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Contemporary Economics 2nd Edition William A. McEachern - Solutions
True or False A business is more likely to increase the price of its products if the demand for these products is elastic than if the demand is inelastic.
If the total revenue from selling a product declines when the product’s price is increased, the demand for that product is __?__.
True or False A firm’s total revenue will increase if it raises the price of a product that has an elasticity of demand equal to 0.7.
Which of the following is the correct formula for the elasticity of demand?a. change in the price of the product change in the quantity demandedb. change in the quantity demanded change in the price of the productc. % change in the price of the product% change in the quantity demandedd. % change in
True or False Quantity demanded at a particular price is represented by an individual point on a demand curve.
Which of the following is false about demand curves?a. They normally slope down from left to right.b. They show the relationship between price and the quantity demanded.c. They can be used to calculate a product’s elasticity of demand.d. They show how much profit is earned by businesses that sell
Elasticity expresses a relationship between the percentage change in __?__ and the resulting percentage change in __?__.
The __?__ is demonstrated by the fact that people will buy more hot dogs and hamburgers when the price of pizza increases.
True or False A change in the price of a product will not cause that product’s demand curve to shift.
Health For many years, cigarette manufacturers have been required to place health warnings on their products. What are these warnings intended to do to smokers’ demand curves for cigarettes?
History When the stock market crashed in 1929, demand for normal goods fell. Explain why this happened and how it contributed to the Great Depression of the 1930s.
To the right is the demand curve for running shoes at a local retailer.Make a copy of the demand curve. Draw the shift of the demand curve on your copy that would result from each of the following events. Label each shift of the demand curve.a. Many people decide to buy new running shoes to run in
Why might the demand for “Quick Oats” that cook in 2.5 minutes be greater than the demand for regular oats that take 10 minutes?
If the price of hot dogs increases by $0.50 per pound when the prices of substitute products remain the same, will the demand curve for hot dogs shift to the right, shift to the left, or stay in the same location? Explain your answer.
What would happen to the demand curve for towels today if a large store announces that it will have a 50 percent off sale on towels next week? Which of the determinants of demand would this affect?
What would happen to the demand curve for a particular brand of shampoo if a famous movie actress with beautiful hair announces that it is the best shampoo she has ever used? Which of the determinants of demand would this affect?
What would happen to the demand curve for bus tickets if the price of gasoline increased to $5 per gallon? Which of the determinants of demand would this affect?
Entrepreneurship If there are 10 bakeries in a small city, why might the elasticity of demand for the products any one of them supplies be high? Why might this small town not be a good location for you to open another bakery?
Sociology The elasticity of demand for some products is affected by the personal values of possible customers. Consider people who practice the Hindu faith. They believe it is wrong to eat meat. In Hindu communities, the elasticity of demand for meat products is 0.0, or completely
Consider this graph for running shoes below. Note that if the store’s manager increases the price from $60 to $70 (16.7%), the quantity demanded would fall from 50 to 40 pairs per month (20.0%). What is the elasticity of demand? Is demand elastic, unit elastic, or inelastic? Will the store’s
Why should you expect the demand for a particular brand of cake mix to be more elastic than the demand for cake mix in general?
If the shoe store increases its price for running shoes by 10 percent, what would happen to the store’s total revenue from these products?
If the shoe store finds a demand elasticity for its running shoes of 1.3, is this elastic, unit elastic, or inelastic demand?
What would a shoe store need to do to calculate the elasticity of demand for the running shoes it sells if it decides to raise its prices by 10 percent?
History When television sets first became available to consumers in the late 1940s, many people wanted one. Still, very few sets were sold at first. Explain why people’s desire to own televisions did not result in a great demand for this product.
Marketing Nancy is the sales manager of the shoe store. The owner has told her that she must set a price that allows the store to sell at least 50 pairs of running shoes next month. What price should she set? If another local store has a big sale and lowers its price for running shoes by 25
The owners of a local shoe store surveyed their customers to determine how many pairs of running shoes they would buy each month at different prices.The results of the survey appear in the demand schedule below. Use these data to construct a demand curve for running shoes. Explain how your graph
What is the market demand per day for lunches in the cafeteria at your school?
On Saturday nights, lots of people attend movies at the State Theater. Attendance depends at least in part on the price of tickets. At the current price of $8 per ticket, an average of 285 tickets are sold each Saturday night. What is the demand and what is the quantity demanded in this example?
Joe is willing to pay $1.50 for one taco after basketball practice but chooses not to purchase a second taco for the same price. How does this illustrate the law of diminishing marginal utility?
How would the income effect of a price change be demonstrated by a $10 reduction in the price of tickets to a concert that resulted in a sell-out crowd?
