Question: Assume that the data in the following

> Bill spends his money on flowers and cookies so as to maximize his total utility. Both flowers and cookies start off costing $2 each. At that price, Bill buys three flowers and two cookies. When the price of flowers is lowered to $1, Bill buys eight flow

> Use the concepts of gross investment and net investment to distinguish between an economy that has a rising stock of capital and one that has a falling stock of capital. Explain: “Though net investment can be positive, negative, or zero, it is impossible

> Discuss the political incentives that helped motivate federal politicians to approve budget deficits in all but five years between 1960 and 2015.

> Many proposers in the ultimatum game offer half to the responder with whom they are paired. This behavior could be motivated by (select as many as might apply): a. Fear that an unequal split might be rejected by a fair-minded responder. b. A desire to

> Erik wants to save more, but whenever a paycheck arrives, he ends up spending everything. One way to help him overcome this tendency would be to: LO4 a. Teach him about time inconsistency. b. Tell him that self-control problems are common. c. Have him e

> Label each of the following behaviors with the correct bias or heuristic. a. Your uncle says that he knew all along that the stock market was going to crash in 2008. b. When Fred does well at work, he credits his intelligence. When anything goes wrong,

> Identify each statement as being associated with neoclassical economics or behavioral economics. a. People are eager and accurate calculators. b. People are often selfless and generous. c. People have no trouble resisting temptation. d. People place ins

> Which of the following are systematic errors? a. A colorblind person who repeatedly runs red lights. b. An accountant whose occasional math errors are sometimes on the high side and sometimes on the low side. c. The tendency many people have to see face

> Consider two bundles of coffee and chocolate and how Ted feels about them. The first bundle consists of two cups of coffee and two chocolate bars. The second bundle consists of one cup of coffee and three chocolate bars. If the first bundle gives Ted a t

> Does additive manufacturing rely on economies of scale to deliver low costs? What are two ways in which additive manufacturing lowers costs? Besides what's written in the book, might there be another reason to expect 3-D blueprints to be inexpensive? (H

> Use the concepts of economies and diseconomies of scale to explain the shape of a firm’s long-run ATC curve. What is the concept of minimum efficient scale? What bearing can the shape of the long-run ATC curve have on the structure of an industry?

> List several fixed and variable costs associated with owning and operating an automobile. Suppose you are considering whether to drive your car or fly 1,000 miles to Florida for spring break. Which costs—fixed, variable, or both—would you take into accou

> Why can the distinction between fixed costs and variable costs be made in the short run? Classify the following as fixed or variable costs: advertising expenditures, fuel, interest on company-issued bonds, shipping charges, payments for raw materials, re

> What is the difference between gross private domestic investment and net private domestic investment? If you were to determine net domestic product (NDP) through the expenditures approach, which of these two measures of investment spending would be appro

> Complete the table directly below by calculating marginal product and average product. Plot the total, marginal, and average products and explain in detail the relationship between each pair of curves. Explain why marginal product first rises, then dec

> Suppose that firms were expecting inflation to be 3 percent, but then it actually turned out to be 7 percent. Other things equal, firm profits will be: a. Smaller than expected. b. Larger than expected.

> Suppose that firms are expecting 6 percent inflation while workers are expecting 9 percent inflation. How much of a pay raise will workers demand if their goal is to maintain the purchasing power of their incomes? a. 3 percent. b. 6 percent. c. 9 percen

> Aggregate supply shocks can cause ________ rates of inflation that are accompanied by ________ rates of unemployment. a. Higher; higher. b. Higher; lower. c. Lower; higher. d. Lower; lower.

> Assume there is a particular short-run aggregate supply curve for an economy and the curve is relevant for -several years. Use the AD-AS analysis to show graphically why higher rates of inflation over this period would be associated with lower rates of u

> Between 1990 and 2009, the U.S. price level rose by about 64 percent while real output increased by about 62 percent. Use the aggregate demand–aggregate supply model to illustrate these outcomes graphically.

> Use graphical analysis to show how each of the following would affect the economy first in the short run and then in the long run. Assume that the United States is initially operating at its full-employment level of output, that prices and wages are even

> Identify the two descriptions below as being the result of either cost-push inflation or demand-pull inflation. a. Real GDP is below the full-employment level and prices have risen recently. b. Real GDP is above the full-employment level and prices have

> Suppose that an economy begins in long-run equilibrium before the price level and real GDP both decline simultaneously. If those changes were caused by only one curve shifting, then those changes are best explained as the result of: a. The AD curve shif

> Suppose that AD and AS intersect at an output level that is higher than the full-employment output level. After the economy adjusts back to equilibrium in the long run, the price level will be __________ . a. Higher than it is now. b. Lower than it is no

> Why are changes in inventories included as part of investment spending? Suppose inventories declined by $1 billion during 2014. How would this affect the size of gross private domestic investment and gross domestic product in 2014? Explain.

