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microeconomics
Questions and Answers of
Microeconomics
Using a supply and demand diagram, explain how central banks maintain a fixed exchange rate. What can cause an end to the fixed-exchange-rate regime?
Using a supply and demand diagram, explain how speculative attacks occur in the foreign exchange market.
If you were employed by a major international bank to forecast the likelihood of a financial crisis, what key variables would you want to monitor for the countries you are studying? Why would you
What was the role of globalization in the global financial crisis of 2007–2008?
What is the role of technology in globalization?Explain several ways that the Internet has increased the pace of globalization and several ways that it has decreased the pace of globalization.
Have there been any ‘‘setbacks’’ to globalization?
a. Determine the price elasticity of demand at each quantity demanded using the arc or midpoint formula: Percentage change in quantity demanded = (Q2 - Q1)/Q1 divided by percentage change in price =
Plot the price and quantity data given in the demand schedule of exercise 1.Data from exercise 1a. Determine the price elasticity of demand at each quantity demanded using the arc or midpoint
What would a 10 percent increase in the price of movie tickets mean for the quantity demanded of a movie theater if the price elasticity of demand was 0.1, 0.5, 1.0, and 5.0?Use the following
Using the demand curve plotted in exercise 1, illustrate what would occur if the income elasticity of demand was 0.05 and income rose by 10 percent. If the income elasticity of demand was 3.0 and
Pick a good whose demand is price elastic. List five substitutes and five complements. Which is easier to come up with, the list of substitutes or the list of complements? Explain.
Are the following pairs of goods substitutes or complements? Indicate whether their cross-price elasticities are negative or positive.a. Bread and butterb. Bread and potatoesc. Socks and shoesd.
Calculate the income elasticity of demand from the following data (use the arc or average).a. Explain why the value is a positive number.b. Explain what would happen to a demand curve as income
Explain how consumers will react to a job loss. What will be the first goods they will do without? What is the income elasticity of demand for those goods?
a. Use the figure to show what occurs to price and quantity when supply decreases and demand is perfectly elastic.b. Use the figure to show what occurs to price and quantity when supply increases and
Explain why a 40 percent across-the-board tax increase on businesses might harm consumers.
The price elasticity of the demand for gasoline is - 0.02. The price elasticity of demand for gasoline at Joe’s 66 station is - 1.2. Explain what might account for the different elasticities.
The cross-price elasticity of the demand for cell phones and DVDs is 1.2. Explain. The cross-price elasticity of the demand for the iPod and DVDs is - 1.4. Explain.
Using the following equation for the demand for a good or service, calculate the price elasticity of demand (using the point form), cross-price elasticity with good x, and income elasticity.Q = 8 -
Plot the following price and quantity. Then calculate price elasticity of demand at P = 8, P = 4, and P = 2. Q P 10 046 P0876 8 5 10 4 12 321 14 16 18
The FICA tax is the Social Security tax plus Medicare. It is levied on both the employer and employee. Until 2011, each paid an equal 7.65% of the employee’s salary. In 2011 the share levied on the
Who would pay a tax imposed on the supplier when the price elasticity of supply is inelastic and the price elasticity of demand is elastic?
Use these combinations for parts a and b:a. If more is preferred to less, which combinations are clearly preferred to other combinations? Rank the combinations in the order of preference.b. Some
Using the following information, calculate total utility and marginal utility.a. Plot the total utility curve.b. Plot marginal utility directly below total utility.c. At what marginal utility value
Explain why two indifference curves cannot cross.
Is it possible for marginal utility to be negative and total utility positive? Explain.
Using the data that follow, plot two demand curves for cake. Then explain what could have led to the shift of the demand curve. I. Price of Cake Quantity of Cake Demanded Quantity of II. Price of
Suppose Mary is in consumer equilibrium. The marginal utility of good A is 30, and the price of good A is \($2\).a. If the price of good B is \($4,\) the price of good C is \($3,\) the price of good
Using the following utility schedule, derive a demand curve for pizza.a. Assume income is \($10,\) the price of each slice of pizza is \($1,\) and the price of each glass of beer is \($2.\) Then
Using utility, explain the following commonly made statements:a. I couldn’t eat another bite.b. I’ll never get tired of your cooking.c. The last drop tastes as good as the first.d. I wouldn’t
How would guests’ behavior be likely to differ at a BYOB (bring your own bottle) party from one at which the host provides the drinks? Explain your answer.
A round of golf on a municipal golf course usually takes about five hours. At a private country club golf course, a round takes less than four hours. What accounts for the difference? Would the time
To increase marginal utility, you must decrease consumption (everything else held constant). This statement is correct, even though it sounds strange. Explain why.
