Questions and Answers of Principles Of Economics

Interest rates in Turkey were relatively stable at 8 percent from 2015 through April 2018 but were increased to 17.75 percent in June of that year for two months. Higher interest rates increase the
In 2016, Italy, which is a highly indebted nation, sold 50-year bonds at a yield of 2.8 percent, and buyers were given access to 5 billion euros in the form of these bonds.Would you consider this a
The Republic of South Africa is one of the strongest economies in Africa, with a per-capita GDP at $13,400 in 2017.The World Bank has estimated that South Africa has a Gini index of 63 (out of a
In some extreme cases, an individual’s labor supply curve may be downward sloping at higher hourly wage rates. That is, further increases in the worker’s wage lead them to work fewer
In some extreme cases, an individual’s labor supply curve may be downward sloping at higher hourly wage rates. That is, further increases in the worker’s wage lead them to work fewer hours. Why
Which of the following are capital, and which are not?Explain your answers.a. Emergency Medical Responder (EMR) training and certification from the Red Crossb. Khanna Paper Mills in Amritsar, Indiac.
You play for your college basketball team and enjoy the sport. You have the option to heavily invest in training to become a professional basketball player and earn $1 million per match. However, the
Despite the European debt crisis, in July 2011, the European Central Bank (ECB) focused on its “day job” of fighting inflation and lifted its benchmark rate by quarter of a point to 1.5 percent.
From either an international newspaper such as the Financial Times, the business section of a local daily business newspaper, or the Internet, look up the prime interest rate, the corporate bond
Founded in April 1994, Netscape Communications Corporation is often credited as the creators of the JavaScript in the era when the Internet was evolving as a revolutionizing phenomenon.Netscape
In September 2017, the Federal Reserve called a historic end to its quantitative easing program, a decision that increased the dollar index to 0.7 percent. The yield on the 10-year Treasury also
What factors might cause the supply curve for loanable funds to increase (shift to the right)? Identify the effect that this shift would have on the equilibrium level of the interest rate.What
Figure 11.2 depicts the Investment Demand curve. Suppose that the government were to increase taxes on firms’ profits. How would you expect this tax increase to affect the Investment Demand
During an economic expansion, it is common for the value of property to rise. This means that the value of households’ wealth rises without them taking any specific action. How would you expect
Suppose you are an investor and can buy a stock that will be worth €150 in one year. Further suppose you have the alternative of buying a bond that will be worth €150 in one year and pays an
The town council’s finance committee has evaluated data and determined that the present discounted value of the benefits from a proposed dog park comes to $3,250,000. The total construction cost of
Calculate the present value of the income streams A to E in Table 1 at an 8 percent interest rate and again at a 10 percent rate.Suppose the investment behind the flow of income in E is a machine
Determine what someone should be willing to pay for each of the following bonds when the market interest rate for borrowing and lending is 3.5 percent.a. A bond that promises to pay $15,000 in a
What should someone be willing to pay for each of the bonds in question 1A.5 if the interest rate doubled to 7 percent?Data from question 1A.5Determine what someone should be willing to pay for each
Assume that the present discounted value of an investment project (commercial development) at a discount rate of 7 percent is $825,445,000. Assume that the building just sold for $850 million. Will
Teresa won the Florida lottery and was given the option of receiving $22 million immediately or $1,250,000 at the end of each year for 30 years.a. If Teresa opts for the 30 annual payments, how much
You have just won a million-dollar lottery and will receive $50,000 at the end of each year for 20 years. What is the present value of the 20 annual payments to you today?
Explain what will happen to the present value of money one year from now if the market interest rate falls? What if the market interest rate rises?
