Question: Alberto Chong of the University of Ottawa

> A student makes the following argument: Tariffs on imports of foreign goods into the United States will cause the foreign companies to add the amount of the tariff to the prices they charge in the United States for those goods. Instead of putting a tarif

> Improvements in technology usually result in lower costs of production or new and improved consumer goods and services. Assume that an improvement in medical technology results in an increase in life expectancy for people 65 years of age and older. How w

> Rank the following four goods from lowest income elasticity of demand to highest income elasticity of demand. Briefly explain your ranking. a. Bread b. Pepsi c. Mercedes-Benz automobiles d. Laptop computers

> Nancy Folbre, an economist at the University of Massachusetts, Amherst, argued, “We must take responsibility for governing the commons—not just the quaint old fashioned village green, but things that cannot easily be privatized—[such as] clean air.” Do y

> Use the following graph of the market for cigarettes to answer the questions. a. According to the graph, how much is the government tax on cigarettes? b. What price do producers receive after paying the tax? c. How much tax revenue does the government

> Suppose that oil prices sharply increase, while more cities pass laws banning the use of plastic bags at stores. Use a demand and supply graph to illustrate your answers to the following questions. a. Can we use this information to be certain whether the

> Why do economists use models? How are economic data used to test models?

> Two health care analysts argue that in the United States, “we have arrived at a moment where we are making little headway in defeating various kinds of diseases. Instead, our main achievements today consist of devising ways to marginally extend the lives

> Richard Thaler, an economist at the University of Chicago, is the person who first used the term endowment effect to describe placing a higher value on something already owned than would be placed on the object if not currently owned. According to an art

> When Congress was considering a bill to impose quotas on imports of textiles, shoes, and other products, the late Milton Friedman, a Nobel Prize–winning economist, made the following comment: “The consumer will be forced to spend several extra dollars to

> Look again at the section “The Department of Justice and FTC Merger Guidelines,” which begins on page 518. Evaluate the following situations. a. A market initially has 20 firms, each with a 5 percent market share. Of the firms, 4 propose to merge, leavin

> Briefly explain the relationship between property rights and the existence of externalities.

> An article on forbes.com about corporate fraud stated that “misleading accounting and disclosure practices weaken the integrity of capital markets.” The article noted that using incentive contracts for top managers can create a “‘perverse’ incentive to m

> Figure 7.7 on page 236 shows that the Congressional Budget Office forecasts that only about 10 percent of future increases in spending on Medicare as a percentage of GDP will be due to the aging of the population. What factors explain the other 90 percen

> According to an article on the Boston Globe’s Web site, during the last three months of 2014, gasoline prices dropped 33 percent at the same time as ridership on mass transit, such as subways and trains, increased by 1 percent. According to a spokesperso

> As readers of Herman Melville’s 1851 novel Moby Dick know, at one time oil made from whale blubber was an important source of energy that was widely used by households and f irms in oil lamps. Other sources of energy supplanted whale oil in the second ha

> The following graph shows the effect of a tax imposed on soft drinks. Use this graph to answer the questions. a. Which areas in the graph represent the excess burden (deadweight loss) of the tax? b. Which areas represent the revenues collected by the

> According to an article in the Wall Street Journal, the demand for orange juice is declining in the United States “as newer entrants in the beverage aisle, including more exotic fruit juices, such as pomegranate, energy drinks and ready-to-drink coffee,

> In a competitive labor market, imposing a minimum wage should reduce the equilibrium level of employment. Will this result still hold if the labor market is a monopsony? Briefly explain.

> Marvin visits his aunt and uncle who live in Milwaukee. The Milwaukee Bucks basketball team is scheduled to play a home game against the Golden State Warriors during Marvin’s visit. An online broker has a ticket for sale in Section 212 of the arena where

> In which of the following situations are social influences on consumer decision making likely to be greater: choosing a restaurant for dinner or choosing which brand of toothpaste to buy? Briefly explain.

> Suppose Jill Johnson operates her pizza restaurant in a building she owns in the center of the city. Similar buildings in the neighborhood rent for $4,000 per month. Jill is considering selling her building and renting space in the suburbs for $3,000 per

> The United States produces beef and also imports beef from other countries. a. Draw a graph showing the demand and supply of beef in the United States. Assume that the United States can import as much as it wants at the world price of beef without causin

> On a shopping trip, Melanie decided to buy a light blue coat made from woven fabric. A tag on the coat stated that the price was $79.95. When she brought the coat to the store’s sales clerk, Melanie was told that the coat was on sale, and she would pay 2

> Michael Dell founded PCs Limited in 1984. The firm had an initial public offering (IPO) in 1988, under the name Dell Computer Corporation, which enabled the company to raise money it used for expansion. In 2013, Michael Dell and a private equity firm bou

> What arguments do economists and policymakers who believe that market-based reforms are the key to improving the health care system make in criticizing the ACA?

