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microeconomics principles
Macroeconomics 2nd Edition In Modules Paul Krugman, Robin Wells (main Authors), Margaret Ray, David Anderson (auxiliary Authors) - Solutions
Explain why the three methods of calculating GDP produce the same estimate of GDP.
The waters off the north Atlantic coast were once teeming with fish. Now, due to overfishing by the commercial fishing industry, the stocks of fish are seriously depleted. In 1991, the National Marine Fishery Service of the U.S. government implemented a quota to allow fish stocks to recover. The
For the last 70 years, the U.S. government has used price supports to provide income assistance to U.S. farmers. At times the government has used price floors, which it maintains by buying up the surplus farm products. At other times, it has used target prices, giving the farmer an amount equal to
Until recently, the standard number of hours worked per week for a full-time job in France was 39 hours, similar to in the United States. But in response to social unrest over high levels of involuntary unemployment, the French government instituted a 35-hour workweek—a worker could not work more
As noted in the text, European governments tend to make greater use of price controls than does the U.S. government. For example, the French government sets minimum starting yearly wages for new hires who have completed le bac, certification roughly equivalent to a high school diploma. The demand
Suppose the U.S. government decides that the incomes of dairy farmers should be maintained at a level that allows the traditional family dairy farm to survive. It therefore implements a price floor of $1 per pint by buying surplus milk until the market price is $1 per pint. Use the accompanying
In the late eighteenth century, the price of bread in New York City was controlled, set at a predetermined price above the market price.a. Draw a diagram showing the effect of the policy. Did the policy act as a price ceiling or a price floor? b.What kinds of inefficiencies were likely to have
Suppose it is decided that rent control in New York City will be abolished and that market rents will now prevail. Assume that all rental units are identical and are therefore offered at the same rent. To address the plight of residents who may be unable to pay the market rent, an income
Draw the appropriate curve in each of the following cases. Is it like or unlike the curves you have seen so far? Explain.a. the demand for cardiac bypass surgery, given that the government pays the full cost for any patient b.the demand for elective cosmetic plastic surgery, given that the patient
Although he was a prolific artist, Pablo Picasso painted only 1,000 canvases during his “Blue Period.” Picasso is now dead, and all of his Blue Period works are currently on display in museums and private galleries throughout Europe and the United States.a. Draw a supply curve for Picasso Blue
Use a diagram to illustrate how each of the following events affects the equilibrium price and quantity of pizza.a. The price of mozzarella cheese rises. b.The health hazards of hamburgers are widely publicized.c. The price of tomato sauce falls. d.The incomes of consumers rise and pizza is an
The small town of Middling experiences a sudden doubling of the birth rate. After three years, the birth rate returns to normal. Use a diagram to illustrate the effect of these events on the following:a. the market for an hour of babysitting services in Middling today b.the market for an hour of
Will Shakespeare is a struggling playwright in sixteenthcentury London. As the price he receives for writing a play increases, he is willing to write more plays. For the following situations, use a diagram to illustrate how each event affects the equilibrium price and quantity in the market for
After several years of decline, the market for handmade acoustic guitars is making a comeback. These guitars are usually made in small workshops employing relatively few highly skilled luthiers. Assess the impact on the equilibrium price and quantity of handmade acoustic guitars as a result of each
In Rolling Stone magazine, several fans and rock stars, including Pearl Jam, were bemoaning the high price of concert tickets. One superstar argued, “It just isn’t worth $75 to see me play. No one should have to pay that much to go to a concert.” Assume this star sold out arenas around the
Find the flaws in reasoning in the following statements, paying particular attention to the distinction between changes in and movements along the supply and demand curves. Draw a diagram to illustrate what actually happens in each situation.a. “A technological innovation that lowers the cost of
Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events on the designated market.a. the market for newspapers in your town Case 1: The salaries of journalists go up. Case 2: There is a big news event in
The market for many goods changes in predictable ways according to the time of year, in response to events such as holidays, vacation times, seasonal changes in production, and so on. Using supply and demand, explain the change in price in each of the following cases. Note that supply and demand
In a supply and demand diagram, draw the change in demand for hamburgers in your hometown due to the following events. In each case show the effect on equilibrium price and quantity.a. The price of tacos increases. b.All hamburger sellers raise the price of their french fries.c. Income falls in
A survey indicated that chocolate ice cream is America’s favorite ice-cream flavor. For each of the following, indicate the possible effects on the demand and/or supply, equilibrium price, and equilibrium quantity of chocolate ice cream.a. A severe drought in the Midwest causes dairy farmers to
Draw a correctly labeled graph of the market for taxicab rides. On the graph, draw and label a vertical line showing the level of an effective quota. Label the demand price, the supply price, and the quota rent.