> Suppose the full-employment level of real output (Q) for a hypothetical economy is $250 and the price level (P) initially is 100. Use the short-run aggregate supply schedules below to answer the questions that follow: a. What will be the level of real

> The per-unit cost of an item is its average total cost (= total cost/quantity). Suppose that a new cell phone application costs $100,000 to develop and only $.50 per unit to deliver to each cell phone customer. What will be the per-unit cost of the appli

> Suppose that work hours in New Zombie are 200 in year 1 and productivity is $8 per hour worked. What is New Zombie’s real GDP? If work hours increase to 210 in year 2 and productivity rises to $10 per hour, what is New Zombie’s rate of economic growth?

> Refer to Figure 28.2 and assume that the values for points a, b, and c are $10 billion, $20 billion, and $18 billion respectively. If the economy moves from point a to point b over a 10-year period, what must have been its annual rate of economic growth?

> Assume that a “leader country” has real GDP per capita of $40,000, whereas a “follower country” has real GDP per capita of $20,000. Next suppose that the growth of real GDP per capita falls to zero percent in the leader country and rises to 7 percent in

> What annual growth rate is needed for a country to double its output in 7 years? In 35 years? In 70 years? In 140 years?

> Suppose an economy’s real GDP is $30,000 in year 1 and $31,200 in year 2. What is the growth rate of its real GDP? Assume that population is 100 in year 1 and 102 in year 2. What is the growth rate of real GDP per capita?

> Distinguish between accounting profit, economic profit, and normal profit. Does accounting profit or economic profit determine how entrepreneurs allocate resources between different business ventures? Explain.

> Compare and contrast the Bretton Woods system of exchange rates with that of the gold standard. What caused the collapse of the gold standard? What caused the demise of the Bretton Woods system?

> Distinguish between explicit and implicit costs, giving examples of each. What are some explicit and implicit costs of attending college?

> Provide three examples of each: consumer durable goods, consumer nondurable goods, and services.

> First, graphically illustrate a doubling of income without price changes in the indifference curve model. Next, on the same graph, show a situation in which the person whose indifference curves you are drawing buys considerably more of good B than good A

> There are economies of scale in ranching, especially with regard to fencing land. Suppose that barbed-wire fencing costs $10,000 per mile to set up. How much would it cost to fence a single property whose area is one square mile if that property also hap

> You are a newspaper publisher. You are in the middle of a one-year rental contract for your factory that requires you to pay $500,000 per month, and you have contractual labor obligations of $1 million per month that you can’t get out of. You also have a

> Imagine you have some workers and some hand-held computers that you can use to take inventory at a warehouse. There are diminishing returns to taking inventory. If one worker uses one computer, he can inventory 100 items per hour. Two workers can togethe

> Gomez runs a small pottery firm. He hires one helper at $12,000 per year, pays annual rent of $5,000 for his shop, and spends $20,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that

> Explain graphically how indifference analysis can be used to derive a demand curve.

> Suppose a firm has only three possible plant-size options, represented by the ATC curves shown in the accompanying figure. What plant size will the firm choose in producing (a) 50, (b) 130, (c) 160, and (d) 250 units of output? Draw the firmâ&

> True or false. The U shape of the long-run ATC curve is the result of diminishing returns.

> Indicate how each of the following would shift the (1) marginal-cost curve, (2) average-variable-cost curve, (3) average-fixed-cost curve, and (4) average-total-cost curve of a manufacturing firm. In each case specify the direction of the shift. a.

> A firm has fixed costs of $60 and variable costs as indicated in the table at the bottom of this page. Complete the table and check your calculations by referring to problem 4 at the end of Chapter 10. a. Graph total fixed cost, total variable cost, an

> Explain why an economy’s output, in essence, is also its income.

> Which of the following are short-run and which are long-run adjustments? a. Wendy’s builds a new restaurant. b. Harley-Davidson Corporation hires 200 more production workers. c. A farmer increases the amount of fertilizer used on his corn crop. d. An Al

> Linda sells 100 bottles of homemade ketchup for $10 each. The cost of the ingredients and the bottles and the labels was $700. In addition, it took her 20 hours to make the ketchup and to do so she took time off from a job that paid her $20 per hour. Lin

> If a firm's current revenues are less than its current variable costs, when should it shut down? If it decides to shut down, should we expect that decision to be final? Explain using an example that is not in the book.

