An article in the New Yorker states, “the main burden of trade-related job losses and wage declines has fallen on middle- and lower-income Americans. But … the very people who suffer most from free trade are often, paradoxically, among its biggest beneficiaries.” Explain how it is possible that middle- and lower-income Americans are both the biggest losers and at the same time the biggest winners from free trade. Source: James Surowiecki, “The Free-Trade Paradox,” New Yorker, May 26, 2008.
> University towns with major football programs experience an increase in demand for hotel rooms during home football weekends. Hotels respond to the increase in demand by increasing the prices they charge for rooms. Periodically, there is an outcry agains
> If the demand for orange juice is inelastic, will an increase in the price of orange juice increase or decrease the revenue that orange juice sellers receive?
> In the court case over whether anyone could use Conan Doyle’s character Sherlock Holmes without paying a fee, Judge Posner argued that the first Sherlock Holmes story was written in 1887, so allowing the author’s descendants to continue to claim a copyri
> According to a Congressional Budget Office report, the burden of a carbon tax would fall disproportionately on low-income households. a. What does the report mean by the “burden” of the tax? b. Why would the burden of a carbon tax fall disproportionately
> A student makes the following argument: “A price floor reduces the amount of a product that consumers buy because it keeps the price above the competitive market equilibrium. A price ceiling, though, increases the amount of a product that consumers buy b
> The British historian Thomas Macaulay once remarked that copyrights are “a tax on readers.” In what senses are copyrights a tax on readers? If copyrights are a tax on readers, why do governments enact them?
> Explain whether you agree with the following statement: Providing health care is obviously a public good. If one person becomes ill and doesn’t receive treatment, that person may infect many other people. If many people become ill, then the output of the
> An economist discussing the Obama administration’s Clean Power Plan argued, “The best solutions would involve replacing EPA-centered regulation with better-suited tools, including a carbon tax.” a. Why might implementing a carbon tax be a better approach
> According to a news story, after taxi drivers in Paris protested against Uber, the government passed a new regulation “requiring a minimum 15-minute wait between the time a car is booked and the passenger is picked up.” Why would taxi drivers believe the
> According to an article on Phillyburbs.com, some farmers in rural Pennsylvania are causing a “stink” by using pig manure for fertilizer. The farmers purchase the pig manure, which is an organic fertilizer, from a nearby pork processing plant and spread i
> Why would it be economically efficient to require a natural monopoly to charge a price equal to marginal cost? Why do most regulatory agencies require natural monopolies to charge a price equal to average cost instead?
> An article in the Los Angeles Times describes a healthy 23-year-old woman who has decided not to buy health insurance as “exactly the type of person insurance plans, states and the federal government are counting on to make health reform work.” Why are h
> What is a Pigovian tax? How large should a Pigovian tax be to achieve efficiency?
> The graph on the next page illustrates the situation in the dry cleaning market, assuming that the marginal social cost of the pollution increases as the quantity of items cleaned per week increases. The graph includes two demand curves: one for a smalle
> Use the information on the market for apartments in Bay City in the table to answer the following questions: a. In the absence of rent control, what is the equilibrium rent, and what is the equilibrium quantity of apartments rented? Draw a demand and s
> In a report on property rights around the world, Peruvian economist Hernando De Soto noted the increasing evidence of a strong relationship between “economic successes and countries that include protective policy measures over property rights.” Why would
> Instagram is a smartphone app that Facebook now owns. According to an article that discusses the climate for software firms in the San Francisco Bay Area, the success of Instagram “is a tale about the culture of the Bay Area tech scene, driven by a tight
> An article in the Economist argues that the real problem with health insurance is: The healthy people who decide not to buy insurance out of rational self-interest, and who turn out to be right. By not buying insurance, those (largely young) healthy peo
> Former Massachusetts Governor Deval Patrick once proposed that criminals would have to pay a “safety fee” to the government. The size of the fee would be based on the seriousness of the crime (that is, the fee would be larger for more serious crimes). a.
> Briefly explain whether you agree with the following statement: “If there is a shortage of a good, it must be scarce, but there is not a shortage of every scarce good.”
> Some economists have been puzzled that although entrepreneurs take on the risk of losing money by starting new businesses, on average their incomes are lower than those of people with similar characteristics who go to work at large firms. Economist Willi
> President Barack Obama described a trade agreement reached with the government of Colombia as a “‘win–win’ for both our countries.” Is everyone in both countries likely to win from the agreement? Briefly explain. Source: Kent Klein, “Obama: Free Trade A
> What is the difference between a horizontal merger and a vertical merger? Which type of merger is more likely to increase the market power of a newly merged firm?
