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microeconomics

Microeconomics : Microeconomics: Principles, Problems, And Policies 1st Edition McConnell / Stanley L. Brue / Thomas P. Barbiero - Solutions

c. “Telling Santa what you want for Christmas makes sense in terms of utility maximization.”
b. “It is irrational for an individual to take the time to be completely rational in economic decision making.”
7. Explain:a. “Before economic growth, there were too few goods; after growth, there is too little time.”
6. How can time be incorporated into the theory of consumer behaviour? Explain the following comment: “Want to make millions of dollars? Devise a product that saves Canadians lots of time.”
5. KEY QUESTION You are choosing between two goods, X and Y, and your marginal utility from each is as shown below. If your income is $9 and the prices of X and Y are $2 and $1, respectively, what quantities of each will you purchase to maximize utility?What total utility will you realize? Assume
c. Check your answers by substituting them into the algebraic statement of the utilitymaximizing rule.Column 1 Column 2 Column 3 Column 4 Column 5 Units Units Units Units Number of of A MU of B MU of C MU of D MU dollars saved MU 1 72 1 24 1 15 1 36 1 5 2 54 2 15 2 12 2 30 2 4 3 45 3 12 3 8 3 24 3
b. How many dollars will Ricardo choose to save?
a. What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility?
4. KEY QUESTION Columns 1 through 4 in the table below show the marginal utility,measured in utils, that Ricardo would get by purchasing various amounts of products A, B, C, and D. Column 5 shows the marginal utility Ricardo gets from saving. Assume that the prices of A, B, C, and D are $18, $6,
3. Mrs. Wilson buys loaves of bread and litres of milk each week at prices of $1 and $.80, respectively. At present she is buying these two products in amounts such that the marginal utilities from the last units purchased of the two products are 80 and 70 utils, respectively. Is she buying the
1. Explain the law of demand through the income and substitution effects, using a price increase as a point of departure. Explain the law of demand in terms of diminishing marginal utility.
2. Rent controls in Ontario began in the 1970s.The Tenant Act was revised in the late 1990s.Visit the Ontario Rental Housing Information Web site at to see a summary of existing laws. What would be the likely attitude of each of the following groups toward the rent stabilization program: current
1. Generally, the elasticity of demand for a product will be greater (a) the larger the number of substitutes, (b) the greater the proportion of income an item takes, and(c) the less the item is considered to be a necessity. Kmart, , posts a weekly sales circular on selected merchandise, organized
17. (The Last Word) Do you favour the establishment of a market for donated human organs? Why or why not?
16. Why is it desirable for price ceilings to be accompanied by government rationing?Why is it desirable for price floors to be accompanied by programs that purchase surpluses, restrict output, or increase demand? Show graphically why price ceilings produce shortages and price floors cause
15. A recent study found that an increase in the price of beer would reduce the amount of marijuana consumed. Is cross elasticity of demand between the two products positive or is it negative? Are these products substitutes, or are they complements? What might be the logic behind this relationship?
14. KEY QUESTION What is the incidence of a tax when demand is highly inelastic?highly elastic? What effect does the elasticity of supply have on the incidence of a tax?
13. KEY QUESTION The income elasticities of demand for movies, dental services,and clothing have been estimated to be +3.4, +1.0, and +0.5, respectively. Interpret these coefficients. What does it mean if an income elasticity coefficient is negative?
11. Because of a legal settlement over state health care claims, in 1999 the tobacco companies had to raise the average price of a pack of cigarettes from $1.95 to $2.45. The projected decline in cigarette sales was 8 percent. What does this imply about the elasticity of demand for cigarettes?
10. KEY QUESTION In November 1998 Vincent van Gogh’s self-portrait sold at auction for $71.5 million. Portray this sale in a demand and supply diagram and comment on the elasticity of supply. Comedian George Carlin once mused, “If a painting can be forged well enough to fool some experts, why
9. You are chairperson of a provincial tax commission responsible for establishing a program to raise new revenue through sales taxes. Would elasticity of demand be important to you in determining on which products the taxes should be levied? Explain.
8. “If the demand for farm products is highly price inelastic, a large crop yield may reduce farm incomes.” Evaluate this statement and illustrate it graphically.
4. KEY QUESTION Calculate totalrevenue data from the demand schedule in question 2. Graph total revenue below your demand curve. Generalize about the relationship between price elasticity and total revenue.
3. Draw two linear demand curves parallel to one another. Demonstrate that for any specific price change, demand is more elastic on the curve closer to the origin.
