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Contemporary Economics 2nd Edition William A. McEachern - Solutions

True or False An increase in a firms’ costs of production will cause the supply curve to shift to the left.
Each of the following will cause the demand for butter to increase excepta. an increase in the price of margarine.b. a scientific study that shows butter is good for people’s health.c. an increase in the number of people who are unemployed.d. an increase in the number of people who might purchase
__?__ are the costs of time and information required to carry out market exchange.
A market will stay in equilibrium untila. one of the factors that determines demand changes.b. one of the factors that determines supply changes.c. all the suppliers go out of business.d. both a and b
True or False A shift of the supply curve results from a change in quantity demanded at all prices.
Given an upward-sloping supply curve, a rightward shift of the demand curvea. decreases both equilibrium price and quantity.b. increases both equilibrium price and quantity.c. decreases equilibrium price only.d. increases equilibrium price only.
True or False A price ceiling has an impact only if ceiling price is set above its equilibrium level.
True or False A market is always in a state of equilibrium.
When there is a voluntary exchange, it is reasonable to believe thata. both the buyer and seller gained.b. neither buyer nor seller gained.c. the buyer gained more than the seller.d. the seller gained more than the buyer.
True or False A price below a product’s equilibrium price will result in a surplus of the product.
History In the early 1900s, many businesses produced horse-drawn wagons at very low cost. Still, many of these firms were forced out of business due to a lack of consumer demand. Many people chose to purchase automobiles instead of wagons. Explain how this fact demonstrates the importance of
Suppose the government became concerned about the high price of running shoes and imposed a price ceiling of $40 per pair. Given the demand and supply schedules at the right, what would the results of such a regulation be? Why would many consumers and producers be upset with this result? Draw a
Suppose you buy a salad for lunch every day for $2.75. This is the most you would be willing to pay for your salad. One week there is a special on salads and the price is reduced to $2.00. What is the value of the consumer surplus you will receive if you buy five salads during that week?
If the government set a price ceiling of $5 per month to subscribe to an Internet Service Provider (ISP), what would happen to the number of ISPs that offer Internet access and the number of people who wished to purchase their service?
If the minimum wage were increased to $20 per hour, how many of your classmates do you believe would look for a job? How many jobs do you expect they would find? How is this an example of a price floor?
How does market competition ensure that a new type of camera you want to own will eventually be available for you to purchase?
How does market competition ensure that consumers will be offered a selection of low-priced foods?
History During 1974, there was a war in the Middle East that caused many petroleum-exporting nations to stop shipping oil to the United States. Explain what this did to the location of the supply curve and price of gasoline in the United States.
Advertising Find an advertisement for a well-known brand of candy. Explain what the firm is trying to do to the location of the demand curve for its product.If the firm is successful, what will probably happen to its revenue?
Suppose that running becomes much more popular. As a result, consumers are willing to purchase 30 more pairs of running shoes at each possible price. The demand and supply schedule below shows this increase in demand. Draw a graph showing this shift of demand and the unchanged supply for running
What would happen to the locations of a bowling alley’s demand and supply curves if the Social Security rate of taxation was increased from 7.65 percent to 9.0 percent for both workers and employers? What would happen to the equilibrium price per game of bowling?
What would happen to the equilibrium price and location of a bakery’s supply curve for loaves of bread if it agreed to give its workers a 10 percent raise in pay?
What would happen to the equilibrium price and demand curve for New York Yankee baseball caps if the Yankees had just won the World Series?
What would happen to a student’s demand curve for movie tickets if the price of DVD movie rentals increased by $4.00 each?
What would happen to a student’s demand curve for movie tickets if she lost her after-school job?
Science Scientists have created tomatoes through genetic engineering that are resistant to many diseases. Over time this has caused the equilibrium price of tomatoes to fall. Explain why this has happened.
Draw a graph of the demand and supply for running shoes from the data in the demand and supply schedule. What is the equilibrium price? What would happen to the price and quantity demanded and supplied if the current price was $60?
What are the transaction costs involved in shopping for shoes at your local mall?
How is it possible for both you and the owner of a fast-food restaurant to benefit when you choose to buy a hamburger for $2.00?
How would the owners of a nursery react if hundreds of customers wanted to buy yucca plants at the current price of $15 when they have only 25 plants to sell?
How would the owner of a dress shop react if she found she had 30 extra prom dresses that she could not sell at the current price?
Why do consumers benefit nearly as much from a low price as from a zero price?
Why do government efforts to keep rents low usually lead to a housing shortage?
Why do car dealers usually locate together on the outskirts of town?
How is market competition different from competition in sports and in games?