> “That segment of a competitive firm’s marginal-cost curve that lies above its average-variable-cost curve constitutes the short-run supply curve for the firm.” Explain using a graph and words.

> Suppose that an initial $10 billion increase in investment spending expands GDP by $10 billion in the first round of the multiplier process. If GDP and consumption both rise by $6 billion in the second round of the process, what is the MPC in this econom

> What will the multiplier be when the MPS is 0, .4, .6, and 1? What will it be when the MPC is 1, .90, .67, .50, and 0? How much of a change in GDP will result if firms increase their level of investment by $8 billion and the MPC is .80? If the MPC instea

> Refer to the table in Figure 30.5 in the book and suppose that the real interest rate is 6 percent. Next, assume that some factor changes such that that the expected rate of return declines by 2 percentage points at each prospective level of investment.

> Assume there are no investment projects in the economy that yield an expected rate of return of 25 percent or more. But suppose there are $10 billion of investment projects yielding expected returns of between 20 and 25 percent; another $10 billion yield

> Suppose a handbill publisher can buy a new duplicating machine for $500 and the duplicator has a 1-year life. The machine is expected to contribute $550 to the year’s net revenue. What is the expected rate of return? If the real interest rate at which fu

> Why do economists include only final goods and services in measuring GDP for a particular year? Why don’t they include the value of the stocks and bonds bought and sold? Why don’t they include the value of the used furniture bought and sold?

> Use your completed table for problem 1 to solve this problem. Suppose the wealth effect is such that $10 changes in wealth produce $1 changes in consumption at each level of income. If real estate prices tumble such that wealth declines by $80, what will

> Linear equations for the consumption and saving schedules take the general form C = a + bY and S= -a + (1-b)Y where C, S, and Y are consumption, saving, and national income, respectively. The constant a represents the vertical intercept, and b represents

> Suppose that the linear equation for consumption in a hypothetical economy is C = 40 + .8Y. Also suppose that income (Y) is $400. Determine (a) the marginal propensity to consume, (b) the marginal propensity to save, (c) the level of consumption, (d)

> Suppose that disposable income, consumption, and saving in some country are $200 billion, $150 billion, and $50 billion, respectively. Next, assume that disposable income increases by $20 billion, consumption rises by $18 billion and saving goes up by $2

> Refer to the incomplete table below. a. Fill in the missing numbers in the table. b. What is the break-even level of income in the table? What is the term that economists use for the saving situation shown at the $240 level of income? c. For each of th

> Why is the equality of marginal revenue and marginal cost essential for profit maximization in all market structures? Explain why price can be substituted for marginal revenue in the MR = MC rule when an industry is purely competitive.

> Consider a firm that has no fixed costs and that is currently losing money. Are there any situations in which it would want to stay open for business in the short run? If a firm has no fixed costs, is it sensible to speak of the firm distinguishing betwe

> “Even if a firm is losing money, it may be better to stay in business in the short run.” Is this statement ever true? Under what condition(s)?

> Strictly speaking, pure competition is relatively rare. Then why study it?

> Briefly state the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Under which of these market classifications does each of the following most accurately fit? (a) a supermarket in your hometown; (b) the

> Which of the following goods are usually intermediate goods and which are usually final goods: running shoes; cotton fibers; watches; textbooks; coal; sunscreen lotion; lumber?

> Using Figure 4, explain why the point of tangency of the budget line with an indifference curve is the consumer’s equilibrium position. Explain why any point where the budget line intersects an indifference curve is not equilibrium. Explain: “The consume

> Assume the following cost data are for a purely competitive producer: a. At a product price of $56, will this firm produce in the short run? If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? What economic pro

> Karen runs a print shop that makes posters for large companies. It is a very competitive business. The market price is currently $1 per poster. She has fixed costs of $250. Her variable costs are $1,000 for the first thousand posters, $800 for the second

> A purely competitive wheat farmer can sell any wheat he grows for $10 per bushel. His five acres of land show diminishing returns because some are better suited for wheat production than others. The first acre can produce 1,000 bushels of wheat, the seco

> A purely competitive firm finds that the market price for its product is $20. It has a fixed cost of $100 and a variable cost of $10 per unit for the first 50 units and then $25 per unit for all successive units. Does price exceed average variable cost f

> Tammy spends her money on lemonade and iced tea. If the price of lemonade falls, it is as though her income __________________. a. increases b. decreases c. stays the same

> Consider a profit-maximizing firm in a competitive industry. For each of the following situations, indicate whether the firm should shut down production or produce where MR = MC. a. P < minimum AVC. b. P > minimum ATC. c. Minimum AVC < P < minimum ATC.