Which of the following would decrease the effect of a quota on a market? A(n)a. decrease in demandb. increase in supplyc. increase in demandd. price ceiling above the equilibrium pricee. none of the above
Quotas lead to which of the following? I. inefficiency due to missed opportunities II. incentives to evade or break the law III. a surplus in the marketa. Ib. IIc. IIId. I and IIe. I, II, and III
If the government established a quota of 1,000 in this market, the quota rent would bea. $2.b. $4.c. $6.d. $8.e. more than $8.
If the government established a quota of 1,000 in this market, the supply price would bea. less than $4.b. $4.c. $6.d. $8.e. more than $8.
If the government established a quota of 1,000 in this market, the demand price would bea. less than $4.b. $4.c. $6.d. $8.e. more than $8. 0 Price Quantity $8 6 4 1,000 1,800 2,600 D S E
Again replicate the graph from Figure 9.1. Suppose that the quota is 8 million rides and that demand decreases due to a decline in tourism. Show on your graph the smallest parallel leftward shift in demand that would result in the quota no longer having an effect on the market.
Suppose that the supply and demand for taxi rides is given by Figure 9.1 and a quota is set at 6 million rides. Replicate the graph from Figure 9.1, and identify each of the following on your graph:a. the price of a rideb. the quota rentc. the deadweight loss resulting from the quota Suppose the
Refer to the graph provided. If the government establishes a minimum wage at $10, how many workers will benefit from the higher wage?Draw a correctly labeled graph of a housing market in equilibrium. On your graph, illustrate an effective legal limit (ceiling) on rent. Identify the quantity of
Effective price ceilings are inefficient because theya. create shortages.b. lead to wasted resources.c. decrease quality.d. create black markets.e. do all of the above.
Refer to the graph provided. A price floor set at $5 will result ina. a shortage of 100 units.b. a surplus of 100 units.c. a shortage of 200 units.d. a surplus of 200 units.e. a surplus of 50 units.
Refer to the graph provided. If the government establishes a minimum wage at $10, how many workers will benefit from the higher wage?
Effective price ceilings are inefficient because theya. create shortages.b. lead to wasted resources.c. decrease quality.d. create black markets.e. do all of the above.
Refer to the graph provided. A price floor set at $5 will result ina. a shortage of 100 units.b. a surplus of 100 units.c. a shortage of 200 units.d. a surplus of 200 units.e. a surplus of 50 units.
To be effective, a price ceiling must be set I. above the equilibrium price. II. in the housing market. III. to achieve the equilibrium market quantity.a. Ib. IIc. IIId. I, II, and IIIe. None of the above
The state legislature mandates a price floor for gasoline of PF per gallon. Assess the following statements and illustrate your answer using the figure provided.a. Proponents of the law claim it will increase the income of gas station owners. Opponents claim it will hurt gas station owners because
True or false? Explain your answer. A price ceiling below the equilibrium price in an otherwise efficient market does the following:a. increases quantity suppliedb. makes some people who want to consume the good worse offc. makes all producers worse off
On game days, homeowners near Middletown University’s stadium used to rent parking spaces in their driveways to fans at a going rate of $11. A new town ordinance now sets a maximum parking fee of $7. Use the accompanying supply and demand diagram to explain how each of the following can result
Which of the following is certainly true if demand and supply increase at the same time?a. The equilibrium price will increase.b. The equilibrium price will decrease.c. The equilibrium quantity will increase.d. The equilibrium quantity will decrease.e. The equilibrium quantity may increase,
An increase in the number of buyers and a technological advance will causea. demand to increase and supply to increase.b. demand to increase and supply to decrease.c. demand to decrease and supply to increase.d. demand to decrease and supply to decrease.e. no change in demand and an increase in
The equilibrium price will rise, but equilibrium quantity may increase, decrease, or stay the same ifa. demand increases and supply decreases.b. demand increases and supply increases.c. demand decreases and supply increases.d. demand decreases and supply decreases.e. demand increases and supply
Which of the following will lead to an increase in the equilibrium price of product “X”? A(n)a. increase in consumer incomes if product “X” is an inferior goodb. increase in the price of machinery used to produce product “X”c. technological advance in the production of good “X”d.
