Assume that candle wax is traded in a perfectly competitive market in which the demand curve captures buyers’ full willingness to pay while the supply curve reflects all production costs. For each of the following situations, indicate whether the total output should be increased, decreased, or kept the same in order to achieve allocative and productive efficiency. a. The maximum willingness to pay exceeds minimum acceptable price. b. Marginal Cost > Marginal Benefit. c. Total surplus is at a maximum. d. The current quantity produced exceeds the market equilibrium quantity.
> State (a) a positive economic statement of your choice, and then (b) a normative economic statement relating to your first statement.
> Use the distinction between the characteristics of private and public goods to determine whether the following should be produced through the market system or provided by government: a.French fries, b. Court systems c. Mail delivery d. Medical care. St
> A price ceiling will result in a shortage only if the ceiling price is ____________ the equilibrium price. a. less than b. equal to c. greater than d. louder than
> On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine a. The market demand schedule on the assumption that the good is a private good and b. The collective demand schedule
> Why are spillover costs and spillover benefits also called negative and positive externalities? Show graphically how a tax can correct for a negative externality and how a subsidy to producers can correct for a positive externality. How does a subsidy to
> Suppose both the demand for olives and the supply of olives decline by equal amounts over some time period. Use graphical analysis to show the effect on equilibrium price and quantity.
> Assume the demand for lumber suddenly rises because of a rapid growth of demand for new housing. Assume no change in supply. Why does the equilibrium price of lumber rise? What would happen if the price did not rise under the demand and supply circumstan
> Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is $55 per chip, then there will be ______________ of memory chips. a. A shortage. b. A surplus. c. An equilibrium quantity. d. None of the
> Decide whether each of the following descriptions most closely corresponds to being part of a command system, a market system, or a laissez-faire system. a. A woman who wants to start a flower shop finds she cannot do so unless the central government ha
> Use two market diagrams to explain how an increase in state subsidies to public colleges might affect tuition and enrollments in both public and private colleges.
> In 2001 an outbreak of foot-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact do you think this had on the supply of cattle hides, hide prices, the supply of leather goods, and the price of leather goods?
> Identify each of the following quotes as being an example of either: the coordination problem, the invisible hand, creative destruction, or the incentive problem. a. "If you compare a list of today’s most powerful and profitable companies with a similar
> What problem does barter entail? Indicate the economic significance of money as a medium of exchange. What is meant by the statement “We want money only to part with it”?
> Use the table below to answer the questions that follow: a. If this table reflects the supply of and demand for tickets to a particular World Cup soccer game, what is the stadium capacity? b. If the preset ticket price is $45, would we expect to see a s
> Suppose that when the interest rate on loans is 16 percent, businesses find it unprofitable to invest in machinery and equipment. However, when the interest rate is 14 percent, $5 billion worth of investment is profitable. At 12 percent interest, a total
> For each of the following situations involving marginal cost (MC) and marginal benefit (MB), indicate whether it would be best to produce more, fewer, or the current number of units. a. 3,000 units at which MC = $10 and MB = $13. b. 11 units at which MC
> Below is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts): a. Show these data graphically. Upon what specific assumptions is this production possibilities curve based? b. If the economy is at point C, what i
> What are the key elements of the scientific method and how does this method relate to economic principles and laws?
> Assume the following values for Figures 4.4a and 4.4b. Q1 = 20 bags. Q2 = 15 bags. Q3 = 27 bags. The market equilibrium price is $45 per bag. The price at a is $85 per bag. The price at c is $5 per bag. The price at f is $59 per bag. The price at g is $3
> What divergences arise between equilibrium output and efficient output when a. negative externalities and b. positive externalities are present? How might government correct these divergences? Cite an example (other than the text examples) of an exter
> Table 2.1 contains information on three techniques for producing $15 worth of bar soap. Assume “$15 worth of bar soap” means the selling price of soap is $3 per bar and all three techniques produce 5 bars of soap ($15
> Suppose that you are the economic advisor to a local government that has to deal with a politically embarrassing surplus that was caused by a price floor that the government recently imposed. Your first suggestion is to get rid of the price floor, but th
> Suppose the supply of apples sharply increases because of perfect weather conditions throughout the growing season. Assuming no change in demand, explain the effect on the equilibrium price and quantity of apples. Explain why quantity demanded increases
> Given the following two statements: A. In the corn market, demand often exceeds supply and supply sometimes exceeds demand. B. The price of corn rises and falls in response to changes in supply and demand. In which of these two statements are the terms
> What effect will each of the following have on the supply of auto tires? a. A technological advance in the methods of producing tires. b. A decline in the number of firms in the tire industry. c. An increase in the prices of rubber used in the product
> How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do price and quantity rise, fall, or remain unchanged, or are the answers indeterminate because they depend
> What are the determinants of supply? What happens to the supply curve when any of these determinants changes? Distinguish between a change in supply and a change in the quantity supplied, noting the cause(s) of each.
