Questions and Answers of Principles Of Microeconomics

Many colleges offer pass/fail classes. Use the ideas of adverse selection and moral hazard to explain why teachers in these classes find that pass/fail students rarely score at the top of the class.
Signals are also used in social settings. In a new place, what signals do you look for to find people who share your interests?
Find a product advertisement in a magazine, in a newspaper, or on a Web site, for which the missing information tells you something important about this product. Explain what information is missing,
Do you think companies that issue health insurance should be allowed to inquire about family medical history and the results of genetic testing before deciding to issue insurance policies? Why or why
Valentino wants to purchase a classic motorcycle and sees a 1974 Triumph Bonneville T140 listed on Cycletrader.com for $5,950. He is willing to pay $7,500 if the motorcycle is reliable, but only
One way insurance companies reduce adverse selection problems is by offering group medical coverage to large firms and requiring all employees to participate in the coverage. Explain how this reduces
Included in the Tax Cuts and Jobs Act of 2017 was the elimination of the individual mandate penalty for not having health insurance. Starting in 2019, individuals who do not have health insurance
Mona Stangley owns an organic egg farm just outside of Gilbert, Texas. At present, she pays her workers an hourly wage to inspect and package her organic eggs in egg cartons. She is considering
The five busiest airports in the United States are in Atlanta, Chicago, Los Angeles, Dallas-Ft. Worth, and New York City. At these airports there are more than 450 food outlets, with each airport
Simon likes to watch movies and his Internet service provider offers streaming movies on a pay-per-view basis for $3 each. The provider also offers a service for unlimited streaming of movies for $15
Most casino game dealers in Las Vegas are paid minimum wage, and therefore rely on tips for a large portion of their income. Within the past few years, a majority of Las Vegas casinos have instituted
In academic disciplines where few women earn a Ph.D., there are considerably fewer women professors. How does this affect the gender imbalance in these fields?
Executive compensation is much higher in the United States than elsewhere in the world. Can you think of any causes for this?
Identify which of the three basic sources of income is represented by each of the following:a. Sally receives $240 per week in unemployment compensation.b. Damon receives $100 in dividend payments
By using the data in the following table, create two graphs. The first graph should plot the Lorenz curves for left-handed people and right-handed people. The second graph should plot the Lorenz
The tiny Kingdom of Arugula has five residents, and the following table lists the annual income of each of these people. Fill in the table and draw a Lorenz curve showing the distribution of income
Some employers offer tuition reimbursement for their employees who wish to further their education. Do a Web search to find a list of companies that contribute to tuition for their employees. Do you
Economists call education “an investment in human capital.” Define capital. In what sense is education capital? Investments are undertaken to earn a rate of return. Describe the return to an
Following is a list of establishment categories and average weekly earnings for nonsupervisory employees in a recent year. Using the concepts of “human capital” and “compensating
New PhDs in economics entering the job market find that academic jobs (jobs teaching at colleges and universities) pay about 30 percent less than nonacademic jobs such as working at a bank or a
Should welfare benefits be higher in California and New York than in Mississippi? Defend your answer.
Executive compensation remains a much-debated topic in the United States. Over the past four decades, compensation for CEOs of U.S. corporations has risen dramatically, both in real dollars and in
Poverty among the elderly has been sharply reduced in the last quarter-century. How has this reduction been accomplished?
Explain how a state government transfer program such as unemployment compensation may actually result in a higher unemployment rate than would occur if the program did not exist.
The 2018 federal poverty guidelines used to determine eligibility for Medicaid and the Children’s Health Insurance Program (CHIP) set a poverty line of $25,100 for a family of four in the 48
One of the issues that is debated in virtually every election is whether to raise the federal minimum wage, which stood at $7.25 per hour in 2018. Suppose that you are married with a child, working a
Suppose the prevailing equilibrium wage in a labor market is $24.00 per hour. What would be the impact of a minimum wage law that sets the minimum wage in this market at $32.00 per hour? What if the
Wealth distribution is not only calculated for households throughout the United States, but also by state. According to a 2010 study by Insidermonkey.com, Washington, D.C. ranked highest among all 50
The following table contains data compiled by the Organisation for Economic Co-operation and Development (OECD). The data reflects the average annual percentage change in real household income by
If you are considering increasing your work hours, would you be more interested in your marginal tax rate or your average tax rate?