> Draw a graph like Figure 15.6 on page 518 that shows a merger lowering costs. On your graph, show producer surplus and consumer surplus before a merger and consumer surplus and producer surplus after a merger.

> In a famous essay on the market system, the economist Leonard Read discussed how a pencil sold by the U.S. firm Eberhard Faber Pencil Company (now owned by Paper Mate) was made. He noted that logging companies in California and Oregon grew the cedar wood

> The Making the Connection feature explains that there are both positive and normative elements to the debate over whether medical schools should charge tuition and whether hospitals should continue to pay residents who pursue primary care but not residen

> Over time, the gap between the wages of workers with college degrees and the wages of workers without college degrees has been increasing. Shouldn’t this gap have increased the incentive for workers to earn college degrees, thereby increasing the supply

> An article in the New York Times notes that classic rock star Tom Petty likes to perform in smaller venues that don’t have as many seats as large venues such as Madison Square Garden in New York. According to the article, Petty insists that tickets to hi

> If you visited Disneyland between 1955 and 1982, most rides would have required a ticket—in addition to the ticket necessary to enter the park. Explain why this pricing strategy earned Disney a lower profit than the current strategy of requiring visitors

> Is free trade likely to benefit a large, populous country more than a small country with fewer people? Briefly explain.

> Twitter was founded in 2006, but it wasn’t until 2013 that Twitter filed its first annual report with the Securities and Exchange Commission (SEC). Briefly explain why.

> Under the Social Security retirement system, the federal government collects a tax on most people’s wage income and makes payments to retired workers above a certain age who are covered by the system. (The age to receive full Social Security retirement b

> What is a black market? Under what circumstances do black markets arise?

> Briefly explain whether you agree with Manager 2’s reasoning: Manager 1: “The only way we can increase the revenue we receive from selling our frozen pizzas is by cutting the price.” Manager 2: “Cutting the price of a product never increases the amount o

> Writing in the New York Times, Michael Lewis argued, “Good new technologies are a bit like good new roads: Their social benefits far exceed what any one person or company can get paid for creating them.” Does this observation justify the government subsi

> In Allentown, Pennsylvania, in the summer of 2014, the average price of a gallon of gasoline was $3.68—a 22-cent increase from the year before. Many consumers were upset by the increase. One consumer was quoted in a local newspaper as saying, “It’s crazy

> Suppose that your college decides to give away 1,000 tickets to the football game against your school’s biggest rival. The athletic department elects to distribute the tickets by giving them away to the first 1,000 students who show up at the department’

> If the labor supply curve shifts to the left and the labor demand curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.

> If a market is in equilibrium, is it necessarily true that all buyers and sellers are satisfied with the market price? Briefly explain.

> Nobel Prize–winning economist Kenneth Arrow of Stanford University once wrote that the argument that the outcomes in a market system “may be very different from, and even opposed to, intentions is surely the most important intellectual contribution that

> A study analyzed the costs to a pharmaceutical firm of developing a prescription drug and receiving government approval. An article in the Wall Street Journal noted that included in the firm’s costs was “the return that could be gained if the money [used

> In early 2015, gasoline prices in many parts of the United States had fallen to below $2.00 per gallon, which a news story called “one of the swiftest declines on record.” Is gasoline likely to be an inferior good or a normal good for most people? Is you

> What effect would the following events be likely to have on the price of Google’s stock? a. A competitor launches a search engine that is better than Google’s. b. The corporate income tax is abolished. c. Google’s board of directors becomes dominated by

> Ira Goldman invented the Knee Defender, which keeps the airline seat in front of you from reclining. He argues that airlines have sold the space between two seats to the person occupying the seat but also to the person in the seat in front of that seat b

> What are the main variables that will cause the demand curve to shift? Give an example of each.

> Using the following graph, explain why economic surplus would be smaller if Q1 or Q3 were the quantity produced than if Q2 is the quantity produced. Price Supply Demand Q, Quantity

> Suppose that Bill owns an automobile collision repair shop. The following table shows how the quantity of cars Bill can repair per month depends on the number of workers he hires. Assume that he pays each worker $4,000 per month and his fixed cost is $6,

> If the labor demand curve shifts to the left and the labor supply curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.

