An article in the Wall Street Journal on the use of driverless trucks at Rio Tinto’s Australian mines observes, “The new equipment cut many driving jobs… . But the reductions will be partly offset by new types of work. The company now needs more network technicians … a hybrid of electrical and mechanical engineering that hardly existed five years ago.” Is it likely that total employment at Rio Tinto’s mines will have increased or decreased as a result of its use of robots? Are the average wages Rio Tinto pays likely to be higher or lower? Are the wages of the truck drivers who were replaced by robots likely to end up higher or lower in their new jobs? Briefly explain your answers. Source: Timothy Aeppel, “What Clever Robots Mean for Jobs,” Wall Street Journal, February 24, 2015.
> Does the fact that monopolistically competitive markets are not allocatively or productively efficient mean that there is a significant loss in economic well-being to society in these markets? In your answer, be sure to define what you mean by “economic
> Why is a monopolistically competitive firm not allocatively efficient?
> Why is a monopolistically competitive firm not productively efficient? In what sense does a monopolistically competitive firm have excess capacity?
> What are the differences between the long-run equilibrium of a perfectly competitive firm and the long-run equilibrium of a monopolistically competitive firm?
> An article in the Wall Street Journal reported that Western European brewers such as Heineken, Carlsberg, and Anheuser-Busch InBev are increasing their production and marketing of nonalcoholic beer. The article quotes a Carlsberg executive for new-produc
> Suppose that the government sets a price floor for milk that is above the competitive equilibrium price and that the government does not purchase any surplus milk. a. Draw a graph showing this situation. Be sure your graph shows the competitive equilibri
> What does an increasing marginal opportunity cost mean? What are the implications of this idea for the shape of the production possibilities frontier?
> Michael Korda was, for many years, editor-in-chief at the Simon & Schuster book publishing company. He has written about the many books that have become bestsellers by promising to give readers financial advice that will make them wealthy, by, for exampl
> In 2015, analysts at the Goldman Sachs investment bank were optimistic that Buffalo Wild Wings would increase its profit over the next few years. They cited two factors as favorable to the chain’s profitability: The chain’s “greater pricing power allows
> An article in the New York Times describes Chipotle as “the restaurant chain that has come to symbolize the tastes of the millennial generation” and lists the sources of Chipotle’s success as including the restaurant’s allowing “their customers to tailor
> The following table shows the hourly output per worker in two industries in Chile and Argentina. a. Explain which country has an absolute advantage in the production of hats and which country has an absolute advantage in the production of beer. b. Expl
> Competition from Amazon and other online booksellers has resulted in some brick-and-mortar bookstores suffering losses. According to an article in the New York Times, over the past 15 years, the number of bookstores in the borough of Manhattan in New Yor
> Consider an organization that exists to help the poor. The members of the organization are discussing alternative methods of aiding the poor, when a proponent of one particular method asserts, “If even one poor person is helped with this method, then all
> A student remarks: If firms in a monopolistically competitive industry are earning an economic profit, new firms will enter the industry. Eventually, a representative firm will find that its demand curve has shifted to the left, until it is just tangent
> Suppose Angelica opens a small store near campus, selling beef brisket sandwiches. Use the graph below, which shows the demand and cost for Angelica’s beef brisket sandwiches, to answer the following questions. a. If Angelica wants to
> Chipotle Mexican Grill restaurants have been a very popular “fast-casual” dining option—with better food choices than fast-food restaurants like McDonald’s and faster service and lower prices than traditional restaurants. Chipotle’s profit per restaurant
> Through the 2014 season, Nick Saban’s record as the head football coach at the University of Alabama was 86 wins and 17 losses. His $7 million salary is the highest received by any college football coach. One sports writer described Saban as the most und
> Is it possible for a monopolistically competitive firm to continue to earn an economic profit as new firms enter the market?
> What is scarcity? Why is scarcity central to the study of economics?
> What is the difference between zero accounting profit and zero economic profit?
> Why does the entry of new firms cause the demand curve of an existing firm in a monopolistically competitive market to shift to the left and to become more elastic?
> What effect does the entry of new firms have on the economic profit of existing firms?
