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microeconomics principles
Questions and Answers of
Microeconomics Principles
With economic growth forecasted to slow, future incomes are expected to fall. If other things remain the same, how will the demand or supply of loanable funds in India change?At the start of 2008,
The deficit in the first 10 months of the year from April 2013 to January 2014 totalled $10.54 billion, down from $13.87 billion in the same period a year earlier.a. Explain the effect of the
The centrepiece of the 2014 G20 meeting is for all 20 countries to boost investment, create new jobs, and together boost world income by $2 trillion over 5 years.a. Explain the effect of an increase
An electricity producer has two power plants, each of which emits carbon dioxide (CO2), a greenhouse gas. Each plant is currently emitting 1 million metric tons of CO2 per year. However, new
As commissioner of a league of recreational tennis players, you are responsible for purchasing court time from the local tennis facility. The members of the league will tell you how many hours of
Reconsider the problem of purchasing time on the tennis court in Problem 1.14. Suppose the members of your league give you a specified amount of money to spend on court time. They then want you to
A 10 percent increase in the price of automobiles reduces the quantity of automobiles demanded by 8 percent. What is the price elasticity of demand for automobiles?
You have decided to study the market for fresh picked cherries. You learn that over the last 10 years, cherry prices have risen, while the quantity of cherries purchased has also risen. This seems
What is a basket (or a bundle) of goods?
Bill has a utility function over food and gasoline with the equation U = x2y, where x measures the quantity of food consumed and y measures the quantity of gasoline. Show that a consumer with this
What does the assumption that more is better imply about the marginal utility of a good?
What is a composite good?
The Reinheitsgebot is a set of laws established in the 1500s that regulate the production and sale of beer in Germany. Among its provisions, the edict set maximum prices that brewers could charge at
monopolistically competitive: There are at least two other brilliant lecturers Sally competes with.) The inverse demand for Sally’s lectures is given by P = 60 – 0.5Q, where Q measures the number
Evaluate the truthfulness of each of the following statements: a. “If the demand for margarine is perfectly elastic, then a price ceiling in the market for margarine will
Firms A, B, and C all produce roof shingles in a perfectly competitive market. The diagrams below show marginal cost curves for each of the three firms. a. Suppose each firm is producing 1000
You have just graduated from college and have two job offers doing identical work. Firm A offers you $40,000 per year and informs you that your coworkers will make the same. Firm B offers you $38,000
Auto insurer Progressive Insurance recently implemented a new program. Policyholders who agree to voluntarily install a Snapshot telematics device in their car receive a small discount on their car
The federal government would like everyone to have access to health insurance. Currently, the government allows insurance companies to test an applicant’s smoking status (they can test a blood
Evie is a 20-year-old social media influencer who earns lots of income from her YouTubechannel. She brags to her friends, “I’m going to be a millionaire by the time I’m 40,” but seems to
Evie is a 20-year-old social media influencer who earns lots of income from her YouTubechannel. She brags to her friends, “I’m going to be a millionaire by the time I’m 40,” but seems to
Pete?s Pools digs swimming pools for wealthy Seattle residents. Pete currently pays his workers the going wage, $10 per hour. The labor market he faces is depicted below: a. How many workers does
Tobin works at a ball-bearing assembly factory; he likes spending his paycheck, but he also likes lounging on his patio. His indifference curves are shown below: a. Tobin is currently making $20 per
Consider Jillian, whose backward-bending labor supply curve is shown in the figure below. Above $50 per hour, increases in wages cause Jillian to work less, and enjoy more leisure. That implies that
Consider Tessa, from Tessa’s Techs, as given in Problem 1. Tessa is struggling to find workers in a tight labor market.a. Suppose that the struggle to find qualified workers is due to Tessa’s
Jawbats produces wooden baseball bats used by professional athletes. Jawbats’s short-run production function is given by Q= 2L0.5. The associated marginal product of labor is