> Why do some consumers tend to favor price controls while others tend to oppose them?
> An opinion column in the Wall Street Journal observes about “defensive medicine” that “many physicians maintain that fear of lawsuits significantly affects the practice of medicine, and that reform of the malpractice system is crucial for containing cost
> The Delaware River Joint Toll Bridge Commission increased the toll from $0.50 to $1.00 on the bridges on Route 22 and Interstate 78 from New Jersey to Pennsylvania. Use the information in the following table to answer the questions. (Assume that besides
> Companies that produce toilet paper bleach the paper to make it white. Some paper plants discharge the bleach into rivers and lakes, causing substantial environmental damage. Suppose the following graph illustrates the situation in the toilet paper marke
> The competitive equilibrium rent in the city of Lowell is currently $1,000 per month. The government decides to enact rent control and establish a price ceiling of $750 per month for apartments. Briefly explain whether rent control is likely to make each
> To receive a medical license in the United States, a doctor must complete a residency program at a hospital. Hospitals are not free to expand their residency programs in a particular medical specialty without approval from a residency review committee (R
> Suppose the graph on the next page shows Tanzania’s production possibilities frontier for cashew nuts and mangoes. Assume that the output per hour of work is 8 bushels of cashew nuts or 2 bushels of mangoes and that Tanzania has 1,000 h
> A news story notes that some features of the U.S. health care system contribute “to the high cost of medical care by encouraging hospitals and doctors to perform tests and procedures regardless of the value to a patient.” What features is the article ref
> Amazon allows authors who self-publish their e-books to set the prices they charge. One author was quoted as saying: “I am able to drop prices and, by sheer volume of sales, increase my income.” Was the demand for her books price elastic or price inelast
> The fumes from dry cleaners can contribute to air pollution. Suppose the following graph illustrates the situation in the dry cleaning market. a. Explain how a government can use a tax on dry cleaning to bring about the efficient level of production. W
> If San Francisco were to repeal its rent control law, would the prices for short-term rentals in the city listed on Airbnb and other peer-to-peer sites be likely to rise or fall? Briefly explain.
> What do economists mean by market equilibrium?
> What is the purpose of the antitrust laws? Who is in charge of enforcing these laws?
> Writing in the New York Times, Michael Lewis argued that “a market economy is premised on a system of incentives designed to encourage an ignoble human trait: selfinterest.” Do you agree that self-interest is an “ignoble human trait”? What incentives doe
> Suppose you were building an economic model to forecast the number of physicians and physician’s assistants likely to be needed in 2020. Should your model take into account the growth of the home medical device industry? Briefly explain.
> Hal Varian, chief economist at Google, has made the following two observations about international trade. a. Trade allows a country “to produce more with less.” b. “There is little doubt who wins [from trade] in the long run: consumers.” Briefly explain
> While teaching the concepts of asymmetric information, a professor asked his students for examples of adverse selection or moral hazard in marriage. One of the students, who happened to be married, replied: “Your spouse doesn’t bring you flowers anymore!
> According to an article in the New York Times, some small publishers have argued that Amazon has been increasing the prices it charges for their books on its Web site. Amazon was increasing the prices by reducing the discount it offered consumers on the
> Solved Problem 5.3 contains the statement “Of course, the government actually collects the tax from sellers rather than from consumers, but we get the same result whether the government imposes a tax on the buyers of a good or on the sellers.” Demonstrat
> A Wall Street Journal article noted that a study by the U.S. Congressional Budget Office “estimated raising the minimum wage to $10.10 an hour would reduce U.S. employment by 500,000 but lift 900,000 Americans out of poverty.” Why might raising the minim
> Evaluate the following argument: “Adam Smith’s analysis of the market system is based on a fundamental flaw: He assumes that people are motivated by self-interest. But this isn’t true. I’m not selfish, and most people I know aren’t selfish.”
> An article in the Wall Street Journal discussing Sanadu’s prospects for successfully selling its home medical devices observes, “Another challenge will be getting doctors on board with the idea of patients bringing them information from home.” What econo
> What is a circular-flow diagram, and what does it demonstrate?
> Suppose that Uber decides that its strategy of using surge pricing during times of high demand is causing the company to receive too much bad publicity. It decides that it will maintain its regular prices even during periods of high demand. a. If you are
> Thomas Kinnaman, an economist at Bucknell University, has analyzed the pricing of garbage collection: Setting the appropriate fee for garbage collection can be tricky when there are both fixed and marginal costs of garbage collection…. A curbside price s
> What is a monopsony?