Which of the following describes what will happen in the market for tomatoes if a salmonella outbreak is attributed to tainted tomatoes?a. Supply will decrease and price will increase.b. Supply will decrease and price will decrease.c. Demand will decrease and price will increase.d. Demand will
Periodically, a computer chip maker like Intel introduces a new chip that is faster than the previous one. In response, demand for computers using the earlier chip decreases as customers put off purchases in anticipation of machines containing the new chip. Simultaneously, computer makers increase
For each of the following examples, explain how the indicated change affects supply or demand for the good in question and how the shift you describe affects equilibrium price and quantity.a. As the price of gasoline fell in the United States during the 1990s, more people bought large cars.b. As
The market price of a good will tend to rise ifa. demand decreases.b. supply increases.c. it is above the equilibrium price.d. it is below the equilibrium price.e. demand shifts to the left.Draw a correctly labeled graph showing the market for oranges in equilibrium. Show on your graph how a
Which of the following is true at equilibrium?a. The supply schedule is identical to the demand schedule at every price.b. The quantity demanded is the same as the quantity supplied.c. The quantity is zero.d. Every consumer who enjoys the good can consume it.e. Producers could not make any more of
A technological advance in textbook production will lead to which of the following?a. a decrease in textbook supplyb. an increase in textbook demandc. an increase in textbook supplyd. a movement along the supply curve for textbookse. an increase in textbook prices
An increase in the demand for steak will lead to an increase in which of the following?a. the supply of steakb. the supply of hamburger (a substitute in production)c. the supply of chicken (a substitute in consumption)d. the supply of leather (a complement in production)e. the demand for leather
Which of the following will decrease the supply of good “X”?a. There is a technological advance that affects the production of all goods.b. The price of good “X” falls.c. The price of good “Y” (which consumers regard as a substitute for good “X”) decreases.d. The wages of workers
In the following three situations, the market is initially in equilibrium. After each event described below, does a surplus or shortage exist at the original equilibrium price? What will happen to the equilibrium price as a result?a. In 2010 there was a bumper crop of wine grapes.b. After a
Explain whether each of the following events represents (i) a change in supply or (ii) a movement along the supply curve.a. During a real estate boom that causes house prices to rise, more homeowners put their houses up for sale.b. Many strawberry farmers open temporary roadside stands during
Draw a correctly labeled graph showing the demand for apples. On your graph, illustrate what happens to the demand for apples if a new report from the Surgeon General finds that an apple a day really does keep the doctor away
Which of the following will increase the demand for disposable diapers?a. a new “baby boom”b. concern over the environmental effect of landfillsc. a decrease in the price of cloth diapersd. a move toward earlier potty training of childrene. a decrease in the price of disposable diapers
Which of the following will occur if consumers expect the price of a good to fall in the coming months?a. The quantity demanded will rise today.b. The quantity demanded will remain the same today.c. Demand will increase today.d. Demand will decrease today.e. No change will occur today.
If an increase in income leads to a decrease in demand, the good isa. a complement.b. a substitute.c. inferior.d. abnormal.e. normal.
A decrease in the price of butter would most likely decrease the demand fora. margarine.b. bagels.c. jelly.d. milk.e. syrup.
Which of the following would increase demand for a normal good? A decrease ina. price.b. income.c. the price of a substitute.d. consumer taste for a good.e. the price of a complement.
