Questions and Answers of Principles Of Microeconomics

Three golf courses in the same resort town hire groundskeepers with the same skills. Ocean Oaks pays its workers $12 per hour, Luxury Links pays $11 per hour, and Pacific Paradise pays $14 per hour.
Explain why resources are allocated efficiently among firms and why output is distributed efficiently among households in perfectly competitive markets.
Under what condition would society benefit from more of a good being produced, and under what condition would society benefit from less of a good being produced?
Do you agree or disagree with each of the following statements? Explain your answer.a. Nutritional food is a public good and should be produced by the public sector because private markets will fail
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
After suffering from three floods in 5 years, Clarice decided to have a new drainage ditch installed at the front of her property. This new ditch not only keeps water from flooding her home, but also
Briefly explain whether each of the following represents a public good.a. The Krewe of Endymion parade as it travels down Canal Street in New Orleans during Mardi Grasb. A therapeutic stone massage
Explain the difference between a positive externality and a negative externality. Can both types of externalities result in market failure? Why or why not?
What kind of benchmarks do you think were used in the pricing of the Kindle when it was first brought to market?
China has relatively weak intellectual property protection. What types of multinational company activity would you expect to see in China?
Many countries follow the local/foreigner price discrimination strategy. Why do you think it is unusual in the United States?
Do you agree with the airline that it is not the intention of the Basic Economy fare to encourage some passengers to pay a bit more?
Suppose Vincent has the only franchise for a 7-Eleven convenience store in Oxford, Mississippi, a city with a population of roughly 21,000. Does the fact that Vincent has the only 7-Eleven in town
Do you agree or disagree with each of the following statements? Explain your reasoning.a. For a monopoly, price is equal to marginal revenue because a monopoly has the power to control
Explain why the marginal revenue curve facing a competitive firm differs from the marginal revenue curve facing a monopolist.
Assume that the craft beer industry in Hawaii in 2017 was competitively structured and in long-run competitive equilibrium; firms were earning a normal rate of return. In 2018, a young entrepreneur
In 2017, the United States filed 59,624 international patent applications, more than any other country. Do an Internet search and find a list for the most recent year of the 10 countries that filed
When the 2001 Toyota Prius was introduced in the United States, it was the first mass-produced hybrid gas/electric car in the U.S. market. At the time of its introduction, almost 2,000 cars had been
Ed Sheeran is a singer-songwriter whose pop album Divide was Nielsen Music’s most popular album of 2017 in the United States as ranked by total equivalent album units. The path to success for pop
Explain why a monopoly faces no supply curve.
One of the most popular tourist destinations in the United States is Las Vegas, famous for its casinos, hotels, shopping, dining, and live entertainment. Unlike many other destinations in the United
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
In the year before a new edition of a text is published, many college bookstores will not buy the older edition. Given this fact, what do you think happens to the gap between enrollments and new plus
For urban children in India, work opportunities are few. What would you expect to see happen to the urban-rural gap in test scores in high rainfall periods?
Why does a recent graduate’s first job matter for his or her long-term earnings, even if he or she only stays at that job for three years?
What do you think accounts for where components of the iPod and Barbie are made?
Would you expect college seniors who choose their own roommates to have more or less similar grades than college freshmen who are assigned as roommates? Why or why not?
Would you expect college seniors who choose their own roommates to have more or less similar grades than college freshmen who are assigned as roommates? Why or why not?
Every Friday night, Gustavo pays $41.99 to eat nothing but crab legs at the all-you-can-eat seafood buffet at the M Resort in Las Vegas. On average, he consumes 28 crab legs each Friday. What is the
The financial costs of obtaining a college education include tuition and fees, textbooks, and for many students the interest they will pay on student loans. There are also opportunity costs
Many people think that soda consumption also leads to increased obesity. Many schools have banned the sale of soda in vending machines. Use the idea of opportunity costs to explain why some people
At the end of the 2017 NFL regular season, the Louisiana Lottery allowed customers to enter their non-winning New Orleans Saints scratch-off lottery game tickets in a final secondchance drawing, with
If you were to construct a demand curve for a required text in a course, where would that demand curve intersect the horizontal axis?
Economists predict that my interest in purchasing a convertible also depends on how much I think other people like convertibles. How is this prediction related to the durability of cars?
Illustrate the following with supply and demand curves: a. In November 2017, Leonardo DaVinci’s oil painting Salvator Mundi was sold at Christie’s Auction House in New York for a
The rent for 2-bedroom apartments in Las Vegas rose from an average of $954 in June 2017 to $1,038 in June 2018. Demand for 2-bedroom apartments in Las Vegas was rising during this period as well.