Suppose that the marginal utility of good A is 4 times the marginal utility of good B, but the price of good A is only 2 times the price of good B. Is this point consumer equilibrium? If not, what
Last Saturday, you went to a movie and ate a large box of popcorn and two candy bars and drank a medium soda. This Saturday, you went to a movie and ate a medium box of popcorn and one candy bar and
Peer pressure is an important influence on the behavior of youngsters. For instance, many preteens begin smoking because their friends pressure them into being ‘‘cool’’ by smoking. Using
Many people who earn incomes below some level receive food stamps from the government. Economists argue that these people would be better off if the government gave them the cash equivalent of the
What is the purpose of the two fields of study, neuroeconomics and behavioral economics? Why might people tend to be overconfident?
What does it mean to say that people like to ‘‘play with the house’s money’’?
Can you see a connection between the emotional and logical brain and the action known as loss aversion?
Would it make any sense to say that, since a change in tax policy makes Jorge lose utility while Mary and Demitri gain utility, the policy is good if the loss in Jorge’s utility is less than the
As people age, they typically spend more on luxury goods than when they are younger. Does this mean that diminishing marginal utility of money declines as people age?
Use the following information to determine the total fixed costs, total variable costs, average fixed costs, average variable costs, average total costs, and marginal costs. Total Output Costs TFC
Use the following table to answer the questions listed below.a. Calculate the total fixed costs, total variable costs, average fixed costs, average variable costs, average total costs, and marginal
Using the table in exercise 1, explain what happens to ATC when MC > ATC, MC Data from in exercise 1Use the following information to determine the total fixed costs, total variable costs, average
Using the table in exercise 2, find the quantity where MC = ATC. Find the quantity where ATC is at its minimum. Find the quantity that is the most efficient operating point for the firm.Data from in
Describe some conditions that might cause large firms to experience inefficiencies that small firms would not experience.
What is the minimum efficient scale? Why would different industries have different minimum efficient scales?
Describe the relation between marginal and average costs. Describe the relation between marginal and average fixed costs and between marginal and average variable costs.
Explain why the ATC and MC curves are U-shaped.
Explain why the short-run marginal-cost curve must intersect the short-run average-total-cost curve at the minimum point of the ATC. Does the marginal-cost curve intersect the average-variable cost
Why does the minimum point of the average-totalcost curve show the quantity at which the firm is most efficiently supplying output in the short run?
Consider a firm with a fixed-size production facility as described by its existing cost curves.a. Explain what would happen to those cost curves if a mandatory health insurance program is imposed on
Does the following statement make sense? ‘‘You made a real blunder. The $600 you paid for repairs is worth more than the car.’’
Explain the statement, ‘‘We had to increase our volume to spread the overhead.’’
Three college students are considering operating a tutoring business in economics. This business would require that they give up their current jobs at the student recreation center, which pay
Express Mail offers overnight delivery to customers. It is attempting to come to some conclusion on whether to expand its facilities. Currently its fixed costs are \($2\) million per month, and its
Suppose the cost of starting Business A is very, very high. But once begun, the marginal cost of additional output is near zero. Draw this situation using the marginal cost curve.
It requires a large sum of money to produce a musical CD. The band has to be formed, practiced, and so forth. The recording studio has to be rented and the music performed and taped. Once one CD has
Use the following to calculate profit at each quantity of output. (Total) Output Price Total Revenue Total Cost (Q) (P) (TR) (TC) 0123456 $1,900 $ 0 $1,000 $1,700 $ 1,700 $2,000 $1,650 $ 3,300 $2,800
Explain the relationship between the shapes of the productivity curves and the shape of the cost curves. Specifically, compare the APP curve with the ATC curve and the MPP curve with the MC curve.
Use the table in exercise 1 to calculate marginal revenue and marginal cost.Data from in exercise 1Use the following to calculate profit at each quantity of output. (Total) Output Price Total Revenue
Use the information in exercises 1 and 2 to graphically show maximum profit. Label the profit maximizing quantity and price, total cost, total revenue, and profit.Data from in exercise 1Use the
Can accounting profit be positive and economic profit negative? Can accounting profit be negative and economic profit positive? Explain.
Calculate accounting profit and economic profit for each of the following firms (amounts are in millions of dollars). General Barclays Motors Bank Microsoft Sales $50,091 $5,730 $2,750 Wages and
Use the following information to calculate accounting profit and economic profit.Sales \($100\) Employee expenses \($40\) Inventory expenses \($20\) Value of owner’s labor in any other enterprise
Which type of market characterizes most businesses operating in the United States today?