Explain whether each of the following events represents (i) a change in demand (a shift of the demand curve) or (ii) a movement along the demand curve (a change in the quantity demanded).a. A store owner finds that customers are willing to pay more for umbrellas on rainy days.b. When XYZ Telecom, a
During the Reagan administration, economist Arthur Laffer argued in favor of lowering income tax rates in order to increase tax revenues. Like most economists, he believed that at tax rates above a certain level, tax revenue would fall (because high taxes would discourage some people from working)
Study the four accompanying diagrams. Consider the following statements and indicate which diagram matches each statement. For each statement, tell which variable would appear on the horizontal axis and which on the vertical. In each of these statements, is the slope positive, negative, zero, or
Peter Pundit, an economics reporter, states that the European Union (EU) is increasing its productivity very rapidly in all industries. He claims that this productivity advance is so rapid that output from the EU in these industries will soon exceed that of the United States and, as a result, the
According to the U.S. Census Bureau, in July 2006 the United States exported aircraft worth $1 billion to China and imported aircraft worth only $19,000 from China. During the same month, however, the United States imported $83 million worth of men’s trousers, slacks, and jeans from China but
The Hatfield family lives on the east side of the Hatatoochie River, and the McCoy family lives on the west side. Each family’s diet consists of fried chicken and corn-on-the-cob, and each is self-sufficient, raising their own chickens and growing their own corn. Explain the conditions under
According to data from the U.S. Department of Agriculture’s National Agricultural Statistics Service, 124 million acres of land in the United States were used for wheat or corn farming in 2004. Of those 124 million acres, farmers used 50 million acres to grow 2.158 billion bushels of wheat, and
In the ancient country of Roma, only two goods, spaghetti and meatballs, are produced. There are two tribes in Roma, the Tivoli and the Frivoli. By themselves, the Tivoli each month can produce either 30 pounds of spaghetti and no meatballs, or 50 pounds of meatballs and no spaghetti, or any
Two important industries on the island of Bermuda are fishing and tourism. According to data from the World Resources Institute and the Bermuda Department of Statistics, in the year 2000 the 307 registered fishermen in Bermuda caught 286 metric tons of marine fish. And the 3,409 people employed by
Suppose Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fish. The accompanying table shows the maximum annual output combinations of potatoes and fish that can be produced. Obviously, given their limited resources and available technology, as
Evaluate this statement: “It is easier to build an economic model that accurately reflects events that have already occurred than to build an economic model to forecast future events.” Do you think that this is true or not? Why? What does this imply about the difficulties of building good
Why do we consider a business-cycle expansion to be different from economic growth?
Are the following statements true or false? Explain your answers.a. “When people must pay higher taxes on their wage earnings, it reduces their incentive to work” is a positive statement.b. “We should lower taxes to encourage more work” is a positive statement.c. Economics cannot always be
A representative of the U.S. clothing industry recently made this statement: “Workers in Asia often work in sweatshop conditions earning only pennies an hour. American workers are more productive and, as a result, earn higher wages. In order to preserve the dignity of the American workplace, the
Use the concept of opportunity cost to explain the following situations.a. More people choose to get graduate degrees when the job market is poor. b.More people choose to do their own home repairs when the economy is slow and hourly wages are down.c. There are more parks in suburban areas than in
Describe some of the opportunity costs of the following choices.a. Attend college instead of taking a job. b.Watch a movie instead of studying for an exam.c. Ride the bus instead of driving your car.
Imagine a firm that manufactures textiles (pants and shirts). List the four categories of resources, and for each category, give an example of a specific resource that the firm might use to manufacture textiles.