Access EconData Online at thomsonedu.com/school/econxtra. Read the article entitled “Labor Cost Per Unit of Output.” Find the answers to the following questions from the article: (1) What is the relationship between labor productivity and worker’s compensation insurance? (2) Why is labor cost
Accounting Classify each of the following costs as variable or fixed. Explain your decision for each cost.• The cost of a leased delivery truck• The cost of a night security service• The cost of delivering finished products• The cost of fire insurance• The cost of electricity used to run
Sharpen Your Skills: Cause and Effect During the summer of 2003, Americans were warned that shortages of natural gas could cause its price to increase by 50 percent or more during the following winter. Natural gas is a key ingredient in the production of artificial fertilizer. Much of the
Calculating Elasticity of Supply Complete the table below by calculating each missing elasticity of supply value. Is the supply elastic or inelastic? Supply Elasticity of Bagels Price per Percentage Quantity Percentage Dozen Change Supplied Change Elasticity Elastic/Inelastic $8 100 $7 12.5% 90
The lowest long-run average cost for whatsits is $50 per unit. To take advantage of economies of scale and produce whatsits at this low cost, a firm would need to build a factory that could produce 5,000,000 whatsits per year.There are only 20,000 people who are willing to pay anything to buy a
A firm has the following marginal costs at different levels of production. If it is able to sell all the products it can produce at $5 each, how many will it produce? Explain your answer. Unit Marginal Cost Per Unit 100 $6 200 $4 300 $3 400 $4 500 $5 600 $6
True or False On the left side of a firm’s long run average cost curve, its average cost declines as production increases.
In the long run, a firm willa. experience economies of scale if its longrun average cost curve slopes up.b. experience diseconomies of scale if its long-run average cost curve slopes down.c. experience diseconomies of scale if its long-run average cost curve slopes up.d. experience constant returns
True or False The law of supply states that the quantity supplied will increase as the price of that product increases.
A producer’s __?__ is the change in its total revenue that results from selling one more unit of a product.
If a 1 percent change in price results in a 2 percent change in the quantity of the product that is supplied, the supply of that product isa. elastic.b. unit elastic.c. inelastic.d. none of the above.
__?__ are forces that reduce a firm’s average cost of production as the firm grows in size.
True or False When a firm experiences diminishing returns, its marginal cost of production decreases as output increases.
In the short run, __?__ cost does not change as a firm produces additional output.
Which of the following is an example of a variable cost?a. the cost or wages for night security guardsb. the cost of fire insurance for a firm’s factoryc. the cost of raw materials used to produce goodsd. the cost of electricity to operate a security alarm.
If a firm experiences diminishing returns, it finds thata. there will be no increase in production when it hires another worker.b. the next worker hired will add less to production than the previous worker hired.c. it will earn no profit if it hires additional workers.d. it must lay off workers to
An increase in the price of a product will cause __?__ the supply curve for that product.
True or False In the long run, all costs of production are variable.
An increase in the price of a firm’s product will cause __?__ the firm’s supply curve.
Which of the following events would cause the supply curve to shift to the left?a. A firm’s employees negotiate a 5 percent increase in their wages.b. A firm’s managers buy new, more efficient machinery for workers to use.c. A firm provides its workers with training to better use their tools.d.
Typically, the longer the period of time allowed for firms to adjust to a price change, the __?__ a product’s supply curve will be.
True or False If a product’s elasticity of supply is 0.8, a 2 percent increase in price will cause a greater than 2 percent increase in the quantity supplied.
A shift of a product’s supply curve will be caused by each of the following excepta. an increase in the cost of the resources used to produce the product.b. an improvement in the technology used to produce the product.c. an increase in consumer demand for the product.d. a decrease in the price of
Entrepreneurship You own a gasoline station. You have found that the cost of keeping your store open is $35 per hour for labor and power. Between midnight and 5:00 A.M., sales are not that great. On average, during this time you sell only 100 gallons of gasoline per hour. At the current price of
Construct a graph of fixed cost, variable cost, and total cost, and then a second graph of marginal cost for Tony’s Pizza, using the data in the table below. What other information does Tony need in order to determine how many pizzas he should produce per week? Explain your answer.
Tanya’s monthly fixed costs total $1,000. She pays her assistant $2,500 each month. Tanya could take a job with a different business that would pay her$3,000 each month. Her total revenue from sales last month amounted to$6,000. Should she continue to operate the business or shut it down?
Tanya pays her worker $15.00 per hour. If, on average, he can repair one computer in two hours, what is the marginal cost of fixing one more computer?What other information does she need to have before she can decide how much to charge her customers for computer repairs?
Tanya has borrowed more than $10,000 to buy special equipment she needs in order to repair computers. Is the $750 she pays each month to repay her loan a fixed or a variable cost? Explain your answer.
Tanya runs a computer repair business in a small room in her basement. Many people wanted her to fix their computers so she hired another worker, who doubled the number of computers she could fix each day. But when she hired a third worker, she found that the total number of computers she could
Technology Choose a single product many consumers buy, and write a paragraph that discusses whether the creation of the Internet has shifted the supply curve for this product.
Research Use newspapers, magazines, or the Internet to research a world event that could have an impact of the supply of a product consumed in the United States. Describe this event and explain how it might shift the U.S.supply curve.