> Assume that a business firm finds that its profit is greatest when it produces $40 worth of product A. Suppose also that each of the three techniques shown in the table below will produce the desired output. Resource units required a. With the resource p
> Let’s put dollar amounts on the flows in the circular flow diagram of Figure 2.2. a. Suppose that businesses buy a total of $100 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $60
> What are the advantages of using capital in the production process? What is meant by the term “division of labor”? What are the advantages of specialization in the use of human and material resources? Explain why exchange is the necessary consequence of
> Construct a table from the data shown on the graph below. Which is the dependent variable and which the independent variable? Summarize the data in equation form. Graph for Problem 4 100 80 60 40 20 0 2 4 6. 8 10 Study time (hours) Exam score (points
> Suppose that you are given a $100 budget at work that can be spent only on two items: staplers and pens. If staplers cost $10 each and pens cost $2.50 each, then the opportunity cost of purchasing one stapler is: a. 10 pens. b. 5 pens. c. zero pens. d.
> Contrast how a market system and a command economy try to cope with economic scarcity.
> Suppose that you are on a desert island and possess exactly 20 coconuts. Your neighbor, Friday, is a fisherman, and he is willing to trade 2 fish for every 1 coconut that you are willing to give him. Another neighbor, Kwame, is also a fisherman, and he i
> What is meant by the term “utility” and how does the idea relate to purposeful behavior?
> Indicate whether each of the following relationships is usually a direct relationship or an inverse relationship. a. A sports team's winning percentage and attendance at its home games. b. Higher temperature and sweater sales. c. A person's income and
> Refer to the expanded table below from review question 8. a. What is the equilibrium price? At what price is there neither a shortage nor a surplus? Fill in the surplus-shortage column and use it to confirm your answers. b. Graph the demand for wheat an
> Explain the law of supply. Why does the supply curve slope upward? How is the market supply curve derived from the supply curves of individual producers?
> True or False: Money must be issued by a government for people to accept it.
> With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 5 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneur
> Why is private property, and the protection of property rights, so critical to the success of the market system? How do property rights encourage cooperation?
> The following table contains data on the relationship between saving and income. Rearrange these data into a logical order and graph them on the accompanying grid. What is the slope of the line? The vertical intercept? Write the equation that represents
> Look back at Figure 2, which shows the inverse relationship between ticket prices and game attendance at Gigantic State University. (a) Interpret the meaning of both the slope and the intercept. (b) If the slope of the line were steeper, what would tha
> Suppose that you initially have $100 to spend on books or movie tickets. The books start off costing $25 each and the movie tickets start off costing $10 each. For each of the following situations, would the attainable set of combinations that you can af
> Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. Candy bars cost $0.75 each while bags of peanuts cost $1.50 each. a. Construct a table showing the alternative combinati
> What is meant by the term “utility” and how does the idea relate to purposeful behavior?
> Graph and label as either direct or indirect the relationships you would expect to find between a. The number of inches of rainfall per month and the sale of umbrellas b. The amount of tuition and the level of enrollment at a university c. The populari
> Government inspectors who check on the quality of services provided by retailers as well as government requirements for licensing in various professions are both attempts to resolve: a. The moral hazard problem. b. The asymmetric information problem.
> Why is it in the interest of new homebuyers and builders of new homes to have government building codes and building inspectors?