> In studying the consumption of very poor families in China, Robert Jensen and Nolan Miller found that in both Hunan and Gansu, “Giffen behavior is most likely to be found among a range of households that are poor (but not too poor or too rich).” a. What

> While running for president, Barack Obama made the following statement: “Well, look, people don’t want a cheaper T-shirt if they’re losing a job in the process.” What did Obama mean by the phrase “losing a job in the process”? Using the economic concept

> Investors use the bond ratings from Moody’s, S&P, and Fitch to determine which bonds they will buy and the prices they are willing to pay for them. The rating services charge the firms and governments that issue bonds, rather than investors, for their se

> Warren Buffet is the chief executive officer of the investment firm Berkshire Hathaway and one of the wealthiest people in the world. In an editorial in the Wall Street Journal, Buffet argued that economic policies in the United States should be designed

> What is odd pricing?

> An article in the Economist notes that about 10 percent of people in the United States work in health care and that “these workers have the crucial job of making American health care more efficient, probably the country’s top domestic challenge.” a. How

> Suppose that a country has 20 million households. Ten million are poor households that each have labor market earnings of $20,000 per year, and 10 million are rich households that each have labor market earnings of $80,000 per year. If the government ena

> One of the trade-offs Tesla faces is between safety and the maximum range someone can drive an all-electric car before having to recharge it. For example, adding steel to a car makes it safer but also heavier, which results in fewer miles between recharg

> Why do economists often use a lower poverty threshold for low-income countries than for high-income countries such as the United States? Is there a difference between relative poverty and absolute poverty? Briefly explain.

> Evaluate the following statement: “Policies to redistribute income are desperately needed in the United States. Without such policies, the roughly 15 percent of the population that is currently poor has no hope of ever climbing above the poverty line.”

> Identify whether each of the following transactions will take place in the factor market or in the product market and whether households or firms are supplying the good or service or demanding the good or service. a. George buys a Tesla Model S. b. Tesla

> An article in the Wall Street Journal explained that the 10 wealthiest four-year colleges in the United States accounted for one-third of the total cash and investments held by all four-year colleges. The 40 wealthiest colleges accounted for two-thirds o

> An article in the New York Times about former Secretary of State Hillary Clinton’s campaign for president noted that she proposed to “increase taxes on the wealthiest Americans to combat a widening gap between rich and poor.” a. Currently, does the effec

> Mabel is an advocate for a “zero tolerance” policy regarding all illegal street drugs, including cocaine, marijuana, and heroin. Mabel has witnessed high crime and violence in her neighborhood and believes that only if police arrest and prosecute anyone

> Use the following Lorenz curve graph to answer the questions. a. Did the distribution of income become more equal in 2016 than it was in 2015, or did it become less equal? Briefly explain. b. If area A 5 2,150, area B 5 250, and area C = 2,600, calcula

> Las Vegas is one of the most popular tourist destinations in the United States. Several years ago, the Rio Hotel and Casino in Las Vegas dropped the price of its breakfast buffet to $5.99 for local residents, while keeping the regular price of $14.99 for

> A column in the New York Times observes that the “growing trend of ‘assortative mating’ is a major cause of income inequality.” a. What is assortative mating? b. How can assortative mating contribute to income inequality? c. If assortative mating is a ma

> In a column in the Washington Post, Robert J. Samuelson wrote: “As for what’s caused greater inequality, we’re also in the dark. The Reagan and Bush tax cuts are weak explanations, because gains have occurred in pretax incomes… . Up to a point, inequalit

> According to the FBI Bank Crime Statistics, there were nearly 4,000 bank robberies in the United States in 2014. The FBI claims that banks have made themselves easy targets by refusing to install clear acrylic partitions, called bandit barriers, that sep

> Describe the trend in global poverty rates.

> State whether each of the following events will result in a movement along the market supply curve of agricultural labor in the United States or whether it will cause the market supply curve of agricultural labor to shift. If the supply curve shifts, ind

> Describe the main factors economists believe cause inequality of income.

> What is a Lorenz curve? What is a Gini coefficient? If a country had a Gini coefficient of 0.48 in 1960 and 0.44 in 2016, would income inequality in the country have increased or decreased?

> Define poverty line and poverty rate. How has the poverty rate changed in the United States since 1960?

> Discuss the extent of income inequality in the United States. Has inequality in the distribution of income in the United States increased or decreased over time? Briefly explain.