In May 2018, the U.S. Energy Information Administration projected that the average retail price for regular-grade gasoline would be $2.79 per gallon for the remainder of the year. Do some research on
Provide an example of a purchasing situation in which you think your own short and long-run elasticities differ a lot and a second in which they are similar. What drives those differences?
What features of the EU do you think increase the labor elasticity?
The demand for hamburgers is shown in the following figures, with hamburgers priced in dollars in Figure a and pennies in Figure b. Calculate the slope of each demand curve and use your answers to
Fill in the missing amounts in the following table: Demand for the Apple Watch Demand for roses on Valentine's Day Demand for electronic cigarettes % Change in Price +50% -10% % Change in Quantity
Using the midpoint formula, calculate elasticity for each of the following changes in demand. Demand for: a. Cashews b. Portable hard drive (4 terabytes) c. 6-gauge copper wire P $7.50 per pound $80
Taxicab fares in most cities are regulated. Several years ago, taxicab drivers in Boston obtained permission to raise their fares 10 percent, and they anticipated that revenues would increase by
Recent studies have found the short-run price elasticity of demand for gasoline at the pump to be -0.26. Suppose that international hostilities lead to a sudden cutoff of crude oil supplies. As a
Using the midpoint formula and the following graph, calculate the price elasticity of demand when the price changes from $3 to $8 and when the price changes from $8 to $14. Prices (S) 14 0 3 11
Use the following total revenue graph to identify which sections of the total revenue curve reflect elastic demand, inelastic demand, and unitary elastic demand. Explain your answers. Total revenue
For each of the following products, explain whether demand is likely to be elastic or inelastic.a. Tap waterb. Orange juicec. Big Macsd. Insuline. Samsung LED televisionsf. Automobile tires.
Prior to 2005, it seemed like house prices always rose and never fell. This has also been the case from mid-2012 through mid2018. When the demand for housing increases, prices in the housing market
Economics is best defined as the study ofa. how society manages its scarce resources.b. how to run a business most profitably.c. how to predict inflation, unemployment, and stock prices.d. how the
Your opportunity cost of going to a movie isa. the price of the ticket.b. the price of the ticket plus the cost of any soda and popcorn you buy at the theater.c. the total cash expenditure needed to
A marginal change is one thata. is not important for public policy.b. incrementally alters an existing plan.c. makes an outcome inefficient.d. does not influence incentives.
Because people respond to incentives,a. policymakers can alter outcomes by changing punishments or rewards.b. policies can have unintended consequences.c. society faces a trade-off between efficiency
International trade benefits a nation whena. its revenue from selling abroad exceeds its outlays from buying abroad.b. its trading partners experience reduced economic well-being.c. all nations are
Adam Smith’s “invisible hand” refers toa. the subtle and often hidden methods that businesses use to profit at consumers’ expense.b. the ability of free markets to reach desirable outcomes,
Governments may intervene in a market economy in order toa. protect property rights.b. correct a market failure due to externalities.c. achieve a more equal distribution of income.d. All of the above.
The main reason that some nations have higher average living standards than others is thata. the richer nations have exploited the poorer ones.b. the central banks of some nations have created more
If a nation has high and persistent inflation, the most likely explanation isa. the central bank creating excessive amounts of money.b. unions bargaining for excessively high wages.c. the government
If a central bank uses the tools of monetary policy to reduce the demand for goods and services, the likely result is _________ inflation and _________ unemployment in the short run.a. lower; lowerb.
What are the two main causes of market failure? Give an example of each.
An economic model isa. a mechanical machine that replicates the functioning of the economy.b. a fully detailed, realistic description of the economy.c. a simplified representation of some aspect of
All of the following topics fall within the study of microeconomics EXCEPTa. the impact of cigarette taxes on the smoking behavior of teenagers.b. the role of Microsoft’s market power in the
Which of the following is a positive, rather than a normative, statement?a. Law X will reduce national income.b. Law X is a good piece of legislation.c. Congress ought to pass law X.d. The president
The following parts of government regularly rely on the advice of economists:a. Department of Treasury.b. Office of Management and Budget.c. Department of Justice.d. All of the above.
Economists may disagree because they have differenta. hunches about the validity of alternative theories.b. judgments about the size of key parameters.c. political philosophies about the goals of
Most economists believe that tariffs area. a good way to promote domestic economic growth.b. a poor way to raise general economic well-being.c. an often necessary response to foreign competition.d.
What are the two subfields of economics? Explain what each subfield studies.
Before Frank and Ruby engage in trade, each of thema. consumes at a point inside his or her production possibilities frontier.b. consumes at a point on his or her production possibilities frontier.c.
After Frank and Ruby engage in trade, each of thema. consumes at a point inside his or her production possibilities frontier.b. consumes at a point on his or her production possibilities frontier.c.