> Refer to Table 4.2 below. If the six people listed in the table are the only producers in the market and the equilibrium price is $6 (not the $8 shown), how much producer surplus will the market generate? TABLE 4.2 Producer Surplus (2) (3) Minimum Ac
> Use the ideas of consumer surplus and producer surplus to explain why economists say competitive markets are efficient. Why are below- or above-equilibrium levels of output inefficient, according to these two sets of ideas?
> Consider the market for coffee beans. Suppose that the prices of all other caffeinated beverages go up 30 percent while at the same time a new fertilizer boosts production at coffee plantations dramatically. Can you tell what will happen to the equilibri
> The table below shows two demand schedules for a given style of men’s shoes—that is, how many pairs per month will be demanded at various prices at a men’s clothing store in Seattle called Stromnord.
> Most scalping laws make it illegal to sell—but not to buy—tickets at prices above those printed on the tickets. Assuming that is the case, use supply and demand analysis to explain why the equilibrium ticket price in an illegal secondary market tends to
> True or False: A “change in quantity demanded” is a shift of the entire demand curve to the right or to the left.
> The figure below shows the supply curve for tennis balls, S1, for Drop Volley tennis, a producer of tennis equipment. Use the figure and the table below to give your answers to the following questions. a. Use the figure to fill in the quantity supplied o
> Briefly explain the use of graphs as a way to represent economic relationships. What is an inverse relationship? How does it graph? What is a direct relationship? How does it graph?
> What are the determinants of demand? What happens to the demand curve when any of these determinants change? Distinguish between a change in demand and a movement along a fixed demand curve, noting the cause(s) of each.
> Match each term with the correct definition. Private property Freedom of enterprise Mutually agreeable Freedom of choice Self-interest Competition Market a. An institution that brings buyers and sellers together. b. The right of private persons and firm
> Suppose Natasha currently makes $50,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try
> How does self-interest help achieve society’s economic goals? Why is there such a wide variety of desired goods and services in a market system? In what way are entrepreneurs and businesses at the helm of the economy, but commanded by consumers?
> Erin grows pecans. The number of bushels (B) that she can produce depends on the number of inches of rainfall (R) that her orchards get. The relationship is given algebraically as follows: B = 3,000 + 800R. Match each part of this equation with the c
> Indicate how each of the following might affect the data shown in the table and graph in Figure 2 of this appendix: a. GSU’s athletic director schedules higher-quality opponents. b. An NBA team locates in the city where GSU plays. c. GSU contracts to ha
> Describe the graphical relationship between ticket prices and the number of people choosing to visit amusement parks. Is that relationship consistent with the fact that, historically, park attendance and ticket prices have both risen? Explain.
> Indicate whether each of the following statements applies to microeconomics or macroeconomics: a. The unemployment rate in the United States was 5.1 percent in September 2015. b. A U.S. software firm discharged 15 workers last month and transferred the
> Pham can work as many or as few hours as she wants at the college bookstore for $9 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the bookstore or at other potential jobs. One potential job,
> What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greater opportunity cost: Allocating a square block in the heart of New York City for a surface parking lot or allocat
> Match each term with the correct definition. Economics Opportunity cost Marginal analysis Utility a. The next best thing that must be foregone in order to product one more unit of a given product. b. The pleasure, happiness, or satisfaction obtained fro
> People drive faster when they have auto insurance. This is an example of: a. Adverse selection. b. Asymmetric information. c. Moral hazard.
> Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles are worth but have no way of credibly demonstrating those values to potential buyers. Thus, potential buyers must always worry that the used car th
> Because medical records are private, an individual applying for health insurance will know more about his own health conditions than will the insurance companies to which he is applying for coverage. Is this likely to increase or decrease the insurance
> Refer to Table 4.1 below. If the six people listed in the table are the only consumers in the market and the equilibrium price is $11 (not the $8 shown), how much consumer surplus will the market generate? TABLE 4.1 Consumer Surplus (2) (3) Maximum P
> Explain the two causes of market failures. Given their definitions, could a market be affected by both types of market failures simultaneously?