Consider the following game, played by Player 1 (P1) and Player 2 (P2). a. Use induction to find the equilibrium in this game. b. Suppose that Player 2 wishes to change the outcome of the game to
Consider the game played by Michael and Kristen in problem 18 above. Suppose that Michael decides not to threaten Kristen, but instead decides to promise her a monetary reward if she completes her
Consider the Organization of Otter Exporting Countries playing a repeated game as described in Problems 8 and 9. Assume, however, that your opponent is playing a tit-for-tat strategy rather than a
Dominance can be a very useful and intuitive way to find the likely outcome of a game. Consider, for example, the following game between Bobbi and Gary:GaryLeftCenterRightBobbiHigh4, 47, 55,
Consider the following game:Fireman SamStopDropRollMr. BennTry on Costume12, 78, 65, 2Look for Adventure11, 166, 121, 8Hesitate1, 34, 29, 4Open the Door2, 811, 58, 7a. Find each player’s dominant
One big question economics ponders is how to produce the greatest material well-being using the fewest resources. Compare and contrast perfect competition and monopolistic competition in achieving
In each case below, identify the type of competition and determine if there is likely to be a first-mover advantage. a. Saudi Arabia, a major oil producer, announces its annual oil production
Two farmers, Tito and Helen, supply a chain of islands with kale. The inverse demand for kale in the islands is given by P = 60 – 0.5Q, where Q is the combined output of Tito (qT) and Helen (qH),
Andres and Julian have the only liquor licenses in a small resort town. The inverse demand for mimosas (a favorite adult breakfast drink) is given by . Mimosas can be produced at a constant average
The Organization of Petroleum Exporting Countries (OPEC) is a cartel that attempts to keep oil prices high by restricting output. As part of that process, each member nation is assigned a production
Consider the soufflé bakers Gaston and Pierre, described in Problem 3. Suppose Gaston and Pierre are each faced with the choice of baking 3 or 4 soufflés each morning.a. Calculate the profits each
Revisit the Netflix membership fee issue discussed in Problem 20. Suppose you learn that there are actually two types of Netflix user: intensive users and casual users. Intensive users comprise
The most popular movie streaming service is Netflix. Netflix members pay a monthly fee and are then entitled to stream as many hours of programming as they wish. You’ve been hired by Netflix to
Kip’s Auto Detailing has locations in two distant neighborhoods, Uptown and Downtown. Uptown customers’ demand is given by QUT = 1,000 – 10P, where Q is the number of cars detailed per month;
Rich Uncle Pennybags is the only seller of board games in Atlantic City, New Jersey. The inverse demand curve for board games is given by where Q is in hundreds of games per month. Rich Uncle
The inverse demand for Harley Davidson motorcycles is given by P = 40,000 – 10Q, where P is the price in dollars and Q measures the number of units sold each month. Harley Davidson is
Determine whether the italicized statement below is true or false. Then explain your answer.A firm with market power will find that the quantity of output that maximizes revenue is lower than the
In 2018 pop star Drake was downloaded twice as often as Cardi B. She, in turn, was downloaded twice as often as Bruno Mars. Yet, downloads for these artists all sold for the same price in Apple’s
Concrete blocks are produced by thousands of small producers in a perfectly competitive market. Each producer faces total costs of TC = Q3 – 6Q2 + 20Q + 300, where Q is the quantity of blocks,
Anthony’s Bees is an Internet e-tailer that sells equipment to aspiring beekeepers. A complete starter kit in this competitive market sells for $900. Anthony’s total costs are given by TC = 3Q3,
Tyson Chicken produces both thighs and wings. When it produces 150 thighs and no wings, its total cost is $600. When Tyson produces 150 wings and no thighs, its total cost is $400. And when Tyson
A firm’s total cost curve is TC = Q3 – 60Q2 + 910Q + 150. Its marginal cost is 3Q2 – 120Q + 910. a. Find the firm’s fixed cost, variable cost, average total cost, and average variable
A Toyota Corolla costs $18,700 and has average highway fuel economy of 36 miles per gallon (mpg). A Toyota Prius costs $23,700 and offers average highway fuel economy of 50 mpg. a. Assuming gas
Roy builds furniture in his North Carolina workshop. The cost of producing various numbers of bookstands is given in the table below:Quantity (bookstands/week)Total CostsFixed CostsVariable
In which of the following situations are costs sunk?a. A drug company spends $20 million to test the effectiveness of a new replacement drug for insulin, only to find out it is