In an hour, Mateo can wash 2 cars or mow 1 lawn, and Sophia can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing?a. Mateo in
Between Mateo and Sophia, who has the comparative advantage in car washing, and who has the comparative advantage in lawn mowing?a. Mateo in washing, Sophia in mowingb. Sophia in washing, Mateo in
When Mateo and Sophia produce efficiently and make a mutually beneficial trade based on comparative advantage,a. Mateo mows more and Sophia washes more.b. Mateo washes more and Sophia mows more.c.
A nation will typically import those goods in whicha. the nation has an absolute advantage.b. the nation has a comparative advantage.c. other nations have an absolute advantage.d. other nations have
Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor and
Kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. Her roommate takes twice as long to do each task. How should the roommates allocate the work?a. Kayla should do more of the
The best definition of a market isa. a store that offers a variety of goods and services.b. a place where buyers meet and an auctioneer calls out prices.c. a group of buyers and sellers of a good or
In a perfectly competitive market,a. every seller tries to distinguish itself by offering a better product than its rivals.b. every seller takes the price of its product as set by market
The market for which product best fits the definition of a perfectly competitive market?a. eggsb. tap waterc. moviesd. computer operating systems
A change in which of the following will NOT shift the demand curve for hamburgers?a. the price of hot dogsb. the price of hamburgersc. the price of hamburger bunsd. the income of hamburger consumers
Which of the following will shift the demand curve for pizza to the right?a. an increase in the price of hamburgers, a substitute for pizzab. an increase in the price of root beer, a complement to
If pasta is an inferior good, then the demand curve shifts to the _________ when _________ rises.a. right; the price of pastab. right; consumers’ incomec. left; the price of pastad. left;
Which of the following moves the pizza market up along a given supply curve?a. an increase in the price of pizzab. an increase in the price of root beer, a complement to pizzac. a decrease in the
Which of the following shifts the supply curve for pizza to the right?a. an increase in the price of pizzab. an increase in the price of root beer, a complement to pizzac. a decrease in the price of
Movie tickets and film streaming services are substitutes. If the price of film streaming increases, what happens in the market for movie tickets?a. The supply curve shifts to the left.b. The supply
The discovery of a large new reserve of crude oil will shift the _________ curve for gasoline, leading to a _________ equilibrium price.a. supply; higherb. supply; lowerc. demand; higherd. demand;
If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?a. Prices and quantities both rise.b. Prices and quantities both fall.c. Prices rise and
Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold?a. an increase in the price of peanut butter, a complement
An increase in _________ will cause a movement along a given supply curve, which is called a change in _________.a. supply; demandb. supply; quantity demandedc. demand; supplyd. demand; quantity
A good tends to have a small price elasticity of demand ifa. the good is a necessity.b. there are many close substitutes.c. the market is narrowly defined.d. the long-run response is being measured.
An increase in a good’s price reduces the total amount consumers spend on the good if the _________ elasticity of demand is _________ than one.a. income; lessb. income; greaterc. price; lessd.
A linear, downward-sloping demand curve isa. inelastic.b. unit elastic.c. elastic.d. inelastic at some points, and elastic at others.
The citizens of Lilliput spend a higher fraction of their income on food than do the citizens of Brobdingnag. The reason could be thata. Lilliput has lower food prices, and the price elasticity of
The price of a good rises from $16 to $24, and the quantity supplied rises from 90 to 110 units.Calculated with the midpoint method, the price elasticity of supply isa. 1/5.b. 1/2.c. 2.d. 5.
If the price elasticity of supply is zero, the supply curve isa. upward sloping.b. horizontal.c. vertical.d. fairly flat at low quantities but steeper at larger quantities.
The ability of firms to enter and exit a market over time means that, in the long run,a. the demand curve is more elastic.b. the demand curve is less elastic.c. the supply curve is more elastic.d.
An increase in the supply of grain will reduce the total revenue grain producers receive ifa. the supply curve is inelastic.b. the supply curve is elastic.c. the demand curve is inelastic.d. the
In competitive markets, farmers adopt new technologies that will eventually reduce their revenue becausea. each farmer is a price taker.b. farmers are short-sighted.c. regulation requires the use of
Because the demand curve for oil is _________ elastic in the long run, OPEC’s reduction in the supply of oil had a _________ impact on the price in the long run than it did in the short run.a.
In a market with a binding price ceiling, increasing the ceiling price willa. increase the surplus.b. increase the shortage.c. decrease the surplus.d. decrease the shortage.
Rent control causes larger shortages in the _________ run because over that time horizon, supply and demand are _________ elastic.a. long; moreb. long; lessc. short; mored. short; less
An increase in the minimum wage reduces the total amount paid to the affected workers if the price elasticity of _________ is _________ than one.a. supply; greaterb. supply; lessc. demand; greaterd.

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