Why would demand for one fast-food restaurant’s hamburgers grow if the price of the hamburgers at the fast-food restaurant across the street increased by $0.50?
Many students would like to own an expensive sports car. Is this considered demand? Why or why not?
Why do higher cigarette taxes cut smoking by teenagers more than by other age groups?
What economic principle is behind the saying, “Been there, done that”?
What cures spring fever?
How much chocolate do you eat when you can eat all you want?
Why are newspapers sold in vending machines that allow you to take more than one copy?
Access EconData Online at thomsonedu.com/school/econxtra. Under "Microeconomics,"click on “Income Distribution and Poverty,”and then “Civilian Unemployment Rate.” After analyzing the information available, write a paragraph to explain why the unemployment rate is inversely related to the
Sharpen Your Skills—Use Mathematics to Draw Conclusions In 2001, the value of total production in the United States was $10.442 trillion. In that year, the federal government spent or transferred $1.864 trillion. What percent of the nation’s total income flowed through the federal government in
Your Share of the Cost In 2001, the cost of national defense for the United States was just over $300 billion. At that time, there were approximately 280 million people living in this country. Calculate the cost of national defense per person in 2001. Explain why it is difficult to charge
Place two examples of each type of good that exist in your community in the appropriate boxes.Use examples that are different from those in exercise 24.
Examples in Your Community Make a second copy of the figure in exercise
Identifying Goods Copy the figure below.Place the letter of each of the following in the correct box of the figure.a. Police protectionb. Shrimp in the oceanc. Public vaccinationsd. Picnic tables in a national parke. Your television setf. An unused public tennis court g. Seashells on a beach h.
Another term for welfare isa. job-placement program.b. income-assistance program.c. social insurance program.d. tax rebate program.
Which of the following would be an example of an attempt by the Federal Reserve System to stimulate the economy through monetary policy?a. a 5 percent reduction in federal income tax ratesb. an increase in government spending for road constructionc. an increase in the amount of money in the
True or False Poverty is a relative term that has different meanings at different times and in different locations.
_?_ are nonrival but exclusive, such as cable TV signals.
True or False Public goods can be used by all consumers and have no economic cost.
Which of the following is the best example of the government regulating a natural monopoly?a. emission standards for automobilesb. required testing and approval to market new drugsc. rules for selling new shares of corporate stockd. set prices for distributing natural gas to homes
Which of the following is not a true statement about monoplies?a. Monopolies try to charge higher prices than would result through competition.b. By maximizing profits, monopolies ultimately benefit social welfare.c. Antitrust laws attempt to reduce monopoly power.d. Monopolies may try to influence
A(n) __?__ awards an inventor the exclusive right to produce a good for a specific period of time.
True or False International trade occurs because the opportunity cost of producing specific goods differs among countries.
Which of the following is correct?a. Revenue Profit Cost of Productionb. Profit Cost of Production Revenuec. Profit Revenue Cost of Productiond. Cost of Production Revenue Profit
In the evolution of the firm, the __?__ was the bridge between the self-sufficient farm household and the modern firm.
Firms organizing production in large, centrally powered factories did all of the following excepta. promote a more efficient division of labor.b. reduce transportation costs.c. reduce consumer reliance on trade.d. enable the use of specialized machines.
All those who live under one roof are considered to be part of the same __?__.
Research Find current data concerning poverty as it relates to education, race, and age by searching the Internet for the Statistical Abstract of the United States. Look for useful data in a table titled “Families Below Poverty Level by Selected Characteristics” in the Income, Expenditures, and
English Read The Grapes of Wrath by John Steinbeck or a summary of this novel. This book describes what it was like for poor people to live through the Great Depression of the 1930s. Describe why these conditions led the government to create many of the programs that help people living in poverty
Draw a double line graph of the percent of U.S.residents and children who were officially designated as living in poverty from 1995 through 2003, based on the data in the table to the right. As a percent, why do more children live in poverty than adults?
Between 1996 and 2002 the number of welfare cases in the United States fell by more than half. Explain why this does not necessarily mean that the number of people living in poverty was also cut in half during these years.
Why do you think that spending for Medicare is the most rapidly growing part of the social insurance program?
Think of a person you know who you think lives in poverty. What steps could the government take to help this person escape poverty? Do you think the government should do these things? Would you be willing to pay more taxes to support this type of help?
Why is poverty a relative term?
Explain why a pure market economy would not work well if all people were guaranteed the same income by the government.
