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microeconomics principles

Questions and Answers of Microeconomics Principles

In Solved Problem 4.5, if the generic bleach increases its strength to equal that of Clorox without changing its price, what bundles will Chris buy if the price of Clorox is $3 or $2?
Is a wealthy person more likely than a poor person to prefer to receive a government payment of $100 in cash to $100 worth of food stamps? Why or why not?
Show how much an individual’s opportunity set increases if the government gives food stamps for free rather than sells them at subsidized rates.
Since 1979, the government has given recipients food stamps for free. Before 1979, people bought food stamps at a subsidized rate. For example, to get $1 worth of food stamps, a household paid about
A poor person who has an income of $1,000 receives $100 worth of food stamps. Draw the budget constraint if the food stamp recipient can sell these coupons on the black market for less than their
Crost and Guerrero (2012) found that when women turn 21, their cost of buying alcohol drops, and they reduce their consumption of marijuana by 17% (see the Application “Substituting Alcohol for
Maureen only drinks a cup of coffee with one teaspoon of sugar. In a figure, show the bundle of coffee and sugar that gives her the most pleasure. Are her indifference curve and the budget line
Salvo and Huse (2013) found that roughly one fifth of owners of flexible-fuel cars (which can run on a mix of ethanol and gasoline) choose gasoline when the price of gas is 20% above that of ethanol
Felix chooses between water and all other goods. If he spends all his money on water, he can buy 12 thousand gallons per week. At current prices, his optimal bundle is e1. Show e1 in a diagram.
Diogo has a utility function U(B, Z) = ABαZβ, where A, α, and β are constants, B is burritos, and Z is pizzas. If the price of burritos, pB, is $2 and the price of pizzas, pZ, is $1, and Y is
José Maria’s utility function is U(B, Z) = ABαZβ. What is his marginal utility of B? What is his marginal utility of Z? What is his marginal rate of substitution between B and Z?
David’s utility function is U = B + 2Z, so MUB = 1 and MUZ = 2. Describe the location of his optimal bundle (if possible) in terms of the relative prices of B and Z.
Julia consumes cans of anchovies, A, and boxes of biscuits, B. Each of her indifference curves reflects strictly diminishing marginal rates of substitution.Where A = 2 and B = 2, her marginal rate of
If Joe views two candy bars and one piece of cake as perfect substitutes, what is his marginal rate of substitution between candy bars and cake?
What is the effect of a quota of 13 thousand gallons of water per month on the opportunity set of the consumer in Solved Problem 4.2?
Does the utility function V(Z, B) = α + [U(Z, B)]2 give the same ordering of bundles as does U(Z, B)?
What happens to a consumer’s optimum if all prices and income double?
Suppose Gregg consumes chocolate candy bars and oranges. He is given four chocolate bars and three oranges. He can buy or sell a candy bar for $2 each. Similarly, he can buy or sell an orange for $1.
For a tax on sugar or fat to reduce the consumption of fattening foods and drinks by a very large amount, what must the demand and supply elasticities be?
Cranfield (2012) estimated that the elasticity of demand for Canadian beef was -0.83. If the supply curve of beef is nearly inelastic in the short run and a change in the law causes the supply curve
A 2014 report from the Motion Picture Association of America said that revenue rose to $10.9 billion in 2013 from $10.8 billion in 2012 even though the number of tickets sold fell from 1.36 billion
In the figure in the Application €œAmazon Prime,€ what do the areas A, A + B, A + C, and B - C represent?Amazon Prime 99 C = $0.36 billion 79 e, B= $0.158 billion A = $.1422
If the inverse demand function is p = a - bQ and the inverse supply function is p = c + dQ, show that the incidence of a specific tax of t per unit falling on consumers is b/(b + d) = η/(η - ε ).
What is the effect of a $1 specific tax on equilibrium price and quantity if demand is perfectly elastic and supply is perfectly inelastic?What is the incidence on consumers? Explain.