> A perfectly competitive firm that makes car batteries has a fixed cost of $10,000 per month. The market price at which it can sell its output is $100 per battery. The firm’s minimum AVC is $105 per battery. The firm is currently producing 500 batteries a

> If it is possible for a perfectly competitive firm to do better financially by producing rather than shutting down, then it should produce the amount of output at which: a. MR < MC. b. MR = MC. c. MR > MC. d. none of the above.

> A purely competitive firm whose goal is to maximize profit will choose to produce the amount of output at which: a. TR and TC are equal. b. TR exceeds TC by as much as possible. c. TC exceeds TR by as much as possible. d. None of the above.

> Why do national income accountants compare the market value of the total outputs in various years rather than actual physical volumes of production? What problem is posed by any comparison over time of the market values of various total outputs? How is t

> Use the following demand schedule to determine total revenue and marginal revenue for each possible level of sales: a. What can you conclude about the structure of the industry in which this firm is operating? Explain. b. Graph the demand, total-revenue

> If the inflation premium is 2 percent and the nominal interest rate is 1 percent, what is the real interest rate? What if the inflation premium is 3 percent while the nominal interest rate is 0.5 percent?

> Suppose that the nominal rate of inflation is 4 percent and the inflation premium is 2 percent. What is the real interest rate? Alternatively, assume that the real interest rate is 1 percent and the nominal interest rate is 6 percent. What is the inflati

> If your nominal income rose by 5.3 percent and the price level rose by 3.8 percent in some year, by what percentage would your real income (approximately) increase? If your nominal income rose by 2.8 percent and your real income rose by 1.1 percent in so

> How long would it take for the price level to double if inflation persisted at (a) 2, (b) 5, and (c) 10 percent per year?

> If the CPI was 110 last year and is 121 this year, what is this year’s rate of inflation? In contrast, suppose that the CPI was 110 last year and is 108 this year. What is this year’s rate of inflation? What term do economists use to describe this second

> Suppose that the natural rate of unemployment in a particular year is 5 percent and the actual rate of unemployment is 9 percent. Use Okun’s law to determine the size of the GDP gap in percentage-point terms. If the potential GDP is $500 billion in that

> Assume the following data for a country: total population, 500; population under 16 years of age or institutionalized, 120; not in labor force, 150; unemployed, 23; part-time workers looking for full-time jobs, 10. What is the size of the labor force? Wh

> Suppose that a country’s annual growth rates were 5, 3, 4, -1, -2, 2, 3, 4, 6, and 3 in yearly sequence over a 10-year period. What was the country’s trend rate of growth over this period? Which set of years most clearly demonstrates an expansionary phas

> Suppose that the paper clip industry is perfectly competitive. Also assume that the market price for paper clips is 2 cents per paper clip. The demand curve faced by each firm in the industry is: a. A horizontal line at 2 cents per paper clip. b. A ve

> In what ways are national income statistics useful?

> Jermaine spends his money on cucumbers and lettuce. If the price of cucumbers falls, the MU per dollar of cucumbers will ______________ and Jermaine will _______________ cucumbers for lettuce. LO4 a. Fall; substitute b. Rise; substitute c. Fall; supply

> Using Big Data to set personalized prices cannot be done with 100 percent precision. What would happen if personalized prices were set higher than customers' reservation prices? Would this possibility reduce the incentive to set the highest possible per

> It has been proposed that natural monopolists should be allowed to determine their profit-maximizing outputs and prices and then government should tax their profits away and distribute them to consumers in proportion to their purchases from the monopoly.

> Explain verbally and graphically how price (rate) regulation may improve the performance of monopolies. In your answer distinguish between (a) socially optimal (marginal-cost) pricing and (b) fair-return (average-total-cost) pricing. What is the “dilemma

> Would you expect a country with a total fertility rate of 2.7 to have a growing or a shrinking population over the long run? What about a country with a total fertility rate of 1.2? In 20 years, will America have more or fewer workers per retiree than it

> What, if any, are the benefits and costs of economic growth, particularly as measured by real GDP per capita?

> Relate each of the following to the 1995 to 2010 increase in the trend rate of productivity growth: a. Information technology b. Increasing returns c. Network effects d. Global competition

> Explain why there is such a close relationship between changes in a nation’s rate of productivity growth and changes in its average real hourly wage.

> True or False: If false, explain why. a. Technological advance, which to date has played a relatively small role in U.S. economic growth, is destined to play a more important role in the future. b. Many public capital goods are complementary to private

> What is growth accounting? To what extent have increases in U.S. real GDP resulted from more labor inputs? From greater labor productivity? Rearrange the following contributors to the growth of productivity in order of their quantitative importance: econ