The tax incidence of the Corporate Profits Tax determines whether the proposed tax cut was likely to reduce or increase income inequality. Why is this?
Suppose that in 2019, Congress passed and the president signed a new simple income tax with a flat rate of 20 percent on all income greater than $35,000 (no tax on the first $35,000). Assume that the
In the United States, 44 states have passed legislation to legalize lotteries, and the states use the lottery proceeds to raise revenue. If you view the price of a lottery ticket as a tax, do you
Each year around April 15, discussions heat up regarding the tax system in the United States. A number of people are in favor of replacing the current federal income tax with either a flat tax or a
A citizens’ group in the Pacific Northwest has the following statement in its charter: “Our goal is to ensure that large, powerful corporations pay their fair share of taxes in this country.”
For each of the following statements, do you agree or disagree? Why?a. Economic theory predicts unequivocally that a payroll tax reduction will increase the supply of labor.b. Corporate income
In calculating total faculty compensation, the administration of Doughnut University includes payroll taxes (Social Security taxes) paid as a benefit to faculty. After all, those tax payments are
With the passage of the Tax Cuts and Jobs Act of 2017, the corporate tax rate was reduced from 35 percent to 21 percent beginning in 2018. Also in 2018, the Trump administration started what has been
Taxes on necessities that have low demand elasticities impose large excess burdens because consumers can’t avoid buying them. Do you agree or disagree with that statement? Explain.
You are given the following information on a proposed “cigar tax” in the Republic of Panatela. Panatela collects no other specific excise taxes, and all other government revenues come from a
Assume that at a price of $12 per pound, the quantity of cashews demanded is 50 pounds. Now assume that the government imposes an excise tax on cashews of $3 per pound. Draw a graph showing demand
For each of the following statements, do you agree or disagree? Why? a. Taxing for externalities causes distortions that always result in excess burdens.b. It is possible for a distorting tax to
Suppose a special tax was introduced that used the value of one’s automobile as the tax base. Each person would pay taxes equal to 10 percent of the value of his or her car. Would the tax be
Annie, Blake, and Cornelia are triplets who are trying to decide on a name for their new bakery. They have narrowed their decision down to three choices, and the preferences of each are listed in the
The town of Mt. Pilot has a three-member town council that is considering new infrastructure projects for the town: building a new park, buying a new fire truck, and repaving Main Street. The town
What do you expect to see happen to average prices after trade opens up?
If in fact the Chinese government was allocating the rights to export under a quota to the most productive firms, what would you expect to see happen once the quota is lifted?
The following table shows imports and exports of goods during the first half of 2018 for the United States: What, if anything, can you conclude about the comparative advantage that the United States
As corruption falls in a country, cost of production often falls. Why?
What do you think happens to the overall marriage rate as a result of the embankment?
Use a supply-and-demand graph to show the impact of cell phones in India on prices in the fishing market.
Some of the same researchers whose work is described also did another study looking at the outcomes of households that moved versus those that did not in the general population. To control for
Can you think of another medical designation for which a regression discontinuity technique might be useful?
Design another experiment using difference-indifferences to understand the effect of a policy change at your college.
Smartphones all rely on technology covered by a number of different patents, owned by many different firms. How does this complicate the competitive picture?
Suppose you believed that the size of the fine levied in price-fixing cases was an important deterrent to pricefixing. What market factors would you want to look at to figure out what fine to charge?
How would you expect the possibility of differentiating your product to change competition between oligopolists?
You are shopping for a new microwave. How would reducing price transparency soften competition between sellers of microwaves?
Why do you think there are so few firms in this business in the first place?
What is a production function?
What is a long-run average cost curve?
What is cost-plus regulation?
What is command-and-control environmental regulation?
What is the free rider problem?
What is a labor union?
What is an insurance premium?
What is a bond?
What is a capital gain?
What is a mutual fund?
What is an index fund?
What is intra-industry trade?