Refer to the table below to answer the following questions. These two countries are producing textiles and wheat using equal amounts of resources.a. What is the opportunity cost of producing a bushel of wheat for each country?b. Which country has the absolute advantage in wheat production?c. Which
What is the highest price Country B is willing to pay to buy wheat from Country A?a. 1 ⁄2 units of textilesb. 2 ⁄3 units of textilesc. 1 unit of textilesd. 11 ⁄2 units of textilese. 2 units of textiles
If the two countries specialize and trade, which of the choices below describes the countries’ imports? Import Wheat Import Textilesa. Country A Country Ab. Country A Country Bc. Country B Country Bd. Country B Country Ae. Neither Country Country B
Use the graph to determine which country has a comparative advantage in producing each good. Comparative advantage Comparative advantage in wheat production in textile productiona. Country A Country Bb. Country A Country Ac. Country B Country Ad. Country B Country Be. Country A Neither Country
For country A, the opportunity cost of a bushel of wheat isa. 1 ⁄2 units of textilesb. 2 ⁄3 units of textilesc. 11 ⁄3 units of textilesd. 11 ⁄2 units of textilese. 2 units of textiles
Use the graph to determine which country has an absolute advantage in producing each good. Absolute advantage Absolute advantage in wheat production in textile productiona. Country A Country Bb. Country A Country Ac. Country B Country Ad. Country B Country Be. Country A Neither Country
Refer to the story of Tom and Hank illustrated by Figure 4.1 in the text. Explain why Tom and Hank are willing to engage in a trade of 1 fish for 11 ⁄2 coconuts.
In Italy, an automobile can be produced by 8 workers in one day and a washing machine by 3 workers in one day. In the United States, an automobile can be produced by 6 workers in one day, and a washing machine by 2 workers in one day.a. Which country has an absolute advantage in the production of
This production possibility frontier shows the trade-off between consumer goods and capital goods. Since capital goods are a resource, an increase in the production of capital goods today will increase the economy’s production possibilities in the future. Therefore, all other things equal
Which of the following might allow this economy to move from point B to point F?a. more workersb. discovery of new resourcesc. building new factoriesd. technological advancese. all of the above
An increase in unemployment could be represented by a movement from pointa. D to point C.b. B to point A.c. C to point F.d. B to point E.e. E to point B.
For this economy, an increase in the quantity of capital goods produced without a corresponding decrease in the quantity of consumer goods produceda. cannot happen because there is always an opportunity cost.b. is represented by a movement from point E to point A.c. is represented by a movement
Which point(s) on the graph represent efficiency in production?a. B and Cb. A and Dc. A, B, C, and Dd. A, B, C, D, and Ee. A, B, C, D, E, and F
True or false? Explain your answer.a. An increase in the amount of resources available to Tom for use in producing coconuts and fish does not change his production possibility frontier.b. A technological change that allows Tom to catch more fish relative to any amount of coconuts gathered results
The other things equal assumption allows economists toa. avoid making assumptions about reality.b. focus on the effects of only one change at a time.c. oversimplify.d. allow nothing to change in their model.e. reflect all aspects of the real world in their model.
Which of the following is the most likely result of inflation?a. falling employmentb. a dollar will buy more than it did beforec. people are discouraged from holding cashd. price stabilitye. low aggregate output per capita
A sustained increase in aggregate output over several decades representsa. an expansion.b. a recovery.c. a recession.d. a depression.e. economic growth.
The labor force is made up of everyone who isa. employed.b. old enough to work.c. actively seeking work.d. employed or unemployed.e. employed or capable of working.
During the recession phase of a business cycle, which of the following is likely to increase?a. the unemployment rateb. the price levelc. economic growth ratesd. the labor forcee. wages
Describe who gets hurt in a recession and how they are hurt.
Why do we talk about business cycles for the economy as a whole, rather than just talking about the ups and downs of particular industries?
Suppose that you prefer reading a book you already own to watching TV and that you prefer watching TV to listening to music. If these are your only three choices, what is the opportunity cost of reading?
Which of the following situations represent(s) resource scarcity? I. Rapidly growing economies experience increasing levels of water pollution. II. There is a finite amount of petroleum in the physical environment. III. Cassette tapes are no longer being produced.a. I onlyb. II onlyc. III onlyd. I
Which of the following is an example of a resource? I. petroleum II. a factory III. a cheeseburger dinnera. I onlyb. II onlyc. III onlyd. I and II onlye. I, II, and III
Suppose that you prefer reading a book you already own to watching TV and that you prefer watching TV to listening to music. If these are your only three choices, what is the opportunity cost of reading?
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