What is the effect of a $1 specific tax on equilibrium price and quantity if supply is perfectly inelastic? What is the incidence on consumers? Explain.
What is the effect of a $1 specific tax on equilibrium price and quantity if demand is perfectly elastic? What is the incidence on consumers? Explain.
If the demand elasticity is -1 at the initial equilibrium and price increases by 1%, by how much does revenue change?
What is the effect of a $1 specific tax on equilibrium price and quantity if demand is perfectly inelastic? What is the incidence on consumers? Explain.
A constant elasticity supply curve, Q = Bpη, intersects a constant elasticity demand curve, Q = Apε , where A, B, η, and ε are constants. What is the incidence of a $1 specific tax? Does your
Use math to show that, as the supply curve at the equilibrium becomes nearly perfectly elastic, the entire incidence of the tax falls on consumers.
In 2012, the governors of several livestock–producing states asked the U.S. Environmental Protection Agency (EPA) to suspend federal ethanol mandates due to a major drought (Amanda Peterka, “EPA
Duffy-Deno (2003) estimated that the demand function for broadband service was Qs = 15.6p-0.563 for small firms and Ql = 16.0p-0.296 for larger ones. These two demand functions cross. What can you
Use calculus to prove that the elasticity of demand is a constant ε everywhere along the demand curve whose demand function is Q = Apε .
In early 2010, the U.S. government offered an $8,000 subsidy to new homebuyers. What effect does a per-house subsidy have on the equilibrium price and quantity of the housing market? What is the
Cranfield (2012) estimated that the demand elasticities were -0.83, -0.61, and -0.76 for Canadian beef, chicken, and pork, respectively. Are these demand elasticities elastic or inelastic? Which
Governments often use a sales tax to raise tax revenue, which is the tax per unit times the quantity sold. All else the same, will a specific tax raise more tax revenue if the demand curve is
Will Mexico stop producing tequila? Because of record-low industry prices for the agave azul plant, from which tequila is distilled, farmers in Jalisco and other Mexican states are switching to more
Gillen and Hasheminia (2013) estimate that the elasticity of demand for air travel is -0.17 for people traveling alone and -3.09 for couples. Are these demand elasticities elastic or inelastic? Which
Six out of ten teens no longer use watches to tell time they’ve turned to cell phones and iPods. Sales of inexpensive watches dropped 12% from 2004 to 2005, and sales of teen favorite, Fossil,
An empirical study by Callison and Kaestner (2012) suggests that a 100% cigarette tax would be required to decrease adult smoking by as much as 5%. What does this result imply about the shapes of the
Use calculus to derive the elasticity of supply if the supply function is Q = Bp0.5.
During football weekends, many people travel to South Bend, Indiana, to see a Notre Dame football game. Hotel prices are much higher on football weekends than during the other 341 days of the
Ten million tourists visited New Orleans in 2004. However, in 2005, Hurricane Katrina damaged many parts of New Orleans and disrupted the tourist business in the years thereafter. Only 3.7 million
Dan has a much higher elasticity of demand for fish than most other people. Is the incidence of a tax on fish greater for him than for other people?