An employer decides to transfer one of her executives to Europe. “Don’t worry,” she says, “I will increase your salary so that you can afford exactly the same things in your new home city as
Consider apartment sharing services, like Airbnb. Would you expect the supply elasticity to be larger for people offering a room in their own apartment or in a second apartment that they own? That
Sketch the following budget constraints: a. b. C. d. e. f. g. Px $ 100 200 50 40 3 0.125 0.75 Py $25 125 400 16 2 0.75 0.125 Income $ 5,000.00 5,000.00 2,000.00 800.00 12.00 3.00 3.00
On January 1, Professor Smith made a resolution to lose some weight and save some money. He decided that he would strictly budget $100 for lunches each month. For lunch, he has only two choices: the
Assume that Diego has $400 per month to divide between playing paintball and playing golf. Assume that playing paintball costs $40 and playing golf costs $20. Suppose Diego plays paintball six times
Katarina and Ivanna are sisters and plant lovers and have saved a total of $640 to spend on plants for their new apartment in Miami. They have decided to use this money on orchids and ferns. Their
The following table gives a hypothetical total utility schedule for the Cookie Monster (CM): Calculate the CM’s marginal utility schedule. Draw a graph of total and marginal utility. If cookies
At the beginning of 2012, a U.S. Department of Transportation regulation requiring airlines to include all mandatory taxes and fees in published airfares went into effect. Prior to this “full-fare
For this problem, assume that Kendrick has $144 to spend on cigars and brandy each month and that both goods must be purchased whole (no fractional units). Cigars cost $6 each, and brandy costs $30
Thomas has allocated $48 per month for entertainment expenses, which he uses either to go bowling or to play billiards. One night of bowling costs Thomas $8, and one night of billiards costs Thomas
Adrian has $21 to spend on energy drinks and protein bars and wants to maximize his utility on his purchase. Based on the data in the table, how many energy drinks and protein bars should Adrian
The table shows Darlene’s marginal utility numbers for ice cream sundaes and milkshakes. Darlene is trying to decide which item to purchase first, a sundae or a milkshake, knowing that she wants to
Remy is a New Orleans native who has lived for the past seven years in Boston. For each of the last seven years, he has made trips back to New Orleans for Mardi Gras, Jazz Fest, and Halloween. During
The average cost of living is approximately the same in the following four cities: Dallas, TX, Toledo, OH, Gainesville, FL, and Salt Lake City, UT. Use the information you have learned about marginal
For most normal goods, the income effect and the substitution effect work in the same direction; so when the price of a good falls, both the income and substitution effects lead to a higher quantity
For each of the following events, consider how you might react. What things might you consume more or less of? Would you work more or less? Would you increase or decrease your saving? Are your
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act of 2017, which cut the corporate tax rate and individual income tax rates beginning in 2018 and increased the standard deduction
Explain why in product markets the substitution and income effects work in the same direction for normal goods, but in the labor market, the income and substitution effects work in opposite
As Uber continues to become a more convenient, and in many cases, less costly alternative to traditional taxi service for many of its customers, the income and substitution effects have an impact on
When gasoline prices rise, accident rates fall. Provide two reasons this might be true.
Consider a firm that uses capital and labor as inputs and sells 20,000 units of output per year at the going market price of $15. Also assume that total labor costs to the firm are $250,000 annually.
After working for 25 years as personal fitness trainers while raising their kids, three sisters cashed in a total of $120,000 in bonds and decided to open a small, neighborhood fitness center. They
After working for 25 years as personal fitness trainers while raising their kids, three sisters cashed in a total of $120,000 in bonds and decided to open a small, neighborhood fitness center. They
A firm earning zero economic profits is probably suffering losses from the standpoint of general accounting principles. Do you agree or disagree with this argument? Explain why.
Ben Cartwright runs the Wild West Wax Museum in Carson City, Nevada. The museum has been in business for 40 years and is a major tourist attraction. The total value of the museum’s capital stock is
An article on zdnet.com reported on the findings of engineers at IHS Markit in an investigation of the cost of the components used to produce the A1865 version of the iPhone X with 64GB of internal
Which of the following are short-run decisions and which are long-run decisions?a. Keurig Green Mountain acquires soft drink company Dr. Pepper Snapple Group.b. The city of Santa Barbara,
Which of the following are short-run decisions and which are long-run decisions?a. Keurig Green Mountain acquires soft drink company Dr. Pepper Snapple Group.b. The city of Santa Barbara,
The following table gives total output or total product as a function of labor units used. a. Define diminishing returns.b. Does the table indicate a situation of diminishing returns? Explain your

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