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Question: Consider the following events: Scientists reveal


Consider the following events: Scientists reveal that eating oranges decreases the risk of diabetes, and at the same time, farmers use a new fertilizer that makes orange trees produce more oranges. Illustrate and explain what effect these changes have on the equilibrium price and quantity of oranges.


> Among monopoly, oligopoly, monopolistic competition, and perfect competition, how would you classify the markets for each of the following drinks? a. tap water b. bottled water c. cola d. beer

> Classify the following markets as perfectly competitive, monopolistic, or monopolistically competitive, and explain your answers. a. wooden no. 2 pencils b. copper c. local electricity service d. peanut butter e. lipstick

> What determines how the burden of a tax is divided between buyers and sellers? Why?

> Suppose the government removes a tax on buyers of a good and levies a tax of the same size on sellers of the good. How does this change in tax policy affect the price that buyers pay sellers for this good, the amount buyers are out of pocket (including a

> Explain why economists usually oppose controls on prices.

> Using supply-and-demand diagrams, show the effect of the following events on the market for sweatshirts. a. A hurricane in South Carolina damages the cotton crop. b. The price of leather jackets falls. c. All colleges require morning exercise in appropri

> At Fenway Park, home of the Boston Red Sox, seating is limited to 39,000. Hence, the number of tickets issued is fixed at that figure. Seeing a golden opportunity to raise revenue, the City of Boston levies a per ticket tax of $5 to be paid by the ticket

> A case study in this chapter discusses the federal minimum-wage law. a. Suppose the minimum wage is above the equilibrium wage in the market for unskilled labor. Using a supply-and-demand diagram of the market for unskilled labor, show the market wage, t

> Congress and the president decide that the United States should reduce air pollution by reducing its use of gasoline. They impose a $0.50 tax on each gallon of gasoline sold. a. Should they impose this tax on producers or consumers? Explain carefully usi

> If the government places a $500 tax on luxury cars, will the price paid by consumers rise by more than $500, less than $500, or exactly $500? Explain.

> A senator wants to raise tax revenue and make workers better off. A staff member proposes raising the payroll tax paid by firms and using part of the extra revenue to reduce the payroll tax paid by workers. Would this accomplish the senator’s goal? Expla

> Over the past 30 years, technological advances have reduced the cost of computer chips. How do you think this has affected the market for computers? For computer software? For typewriters?

> Define the price elasticity of demand. Explain the relationship between total revenue and the price elasticity of demand.

> Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased. (In fact, both the federal and state governments impose beer taxes of some sort.) a. Draw a supply-and-demand diagram of the market for beer without the

> How might a drought that destroys half of all farm crops be good for farmers? If such a drought is good for farmers, why don’t farmers destroy their own crops in the absence of a drought?

> Define the price elasticity of supply. Explain why the price elasticity of supply might be different in the long run than in the short run.

> List and explain the four determinants of the price elasticity of demand discussed in the chapter.

> A storm destroys half the fava bean crop. Is this event more likely to hurt fava bean farmers if the demand for fava beans is very elastic or very inelastic? Explain.

> On a supply-and-demand diagram, show equilibrium price, equilibrium quantity, and the total revenue received by producers.

> If the elasticity is greater than 1, is demand elastic or inelastic? If the elasticity equals zero, is demand perfectly elastic or perfectly inelastic?

> Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long run. a. If the price of heating oil rises from $1.80 to $2.20 per gallon, what happens to the quantity of heating oil demanded in the short run? In the lon

> Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston: a. As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i) business travelers and (ii) vacati

> For each of the following pairs of goods, which good would you expect to have more elastic demand and why? a. required textbooks or mystery novels b. Beethoven recordings or classical music recordings in general c. subway rides during the next six months

> Consider the markets for DVDs, TV screens, and tickets at movie theaters. a. For each pair, identify whether they are complements or substitutes: • DVDs and TV screens • DVDs and movie tickets • TV screens and movie tickets b. Suppose a technological adv

> A recent study found that the demand and supply schedules for Frisbees are as follows: a. What are the equilibrium price and quantity of Frisbees? b. Frisbee manufacturers persuade the government that Frisbee production improves scientistsâ€

> Explain why the following might be true: A drought around the world raises the total revenue that farmers receive from the sale of grain, but a drought only in Kansas reduces the total revenue that Kansas farmers receive.

