Questions and Answers of Modern Principles Of Economics

Is a decrease in the unemployment rate necessarily a good thing for a nation? Explain.
If many workers become discouraged from looking for jobs, explain how the number of jobs could decline but the unemployment rate could fall at the same time.
Would you expect hidden unemployment to be higher, lower, or about the same when the unemployment rate is high, say 10%, versus low, say 4%? Explain.
Is the higher unemployment rates for minority workers necessarily an indication of discrimination? What could be some other reasons for the higher unemployment rate?
While unemployment is highly negatively correlated with the level of economic activity, in the real world it responds with a lag. In other words, firms do not immediately lay off workers in response
Why do you think that unemployment rates are lower for individuals with more education?
Do you think it is rational for workers to prefer sticky wages to wage cuts, when the consequence of sticky wages is unemployment for some workers? Why or why not? How do the reasons for sticky wages
Under what condition would a decrease in unemployment be bad for the economy?
What arguments do low-income countries make in international discussions of global environmental cleanup?
Would the following events usually lead to capital deepening? Why or why not?a. A weak economy in which businesses become reluctant to make long-term investments in physical capital.b. A rise in
Does the earnings gap between the average wages of females and the average wages of males prove labor market discrimination? Why or why not?
If immigration is reduced, what is the impact on the wage for low-skilled labor? Explain.
What determines the demand for labor for a firm operating in a perfectly competitive output market?
What determines the demand for labor for a firm with market power in the output market?
What is a perfectly competitive labor market?
Why do employers have a natural advantage in bargaining with employees?
What are some of the most important laws that protect employee rights?
How does the presence of a labor union change negotiations between employers and workers?
What is the long-term trend in American union membership?
Would you expect the presence of labor unions to lead to higher or lower pay for worker-members? Would you expect a higher or lower quantity of workers hired by those employers? Explain briefly.
What are the main causes for the recent trends in union membership rates in the United States? Why are union rates lower in the United States than in many other developed countries?
What is a monopsony?
What is the marginal cost of labor?
How does monopsony affect the equilibrium wage and employment levels?
What is a bilateral monopoly?
How does a bilateral monopoly affect the equilibrium wage and employment levels compared to a perfectly competitive labor market?
Describe how the earnings gap between men and women has evolved in recent decades.
Describe how the earnings gap between blacks and whites has evolved in recent decades.
Does a gap between the average earnings of men and women, or between whites and blacks, prove that employers are discriminating in the labor market? Explain briefly.
Will a free market tend to encourage or discourage discrimination? Explain briefly.
What policies, when used together with antidiscrimination laws, might help to reduce the earnings gap between men and women or between white and black workers?
Describe how affirmative action is applied in the labor market.
What factors can explain the relatively small effect of low-skilled immigration on the wages of low-skilled workers?
Have levels of immigration to the United States been relatively high or low in recent years? Explain.
How would you expect immigration by primarily low-skill workers to affect American low-skilled workers?
What is the marginal cost of labor for a firm that operates in a competitive labor market? How does this compare with the MCL for a monopsony?
Given the decline in union membership over the past 50 years, what does the theory of bilateral monopoly suggest will have happened to the equilibrium level of wages over time? Why?
Are unions and technological improvements complementary? Why or why not?
Will union membership continue to decline? Why or why not?
If it is not profitable to discriminate, why does discrimination persist?
If a company has discriminated against minorities in the past, should it be required to give priority to minority applicants today? Why or why not?
If the United States allows a greater quantity of highly skilled workers, what will be the impact on the average wages of highly skilled employees?
If all countries eliminated all barriers to immigration, would global economic growth increase? Why or why not?
Jonathon is a single father with one child. He can work as a server for $6 per hour for up to 1,500 hours per year. He is eligible for welfare, and so if he does not earn any income, he will receive
Describe how each of these changes is likely to affect poverty and inequality:a. Incomes rise for low-income and high-income workers, but rise more for the high-income earners.b. Incomes fall for
We have discovered that the welfare system discourages recipients from working because the more income they earn, the less welfare benefits they receive. How does the earned income tax credit attempt
How does the TANF attempt to loosen the poverty trap?