> Use the following graph for Elijah’s Burgers to answer the questions. a. If Elijah produces at the profit-maximizing level of output, how much is his total revenue? How much is his total cost? Briefly explain your calculations. b. How
> Paolo currently has $100,000 invested in bonds that earn him 10 percent interest per year. He wants to open a pizza restaurant and is considering either selling the bonds and using the $100,000 to start his restaurant or borrowing $100,000 from a bank, w
> In 1916, Ford Motor Company produced 500,000 Model T Fords, at a price of $440 each. The company made a profit of $60 million that year. Henry Ford told a newspaper reporter that he intended to reduce the price of the Model T to $360, and he expected to
> William Germano previously served as the vice president and publishing director at the Routledge publishing company. He once gave the following description of how a publisher might deal with an unexpected increase in the cost of publishing a book: It’s o
> In 2012, then Barnes & Noble CEO William Lynch predicted that although the firm was suffering losses in selling its Nook tablet, “the Nook business will scale in fiscal 2013, reducing losses from last year.” a. What did Lynch mean that “the Nook busines
> Managers of Major League Baseball (MLB) teams have the responsibility of running their teams and making many decisions that can affect whether these teams win or lose. Yet in 2014 only 2 of the 30 MLB managers received a salary higher than the average sa
> According to an article in the New York Times, in 2014 Chipotle Mexican Grill experienced an increase in the cost of the beef used in its beef burritos. Draw a graph showing the effect of this increase on the price of Chipotle’s burritos and on the quant
> Suppose a firm producing table lamps has the following costs: Ben and Jerry are managers at the company, and they have this discussion: Ben: We should produce 4,000 lamps per month because that will minimize our average cost. Jerry: But shouldnâ&
> Is it possible for technological change to be negative? If so, give an example.
> Maria manages a bakery that specializes in ciabatta bread, and she has the following information on the bakery’s demand and costs: a. To maximize profit, how many loaves of ciabatta bread should Maria sell per hour, what price should
> If Daniel sells 350 Big Macs at a price of $3.25 each, and his average cost of producing 350 Big Macs is $3.00 each, what is his profit?
> Stephen runs a pet salon. He is currently grooming 125 dogs per week. If instead of grooming 125 dogs, he grooms 126 dogs, he will add $68.50 to his costs and $60.00 to his revenues. What will be the effect on his profit of grooming 126 dogs instead of 1
> Why doesn’t a monopolistically competitive firm produce where P = MC, as a perfectly competitive firm does?
> Sally runs a vegetable stand. The following table shows two points on the demand curve for the heirloom tomatoes she sells: a. What would Sally’s marginal revenue be from lowering the price of tomatoes from $5.00 to $3.25? b. Calculat
> Suppose you see a 2013 Volkswagen Jetta GLS Turbo Sedan advertised in the campus newspaper for $9,000. If you knew the car was reliable, you would be willing to pay $10,000 for it. If you knew the car was unreliable, you would be willing to pay $5,000 fo
> Leonard Fleck, a philosophy professor at Michigan State University, has written: When it comes to health care in America, we have limited resources for unlimited health care needs. We want everything contemporary medical technology can offer that will
> Joe Morgan is a sportscaster and former baseball player. After he stated that he thought the salaries of Major League Baseball players were justif ied, a baseball fan wrote the following to Rob Neyer, a sports columnist: Mr. Neyer, What are your feelings
> In the graph on the following page, consider the marginal revenue of the eleventh unit sold. When the firm cuts the price from $5.00 to $4.75 to sell the eleventh unit, what area in the graph denotes the output effect, and what is the dollar value of the
> Is it possible for marginal revenue to be negative for a firm selling in a perfectly competitive market? Is it possible for marginal revenue to be negative for a firm selling in a monopolistically competitive market? Briefly explain.
> There are many wheat farms in the United States, and there are also more than 1,800 Chipotle restaurants. Why, then, does a Chipotle restaurant face a downward-sloping demand curve, while a wheat farmer faces a horizontal demand curve?
> What is the definition of marginal utility? What is the law of diminishing marginal utility? Why is marginal utility more useful than total utility in consumer decision making?
> In his autobiography, T. Boone Pickens, a geologist, entrepreneur, and oil company executive, wrote: It’s unusual to find a large corporation that’s efficient…. When you get an inside look, it’s easy to see how inefficient big business really is. Most co
> Complete the following table, which shows the demand for snow skiing lessons per day: Average Revenue Marginal Revenue Snow Skiing Lessons per Price Day (Q) TR AR (P) (TR = Px Q) Total Revenue ATR MR = AQ = %3D $80.00 75.00 70.00 65.00 4 60.00 55.00
> Purell announced that the new chemical formula for its hand sanitizer was so effective that “just 1 squirt of Purell Advanced Hand Sanitizer kills as many germs as two squirts of any other national brand.” If Purell succeeds in convincing consumers that
> There are about 400 wineries in California’s Napa Valley. Describe the reaction of consumers if the owner of one of the wineries—Jerry’s Wine Emporium—raises the price of his wine by $5.00 per bottle, assuming the following: a. The industry is perfectly
> With a downward-sloping demand curve, why is average revenue equal to price? Why is marginal revenue less than price?
