these producers have moved in this direction, independent of any
In the long run, how do owners of commercial property reduce the market supply of properties in response to a decline in lease rates? Explain your answer.
The federal government has passed a number of regulations in recent years that impact the way in which medical practices operate. Among these regulations are requirements that (1) medical records are now kept in special cabinets in locked rooms to protect patient privacy; and (2) electronic
Several states are considering legislation that would give children with sperm donor “daddies” the right to contact these fathers when they reach the age of 21.If these new laws pass, what, if anything, do you think will happen to the market supply curve of sperm for infertility procedures?
A California court ruled that a dentist was liable for a car accident involving a patient who was given “laughing gas” (nitrous oxide) earlier in the day. Show how the market supply curve for dental treatments using gas as a pain reliever/relaxant changed as a result of this change in property
Medical technology has advanced to the point where organs such as the liver can be split, with pieces transplanted into two patients rather than one. Show the impact of this technological change on the market supply curve for transplantable livers.
Suppose that accounting firms can now either send accounting work to accountants in India via data-transmission technologies or import accountants from India to do the work. Explain carefully what factors might impact their decision. More specifically, under what conditions would it make more sense
Opponents to free-trade agreements such as NAFTA argue that they don’t lower the true costs of supply because many countries—including the United States—heavily subsidize many of their domestic industries. Explain how subsidies“undermine” the ability of free-trade agreements to promote
Suppose the government imposes a quota on each fisherman to prevent overharvesting of fish. Show what the fisherman’s supply curve looks like after the quota is imposed. What does the market supply curve look like?
a) Draw the supply curves for two individual suppliers of lettuce, one who produces lettuce in California and the other who produces lettuce in Mexico.Assume that the suppliers are identical; that is, they both face the same opportunity cost of production.b) Select a price P, and show that both
Maura goes to school full-time and moonlights as a security guard nights and weekends. When her hourly wage increased from $10 per hour to $12 per hour, she requested a cut in her scheduled hours. How would you explain the observed negative slope of her supply curve for labor? Does this tell you
What would the indifference curves look like for a drug addict who is choosing between cocaine and food? Explain.
Could a budget constraint ever be curved? Explain.
What does a straight-line indifference curve tell you about a person’s preferences in terms of the two goods, X and Y? Explain. If the indifference curve was a straight line, what would this mean in terms of consumer equilibrium? Explain.
What would a person’s indifference curve look like if she were choosing between two “perfect” complements that had to be used together in a specific combination—say, athletic shoes and shoelaces? Explain.
What would a consumer’s indifference curve look like if she were choosing between a “good” and a “bad”—say, going to movies and sitting in traffic? Explain.
In 2011, California Governor Jerry Brown signed into law the Renewable Energy Act, which requires that at least one-third of the state’s electricity come from renewable sources, such as wind and the sun, by 2020. Although these sources of energy are renewable at virtually zero cost, it turns out
During the Great Recession of 2007, consumers cut back on their purchases of environmentally friendly “green” products, such as recycled-paper products and biodegradable cleaning supplies. What, if anything, does this behavior tell you about the social benefit of preserving the environment?
Many negative externalities—such as secondhand smoke or air pollution—jeopardize people’s health and increase their risk of dying at an early age. Discuss how you would put a dollar value on these spillover costs so that a policy maker could impose the socially optimal tax on choices that
You are quietly sitting under a tree at a local park, enjoying the newest novel by your favorite mystery writer. All of a sudden, a large family with noisy kids spreads its picnic blanket a stone’s throw away. How does this situation illustrate Coase’s argument that “it takes two to make an
An interesting type of property right is an “air right,” which permits real-estate owners to buy control over the use of airspace above or next to their structures.Discuss how a market in these air rights compares, from an economic point of view, to more traditional government-regulatory
Suppose a group of home owners files a lawsuit against a neighborhood pig farm, claiming that the smells are overwhelming and are reducing the value of their homes. If you were the judge in this case, to whom would you award the contested property right? Would it matter to you “who was there
When do you think it makes sense to totally ban an economic good or activity?Illustrate your answer using MBprivate and MBsocial curves and MCprivate and MCsocial curves.
The federal government’s Pell Grant program reduces the private cost of attending college for many students.a) What spillover benefits do you think are created by having more collegeeducated people in our society?b) Do you believe that this is the reason that college subsidies exist?c) Given your
In most Western countries, there is a law in place requiring that children be vaccinated against such communicable diseases as polio and smallpox. If, in fact, each person benefits from getting vaccinated, and there are only small risks of doing so, why is it necessary to require people to get
Several years ago, in an effort to reduce acid rain, the EPA allocated “pollution allowances” to manufacturers emitting sulfur dioxide and nitrogen oxide. These pollution permits capped each company’s maximum annual level of emissions.The EPA allowed those companies that did not meet their
A classic example of a positive externality relates to the neighborhood beekeeper, whose bees pollinate the nearby apple orchard for free as they fly around looking for nectar to make honey. The story goes that there will be too few bees from an economic standpoint because the beekeeper enjoys only
Suppose that environmentalists are successful in their effort to ban fishing off the eastern shores of the United States. Using MB and MC curves, show the resulting impact on an individual’s quantity consumed of:a) U.S. harvested fish.b) imported fish.c) chicken.
