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microeconomics

Questions and Answers of Microeconomics

What does it mean to say that the demand for resources is a derived demand? Is the demand for all goods and services a derived demand?
Using the information in the following table, calculate the marginal revenue product (MRP = MPP × MR). Unit of Resources Total Resource Output Price Price 1 10 $5 $10 2 25 $5 $10 345 35 $5 $10 40 $5
Using the data in exercise 2, determine how many units of resources the firm will want to acquire.Data from in exercise 2Using the information in the following table, calculate the marginal revenue
Suppose the output price falls from \($5\) to \($4\) to \($3\) to \($1\) in exercise 2.How would that change your answers to exercises 2 and 3?Data from in exercise 2Using the information in the
Using the data in exercise 2, calculate the marginal factor cost.Data from in exercise 2Using the information in the following table, calculate the marginal revenue product (MRP = MPP × MR). Unit of
Suppose the resource price rises from \($10\) to \($12\) to \($14\) to \($18\) to \($20\) as resource units go from 1 to 5. How would that change your answer to exercise 5? How would it change your
Using exercise 6, calculate the transfer earnings and economic rent of the third unit of the resource when four units of the resource are employed.Data from in exercise 6Suppose the resource price
Can you explain why Jennifer Aniston earns \($30\) million a year and a schoolteacher \($40,000\) a year?
What is a monopsonist? How does a monopsonist differ from a monopolist?
Supposedly Larry Bird once said that he would play basketball for \($10,000\) per year. Yet he was paid over \($1\) million per year. If the quote is correct, how much were Bird’s transfer
Walmart is vilified by many people as being evil, destroying jobs and cities. Others note that it has the lowest prices and is the largest employer in the country. What is the difference? Is Walmart
Early in her journalistic career, Gloria Steinem posed as a Playboy Bunny to examine the inside of a Playboy Club. Steinem discovered that the Bunnies had to purchase their costumes from the club,
Explain the idea behind the lyrics ‘‘You load 16 tons, and what do you get? You get another day older and deeper in debt. Saint Peter, don’t you call me, ‘cause I can’t go. I owe my soul to
In some small cities, Walmart is the only firm offering many types of goods. Suppose the demand for those goods is very price-inelastic. How does that affect how Walmart treats its employees? What is
The National Economic Council recently sent an e-mail to each of its state affiliates requesting that they send a letter to their Congressperson and Senators asking them to support the bill to
Small, well-organized groups are often more successful at rent seeking than other organizations. Why?
What could account for a backward-bending labor supply curve?
What is human capital? Is a college degree considered to be human capital?
Define equilibrium in the labor market. Illustrate equilibrium on a graph. Illustrate the situation in which there are two types of labor, skilled and unskilled.
Describe how people choose a major in college. If someone majors in English literature knowing that the starting salary for English literature graduates is much lower than the starting salary for
What is the difference between legal and illegal immigration?
What is the effect of immigration laws restricting the number of immigrants?
Explain what is meant by discrimination, and explain the difference between personal prejudice and statistical discrimination.
How does technological change benefit firms? Does it benefit workers?
Explain what outsourcing is. Explain what offshoring is. Do you believe that unemployment is being created by CEOs who send jobs to less-developed nations such as India and China?
Explain why occupational segregation by sex might occur. Can you imagine a society in which you would not expect to find occupational segregation by sex? Explain. Would you expect to find
Why are women’s wages only 60 to 80 percent of men’s wages, and why has this situation existed for several decades? Now that women are entering college and professional schools in increasing
Why do economists say that discrimination is inherently inefficient and therefore will not occur in general?
Demonstrate, using two labor markets, what is meant by comparable worth. What problems are created by comparable worth? Under what conditions might comparable worth make economic sense? Explain.
Consider a working woman or man who has young children or elderly relatives to take care of. Explain in terms of the labor supply curve how this person’s decision to work is affected by the
Demonstrate how a minimum wage affects the unskilled labor market. Is the labor market perfectly competitive? Can you find any examples of monopsonistic hiring? What would a minimum wage do in a
If a progressive income tax discourages additional work as income rises, what would a regressive tax do?