2. KEY QUESTION Graph the accompanying demand data and then use the midpoint formula for Ed to determine price elasticity of demand for each of the four possible $1 price changes. What can you conclude about the relationship between the slope of a curve and its elasticity? Explain in a
1. Explain why the choice between discussing 1, 2, 3, 4, 5, 6, 7, and 8 units or 1000, 2000, 3000, 4000, 5000, 6000, 7000, and 8000 movie tickets makes no difference in determining elasticity in Table 6-1.
What was the least amount in Canadian dollars your Coney Island hotdog cost? The most?
2. Foreign Exchange Rates—the U.S. for Canadian Dollar. Statistics Canada provides the exchange rate of the Canadian dollar against the U.S. dollar for the last five years at www.statcan.ca/english/Pgdb/Economy/Economic/econ07.htm. Assume you visited New York City every summer for the last five
1. Trade Balances with Partner Countries. Statistics Canada www.statcan.ca/english/Pgdb/Economy/International/gblec02a.htm sets out Canadian imports and exports to major trading partners and areas for the last five years. Do we have a trading surplus or deficit with the United States? What about
14. (The Last Word) What explains why millions of economic resources tend to get arranged logically and productively rather than haphazardly and unproductivley?
13. Speculate as to why some Canadian firms strongly support trade liberalization while other Canadian firms favour protectionism.Speculate as to why some Canadian labour unions strongly support trade liberalization while other Canadian labour unions strongly oppose it.
12. Explain: “Free-trade zones such as the EU and NAFTA lead a double life: they can promote free trade among members, but they pose serious trade obstacles for non-members.”Do you think the net effects of trade blocs are good or bad for world trade? Why? How do the efforts of the WTO relate to
11. KEY QUESTION Identify and state the significance of each of the following:(a) WTO; (b) EU; (c) euro; and (d) NAFTA.What commonality do they share?
10. What measures do governments use to promote exports and restrict imports? Who benefits and who loses from protectionist policies? What is the net outcome for society?
9. True or false? “An increase in the Canadian dollar price of the euro implies that the euro has depreciated in value.” Explain.
8. If the European euro were to decline in value(depreciate) in the foreign exchange market, will it be easier or harder for the French to sell their wine in Canada? If you were planning a trip to Paris, how would the depreciation of the euro change the dollar cost of this trip?
7. KEY QUESTION True or false? “Canadian exports create a demand for foreign currencies; foreign imports of our goods generate supplies of foreign currencies.” Explain.Would a decline in Canadian incomes or a weakening of Canadian preferences for foreign products cause the dollar to
6. Suppose that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the hypothetical nations of Canswicki and Tunata.Canswicki: 1 can baby formula ≡ 2 cans tuna fish Tunata: 1 can baby formula ≡ 4 cans tuna fish In what product should each nation
5. KEY QUESTION The following are production possibilities tables for South Korea and Canada. Assume that before specialization and trade the optimal product mix for South Korea is alternative B and for Canada alternative D.SOUTH KOREA’S PRODUCTION PRODUCT ALTERNATIVES ABCDE F Radios (in
4. KEY QUESTION Use the circular flow model (Figure 5-3) to explain how an increase in exports would affect the revenues of domestic firms, the money income of domestic households, and imports from abroad. Use Figure 5-2 to find the amounts(in 2000) of Canada’s exports (flow 13) and imports
3. What factors account for the rapid growth of world trade since World War II? Who are the major players in international trade today?Who are the “Asian tigers” and how important are they in world trade?
2. How important is international trade to the Canadian economy? Who is Canada’s most important trade partner? How can persistent trade deficits be financed? “Trade deficits mean we get more merchandise from the rest of the world than we provide them in return. Therefore, trade deficits are
1. Describe the four major economic flows that link Canada with other nations. Provide a specific example to illustrate each flow.Explain the relationships between the top and bottom flows in Figure 5-1.
2. Barter and Canada Revenue Bartering occurs when goods or services are exchanged without the exchange of money. For some, barter’s popularity is that it enables them to avoid paying taxes to the government. How might such avoidance occur? Canada Revenue’s interpretation of barter
1. Sparkly Things—Interested in Buying One?Go to the Internet auction site eBay at www.ebay.com/index.html and click the category Jewelry, Gemstones. How many diamonds are for sale at the moment? How many rubies, sapphires, and opals? Note the wide array of sizes and prices of the gemstones.
14. (The Last Word) Why do private markets fail? In your answer, refer to the dwindling cod stocks on Canada’s east coast.
13. Use your understanding of the characteristics of private and public goods to determine whether the following should be produced through the market system or provided by government: (a) bread; (b) street lighting;(c) bridges; (d) parks; (e) swimming pools;(f) medical care; (g) mail delivery;
11. KEY QUESTION What are the characteristics of public goods? Explain the significance of the exclusion principle. By what means does government provide public goods?