Table 15.9 shows the share of income going to each quintile of the income distribution for the United Kingdom in 1979 and 1991. Use this data to calculate what the points on a Lorenz curve would be,
A group of 10 people have the following annual incomes: $24,000, $18,000, $50,000, $100,000, $12,000, $36,000, $80,000, $10,000, $24,000, $16,000. Calculate the share of total income that each
Using two demand and supply diagrams, one for the low-wage labor market and one for the high-wage labor market, explain how information technology can increase income inequality if it is a complement
Using two demand and supply diagrams, one for the low-wage labor market and one for the high-wage labor market, explain how a program that increased educational levels for a substantial number of
Here is one hypothesis: A well-funded social safety net can increase economic equality but will reduce economic output. Explain why this might be so, and sketch a production possibility curve that
Here is a second hypothesis: A well-funded social safety net may lead to less regulation of the market economy. Explain why this might be so, and sketch a production possibility curve that shows this
Which set of policies is more likely to cause a tradeoff between economic output and equality: policies of redistribution or policies aimed at the ladder of opportunity? Explain how the production
Why is there reluctance on the part of some in the United States to redistribute income so that greater equality can be achieved?
How is the poverty rate calculated?
What is the poverty line?
What is the difference between poverty and income inequality?
How does the poverty trap discourage people from working?
How can the effect of the poverty trap be reduced?
Explain how a country may experience greater equality in the distribution of income, yet still experience high rates of poverty. "How do governments measure poverty in low-income countries?" and
Who are the near-poor?
Think about the business cycle: during a recession, unemployment increases; it decreases in an expansionary phase. Explain what happens to TANF, SNAP, and Medicaid programs at each phase of the
The demand for skilled workers in the United States has been increasing. To increase the supply of skilled workers, many argue that immigration reform to allow more skilled labor into the United
Explain a situation using the supply and demand for skilled labor in which the increased number of college graduates leads to depressed wages. Given the rising cost of going to college, explain why a
What do you think is more important to focus on when considering inequality: income inequality or wealth inequality?
To reduce income inequality, should the marginal tax rates on the top 1% be increased?
Redistribution of income occurs through the federal income tax and government antipoverty programs. Explain whether or not this level of redistribution is appropriate and whether more redistribution
How does a society or a country make the decision about the tradeoff between equality and economic output?
Explain what the long- and short-term consequences are of not promoting equality or working to reduce poverty.
In country A, the population is 300 million and 50 million people are living below the poverty line. What is the poverty rate?
Susan is a single mother with three children. She can earn $8 per hour and works up to 2,000 hours per year. However, if she does not earn any income at all, she will receive government benefits
In country B, the population is 900 million and 100 million people are living below the poverty line. What is the poverty rate?
A group of 10 people have the following annual incomes: $55,000, $30,000, $15,000, $20,000, $35,000, $80,000, $40,000, $45,000, $30,000, $50,000. Calculate the share of total income each quintile of
Why is there asymmetric information in the labor market? What signals can an employer look for that might indicate the traits they are seeking in a new employee?
Firms in a perfectly competitive market are said to be “price takers”—that is, once the market determines an equilibrium price for the product, firms must accept this price. If you sell a
Look at Table 8.13. What would happen to the firm’s profits if the market price increases to $6 per pack of raspberries?Table 8.13 0 Quantity 10 20 30 40 50 60 70 80 90 100 Total
Suppose that the market price increases to $6, as Table 8.14 shows. What would happen to the profit-maximizing output level?Table 8.14 Total Quantity
Would independent trucking fit the characteristics of a perfectly competitive industry?
A firm’s marginal cost curve above the average variable cost curve is equal to the firm’s individual supply curve. This means that every time a firm receives a price from the market it will be
Explain in words why a profit-maximizing firm will not choose to produce at a quantity where marginal cost exceeds marginal revenue.
If new technology in a perfectly competitive market brings about a substantial reduction in costs of production, how will this affect the market?
A market in perfect competition is in long-run equilibrium. What happens to the market if labor unions are able to increase wages for workers?
Productive efficiency and allocative efficiency are two concepts achieved in the long run in a perfectly competitive market. These are the two reasons why we call them “perfect.” How would you
Explain how the profit-maximizing rule of setting P = MC leads a perfectly competitive market to be allocatively efficient.
A single firm in a perfectly competitive market is relatively small compared to the rest of the market. What does this mean? How “small” is “small”?
What are the four basic assumptions of perfect competition? Explain in words what they imply for a perfectly competitive firm.
Suppose demand for a monopoly’s product falls so that its profit-maximizing price is below average variable cost. How much output should the firm supply? Hint: Draw the graph.
Imagine a monopolist could charge a different price to every customer based on how much he or she were willing to pay. How would this affect monopoly profits?
How is monopoly different from perfect competition?
What is a barrier to entry? Give some examples.
What is a natural monopoly?
What is a legal monopoly?
How is intellectual property different from other property?
What legal mechanisms protect intellectual property?
In what sense is a natural monopoly “natural”?
How is the demand curve perceived by a perfectly competitive firm different from the demand curve perceived by a monopolist?
How does the demand curve perceived by a monopolist compare with the market demand curve?
Is a monopolist a price taker? Explain briefly.
What real world changes made the deregulation possible?

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