Who doesn’t love kicking back after work with a snack and a good show? Everyone loves some free time . . . but, of course, time isn’t free! In the past 10 years, ridesharing services like Uber
Chris owns his own business restoring antique cars. Last year, he restored 24 cars, which he sold for $1,100,000. The parts and supplies necessary for the restoration totaled $400,000. He paid
Cam?s Cannolis produces delicious desserts. Cam?s production function is depicted by the isoquants in the graph. Labor and capital are both priced at $10 per unit. a. Add appropriately sloped
Truffles are a tasty fungus traditionally located by trained pigs. Suppose the production function for truffles is given by Q = 2K0.5L0.5, where?L is the number of pig handlers and?K is the number of
True or false: A production function that displays increasing returns to scale must also display increasing marginal returns to either labor or capital. Explain your answer, and provide an example
The graph below illustrates production isoquants for various levels of labor and capital. In the graph, supply the quantities Q1,?Q2, and?Q3 so that the production function displays a. Increasing
In Bangladesh, where labor is relatively abundant, bricks are produced with a lot of labor and very little capital. In England, where labor is scarce, bricks are produced with a lot of capital and
Creekwood Lawn and Landscape is a small business that employs 20 minimum wage workers and 10 units of capital (in the form of mowers, spreaders, aerators, etc.) to service 10 lawns. Creekwood is
Fast-food restaurants like McDonald’s are replacing cashiers with touch-screen ordering kiosks. Currently, the marginal product of another cashier is 48 customers served per hour; the marginal
Use a diagram with one ordinary production isoquant and various isocost lines to show that a firm’s cost of producing a given level of output in the long run will always be less than or equal to
Suppose that a firm?s production function is given by ?where ?and? a. As L increases, what happens to the marginal product of labor? b. As?K increases, what happens to the marginal product of
Nobody fixes more fender benders than Crazy Bob! At his auto body shop, the production function showing the number of cars repaired each year is Q = 100√KL, where K is the number of arc welding
Complete the table below:Labor InputTotal ProductMarginal ProductAverage Product00——1702135363451557
For parts (a) to (d), determine which basic assumption of production is violated.a. The local coffee shop serves 400 customers per day with 8 employees, 420 with 9 employees, or 450 with 10
Consider the following diagram, which depicts various combinations of two goods: grits and shins. Leon is currently maximizing his utility at point A in the diagram. a. Suddenly, the price of shins
Consider Liu?s indifference curve indicated in the graph atthe right: a. True or False (and explain): Peanuts and Crackerjack are clearly complements. b. True or False (and explain): Peanuts and
Explain intuitively why any normal good cannot possibly be a Giffen good. (You may wish to illustrate your answer with a budget line/indifference curve graph.)
Juliette spends $48 each month on Oreo cookies (which cost $2 per package) and salt and vinegar chips (which cost $3 per bag). a. With chips on the horizontal axis, draw Juliette’s budget
Chloe makes $500 per week and spends all her income on books and tea. Books cost $25 each, and Chloe buys 16 each week. Tea costs $5 per cup, and Chloe buys 20 cups. When Chloe’s income falls to
College sophomore Martin enjoys attending sporting events and going to concerts. Because his scholarship pays for room and board, he spends all his income on these live events. Every once in a while,
Consider Joey and Phoebe, our mac and cheese lovers from Problem 10. Comment on the following statement: Because Joey really loves cheese, when he maximizes his utility, he will be willing to give up
Caitlin spends her money on tuition and books. One credit hour of tuition costs her $320; each book costs her $200. Currently, the marginal utility of a credit hour to Caitlin is 80; the marginal
During World War II, gasoline sold for a remarkable $0.20 per gallon. Suppose that Rosie works part-time and earns an average of $4 each week to spend on gasoline and food, which costs $0.50 per
Sydney earns $100 from his YouTube videos each week; he spends it all on concert tickets and paintball. a. If concert tickets cost $20 each and paintball admission is $10 per session, graph
Joey likes macaroni well enough and really loves cheese. Phoebe likes cheese well enough, but really loves macaroni. Below are two sets of indifference curves for two different consumers. Determine