Use the indifference curves and income constraints discussed in the Economic Insights to illustrate the effect on work when income taxes are reduced.
What is saving? What role does it play in financial markets?
Investors know for sure that the CEO of firm A will undertake an investment that will yield \($100\) million profit next year and then \($2\) million each year after that for 10 years. They also know
The investors in exercise 2 are surprised by firm B’s performance in year 5.Instead of being \($20\) million, the firm’s profits are \($40\) million. What happens to firm B’s stock price in
Nova Corporation just announced that it had a record year. Its earnings have increased nearly 10 percent.Explain how this announcement can lead to a decline in the price of Nova Corporation’s stock.
The Benly Company needs to raise funds for a major expansion. The company is debating whether to issue stock or to issue bonds. If the company issues bonds, then its debt will increase and it will be
The Federal Reserve just lowered interest rates.Explain the effect on bond prices.
In exercise 6, not only bond prices but also stock prices are affected. Explain why.Data from in exercise 6The Federal Reserve just lowered interest rates.Explain the effect on bond prices.
Suppose the price elasticity of demand for stocks is 1.5. This means that for every 10 percent increase in stock prices, the quantity demanded will decline by 15 percent. Does this price elasticity
Suppose the cross-price elasticity of demand between stocks and bonds is - 1.2. If stock prices are expected to rise by 10 percent, what is expected to happen to bond prices? Does this make
Which would you expect bonds and stocks to be, substitutes or complements? Explain.
From 2000 to 2003, stock prices declined by about 33 percent. Explain why this occurred. If stock prices have been falling for a period of time, what would cause them to rise again?
The price of a stock is determined by the demand for and supply of that stock. Both demand and supply depend on investors’ expectations of the future performance—future economic profits—of the
During the second quarter of 2003, both bond prices and stock prices fell. Explain why this occurred.
Explain why stock prices fall when a company is found to be carrying out unethical and illegal activities.
What led to the rise in housing prices after 2001? Was this a housing bubble? If so, what event(s) popped the bubble?
The rental value of a domicile is the ‘‘fundamental value’’ of the domicile. The price of a house includes both the fundamental value and any expected appreciation of the property. Explain
What happens to an asset bubble when the amount of liquidity or money in circulation is reduced? Explain.
The market for some good or service is shown by the demand and supply curves below.a. Illustrate what transfer earnings and economic rent are.b. Explain what would occur if the demand for the good or
The market for some good or service is shown by the demand and supply curves below.a. Illustrate what transfer earnings and economic rent are.b. Explain what would occur if the demand for the good or
It is often stated that an artist is not famous until after he or she dies. Why do artists’ works rise in price much more rapidly after the artist is dead than during the artist’s life? How does
How would you describe economic rent in the case of a movie star earning millions of dollars each year?
If the world’s population is rising and the quantity of land is not changing, won’t the world eventually run out of room? Explain, using the market for land.
Will the world ever run out of a nonrenewable resource? Explain.
Suppose the supply of oil that had not yet been used was suddenly lost as a result of a rupture in the earth. What would occur?
The difference between a renewable and a nonrenewable resource is that the renewable resource can be replenished. Is there a difference between the markets for the two types of resources? What is the
In 2003, Alan Greenspan, chairman of the Federal Reserve, convinced the Open Market Committee to reduce the interest rate to near zero percent in an attempt to stimulate spending in the economy and
Urban sprawl is described as the establishment of housing and commercial development increasingly far from the city center. What might be the effect on sprawl if it was the policy of a city to build
If a city’s political leaders decided to limit sprawl by restricting residential and commercial development to an area within a prescribed distance from the city center, what would be the effect on
Illustrate the effect of the destruction of the oil fields of Saudi Arabia on the oil market. Explain what then happens to the market for gasoline.
Why are environmental problems often said to be simply a problem of common ownership?
What is Social Security? What is Medicare? What is the economic role of these government programs?
Why have expenditures on medical care risen more rapidly than expenditures on any other goods and services?