10. What divergences arise between equilibrium output and efficient output when (a) spillover costs and (b) spillover benefits are present? How might government correct for these divergences? “The presence of spillover costs suggests the underallocation of resources to a particular product and
9. In a single sentence, describe the meaning of the phrase “invisible hand.”
8. KEY QUESTION Some large hardware stores, such as Canadian Tire, boasts of carrying as many as 20,000 different products in each store. What motivated the producers of those products—everything from screwdrivers to ladders to water heaters—to make them and offer them for sale? How did the
7. Suppose the demand for bagels rises dramatically while the demand for breakfast cereal falls. Briefly explain how the competitive market economy will make the needed adjustments to re-establish an efficient allocation of society’s scarce resources?
6. Explain the meaning and implications of the following quotation.The beautiful consequence of the market is that it is its own guardian. If output or prices or certain kinds of remuneration stray away from their socially ordained levels, forces are set into motion to bring them back to the fold.
5. Evaluate and explain the following statements:a. The market system is a profit-and-loss system.b. Competition is the indispensable disciplinarian of the market economy.c. Production methods that are inferior in the engineering sense may be the most efficient methods in the economic sense, once
3. What are the advantages of “roundabout”production? What is meant by the term “division of labour”? What are the advantages of specialization in the use of human and material resources? Explain: “Exchange is the necessary consequence of specialization.”
1. Explain each of the following statements:a. The market system not only accepts selfinterest as a fact of human existence, it relies on self-interest to achieve society’s material goals.b. The market system provides such a variety of desired goods and services precisely because no single
● How will the system accommodate change?
Which country would you expect to have the greatest percentage increase in demand for baby diapers in the year 2050?For retirement villages? Which country would you expect to have the greatest absolute increase in demand for baby diapers? For retirement villages?
1. Changes in Demand—Baby Diapers and Retirement Villages Other things equal, an increase in the number of buyers for a product or service will increase demand. Baby diapers and retirement villages are two products designed for different population groups. The U.S. Census
14. (Last Word) Discuss the economic aspects of ticket scalping, specifying gainers and losers.
12. Suppose you go to a recycling centre and are paid $.25 per kilogram for your aluminum cans. However, the recycling firm charges you $.20 per bundle to accept your old newspapers. Use demand and supply diagrams to portray both markets. Explain how different government policies with respect to
11. Critically evaluate: “In comparing the two equilibrium positions in Figure 3-6a, I note that a larger amount is actually purchased at a higher price. This refutes the law of demand.”
10. Explain: “Even though parking meters may yield little or no revenue, they should nevertheless be retained because of the rationing function they perform.”
9. “Prices are the automatic regulator that tends to keep production and consumption in line with each other.” Explain.
8. KEY QUESTION How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do price and quantity rise, fall, or remain unchanged, or are the answers indeterminate because they depend on the magnitudes of the
7. KEY QUESTION Suppose the total demand for wheat and the total supply of wheat per month in the Winnipeg grain market are as follows:Thousands Thousands Surplus (+)of bushels Price per of bushels or demanded bushel supplied shortage (–)85 $3.40 72 __________ 80 $3.70 73 __________ 75 $4.00 75
5. KEY QUESTION What effect will each of the following have on the supply of product B?a. A technological advance in the methods of producing product B.b. A decline in the number of firms in industry B.c. An increase in the prices of resources required in the production of B.d. The expectation
4. Explain the law of supply. Why does the supply curve slope upward? What are the determinants of supply? What happens to the supply curve when each of these determinants changes? Distinguish between a change in supply and a change in the quantity supplied, nothing the cause(s) of each.
3. Explain the following news dispatch from Hull, England: “The fish market here slumped today to what local commentators called ‘a disastrous level’—all because of a shortage of potatoes. The potatoes are one of the main ingredients in a dish that figures on almost every café-menu—fish
2. KEY QUESTION What effect will each of the following have on the demand for product B?a. Product B becomes more fashionable.b. The price of substitute product C falls.c. Income declines and product B is an inferior good.d. Consumers anticipate the price of B will be lower in the near future.e.
1. Explain the law of demand. Why does a demand curve slope downward? What are the determinants of demand? What happens to the demand curve when each of these determinants changes? Distinguish between a change in demand and a change in the quantity demanded, noting the cause(s) of each.