> You are the curator of a museum. The museum is running short of funds, so you decide to increase revenue. Should you increase or decrease the price of admission? Explain.

> Consider public policy aimed at smoking. a. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs $2 and the government wants to reduce smoking by 20 percent, by how much should it incre

> Two drivers—Walt and Jessie—each drive up to a gas station. Before looking at the price, each places an order. Walt says, “I’d like 10 gallons of gas.” Jessie says, “I’d like $10 worth of gas.” What is each driver’s price elasticity of demand?

> The New York Times reported (Feb.17, 1996) that subway ridership declined after a fare increase: “There were nearly 4 million fewer riders in December 1995, the first full month after the price of a token increased 25 cents to $1.50, than in the previous

> Maria has decided always to spend one-third of her income on clothing. a. What is her income elasticity of clothing demand? b. What is her price elasticity of clothing demand? c. If Maria’s tastes change and she decides to spend only one-fourth of her in

> Suppose that your demand schedule for DVDs is as follows: a. Use the midpoint method to calculate your price elasticity of demand as the price of DVDs increases from $8 to $10 if (i) your income is $10,000 and (ii) your income is $12,000. b. Calculate

> Cups of coffee and donuts are complements. Both have inelastic demand. A hurricane destroys half the coffee bean crop. Use appropriately labeled diagrams to answer the following questions. a. What happens to the price of coffee beans? b. What happens to

> Make up an example of a monthly demand schedule for pizza and graph the implied demand curve. Give an example of something that would shift this demand curve, and briefly explain your reasoning. Would a change in the price of pizza shift this demand curv

> What is a market? • What are the characteristics of a perfectly competitive market?

> The government has decided that the free-market price of cheese is too low. a. Suppose the government imposes a binding price floor in the cheese market. Draw a supply-and demand diagram to show the effect of this policy on the price of cheese and the qu

> Consider the market for minivans. For each of the events listed here, identify which of the determinants of demand or supply are affected. Also indicate whether demand or supply increases or decreases. Then draw a diagram to show the effect on the price

> On the appropriate diagram, show what happens to the market for pizza if the price of tomatoes rises. On a separate diagram, show what happens to the market for pizza if the price of hamburgers falls.

> Make up an example of a monthly supply schedule for pizza, and graph the implied supply curve. Give an example of something that would shift this supply curve, and briefly explain your reasoning. Would a change in the price of pizza shift this supply cur

> Does a change in consumers’ tastes lead to a movement along the demand curve or a shift in the demand curve? Does a change in price lead to a movement along the demand curve or a shift in the demand curve? Explain your answers.

> What are the demand schedule and the demand curve, and how are they related? Why does the demand curve slope downward?

> What is a competitive market? Briefly describe a type of market that is not perfectly competitive.

> Describe the role of prices in market economies.

> Beer and pizza are complements because they are often enjoyed together. When the price of beer rises, what happens to the supply, demand, quantity supplied, quantity demanded, and price in the market for pizza?

> Define the equilibrium of a market. Describe the forces that move a market toward its equilibrium.

> What are the supply schedule and the supply curve, and how are they related? Why does the supply curve slope upward?

> Lovers of classical music persuade Congress to impose a price ceiling of $40 per concert ticket. As a result of this policy, do more or fewer people attend classical music concerts? Explain.