> Will the the equilibrium price of orange juice increase or decrease in each of the following situations? a. A medical study reporting that orange juice reduces cancer is released at the same time that a freak storm destroys half of the orange crop in Fl
> What explains why millions of economic resources tend to get arranged logically and productively rather than haphazardly and unproductively?
> How does shielding employees and suppliers from business risk help to improve economic outcomes? Who is responsible for managing business risks in the market system?
> Demand and supply often shift in the retail market for gasoline. Here are two demand curves and two supply curves for gallons of gasoline in the month of May in a small town in Maine. Some of the data is missing. a. Use the following facts to fill in t
> Studies indicate that married men on average earn more income than unmarried men of the same age and education level. Why must we be cautious in concluding that marriage is the cause and higher income is the effect?
> Distinguish between the resource market and the product market in the circular flow model. In what way are businesses and households both sellers and buyers in this model? What are the flows in the circular flow model?
> Suppose that, on the basis of a nation’s production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the 1 additional industrial robot it desires but that it can get the robot from another country in exchange for 9,000 piz
> In market economies, firms rarely worry about the availability of inputs to produce their products, whereas in command economies input availability is a constant concern. Why the difference?
> Specify and explain the typical shapes of marginal-benefit and marginal-cost curves. How are these curves used to determine the optimal allocation of resources to a particular product? If current output is such that marginal cost exceeds marginal benefit
> Distinguish between a carbon-tax and a cap-and-trade strategy for reducing carbon dioxide and other so-called greenhouse gases (that are believed by many scientists to be causing global warming). Which of the two strategies do you think would have the mo
> A price ceiling will result in a shortage only if the ceiling price is ____________ the equilibrium price. a. less than b. equal to c. greater than d. louder than
> In a sentence, describe the meaning of the phrase “invisible hand.”
> Why is money not considered to be a capital resource in economics? Why is entrepreneurial ability considered a category of economic resource, distinct from labor? What are the major functions of the entrepreneur?
> Explain why zoning laws, which allow certain land uses only in specific locations, might be justified in dealing with a problem of negative externalities. Explain why in areas where buildings sit close together tax breaks to property owners for installin
> Why are shortages or surpluses more likely with preset prices, such as those on tickets, than flexible prices, such as those on gasoline?
> Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as shown in the table below. Suppose that the government establishes a price ceiling of $3.70 for wheat. What might prompt the government to es
> Real (inflation-adjusted) tuition costs were nearly constant during the 1960s despite a huge increase in the number of college students as the very large Baby Boom generation came of age. What does this suggest about the supply of higher education durin
> Ted and Fred are the owners of a gas station. They invested $150,000 each and pay an employee named Lawrence $35,000 per year. This year revenues are $900,000, while costs are $940,000. Who is legally responsible for bearing the $40,000 loss? a. Lawrenc
> What is meant by the term “creative destruction”? How does the emergence of MP3 (or iPod) technology relate to this idea?
> In the accompanying graph, is the slope of curve AA’ positive or negative? Does the slope increase or decrease as we move along the curve from A to A’? Answer the same two questions for curve BB’.
> Because investment and capital goods are paid for with savings, higher savings rates reflect a decision to consume fewer goods for the present in order to be able to invest in more goods for the future. On average, households in China save 40 percent of
> What are economic resources? What categories do economists use to classify them? Why are resources also called factors of production? Why are they called inputs?
> Use marginal cost/marginal benefit analysis to determine if the following statement is true or false: “The optimal amount of pollution abatement for some substances, say, dirty water from storm drains, is very low; the optimal amount of abatement for oth
> Look at Tables 4.1 and 4.2, which show, respectively, the willingness to pay and willingness to accept of buyers and seller of bags of oranges. For the following questions, assume that the equilibrium price and quantity will depend on the indicated chang
> The LoJack car recovery system allows the police to track stolen cars. As a result, they not only recover 90% of LoJack-equipped cars that are stolen but also arrest many auto thieves and shut down many “chop shops” that take apart stolen vehicles to get
> What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Fiat 500? a. Small automobiles become more fashionable. b. The price of large automobiles rises (with the price of small autos remaining the same
> When asked for investment advice, humorist Will Rogers joked that people should "buy land. They ain't making any more of the stuff." Explain his advice in terms of the supply and demand model.