> Why does a local McDonald’s face a downward-sloping demand curve for its Quarter Pounders? If McDonald’s raises the price of Quarter Pounders above the prices other fast-food restaurants charge for hamburgers, won’t it lose all its customers?
> What are the most important differences between perfectly competitive markets and monopolistically competitive markets? Give two examples of products sold in perfectly competitive markets and two examples of products sold in monopolistically competitive
> Economists’ estimates of price elasticities can differ somewhat, depending on the time period and on the markets in which the price and quantity data used in the estimates were gathered. An article in the New York Times contained the following statement
> Why are consumers so powerful in a market system?
> Suppose that at the beginning of a year, the price of corn is $3.80 per bushel and 14 billion bushels are harvested. There are approximately 400,000 corn farmers, so the average output per farmer is about 350,000 bushels. The following graphs assume that
> Describe the five steps economists follow to arrive at a useful economic model.
> According to an article in the Wall Street Journal, as a result of U.S. consumers increasing their demand for beef, in 2015 world beef prices increased. For example, according to the article, “Australian beef prices are up 40% this year, while New Zealan
> Suppose that each of the following is true: (1) The laptop computer industry is perfectly competitive and that the firms that assemble laptops do not also make the displays, or screens; (2) the laptop display industry is also perfectly competitive; and
> In recent years, the United States has experienced large increases in oil production due in large part to a new technology, hydraulic fracturing (“fracking”). Fracking involves injecting a mixture of water, sand, and chemicals into rock formations at hig
> Suppose that currently the market for gluten-free spaghetti is in long-run equilibrium at a price of $3.50 per box and a quantity of 4 million boxes sold per year. If the demand for gluten-free spaghetti permanently increases, which of the following comb
> According to a news story, the Boston-based game company Proletariat launched its first mobile game, World Zombination, after having “spent nearly 18 months and $2 million to develop it.” In the first three months following the game’s release in February
> What happens in a market if the current price is above the equilibrium price? What happens if the current price is below the equilibrium price?
> A student in a principle of economics course makes the following remark: The economic model of perfectly competitive markets is fine in theory but not very realistic. It predicts that in the long run, a firm in a perfectly competitive market will earn no
> According to an article in the Wall Street Journal, rapid growth in consumer demand for natural and organic food helped make the Whole Foods supermarket chain very profitable. But according to that same story, “its accomplishment drew broad new competiti
> In panel (b) of Figure 12.9 on page 426, Sacha Gillette reduces her output from 40,000 to 25,000 dozen eggs when the price falls to $1.75. At this price and this output level, she is operating at a loss. Why doesn’t she just continue ch
> A column in the New York Times notes that many economists “support Pigovian taxes because, in some sense, we are already paying them.” In what sense might consumers in a market be “paying” a Pigovian tax even if the government hasn’t imposed an explicit
> The following questions are about long-run equilibrium in the market for cage-free eggs. a. As described in the chapter opener, was the market for cage-free eggs in 2015 in long run equilibrium? Briefly explain. b. What would we expect to happen to the p
> Are imports and exports now a smaller or larger fraction of GDP than they were 40 years ago?
> A study analyzed a pharmaceutical firm’s costs to develop a prescription drug and receive government approval. An article in the Wall Street Journal describing the study noted that included in the firm’s costs was “the return that could be gained if the
> Suppose an assistant professor of economics is earning a salary of $75,000 per year. One day she quits her job, sells $100,000 worth of bonds that had been earning 3 percent per year, and uses the funds to open a bookstore. At the end of the year, she sh
> Discuss the shape of the long-run supply curve in a perfectly competitive market. Suppose that a perfectly competitive market is initially at long-run equilibrium and then there is a permanent decrease in the demand for the product. Draw a graph showing
> Would a firm earning zero economic profit continue to produce, even in the long run?
> According to an article in the Wall Street Journal, in May 2015, Moody’s Investors Service cut its rating on McDonald’s bonds from A3 to A2. a. What is Moody’s top bond rating? Under what circumstances Moody’s would, or the other bond rating agencies, be
> Suppose that Henry Ford had continued to experience economies of scale, no matter how large an automobile factory he built. Discuss what the implications of this would have been for the automobile industry.
> When are firms likely to enter an industry? When are they likely to exit an industry?