> Suppose that the price of basketball tickets at your college is determined by market forces. Currently, the demand and supply schedules are as follows: a. Draw the demand and supply curves. What is unusual about this supply curve? Why might this be tru

> Because bagels and cream cheese are often eaten together, they are complements. a. We observe that both the equilibrium price of cream cheese and the equilibrium quantity of bagels have risen. What could be responsible for this pattern—a fall in the pric

> The market for pizza has the following demand and supply schedules: a. Graph the demand and supply curves. What is the equilibrium price and quantity in this market? b. If the actual price in this market were above the equilibrium price, what would dri

> Ketchup is a complement (as well as a condiment) for hot dogs. If the price of hot dogs rises, what happens to the market for ketchup? For tomatoes? For tomato juice? For orange juice?

> Explain each of the following statements using supply-and-demand diagrams. a. “When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country.” b. “When the weather turns warm in New England every summer, the price

> In a supply-and-demand diagram, show how a tax on car buyers of $1,000 per car affects the quantity of cars sold and the price of cars. In another diagram, show how a tax on car sellers of $1,000 per car affects the quantity of cars sold and the price of

> Define price ceiling and price floor and give an example of each. Which leads to a shortage? Which leads to a surplus? Why?

> What mechanisms allocate resources when the price of a good is not allowed to bring supply and demand into equilibrium?

> Which causes a shortage of a good—a price ceiling or a price floor? Justify your answer with a graph.

> A subsidy is the opposite of a tax. With a $0.50 tax on the buyers of ice-cream cones, the government collects $0.50 for each cone purchased; with a $0.50 subsidy for the buyers of ice-cream cones, the government pays buyers $0.50 for each cone purchased

> “An increase in the demand for notebooks raises the quantity of notebooks demanded but not the quantity supplied.” Is this statement true or false? Explain.

> Maria can read 20 pages of economics in an hour. She can also read 50 pages of sociology in an hour. She spends 5 hours per day studying. a. Draw Maria’s production possibilities frontier for reading economics and sociology. b. What is Maria’s opportunit

> Are the following statements true or false? Explain in each case. a. “Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods.” b. “Certain very talented people have a comparative a

> Suppose that in a year an American worker can produce 100 shirts or 20 computers and a Chinese worker can produce 100 shirts or 10 computers. a. For each country, graph the production possibilities frontier. Suppose that without trade the workers in each

> A German worker takes 400 hours to produce a car and 2 hours to produce a case of wine. A French worker takes 600 hours to produce a car and X hours to produce a case of wine. a. For what values of X will gains from trade be possible? Explain. b. For wha

> The following table describes the production possibilities of two cities in the country of Baseballia: a. Without trade, what is the price of white socks (in terms of red socks) in Boston? What is the price in Chicago? b. Which city has an absolute adv

> Why do economists sometimes offer conflicting advice to policymakers?

> What is the difference between a positive and a normative statement? Give an example of each.

> Use a production possibilities frontier to describe the idea of “efficiency.”

> England and Scotland both produce scones and sweaters. Suppose that an English worker can produce 50 scones per hour or 1 sweater per hour. Suppose that a Scottish worker can produce 40 scones per hour or 2 sweaters per hour. a. Which country has the abs

> Draw and explain a production possibilities frontier for an economy that produces milk and cookies. What happens to this frontier if disease kills half of the economy’s cows?

> Imagine a society that produces military goods and consumer goods, which we’ll call “guns” and “butter.” a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost, explain why it most likely has a bowed-out sh

> Draw a circular-flow diagram. Identify the parts of the model that correspond to the flow of goods and services and the flow of dollars for each of the following activities. a. Selena pays a storekeeper $1 for a quart of milk. b. Stuart earns $4.50 per h

> Classify each of the following statements as positive or normative. Explain. a. Society faces a short-run trade-off between inflation and unemployment. b. A reduction in the rate of money growth will reduce the rate of inflation. c. The Federal Reserve s

> Classify the following topics as relating to microeconomics or macroeconomics. a. a family’s decision about how much income to save b. the effect of government regulations on auto emissions c. the impact of higher national saving on economic growth d. a

> An economy consists of three workers: Larry, Moe, and Curly. Each works 10 hours a day and can produce two services: mowing lawns and washing cars. In an hour, Larry can either mow one lawn or wash one car; Moe can either mow one lawn or wash two cars; a

> The first principle of economics is that people face trade-offs. Use a production possibilities frontier to illustrate society’s trade-off between two “goods”—a clean environment and the quantity of industrial output. What do you suppose determines the s

> List and briefly explain the three principles that describe how the economy as a whole works.