Business Management Although trucks powered by natural gas are expensive to purchase, they create little pollution when they are operated. Why do you think some states have passed laws that give tax reductions to businesses that use natural gas-powered trucks? Explain how this is an effort by these
Government Determine the openaccess goods that exist in your county or state. Investigate whether the county or state government regulates these goods. If they do, what are the regulations? If not, why do you think these goods are not regulated?
Construct a pie chart for 1990 and another for 2000 that show federal spending on natural resources and the environment.Base your charts on the data in the table. What parts of this spending may have been dedicated to trying to reduce negative externalities?
Describe steps that have been taken in your community to try to eliminate or reduce the negative externality you identified in exercise 3 above.
Describe an example of a negative externality that has been a problem in your community.
Identify and describe an example of each of the following types of goods that you encounter in your life.a. Private goodb. Quasi-public goodc. Open-access goodd. Public goods
In 2002, there was a debate over whether smallpox vaccinations should be given to the general public. Are vaccinations an example of a public good. Why or why not?
Math Calculate the amount of the federal government’s surplus or deficit in different years, using data in the table at the right. Are you concerned about the government spending more than it receives in taxes?Explain your point of view.
Draw a double line graph of changes in the money supply and interest rates charged to large businesses in the U.S.economy, based on the data in the table at the top right. Describe how these two sets of data appear to be related to each other.
During the economic expansion of the late 1990s, the Federal Reserve System took steps to reduce the rate of growth of money in the U.S. economy. Was this an example of monetary policy that was intended to slow the growth of production?Why or why not?
In 2001 the government passed laws that reduced many federal taxes. Explain why this could be seen as an example of fiscal policy that was intended to cause the economy to produce more goods and services.
Study the contents label of a cereal box.Explain how the government attempts to protect consumers when it requires manufacturers to place these labels on food products.
Describe one way your life might be different if the government did not protect individual property rights.
History In 1825, Robert Owen bought a community called New Harmony in Indiana. He told people who lived in New Harmony to contribute whatever they produced to a community storehouse. They could also take whatever they needed from this storehouse for free. Look up New Harmony and find out how
Research Choose a foreign country that one of your ancestors came from or a country that interests you. Investigate this nation’s economy and identify products it trades. Explain how this nation benefits from trade by using its comparative advantage.
Draw a bar graph that demonstrates the declining size of the average U.S.household, based on the data in the table to the right. Explain why smaller households might encourage people to purchase more of the goods and services they use.
Think of a recent event that took place in a different part of the world that had an impact on the U.S. economy. Explain how the event affected the U.S.economy.
In what ways is working at home on a computer today similar to, and different from, the cottage industry system that existed in the seventeenth century?
What are several advantages that a large automobile repair shop would have over a small one?
Identify a product that you often buy and use. Describe the steps that are taken to produce this good. Explain why you do not produce this product for yourself.
Describe three tasks that would probably have been done within most households 100 years ago that your family now pays others to do.
Why are some people poor even in the world’s most productive economy?
If the “invisible hand” of competitive markets works so well, why do governments get into the act?
Why do countries trade?
How did firms evolve to take advantage of large-scale production?
Why did households go from self-sufficiency to relying on markets?
Access EconNews Online at thomsonedu.com/school/econxtra. Read the article entitled “Trade Wars in the U.S.”According to the article, what percent of the population believes that foreign trade is bad for the U.S. economy? What, according to the article, is the basis for this belief? Do you
Measure the Benefit of Specialization Both Marcy and Gloria work eight-hour days at a public library. Last Monday, Marcy spent six hours reshelving 300 books. Then she catalogued 50 books during the remaining two hours of her shift. Gloria used her first six hours cataloging 60 books, and then she
Apply Shifts of Production Possibilities Determine whether each of the following would cause the economy’s PPF to shift inward, outward, or not at all.a. Increase in average vacation lengthb. Increase in immigrationc. Decrease in the average retirement aged. Migration of workers to other countries
Apply Production Possibilities Imagine an economy that uses two resources, labor and capital, to produce two goods, wheat and cloth. Capital is relatively more useful in producing cloth, and labor is relatively more useful in producing wheat. If the supply of capital falls by 10 percent and the
Create a Division of Labor Make a list of five friends who you know well. Assume that the six of you have decided to open a small restaurant. Assign each of your friends, and yourself, to one of the following job descriptions in the way that you believe would result in the most efficient operation
An economic system in which the means and methods of production are passed from one generation to the next is a definition of aa. pure market economy.b. pure command economy.c. transitional economy.d. traditional economy.
_?_ is a process that involves converting government-owned enterprises into private enterprises.
True or False In command economies, government enterprises often are more concerned with meeting the production goals set by the public officials than they are about the environment.
True or False One problem with command economies is too much focus on consumer needs and wants.
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