Consider the adjustment of the corn market in the United States to the federal mandate requiring refiners to use corn-based ethanol in the production of fuel. Up until January 2012, refiners were
For each of the following, state whether the statement, which describes changes in the tangerine market, is true, false, or uncertain. Explain your answer using graphs and the model of labor and
Suppose the economy of Kyrgyzstan has only four markets—energy, food, labor, and capital—and two types of households—rich and poor. In such an economy, explain why an excise tax on energy is
South African Airways (SAA) and Qantas Airlines held a duopoly on direct flights from Australia to South Africa. In 2014, Australia’s International Air Services Commission (IASC) indicated that the
The output of workers at a Porta Egypt factory depends on the number of supervisors hired. The factory sells each unit of its output for $0.50, hires 50 production workers at a wage of $100 per day,
In December 2018, tickets to a concert by Andy Lau, a Cantopop legend, that cost HK$980 had a resale price between HK$3,500 and HK$5,000, more than six times their face value. Scalpers usually buy
Which of the following are examples of Pareto-efficient changes? Explain your answers.a. The government of Estonia introduces e-governance for paying taxes so that citizens can file tax returns
In November 2018, Japan Airlines booked 400 people for a flight from Tokyo to Fukuoka that could take only 375 passengers. Suppose two alternatives are proposed to decide which 25 passengers would
Assume that there are two sectors in an economy: goods (G) and services (S). Both sectors are perfectly competitive, with large numbers of firms and constant returns to scale. As income rises,
Which of the following are actual Pareto-efficient changes? Explain briefly.a. You buy an air conditioner as it is hotter this summer due to climate change.b. You go salmon-fishing but you throw your
Each instance that follows is an example of one of the four types of market failure discussed in this chapter. In each case, identify the type of market failure and defend your choice briefly.a. Your
Briefly explain whether each of the following represents a public good.a. The Monaco Grand Prix (formerly the Formula One auto race) held at the Circuit de Monacob. The samba street parade held
Suppose EasyJet is the only airline that offers a flight on the route Manchester, United Kingdom, to Thessaloniki, Greece. Does the fact EasyJet offers the only flight on this route necessarily imply
Assume that Belgium has a large number of pharmaceutical stores in 2018 was competitively structured; however, certain chemists did supply illegal medical goods. Over the course of three years, one
Regnissik AG, a monopoly, holds exclusive rights to sell official superhero merchandise in Germany. It faces the following demand schedule for its T-shirts (sales in units per week):Calculate the
The following diagram illustrates the demand curve facing a monopoly in an industry with no economies or diseconomies of scale and no fixed costs. In the short and long run, MC = ATC. Copy the
The following diagram shows the cost structure of a monopoly firm as well as market demand. Identify on the graph and calculate the following:a. Profit-maximizing output levelb. Profit-maximizing
In many countries there is only one provider of freight services (transporting goods from A to B measured in kilometers). Nevertheless, this service provider is efficiently run and wishes to make a
The diagram below shows a firm (industry) that earns a normal return to capital if organized competitively. Price in the market place is Pc under competition. We assume at first that marginal cost is
The following diagram illustrates the demand and marginal revenue curves facing a monopoly in an industry with no economies or diseconomies of scale. In the short and long run, MC = ATC.a. Calculate
According to the United Airlines Website, their Basic Economy fare differs from their standard Economy fare as follows: complimentary seat selection and upgrades are not available, group and family
Which of the following industries would you classify as an oligopoly? Explain your answer. If you are not sure, what information do you need to know to decide?a. Clothingb. Cosmeticsc. Cell phonesd.
In a significant decision regarding patent eligibility, Alice Corp. v. CLS Bank International, the U.S Supreme Court in June 2004 effectively raised the bar for software patents by declining a patent
Which of the following markets are likely to be perfectly contestable? Explain your answers.a. Coal miningb. Insurancec. Wind Farmsd. Landscapinge. Advertising
Assume that you are in the business of providing medical insurance. You have analyzed the market carefully, and you know that at a price of $6,000 per year, you will sell 40,000 insurance policies
In 2018, the European Commission (EC) fined Asus, Philips, and Pioneer for interfering with the pricing of online retailers to maintain artificially high prices for their products.Research the
Explain whether you agree or disagree with the following statement. If all firms in an industry successfully engage in collusion, the resulting profit-maximizing price and output would be the same as
What is the Cournot model? How does the output decision in the Cournot model differ from the output decision in a monopoly?
T-Mobile is the third-largest wireless communication provider in the United States, behind Verizon and ATT, and ahead of Sprint. In an effort to differentiate themselves from their three primary
The matrix in Figure 1 shows payoffs based on the strategies chosen by two firms. If they collude and hold prices at $10, each firm will earn prof its of$5 million. If A cheats on the agreement,
The payoff matrices in Figure 2 at the top of the next column show the payoffs for two games. The payoffs are given in parentheses. The values on the left refer to the payoff to A; the values on the
Suppose only two airlines fly between London and New York. There are 100 flights between the two cities on a daily basis, of which 90 flights are operated by London Airways and the remaining 10 by
Explain whether you agree or disagree with the following statements:a. In all oligopoly models except the contestable-market model, market concentration leads to output below the efficient level, and
Suppose that the following table represents the market share percentage for each firm in the baby food market in Sweden.a. Calculate the three-firm concentration ratio for the baby food industry
After 17 months of negotiations, the Federal Communications Commission announced in July 2008 its approval of the merger between the world’s only satellite radio broadcasters, Sirius Satellite
One problem with using concentration ratios is that they can mask certain differences in concentration between markets. The table below presents the market shares of the four largest firms in two
In Game Theory, players who adopt the maximin strategy are said to be risk averse. Why is that a reasonable characterization?
Plaza Mayor, a historical landmark in the heart of Madrid, Spain, has several stores, cafés, and restaurants that attract tourists and locals. It is a place where different types of alliances and
Assume you are a student in a university town with a population of 200,000. Your parents will be visiting soon and you want to take them out for dinner. Name some of the local and chain restaurants
Recreational Equipment, Inc, commonly known as REI, is an outdoor recreational retail company whose product offerings include sporting goods, camping gear, and clothing. REI has over 150 retail
Write a brief essay explaining the accuracy of this statement:The Beatles were once a monopolistically competitive firm that became a monopolist.
In a market in which there is vertical differentiation, we always see price differences among the products.In markets with horizontal differentiation, sometimes the products differ but prices are
Often, products manufactured by the more well-known brands are sold for a lower price than those by the less well-known brands. Is this pattern always true? Explain your answer.