Make a copy of the supply curve. Draw and explain the shifts of the market supply on your copy that would result from each of the following events. Label each shift of the supply curve.a. There is an increase in the cost of rubber used to produce the soles of running shoes.b. There is a decrease in
How might an increase in wages in general shift both the demand curve and supply curve for pizza?
The cost of crude oil increases by 25 percent. Crude oil is the raw material used to produce plastic. What will this do to the supply curve for plastic toys?
A big storm destroys most of the sugarcane crop in Louisiana. Most people expect this to cause a large increase in the price of sugar in a few months. What will happen to the supply curve for sugar today?
The Apex Plastics Corp. finds a new way to produce plastic outdoor furniture from recycled milk bottles at very low cost. What will happen to the supply curve for plastic furniture? Explain your answer.
One year a farmer grows corn on his 200 acres of land. He sells his corn in September for $3.00 per bushel. Early the next spring he notices that the price of soybeans has gone up 50 percent while the price of corn has remained the same. What will probably happen to his supply curve for corn?
Mathematics The table below shows how much cheese three dairies in a small community supply each month at the current price of $3.00 per pound. It also shows how much each one would supply if the price increased to $4.00.Calculate the percentage changes in price and in quantity supplied that would
The owner of a shoe store reviewed her costs to determine how many pairs of running shoes she would be willing to supply each month at different prices.The results of her research appear in the supply schedule at the right. Use these data to construct her supply curve for running shoes. Explain how
Why is supply elasticity likely to be greater for wooden bowls than for natural pearls?
When the market price of kitchen chairs increases by 10 percent, producers increase the quantity supplied by 20 percent. Is supply elastic, unit elastic, or inelastic? Explain how you know your answer is correct. What is the measure of elasticity in this situation?
There are three restaurants that open at 7:00 A.M. to serve breakfast in a small community. Each one charges $4.00 for two eggs, bacon, toast, and a cup of coffee. Together they sell 220 breakfasts on an average weekday morning.What are the individual and market supply in this situation?
Why should the quantity of winter jackets supplied increase when there is an increase in the price of these jackets?
In what ways are the motives of a pizza restaurant owner different from the motives of customers who buy the restaurant’s pizza?
Why is bigger not always better when it comes to the size of a firm?
Why do movie theaters have so many screens?
Can a firm shut down without going out of business?
What’s the meaning of the old expression “Too many cooks spoil the broth”?
Why would a firm decide to store its products in a warehouse rather than offer them for sale?
Read the “Real Per-Capita Disposable Income” article in the EconDataOnline section at thomsonedu.com/school/econxtra. What happens to quantity of goods demanded when real per capita disposable income increases?
Market Demand Working in small groups, determine your group’s market demand for gasoline. Make up a chart listing a variety of prices per gallon of gasoline, such as $2.00,$2.25, $2.50, $2.75, $3.00, $3.25. Each group member should determine how many gallons per week they would purchase at each
Total Revenue Using the new demand schedule, calculate the total revenue Rita received from the tacos when she sold them at a price of $1.75 and now that she sells them at a price of $1.50. Can you be sure that her business is more profitable at the lower price? Explain why or why not.
Price Elasticity of Demand If Rita changed the price of her tacos from $1.75 to $1.50 each, her sales would grow from 100 to 125 per day.Calculate the percentage change in price and in quantity demanded and then the price elasticity of demand. Is this demand elastic, unit elastic, or inelastic?
Graphing Shifts of Demand Curves The owner of Rita’s Tacos bought ads in a local newspaper. As a result, the demand for her tacos increased as demonstrated in the demand schedule below. Draw a graph of her demand as it was before the ads were printed.On the same graph, draw the new demand curve
True or False If a person’s income temporarily falls to zero because of unemployment, he or she will still demand some products.
A change in a __?__ will change demand for a product when there is no change in price.
Which of the following pairs of products are examples of complementary goods?a. blank sheets of paper and copy machinesb. dining room tables and floor lampsc. heating oil and natural gasd. warm coats and trips to Floridae. peanut butter and jellyf. private and public transportation g. Coke and
Your __?__ income is your income measured in terms of how many goods and services it can buy.
One purpose of advertising is toa. shift a product’s demand curve to the right.b. shift a product’s demand curve to the left.c. make a product’s demand more elastic.d. help consumers identify the product’s substitutes
True or False Demand for a normal good decreases as money income increases.
Which of the following is not a determinant of demand?a. consumer incomeb. prices of related goodsc. consumer expectations and tastesd. all of the above would affect demand
True or False When consumers earn more income, their demand for normal products will increase.
Which of these products is most likely to have elastic demand?a. a cable television serviceb. a particular brand of hand soapc. ground black pepperd. taxi service in a large city
True or False Market demand is the demand of an individual consumer.
Which of the following does not influence the elasticity of demand?a. availability of substitute productsb. availability of complementary productsc. the share of the consumer’s budget spent on the goodd. the time frame of the purchase

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