Given that a firm in a monopoly has no competitors producing close substitutes, does the monopolist set exorbitantly high prices?
Give 10 examples of differentiated products. Then list as many nondifferentiated products as you can.Which would have the largest price elasticity of demand, the differentiated or the
Use the information in the table to calculate total revenue, marginal revenue, and marginal cost. Indicate the profit-maximizing level of output. If the price was \($3\) and fixed costs were \($5,\)
Try to classify the following firms into one of the four market structure models. Explain your choice.a. Rowena’s gourmet foods (produces and sells a line of specialty foods)b. Shasta Pools & Spas
Draw a demand curve and the corresponding marginal-revenue curve for a firm selling in a monopoly and another firm selling in perfect competition. Explain which demand curve is the most elastic. What
Explain why accounting profit provides very useful information. Explain why economic profit provides very useful information.
Cost figures for a hypothetical firm are given in the following table. Use them for the exercises below.The firm is selling in a perfectly competitive market.a. Fill in the blank columns.b. What is
GM’s net income in 2010 was \($4.7\) billion. What would its accounting profit be if its cost of equity capital was \($5\) billion? What would its economic profit be if its cost of equity capital
Label the curves in the following graph.a. At each market price, P1, P2, and P3, at what output level would the firm produce?b. What profit would be earned if the market price was P1?c. What are the
Why might a firm continue to produce in the short run even though the market price is less than its average total cost?
Explain why the demand curve facing the individual firm in a perfectly competitive industry is a horizontal line.
Explain what occurs in the long run in a constantcost industry, an increasing-cost industry, and a decreasing-cost industry when the market demand declines (shifts in).
What can you expect from an industry in perfect competition in the long run? What will the price be? What quantity will be produced? What will be the relation between marginal cost, average cost, and
Assume that the market for illegal drugs is an example of a perfectly competitive market structure. Describe what the perfectly competitive market model predicts for illegal drugs in the long run.
If no real-life industry meets the conditions of the perfectly competitive model exactly, why do we study perfect competition? What is the relevance of the model to a decision to switch careers? How
Using the model of perfect competition, explain what it means to say, ‘‘Too much electricity is generated,’’ or ‘‘Too little education is produced.’’ Would the firm be producing at
Private swimming pools can be dangerous. There are serious accidents each year in those areas of the United States where backyard pools are common. Should pools be banned? In other words, should the
Discuss whether the following are examples of perfectly competitive industries.a. The U.S. stock marketb. The automobile industryc. The consumer electronics marketd. The market for college students
Macy’s was making millions of dollars in profits when it declared bankruptcy. Explain Macy’s decision.
Use the following data for the exercises below.a. What is the equilibrium price and quantity?b. Draw the demand and supply curves. If this represents perfect competition, are the curves
Use the model of perfect competition to explain the rise in corn prices from \($1\) per bushel in 2004 to \($6\) per bushel in 2011.
Draw a demand and supply diagram and illustrate what gains from trade are.
In exercise 16, explain why this illustrates gains from trade and what the gains mean for consumers and for producers.Data from in exercise 16Draw a demand and supply diagram and illustrate what
Entry and exit of firms occur in the long run, but not in the short run. Why? What is meant by the long run and the short run? Would you say that entry is more or less difficult than exit?
About 85 percent of the soup sold in the United States is Campbell’s brand. Is Campbell Soup Company a monopoly firm?
Price discrimination is practiced by movie theaters, motels, golf courses, drugstores, and universities. Are they monopolies? If not, how can they carry out price discrimination?
Why is it necessary for the seller to be able to keep customers from reselling the product in order for price discrimination to occur? There are many products for which you get a discount for
Many people have claimed that there is no good for which substitutes are not available. If so, does this mean there is no such thing as monopoly?
Suppose that at a price of \($6\) per unit, quantity demanded is 12 units. Calculate the quantity demanded when the marginal revenue is \($6\) per unit.
In the following figure, if the monopoly firm faces ATC1, which rectangle measures total profit? If the monopoly firm faces ATC2, what is total profit? What information would you need in order to
In recent years, U.S. car manufacturers have charged lower prices for cars in western states in an effort to offset the competition from Japanese cars. This twotier pricing scheme has upset many car
Consider the following demand schedule. Does it apply to a perfectly competitive firm? Compute marginal and average revenue. Price Quantity Price Quantity $95 2 $55 5 $88 3 $40 6 $80 4 $22 7
Suppose the marginal cost of producing the good in question 8 is a constant $10 per unit of output. What quantity of output will the firm produce?Data from in question 8Consider the following demand
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