As cities go, Las Vegas is about as “over-the-top” as is imaginable. Where else in the world can you find a 350-foot tall glass pyramid, a half-scale replica of the Eiffel Tower, a fire-spewing
The table shows the relationship for a hypothetical firm between its advertising expenditure on various platforms and the quantity of its output that it expects to sell at a fixed price of €400 per
Research the Internet for olive oil from Greece, which is considered to be the third largest producer of olive oil in the world after Spain and Italy. How much variation does there seem to be in the
Professor Econsmart teaches a course in principles of economics at a large university. In the current semester the professor intends to add new techniques to the standard lecture format he employs.
The Economics in Practice discusses the increase in sales of books that have been endorsed by Oprah Winfrey’s book club. While Oprah receives no payment for her book club endorsements, many
Mariana is operating a studio house in Palma de Mallorca, Spain. Hundreds of hotels, motels, villas, apartments, and studio houses are offered as tourist accommodations in the area. Mariana opened
The following diagram shows the structure of cost and demand facing a monopolistically competitive firm in the short run.a. Identify the following on the graph and calculate each one.i.
Explain the relationship between price and marginal revenue for a perfectly competitive firm and for a monopolistically competitive firm. Why is the relationship different for these markets?
For each of the following, state whether you agree or disagree.Explain your answer.a. Monopolistically competitive firms generate economic profits because they are protected by barriers to entry.b.
Explain why the demand for a monopolistically competitive firm’s product variant is more elastic than the demand for the product overall.
Suppose that there are small, but nontrivial, barriers to entry into a monopolistically competitive market. How would this affect the long-run profitability of firms in the market?
With increased international concerns about the environment, the movement to ban plastic straws in the food and hospitality industry has gained traction. Major corporations, such as Starbucks,
The kingdom of Freedonia is divided into two countries: East Babalu and West Babalu. In an effort to reduce carbon dioxide emissions, the kingdom has enacted a carbon tax on all electricity
Many people are concerned with the problem of urban sprawl. As the development of new housing tracts and suburban shopping malls continues over time, metropolitan areas have become more congested and
A paper factory dumps polluting chemicals into the Snake River. Thousands of citizens live along the river, and they bring suit, claiming damages. You are asked by the judge to testify at the trial
Microsoft and Disney are just two of a growing number of organizations using internal carbon taxes in an attempt to reduce carbon emissions, and the carbon prices being used to set the internal taxes
The Coase theorem implies that we never need to worry about regulating externalities because the private individuals involved will reach the efficient outcome through negotiations. Is that statement
Economists often distinguish between short-run and longrun effects of policies or actions when adjusting to environmental disasters. Research a recent environmental disaster(such as the wildfires in
The following diagram represents the profit-maximizing price and output for a firm in a perfectly competitive industry with no externalities. Use this diagram to explainwhat will happen if the
Refer to the previous question but assume that the government has imposed a per-unit tax on this product that is exactly equal to the marginal damage costs. Use the diagram to show what will happen
Two firms, Vesuvius and Etna, are each emitting nine units of pollution, and the government wants to reduce the total level of pollution from the current level of 18 to six. To do this, the
Velma, a book editor for a local publishing company, and Daphne, an opera singer in a local opera company, share a townhouse in Miami. Velma enjoys reading and editing books at home, and Daphne
The existence of “public goods” is an example of potential market failure and suggests that a government or public sector can improve the outcome of completely free markets.Write a brief summary
For each of the following goods, state whether it is a private good, mixed good, or public good. Discuss your rationale in terms of exclusivity and rivalry.a. Tap waterb. Fish caught from a riverc. A
Explain why you agree or disagree with each of the following statements:a. The government should be involved in providing health care for all citizens because health care is a “public good.”b.
Bonnie and Clyde take the same route on their way to their home. They want to improve the security on one particular street by installing more street lamps.Data from figure 1Bonnie’s demand for
Government involvement in general scientific research has been justified on the grounds that advances in knowledge are public goods—once produced, information can be shared at virtually no cost. A
The recent economic growth resulting from government policies of newly industrializing nations such as India and China has increased environmental strains on global air and water systems. The
Overfishing in Iceland led to the cod and herring populations to almost disappear in the 1960s and 1970s.The overuse of a common resource like fish is often referred to as the tragedy of the
Congested highways are congested specifically because they are a common resource. Identify a public policy or pricing mechanism that could solve this problem.
The following function shows the attitude towards risk for Anna, Bill, and Joe, respectively, where U is level of utility and I is the level of income.Using graphs, show utility versus income for
At the beginning of 2019, you rented a brand new Nissan GT-R for a road trip and bought the most expensive insurance with maximum coverage for it. A week later, you return the car safely and without
There is a saying in gambling that “the house always wins.” Using the concept of expected value, explain why gambling is biased against gamblers.
The “marriage market” involves an arrangement by which couples meet, get to know each other, and eventually may decide to enter into a matrimonial contract.a. Explain the nature and role of

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