1. Demand curve D is downsloping because:a. producers offer less product for sale as the price of the product falls.b. lower prices of a product create income and substitution effects, which lead consumers to purchase more of it.c. the larger the number of buyers in a market, the lower the product
2. Relative Size of the Military—Who’s Incurring the Largest Opportunity Cost? To obtain military goods, a nation must sacrifice civilian goods. Of course, that sacrifice may be worthwhile in terms of national defence and protection of national interests. Go to the U.S. Central Intelligence
1. More Labour Resources—What is the Evidence for Canada and France? Go to the U.S. Bureau of Labor Statistic’s Web site www.bls.gov/ and click Data and then Most Requested Series. Click International Labor Statistics and retrieve Canadian employment data for the period of the last 10 years.
17. (Last Word) Which two of the six reasons listed in the Last Word do you think are the most important in explaining the rise in participation of women in the workplace?Explain your reasoning.
What are the flows in the circular flow model?
16. Distinguish between the resource market and product market in the circular flow model. In what way are businesses and households both sellers and buyers in this model?
15. Contrast how a market system and a command economy respond to the economic problem.
14. Suppose that, based on a nation’s production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the one additional industrial robot it desires, but that it can get the robot from another country in exchange for 9000 pizzas. Relate this information to the
13. Explain: “Affluence tomorrow requires sacrifice today.”
12. Explain how, if at all, each of the following events affects the location of the production possibilities curve:a. Standardized examination scores of high school, university, and college students decline.b. The unemployment rate falls from 9 to 6 percent of the labour force.c. Defence spending
11. KEY QUESTION Referring again to question 6, suppose improvement occurs in the technology of producing rockets but not in the technology of producing automobiles. Draw the new production possibilities curve. Now assume that a technological advance occurs in producing automobiles but not in
10. KEY QUESTION Label point G inside the production possibilities curve you drew in question 6. What does it indicate? Label point H outside the curve. What does that point indicate? What must occur before the economy can attain the level of production shown by point H?
9. KEY QUESTION Specify and explain the shapes of the marginal-benefit and marginal-cost curves. How are these curves used to determine the optimal allocation of resources to a particular product? If current output is such that marginal cost exceeds marginal benefit, should more or fewer
Would you drive there and buy it? How does your decision benefit you? What is the opportunity cost of your decision? Now suppose you arrive at a store expecting to pay$6000 for an item but discover that it costs$5950 at the other store. Do you make the same decision as before? Perhaps
8. Suppose you arrive at a store expecting to pay $100 for an item but learn that a store two kilometres away is charging $50 for it.
In 1999 nearly 80 percent of Canadians with post-secondary education held jobs, whereas only about 40 percent of those who did not finish high school held jobs. How might this difference relate to opportunity costs?
7. What is the opportunity cost of attending college or university?
c. What must the economy do to operate at some point on the production possibilities curve?
b. If the economy is at point C, what is the cost of one more automobile? One more rocket?
6. KEY QUESTION Here is a production possibilities table for war goods and civilian goods:PRODUCTION ALTERNATIVES Type of production A B C D E Automobiles 0 2 4 68 Rockets 30 27 21 12 0a. Show these data graphically. Upon what specific assumptions is this production possibilities curve based?
5. KEY QUESTION Why is the problem of unemployment part of the subject matter of economics? Distinguish between productive efficiency and allocative efficiency. Give an illustration of achieving productive, but not allocative, efficiency.
4. What are economic resources? What are the major functions of the entrepreneur?
3. Critically analyze: “Wants aren’t insatiable. I can prove it. I get all the coffee I want to drink every morning at breakfast.” Explain:“Goods and services are scarce because resources are scarce.” Analyze: “It is the nature of all economic problems that absolute solutions are denied
2. Comment on the following statement from a newspaper article: “Our junior high school serves a splendid hot meal for $1 without costing the taxpayers anything, thanks in part to a government subsidy.”
1. Explain this statement: “If resources were unlimited and were freely available, there would be no subject called economics.”
2. Which of the following would be determined in the product market?a. a manager’s salaryb. the price of equipment used in a bottling plantc. the price of 80 hectares of farmlandd. the price of a new pair of athletic shoes
1. The resource market is where:a. households sell products and businesses buy products.b. businesses sell resources and households sell products.c. households sell resources and businesses buy resources (or the services of resources).d. businesses sell resources and households buy resources (or
4. All points on this production possibilities curve necessarily represent:a. allocative efficiency.b. less than full use of resources.c. unattainable levels of output.d. productive efficiency.
1. Production possibilities curve ABCDE is bowed out from the origin(concave to the origin) because:a. the marginal benefit of pizzas declines as more pizzas are consumed.b. the curve gets steeper as we move from E to A.c. it reflects the law of increasing opportunity costs.d. resources are scarce.

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