The linear supply function is Equation 3.8, Q = g + hp. Derive a formula for the elasticity of supply in terms of p (and not Q). Now write a formula entirely in terms of Q.Equation 3.8Q = g + hp,
Using graphs similar to those in Figure 3.1, illustrate how the effect of a demand shock depends on the shape of the supply curve. Consider supply curves that are horizontal, linear upward sloping,
The Challenge Solution says that a gas tax is roughly equally shared by consumers and firms in the long run. If so, what can you say about the elasticities of supply and demand?If in the short run
Based on the Application “Venezuela Price Ceilings and Shortages,” use two figures to show the effects of Venezuela’s price control on corn flour in Venezuela and in Colombia’s corn flour
Suppose that the government imposes a price support (price floor) on processing tomatoes at $65 per ton. The government will buy as much as farmers want to sell at that price. Thus, processing firms
After a major disaster such as the 1994 Los Angeles earthquake and hurricanes such as Katrina, retailers often raise the price of milk, gasoline, and other staples because supplies have fallen. In
Using the information in Question 3.6, determine how the equilibrium price and quantity of processing tomatoes change if the price of tomato paste falls by 10%.Question 3.6Green et al. (2005)
Some cities impose rent control laws, which are price controls or limits on the price of rental accommodations (apartments, houses, and mobile homes). New York City alone had over two million
The demand function for a good is Q = a - bp, and the supply function is Q = c + ep, where a, b, c, and e are positive constants. Solve for the equilibrium price and quantity in terms of these four
Given the inverse demand function for pork (Question 1.1) is p = 14.30 - 0.05Q, how much would the price have to rise for consumers to want to buy 2 million fewer kg of pork per year?Question 1.1The
A group of American doctors have called for a limit on the number of foreign-trained physicians permitted to practice in the United States. What effect would such a limit have on the equilibrium
How would the shape of the total supply curve in Solved Problem 2.2 change if the U.S. domestic supply curve hit the vertical axis at a price above p̅?Problem 2.2The estimated supply function for
Given an estimated monthly demand function for avocados of Q = 104 - 40p + 20pt + 0.01Y, show how the demand curve shifts as per capita income, Y, increases from $4,000 to $5,000 per month. The price
What is the effect of an import quota Q̅ > 0 on equilibrium price and quantity?
In 2014–2015, the highly pathogenic avian influenza (HPAI) outbreak substantially reduced the supply of eggs, particularly in Iowa, the top eggproducing state, and the rest of the Midwest. What was
If the supply of rice from the United States is Qa = a + bp, and the supply from the rest of the world is Qr = a + cp, what is the world supply?
Based on the Application “Calorie Counting,” show the effect of New York City’s calorie posting requirement on Starbucks’ demand curve.
When he was the top American administrator in Iraq, L. Paul Bremer III set a rule that upheld Iraqi law: anyone 25 years and older with a “good reputation and character” could own one firearm,
The U.S. Fish and Wildlife Service has considered banning imports of beluga caviar to protect the beluga sturgeon in the Caspian and Black seas, whose sturgeon populations have fallen 90% in the last
Airbnb is a website that lets apartment dwellers list and rent lodging for a few days to out-of-town visitors. Use a figure to show how this new website affects the equilibrium rental price and
Every house in a small town has a well that provides water at no cost. However, if the town wants more than 10,000 gallons a day, it has to buy the extra water from firms located outside of the town.
The estimated supply function for avocados is Q = 58 + 15p - 20pf, where pf is the price of fertilizer.Determine how much the supply curve for avocados shifts if the price of fertilizer rises from
Is it possible that an outright ban on foreign imports will have no effect on the equilibrium price?
The Application “Occupational Licensing” analyzed the effect of exams in licensed occupations given that their only purpose was to shift the supply curve to the left. How would the analysis
Suppose you have plans to save 5 percent of your salary next year. Then your company goes bankrupt, your pay gets slashed by 30 percent, and you end up not saving at all. Is this an example of time
Explain why voters are more likely to share beliefs with candidates in a proportional-representation system than a two-party system.
Look at the various measures of poverty in 2013 for several countries in Table 21P-4. (The data are provided by the World Bank.)a. Rank the countries from the country with the highest inequality to
Figure 16P-3 shows the supply and demand for labor in the hybrid automobile industry. In each of the following scenarios, identify the direction of the shift in either the supply or demand curve, and
Figure 16P-2 shows the supply and demand for labor in the textile industry. In each of the following scenarios, identify the direction of the shift in either the supply or demand curve and state
Suppose an industry consists of many firms with identical cost structures, represented by the “typical individual firm” in panel A of Figure 13P-6. Price is P1. With the aid of panel A, draw the
On Figure 13P-1, show the profit-maximizing quantity when price is P1. Label this point Qmax1. Show the profit-maximizing quantity when price is P2. Label this point Qmax2.Figure 13P-1: Price MC -
Paulina sells beef in a competitive market where the price is $5 per pound. Her total revenue and total costs are given in Table 13P-2.a. Fill out the table.b. At what quantity does marginal revenue
Suppose an individual firm is one of many firms in a perfectly competitive market. Explain why this means the firm’s marginal revenue will be equal to the market price.