> Jay Ritter, a professor at the University of Florida, was quoted in the Wall Street Journal as saying about Facebook: “It’s entirely possible for a company to have solid growth prospects while its stock is overvalued.” a. What does it mean to say that a
> Briefly explain whether you agree with the following statement: “The reluctance of healthy young adults to buy health insurance creates a moral hazard problem for insurance companies.”
> According to a company news release, during the third quarter of 2014, the Coca-Cola Company sold 1 percent less soda in North America while earning more revenue. a. Did Coke increase or decrease its soda prices during this period? Briefly explain. b. Ba
> Eric Finklestein, an economist at Duke University, has argued that the external costs from being obese are larger than the external costs from smoking because “the mortality effect for obesity is much smaller than it is for smoking and the costs start mu
> According to a New York Times article, the Venezuelan government “imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to find.” a. Wh
> A news story from 2015 about the oil market stated, “The global glut of crude that has hit [oil] prices is starting to shrink.” a. What does the article mean by a “glut”? What does a glut imply about the quantity demanded of oil relative to the quantity
> What is the difference between productive efficiency and allocative efficiency?
> According to the U.S. Energy Information Administration, the average price of heating oil fell to under $3.00 a gallon during the winter of 2014–2015, the lowest price in more than four years. About 6.2 million U.S. households in the Northeast rely on th
> Briefly explain whether you agree with the following statement: “The total value of the shares of Microsoft stock traded on the NASDAQ last week was $250 million, so the firm actually received more revenue from stock sales than from selling software.”
> An article in the Economist discussing the struggle among airline passengers over reclining seats offered the following observation: “Given that airlines are unlikely to increase the [distance between] their seats any time soon, better that all planes co
> The Food and Drug Administration (FDA) is part of the federal government’s Department of Health and Human Services. Among its other functions, the FDA evaluates the safety and effectiveness of drugs and medical devices. FDA approval had to be granted bef
> What is cost-plus pricing? Is using cost-plus pricing consistent with a firm maximizing profit? How does the elasticity of demand affect the percentage price markup that firms use?
> In an article in the Wall Street Journal, Edward Lazear of Stanford University was quoted as saying, “There is some good news… . Most of the inequality reflects an increase in returns to ‘investing in skills.’” Why would it be good news if it were true t
> What account titles would you suggest for the chart of accounts for a city touring company owned by W. Sanders? List the accounts by account category and include an appropriate account number for each.
> Label each of the following accounts as asset (A), liability (L), owner’s equity (OE), revenue (R), or expense (E). a. Supplies b. Professional Fees c. Prepaid Insurance d. M. Jones, Drawing e. Accounts Payable f. Service Income g. M. Jones, Capital h. O
> During February of this year, H. Rose established Rose Shoe Hospital. The following asset, liability, and owner’s equity accounts are included in the chart of accounts: Cash Shop Equipment Store Equipment Office Equipment Accounts Payable H. Rose, Capita
> During December of this year, G. Elden established Ginny’s Gym. The following asset, liability, and owner’s equity accounts are included in the chart of accounts: Cash Exercise Equipment Store Equipment Office Equipment Accounts Payable G. Elden, Capital
> Dr. L. M. Patton is an ophthalmologist. As of December 31, Dr. Patton owned the following property that related to his professional practice, Patton Eye Clinic: Cash, $2,995 Professional Equipment, $63,000 Office Equipment, $8,450 On the same date, he ow
> Determine the following amounts: a. The amount of the liabilities of a business that has $60,800 in assets and in which the owner has $34,500 equity. b. The equity of the owner of a tour bus that cost $57,000 and on which is owed $21,800 on an installmen
> Complete the following equations: a. Assets of $40,000 = Liabilities of $17,200 + Owner’s Equity of $_____ b. Assets of $_____ – Liabilities of $18,000 = Owner’s Equity of $22,000 c. Assets of $27,000 – Owner’s Equity of $15,000 = Liabilities of $_____
> Assume that the number of units transferred out of a department is unknown. What is the formula to solve for units transferred out using the basic cost flow model?
> Refer to the data in Exercise 14-25. The division manager learns that he has the option to lease the asset on a year-to-year lease for $148,000 per year. All depreciation and other tax benefits would accrue to the lessor. What is the divisional ROI if th
> TL Division of Giant Bank has assets of $14.4 billion. During the past year, the division had profits of $1.8 billion. Giant Bank has a cost of capital of 6 percent. Ignore taxes. Required a. Compute the divisional ROI. b. Compute the divisional RI.