Explain how both the supply of physicians and physicians’ fees can increase at the same time.
Why are there more medical specialists and fewer general practitioners in the United States now than was the case 50 years ago?
What is the economic logic of increasing Social Security benefits?
What does it mean to say that people have a right to a specific good or service? Why do people believe that they have a right to medical care but do not believe that they have a right to a
Suppose the objective of government policy is to increase an economy’s growth and raise citizens’ standards of living. Explain in this context the roles of retirement, Social Security, and
Explain why the U.S. system of payment for medical procedures leads to higher health care costs than a system of payment for physicians’ services.
Analyze the following solutions to the problem of Social Security.a. The retirement age is increased to 70.b. The FICA tax is increased.c. Income plus Social Security payments cannot exceed the
Oregon proposed a solution to the health care costs problem that was widely criticized. Under this solution, the state paid only for common medical problems.Special and expensive problems would not
What would be the impact of a policy that did away with Medicare and Medicaid and instead provided each individual with the amount that he or she had contributed to the Medicare program during his or
Why is a third-party payer a problem? Private insurance companies are third-party payers, and yet they want to maximize profit. So wouldn’t they ensure that the allocation of dollars was efficient?
‘‘We must recognize that health care is not a commodity. Those with more resources should not be able to purchase services while those with less do without. Health care is a social good that
Explain and illustrate how a market for human organs could increase the amount of organs available and save lives. Explain and illustrate what would have to occur in order for the lives saved to
Suppose firms provide health care coverage and drug benefits as part of their competition for employees. Suppose the government enacts a law that provides drug benefits to everyone, whether employed
Why would the Patient Protection and Affordable Care Act of 2010 require everyone to purchase health insurance?
What is the moral hazard problem in banning insurance companies from denying coverage due to preexisting conditions?
What is a Lorenz curve? What would the curve look like if income were equally distributed? Could the curve ever bow upward above the line of income equality?
Why does the health of the economy affect the number of people living in poverty?
What would it mean if the poverty income threshold level of the United States were applied to Mexico?
What positive arguments can be made for reducing income inequality? What normative arguments are made for reducing income inequality?
If one country is growing at a rate of 3 percent per year and another at a rate of 8 percent per year, how long will it take for each to double? What factors might account for the rate at which
Are people who are poor today in the United States likely to be poor for the rest of their lives? Under what conditions is generational poverty likely to exist?
Use the following information to plot a Lorenz curve. Percent of Population 20 Percent of Income 5 40 15 60 35 80 65 100 100
If the incidence of poverty decreases during periods when the economy is growing and increases during periods when the economy is in recession, what policies might be used to reduce poverty most
If the arguments for reducing income inequality and poverty are normative, why rely on the government to reduce the inequality? Why doesn’t the private market resolve the problem?
How could transfer programs (welfare programs) actually increase the number of people in poverty?
What is the difference between in-kind and cash transfers? Which might increase the utility of the recipients the most? Why is there political resistance to the negative income tax?
The Gini coefficient for a nation indicates the degree of income inequality within that nation; the Gini coefficient among nations indicates the degree of income inequality among nations. Would you
Consider the following three solutions offered to get rid of homelessness and discuss whether any of them would solve the problem.a. Provide permanent housing for all who are homeless.b. Provide free
What is the relationship between the Gini coefficient and the Lorenz curve? Illustrate your answer using exercise 7.Data from in exercise 7Use the following information to plot a Lorenz curve.
Why would Hernando de Soto’s suggestions, if implemented, stimulate economic growth?
Why do countries need a system of well-defined and enforced private property rights to succeed and grow?
Explain how foreign aid and welfare programs create disincentives to work, produce, and generally improve economic conditions.
Why must voluntary trade between two countries be mutually beneficial?
Which country has the absolute advantage in beef production?Use the following table: Amount of Beef or Computers Produced by One Worker in a Day Canada Beef Computers Japan 8 5 3 4
Which country has the absolute advantage in computer production?Use the following table: Amount of Beef or Computers Produced by One Worker in a Day Canada Beef Computers Japan 8 5 3 4

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