> Why is a country better off not isolating itself from all other countries? Why do we have markets, and according to economists, what roles should government play in them?

> Give three examples of important trade-offs that you face in your life.

> Give an example of a positive statement and an example of a normative statement that somehow relates to your daily life. Name three parts of government that regularly rely on advice from economists.

> Explain the two main causes of market failure and give an example of each.

> Water is necessary for life. Is the marginal benefit of a glass of water large or small?

> What items would you include to figure out the opportunity cost of a vacation to Disneyworld?

> Suppose Americans decide to save more of their incomes. If banks lend this extra saving to businesses, which use the funds to build new factories, how might this lead to faster growth in productivity? Who do you suppose benefits from the higher productiv

> In what ways is your standard of living different from that of your parents or grandparents when they were your age? Why have these changes occurred?

> Discuss each of the following statements from the standpoints of equality and efficiency. a. “Everyone in society should be guaranteed the best healthcare possible.” b. “When workers are laid off, they should be able to collect unemployment benefits unti

> Explain whether each of the following government activities is motivated by a concern about equality or a concern about efficiency. In the case of efficiency, discuss the type of market failure involved. a. regulating cable TV prices b. providing some po

> A 1996 bill reforming the federal government’s antipoverty programs limited many welfare recipients to only two years of benefits. a. How does this change affect the incentives for working? b. How might this change represent a trade-off between equality

> The Social Security system provides income for people over age 65. If a recipient of Social Security decides to work and earn some income, the amount received in Social Security benefits is typically reduced. a. How does the provision of Social Security

> The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction of competing products has reduced the expected sales of your ne

> In what sense is economics like a science? Draw a production possibilities frontier for a society that produces food and clothing. Show an efficient point, an inefficient point, and an infeasible point. Show the effects of a drought. Define microeconom

> Why should policymakers think about incentives?

> You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. What is the true cost of going skiing? Now suppose you had been planning to spend the day studying at the library. What is the cost of going skiing in

> You are trying to decide whether to take a vacation. Most of the costs of the vacation (airfare, hotel, and forgone wages) are measured in dollars, but the benefits of the vacation are psychological. How can you compare the benefits to the costs?

> Describe some of the trade-offs faced by each of the following: a. a family deciding whether to buy a new car b. a member of Congress deciding how much to spend on national parks c. a company president deciding whether to open a new factory d. a professo

> Draw an example of a production possibilities frontier for Robinson Crusoe, a shipwrecked sailor who spends his time gathering coconuts and catching fish. Does this frontier limit Crusoe’s consumption of coconuts and fish if he lives by himself? Does he

> Suppose that a skilled brain surgeon also happens to be the world’s fastest typist. Should she do her own typing or hire a secretary? Explain.

> Robinson Crusoe can gather 10 coconuts or catch 1 fish per hour. His friend Friday can gather 30 coconuts or catch 2 fish per hour. What is Crusoe’s opportunity cost of catching 1 fish? What is Friday’s? Who has an absolute advantage in catching fish? Wh

> Suppose that there are 10million workers in Canada and that each of these workers can produce either 2 cars or 30 bushels of wheat in a year. a. What is the opportunity cost of producing a car in Canada? What is the opportunity cost of producing a bushel

> Pat and Kris are roommates. They spend most of their time studying (of course), but they leave some time for their favorite activities: making pizza and brewing root beer. Pat takes 4 hours to brew a gallon of root beer and 2 hours to make a pizza. Kris

> American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things simple, assume that each country has 100million workers. a.

> How is economics a science?

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