> Describe a business transaction that will do the following: a. Increase an asset and increase a liability b. Decrease an asset and decrease a liability c. Decrease an asset and increase an expense d. Increase an asset and increase owner’s equity e. Incre
> Describe the transactions that are recorded in the following equation: Assets = Liabilities + Owner's Equity J. Onyx, + Receivable + Equipment = Payable + Capital J. Onyx, - Drawing + Revenue Accounts Асcounts Cash Еxpenses (а) +25,000 +4,500 +29,50
> Define chart of accounts and identify the categories of accounts.
> When an owner withdraws cash or goods from the business, why is this considered an increase to the Drawing account and not an increase to the Wages Expense account?
> What is the effect on the fundamental accounting equation if supplies are purchased on account? How will the fundamental accounting equation change if supplies are purchased with cash? Explain how this purchase will or will not change the owner’s equity.
> Determine the effect of the following errors on a company’s total revenue, total expenses, and net income. Indicate the effect by writing O for Overstated (too much), U for Understated (too little), or NA for Not Affected. Total To
> The bookkeeper for Nevado Company has prepared the following trial balance: The bookkeeper has asked for your help. In examining the company’s journal and ledger, you discover the following errors. Use this information to construct a
> Arrange the following steps in the posting process in correct order: a. The amount of the balance of the ledger account is recorded in the Debit Balance or Credit Balance column. b. The amount of the transaction is recorded in the Debit or Credit column
> The following February journal entries all involved cash. Post the amounts to the ledger account for Cash, Account No. 111. Assume that all transactions appeared on page 1 of the general journal. Increases to Cash-Debits Decreases to Cash-Credits 2
> Montoya Tutoring Service completed the following transactions. Journalize the transactions in general journal form, including brief explanations. Mar. 1 Bought equipment for $5,798 from Teaching Suppliers, paying $3,798 in cash and placing the balance on
> Describe two ways to increase owner’s equity and two ways to decrease owner’s equity.
> Decor Services completed the following transactions. Journalize the transactions in general journal form, including brief explanations. Oct. 7 Received cash on account from Randy Hill, a customer, Inv. No. 312, $970. 15 Paid on account to Miller Ideas, a
> Journalize correcting entries for each of the following errors and include a brief explanation. a. A cash purchase of office equipment for $680 was journalized as a cash purchase of store equipment for $680. (Use the ruling method; assume that the entry
> In the following two-column journal, the capital letters represent where parts of a journal entry appear. Write the numbers 1 through 8 on a sheet of paper. After each number, match the capital letter where these items appear with the number of the item.
> Arrange the following steps in the posting process in correct order: a. Write the ledger account number in the Post. Ref. column of the journal. b. Write the amount of the transaction. c. Write the date of the transaction. d. Write the page number of the
> What does cross-referencing mean in the posting process?
> Why is a source document important? List some examples of source documents.
> List by account classification the order of the accounts in the general ledger.
> What is the purpose of providing a ledger account for each account?
> How does the journal differ from the ledger?
> Why is the journal called a book of original entry?
> How do Accounts Payable and Accounts Receivable differ?
> The financial statements for Baker Custom Catering fr the month of April are presented below. Required Solve for the missing information. Baker Custom Catering Income Statement (a) Revenue: Professional Fees $12,000 Expenses: Salary Expense $ 800 R
> The financial statements for Daniels’ Custom Haircuts for the month of October follow. Required Solve for the missing information. Daniels' Custom Haircuts Income Statement (a) Revenue: Professional Fees $25,000 Expenses: Salary E
> Would the following errors cause the trial balance to have equal or unequal totals? As a result of the errors, which accounts are overstated (by how much) or understated (by how much)? a. A purchase of office equipment for $380 was recorded as a debit to
> The following errors were made in journalizing transactions. In each case, calculate the amount of the error and indicate whether the debit or the credit column of the trial balance will be understated or overstated. Amount of Difference Debit or Cr
> During the first month of operations, Landish Modeling Agency recorded transactions in T account form. Foot and balance the accounts. Then prepare a trial balance, an income statement, a statement of owner’s equity, and a balance sheet
> Speedy Sewing Services, owned by T. Nguyen, hired a new bookkeeper who is not entirely familiar with the process of preparing a trial balance. All of the accounts have normal balances. Find the errors and prepare a corrected trial balance for December 31