Carmen is a writer who enjoys writing with both pencils and pens. Her utility function for pencils and pens is given by U = 4X + 2Y, where X is the number of pencils she buys and Y is the number of
Juliette and Andrew regularly go to the movies, where they like to consume popcorn and slushies. At the movies, Juliette’s utility function is given by UJ = √P × S, where P is the number of cups
Every autumn brings an increase in the demand for pumpkin spice lattes (PSL). This fall, the demand for PSLs in a mid-sized midwestern town is given by QD = 10 – 0.5P, where P is the price of a PSL
You are a USDA economist, and the Senate Finance Committee has come to you for advice. The government is considering bolstering its finances by imposing a tax on either salt or blue cheese. You know
Noni is a tropical fruit grown in Hawaii and widely marketed as an herbal cure for various diseases. The market for Noni fruit is depicted in the graph below.? Concerned that Noni fruit may be
The runoff from agricultural fertilizers contains compounds thatdamage local watersheds. Suppose the private marginal costs ofproduction and the demand (marginal benefit) in the market forfertilizer
Suppose there are only two firms?Softies Inc. and Cuddlies Inc.? producing disposable diapers. Both firms are releasing dioxins into the same river. To reduce the pollution, the regulatory agency
The diagram below shows the marginal cost of abatement of GHGs for each of two firms, LoCost Inc. and HiCost Inc. The government has imposed a direct regulatory control requiring each firm to abate
In 2018, U.S. President Donald Trump argued that his country’s trade agreements with other countries were bad for the United States and were unfairly benefiting America’s trading partners. What
The diagram below shows the competitive market for gasoline in two island economies, Island Flatland and Island Steephills, which have similar populations but have different elasticities of demand
The table below provides information about two individuals, Michael and Lindsay. Assume the following: Income tax brackets are the same as in Study Exercise 10. All after-tax income is either saved
Refer to the diagram for Study Exercise 16, which shows the marginal cost of abatement of GHGs for each of two firms, LoCost Inc. and HiCost Inc. The government has imposed a direct regulatory
Whiskey makers have an unusual business model: They make a product today, and then let it sit in barrels in a warehouse for 20 years before they sell it. Suppose that it takes $12 of resources to
Mariq really likes M&Ms. Currently, he has $100, which, at the market price of $1 per bag of M&Ms, translates to 100 bags. He’s considering putting that money in the bank so next year he
Perry the picker has stumbled across a piece of pottery in an antique shop. Because of its style, he believes it might be by Frog Woman, a famous Hopi artist. If he buys the pot for $3,000, he will
A classmate offers to play the following game: He will roll a 10-sided die; if it comes up between 1 and 9, he will pay you $10; if it comes up a 10, he will pay you $110.a. If you are risk-neutral,
Dante and Naia get utility from having money. Dante’s utility function is UD = 10M1/3; Naia’s utility function is UN = 10 M1/2 Dante currently has $1,000; Naia has $400.a. The Rawlsian social
Sydney and Simon both like coffee and pie. Their utility functions are identical: ?where C?is the number of cups of coffee and?P is the number of slices of pie. Sydney?s and Simon?s allocations of
In Milwaukee, labor (L) and capital (K) are used in combination to produce both motorcycles and beer. In the motorcycle industry, the MRTSLK is 1; in the beer industry, the MRTSLK is
Consider the production contract curve in the graph on the right that illustrates efficient allocations of labor and capital to the production of two goods, guns and roses. a. Use the information in
The economy of Nashville is producing both guitars and Cadillacs. The production possibilities frontier for guitars and Cadillacs is shown in the accompanying figure, along with an indifference curve
a. Because the marginal cost of producing a watch is 10 times that of producing a chocolate, Switzerland must give up 10 chocolates to produce another watch. b. Because Switzerland must give up 10
The Edgeworth box below depicts Adam?s and Carla?s allocation of two goods, X and Y. Adam and Carla are currently at A, on the contract curve. a. When allocating goods, Pareto efficiency seems like
Car buyers value a high-quality used car at $16,000 and a low-quality used car at $8,000. The supply of high-quality cars is given by QH = -200 + 0.05PH; the supply of low-quality cars is given by QL
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