Opponents of convenience “wipes” argue that these disposables are detrimental to the environment. Using MB and MC curves, show the impact on an individual’s quantity of wipes consumed each year if the government:a) imposes a tax on wipes.b) imposes a quota on wipes.c) provides a subsidy for
Which of the following choices creates a negative or positive externality? Explain your answer.a) Driving without your seat belt fastenedb) Opening a kiosk in the mall to sell jewelry, right outside a jewelry storec) Disconnecting the fire alarm in your frat housed) Taking the last piece of cakee)
The Swiss are considering new banking rules that will make it harder for residents of neighboring countries to “hide” money in Swiss banks to avoid taxes.Using MB and MC curves, show how this legislation would impact the amount of money that a German citizen will deposit into Swiss bank
Some of the most important discoveries that have improved the well-being of mankind have arisen without any enforceable private intellectual property rights.Two examples are the wheel and fire. Can you think of similar discoveries that have been made in the past century that have not benefited from
If people can free-ride on television and radio signals, why do you think that some contribute voluntarily to the support of stations such as Public Broadcasting (PBS) and National Public Radio (NPR)? Explain your answer.
Suppose that a restaurant smoking ban is enacted in your town. Using MB and MC curves, show the impact on the volume of take-out food orders (1) for smokers; (2) for nonsmokers.
Some countries, such as Spain and Austria, have adopted property-rights systems stating that when a person dies, his organs are available for transplant unless he opts out of donating his organs prior to death. This is called the “opt-out”system of organ procurement. Other countries, such as
Consider two neighboring states: Missouri and Illinois. Missouri has one of the lowest tax rates in the country and, as a result, one of the lowest funding levels for higher education. By contrast, Illinois has one of the highest tax rates in the country and is generous in its funding of public
By 2009, the Federal Communications Commission (FCC) had mandated that all analog television broadcast signals were to be converted to digital signals.Using MB and MC curves, show the impact of this regulation in 2007 on(1) purchases of television sets that receive only analog signals; and(2)
Suppose that you authored a book or wrote a song. If you knew that it would be prohibitively costly to enforce your ownership rights to the material after it was published, would this affect the price at which you sold the first copy? How?Explain your answer.
One approach to the “tragedy of the commons” is to allocate quotas to individual users of the common property. (1) How would you integrate such a quota into your marginal benefit–marginal cost illustration of economic decision making? (2) What would happen if the MB curve for the good that is
AMC theaters recently established a new rule that prohibits babies under the age of two from attending movies shown after 8 p.m. Using MB and MC curves, show the impact of this rule on (1) evening movie attendance by individuals who do not have children; (2) evening movie attendance by parents with
In the late 1960s, the Catholic Church eliminated the requirement that observant Catholics eat fish on Fridays. Using MB and MC curves, show the effect of this change on the (1) consumption of fish, and (2) consumption of beef by traditional Catholics.
Several years ago, the federal government enacted the Family and Medical Leave Act (FMLA), which allows employees to take an unpaid leave of absence to tend to family crises without any risk of losing their job. If women are the primary caregivers when it comes to elderly parents and young
What if the U.S. Supreme Court ruled that a birth father had the same rights as a birth mother to reclaim his child within 180 days of adoption. Using MB and MC curves, show the impact of this ruling on (1) the number of babies adopted in the United States; (2) the number of babies adopted by U.S.
If it’s true that ownership in stars or land on the Moon is not enforceable, then why do people actually pay for these rights? What property right is actually being acquired here?
Suppose that you have been hired as a consultant to advise a country on how to make the transition from communism (property held in common) to a system of private property. Propose at least two ways that this country could create and distribute private-ownership rights to property that was
Suppose the government bans the use of a pesticide and is able to catch anyone who violates the law. If this is the case, what is the opportunity cost that a farmer bears if he continues to use this pesticide? Would your answer change if the government is unable to catch all lawbreakers? Explain
What is the opportunity cost that an employer bears when he discriminates against women or African Americans in the hiring process? In answering this question, first assume that such discrimination is legal. How would your answer change if it becomes illegal?
McDonald’s restaurants in Japan, India, and Israel offer a menu that is substantially different from the one offered in the United States. Coca-Cola uses a different formulation in different countries.a) What does this tell you about the customers that these companies are targeting for sales in
Your sister Tania, currently a junior in college, has completed all but a few requirements to earn a degree in accounting. Suppose that she calls you and tells you that she is taking her first economics course and is surprised to discover a passion and a talent for the subject. As a result, she is
Mrs. Teeples recently received a letter notifying her that her credit card company was changing from a fixed interest rate for unpaid balances to a variable interest rate.She calculates that she will pay an additional $580 per year under the new terms.a) What types of switching costs might she
Suppose that you are shopping for a new digital camera and can buy it online or in an electronics store such as Best Buy. Explain carefully the economic benefits and costs that would contribute to your decision of where to buy the camera (assume that the price of the camera itself is the same for
Identify three habits in your daily life that you think are informationeconomizing habits. Is there any other reason that habits form and persist over time? Explain your answer.
What is the opportunity cost of investing $5,000 to open a new cupcake shop?Explain your answer.
Suppose that people volunteer to staff a town’s local fire department. Should the value of their time be included in calculating the economic cost of providing fire protection to the town? Explain your answer.
The owner of a record store paid $62,000 for tenant improvements to the space he is renting. Last year, he earned $190,000 in (economic) profits in this space. A friend suggests that he move to a more heavily trafficked location, where it is estimated that he will pay $46,000 for tenant
True, false, uncertain. Explain your answers.a) Accounting profits will always be less than economic profits.b) Accounting costs will always be less than economic costs.c) Sunk costs are included in the explicit cost of a choice.d) Sunk costs are included in the implicit cost of a choice.
Using MB and MC curves, show how a teenager’s decision to have one or more children is affected when (1) she is paid $100 each month to remain in school and not become pregnant; (2) she is paid $100 a month in food stamps for each child she has.
Using marginal benefit (MB) and marginal cost (MC) curves, show what happened to people’s consumption of liquor when Prohibition—the federal government’s ban on liquor consumption—was repealed.
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