> According to an article in the Wall Street Journal, in 2007 the insurance company AXA Equitable signed a long-term lease on 2 million square feet of office space in a skyscraper on Sixth Avenue in Manhattan in New York City. In 2013, AXA decided that it
> Suppose you decide to open a copy store. You rent store space (signing a one-year lease to do so), and you take out a loan at a local bank and use the money to purchase 10 copiers. Six months later, a large chain opens a copy store two blocks away from y
> According to an article in the New York Times, interest payments on bank loans make up more than half the costs of a typical solar panel manufacturer. The owner of a firm that imports solar panels made this observation about solar panel manufacturers: “S
> The following graph shows the market for apples. Assume that the government has imposed a price floor of $10 per crate. a. How many crates of apples will be sold to consumers after the price floor has been imposed? b. Will there be a shortage or a surp
> How do health insurance companies deal with asymmetric information problems?
> You have six hours to study for two exams tomorrow. The following table shows the relationship between hours of study and test scores: a. Use the rule for determining optimal purchases to decide how many hours you should study each subject. Treat each
> New Balance manufactures shoes in the United States, so you might expect that the firm would benefit from a tariff on shoes. Yet New Balance did not actively oppose the Obama administration’s attempts to eliminate the shoe tariff imposed on countries tha
> An article discussing the reasons that the Connecticut state legislature passed a general incorporation law observes that prior to the passage of the law, investors were afraid that large businesses “were not a safe bet for their money.” Briefly explain
> Writing on the Baseball Prospectus Web site, Dan Fox argued: “What a player is really worth depends a great deal on the teams that are interested in signing him.” Do you agree? Shouldn’t a baseball player with a particular level of ability be worth the s
> How can we measure the opportunity cost of leisure? What are the substitution effect and the income effect resulting from a wage change? Why is the supply curve of labor usually upward sloping?
> You own a hot dog stand that you set up outside the student union every day at lunchtime. Currently, you are selling hot dogs for a price of $3 each, and you sell 30 hot dogs a day. You are considering cutting the price to $2. The graph on the next page
> Yellowstone National Park is in bear country. The National Park Service, at its Yellowstone Web site, states the following about camping and hiking in bear country: Do not leave packs containing food unattended, even for a few minutes. Allowing a bear to
> 7-Eleven, Inc., operates more than 20,000 convenience stores worldwide. Edward Moneypenny, 7-Eleven’s chief f inancial off icer, was asked to name the biggest risk the company faced. He replied, “I would say that the biggest risk that 7-Eleven faces, lik
> Consider the information given in the table on four consumers in the market for orange juice. a. If the price of a bottle of orange juice is $0.75, what is the total consumer surplus received by these consumers? Illustrate your answer with a graph. b.
> An article in the Wall Street Journal titled “Auto Sales Zoom, Helped by Low Prices at the Pump” includes a graphic showing increasing car and truck sales in one panel and decreasing gasoline prices in the other panel. Does the graphic assume that autos
> An economist remarks that “the cost of consuming a book is the combination of the retail price and the opportunity cost of the time spent reading.” Isn’t the cost of consuming a book just the price you pay to buy the book? Why include the cost of the tim
> What do economists mean by scarcity? Can you think of anything that is not scarce according to the economic definition?
> The federal government subsidizes some loans to college students. Typically, the more students who participate in these programs and the more they borrow, the higher the cost to the federal government. In 2011, President Barack Obama convinced Congress t
> A sportswriter writing about the Cleveland Indians baseball team made the following observation: “If the Indians suddenly slashed all tickets to $10, would their attendance actually increase? Not all that much and revenue would drop dramatically.” What i
> If consumers should allocate their income so that the last dollar spent on every product gives them the same amount of additional utility, how should they decide the amount of their income to save?
> Is the fraction of U.S. workers in labor unions larger or smaller than in other countries?
> Why might a smaller country, such as the Netherlands, be more likely to import and export larger fractions of its GDP than would a larger country, such as China or the United States?
> Suppose that shortly after graduating from college, you decide to start your own business. Will you be likely to organize the business as a sole proprietorship, a partnership, or a corporation? Explain your reasoning.
> Between 1830 and 1890, the height of the average adult male in the United States declined by about 2 inches at the same time that average incomes more than tripled. Did the standard of living in the United States increase during this period? What insight
> Suppose that the following table gives data on the price of rye and the number of bushels of rye sold in 2015 and 2016: a. Calculate the change in the quantity of rye demanded divided by the change in the price of rye. Measure the quantity of rye in bu
> A neighbor’s barking dog can be both a positive externality and a negative externality. Under what circumstances would a dog’s bark be a positive externality? Under what circumstances would a dog’s bark be a negative externality?
> According to an article in the Wall Street Journal: In early January last year, after a disappointing Christmas season and amid worries about competition from discount retailers, Zale Corp. decided to shake things up: The selfproclaimed jeweler to Middle