A firm’s long-run total costs are given in Table 12P-5.a. Fill in the long-run average total cost column.b. Over what production range does this firm experience economies of scale?c. Over what
Consider a firm that increases its inputs by 15 percent. For each scenario, state whether the firm experiences economies of scale, diseconomies of scale, or constant returns to scale.a. Outputs
If a firm experiences diminishing marginal product, does this mean that total output decreases? Explain.
If adding an additional input does not produce additional output, what is the slope of the production function at this point?
As part of the Affordable Care Act of 2010, all individuals in the U.S. are now required to have health insurance. Do economists expect mandatory health insurance to reduce adverse selection, moral
Which player is likely to have higher bargaining power: a city government responding to angry citizens’ demands that the trash be collected regularly or the sanitation workers’ union? Explain
In college admissions, which of the following are examples of statistical discrimination? Choose all that apply.a. A college has minimum required scores on standardized tests.b. A college is an
Suppose you own a beach house on a coast that has a small chance of encountering a hurricane each year. There is a 1% chance that there will be a hurricane this year that would completely destroy
Julia pays $1,200 for an insurance policy with an expected value of $1,000. Explain why this is a rational choice for Julia.
Farmer Tom is trying to decide what to produce on his farm in the upcoming season. In the past, he has usually grown Crop A. If he grows Crop A, there is a 70% chance that his crop will yield $15,000
Consider the effect of reputation and say whether you are likely to be treated better in scenario a or scenario b.a. You are purchasing your car from an individual who advertised it on craigslist.b.
Which of the following are examples of first-mover advantage?a. You make an offer on a house. The seller can only accept or reject the offer. b. You and your roommate are dividing chores. The
Consider again the two families trying to decide whether to donate to a fund to build a public park. The payoffs are shown in Figure 9P-1.a. What is the Nash equilibrium?b. Suppose Family A agrees to
Samuel's utility is influenced by reciprocity. He is likely to respond to a surprisingly generous birthday gift from his best friend in what way?a. Not giving his friend a birthday gift at all.b.
Use the supply curve in Figure BP-2 to derive a supply equation.
Maria has a $300 gift certificate at a spa that she can use on massages or manicures. A massage costs $100, and a manicure costs $30.a. Write the equation for Maria’s budget constraint. Let x =
Dan spends his money on baseball games and concert tickets. Baseball tickets cost $15, and concert tickets cost $25. His entertainment budget is $150.a. Draw Dan's budget constraint, putting baseball
An organization that raises money to provide meals for seniors gives tote bags to its donors. Sami thinks it is wasteful to spend donated money on tote bags for donors because the money could be used
During a holiday party at work, you pay $2 to buy a raffle ticket for a 160-gigabyte iPod. You win the drawing. Based on a little research online, you discover that the going rate for a hardly used
You have been texting with your friends trying to make plans for this evening. Your best friend Jocelyn is not sure if she will finish her homework in time to come out, but if she does, she wants to
You have just played rock, paper, scissors with your friend. You chose scissors and he chose paper, so you won. Is this a Nash equilibrium? Explain why or why not.
The U.S. Postal Services maintains a monopoly on mail delivery in part through its exclusive right to access customer mail-boxes. Which barrier to entry best describes this situation: scarce
Which (if any) of the following scenarios is the result of a natural monopoly?a. Patent holders of genetically modified seeds are permitted to sue farmers who save seeds from one planting season to

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