> Suppose the government decides to tax sales of pizzas. Use the following graph to answer the questions. a. How much of a per unit tax did the government impose on pizzas? b. Before the tax, what price do consumers pay for pizza? How does the price cons

> A student argues: “Economic surplus is greatest at the level of output where the difference between marginal benefit and marginal cost is largest.” Do you agree? Briefly explain.

> Explain whether you agree with the following statement: “For a given demand curve, the excess burden of a tax will be greater when supply is less price elastic than when it is more price elastic.” Illustrate your answer with a demand and supply graph.

> During the nineteenth century, the U.S. Congress encouraged railroad companies to build transcontinental railways across the Great Plains by giving them land grants. At that time, the federal government owned most of the land on the Great Plains. The lan

> Use the following graph of the market for cigarettes to answer the questions. a. If the government imposes a 10-cent-per-pack tax on cigarettes, will the price consumers pay rise more if the demand curve is D1 or if the demand curve is D2? Briefly expl

> Which of the following are examples of a firm experiencing positive technological change? a. A fall in the wages it pays its mechanics leads United Airlines to lower its ticket prices. b. A training program makes a firm’s workers more productive. c. An e

> A columnist in the New York Times notes that the U.S. labor supply “in the next decade is expected to expand at less than half the pace of the 1960s, 1970s and 1980s.” What explains these changing growth rates in the U.S. labor supply? Source: Eduardo P

> Governments often have multiple objectives in imposing a tax. In each part of this question, use a demand and supply graph to illustrate your answer. a. If the government wants to minimize the excess burden from excise taxes, should these taxes be impose

> According to an article in the New York Times, when the French government imposed a new tax on sales of beer, it estimated that the retail price of beer would rise by the equivalent of 6 cents per half pint. A spokesman for the beer industry argued that

> Business historian John Steele Gordon noted in a Wall Street Journal column that the first federal corporate income tax was enacted in 1909, before passage of the Sixteenth Amendment made a federal income tax constitutional. According to Gordon, Congress

> According to an article in the New York Times, some New Yorkers were deciding to buy existing condominiums (condos) rather than newly constructed condos. One reason given was that “[some buyers] seek to avoid the 1.825 percent transfer tax that buyers mu

> According to the 2004 Economic Report of the President, “Another crucial principle [of tax incidence] is that only people can pay taxes. Businesses and other artificial entities cannot pay taxes.” Do you agree that businesses cannot pay taxes? Don’t busi

> According to the 2004 Economic Report of the President, “The actual incidence of a tax may have little to do with the legal specification of its incidence.” Briefly explain what this statement means and discuss whether you agree with it. Source: Executi

> Briefly discuss the effect of price elasticity of supply and demand on tax incidence.

> What does tax incidence mean?

> In late 2014, oil prices were falling, but some energy traders were convinced that oil prices would begin to rise within a few months. According to a news story, these expectations were causing some “traders to put oil in storage while they wait for pric

> The following data summarize the trade between Canada and the United States in 2013 and 2014. In each year, the value of Canada’s exports to the United States exceeded the value of U.S. exports to Canada. Can we conclude that foreign

> What is producer surplus? How does producer surplus change as the equilibrium price of a good rises or falls?

> Briefly explain which of the following statements represent positive analysis and which represent normative analysis. a. A 50-cent-per-pack tax on cigarettes will lead to a 12 percent reduction in smoking by teenagers. b. The federal government should sp

> Under Armour, Inc., was founded in 1996 by Kevin Plank, a 23-year-old former University of Maryland football player. The company specializes in manufacturing and selling athletic and casual apparel made from synthetic material that repels moisture. The c

> The following graph represents the situation of a perfectly competitive firm. Indicate on the graph the areas that represent the following: a. Total cost b. Total revenue c. Variable cost d. Profit or loss Briefly explain whether the firm will continue

> Matt Rafferty produces hiking boots in the perfectly competitive hiking boots market. a. Fill in the missing values in the following table. b. Suppose the equilibrium price in the hiking boots market is $100. How many pairs of boots should Matt produce

> Ed Scahill produces table lamps in the perfectly competitive desk lamp market. a. Fill in the missing values in the following table. b. Suppose the equilibrium price in the desk lamp market is $50. How many table lamps should Ed produce, and how much p

> Consider a firm in each of the following three situations. For each situation, carefully explain whether the firm will produce in the short run or shut down in the short run. Situation 1 Situation 2 Situation 3 Price $10 $10 $10 Quantity 1,000 1,000