Question: Explain: “The success of a new product

> In the 1980s, PepsiCo Inc., which then had 28 percent of the soft-drink market, proposed to acquire the Seven-Up Company. Shortly thereafter the Coca-Cola Company, with 39 percent of the market, indicated it wanted to acquire the Dr Pepper Company. Seven

> True or false. The incidence of property taxes that are levied on rented houses and apartments is high—meaning that they are paid almost entirely by the landlords, who are billed by the government for those taxes.

> How do the top two categories of federal employment differ from the top two categories of local and state employment?

> Recall the model of nonrenewable resource extraction presented in Figure 19.7. Suppose that a technological breakthrough means that extraction costs will fall in the future (but not in the present). What will this do to future profits and, therefore, to

> Entrepreneurs are the residual claimants at their respective firms. This means that they: a. Only get paid if there is any money left over after all the other factors of production have been paid. b. Must bear the financial risks of running their firms.

> Here is the deal: You can pay your college tuition at the beginning of the academic year or the same amount at the end of the academic year. You either already have the money in an interest-bearing account or will have to borrow it. Deal, or no deal? Exp

> Manny owns a local fast-food franchise. Angel runs it for him. So in this situation, Manny is the ____________ and Angel is the ________________. a. Free rider; entrepreneur. b. Agent; principal. c. Principal; agent. d. Producer; consumer.

> Suppose that the United States has a Gini ratio of 0.41 while Sweden has a Gini ratio of 0.31. Which country has a more equal distribution of income? a. The United States. b. Sweden. c. They are actually equal.

> Have you ever worked for the minimum wage? If so, for how long? Would you favor increasing the minimum wage by a dollar? By two dollars? By five dollars? Explain your reasoning.

> A software company in Silicon Valley uses programmers (labor) and computers (capital) to produce apps for mobile devices. The firm estimates that when it comes to labor, MPL = 5 apps per month while PL = $1,000 per month. And when it comes to capital, MP

> To save money, some fast food chains are now having their customers place their orders at computer kiosks. Will the kiosks necessarily reduce the total number of workers employed in the fast food industry?  

> Learning how to use software takes time. So once customers have learned to use a particular software package, it is easier to sell them software upgrades than to convince them to switch to new software. What implications does this have for expected rates

> Collusive agreements can be established and maintained by: a. Credible threats. b. One-time games. c. Empty threats. d. First-mover advantage.

> Why might price collusion occur in oligopolistic industries? Assess the economic desirability of collusive pricing. What are the main obstacles to collusion? Speculate as to why price leadership is legal in the United States, whereas price-fixing is not.

> Compare a hypothetical DVC with a hypothetical IAC. In the DVC, average per capita income is $500 per year. In the IAC, average per capita income is $40,000 per year. If both countries have a savings rate of 10 percent per year, the amount of savings per

> As it relates to the vicious circle of poverty, what is meant by the saying “Some DVCs stay poor because they are poor”? Change the box labels as necessary in Figure 28.3 to explain rapid economic growth in countries such as South Korea and Chile. What f

> Suppose that the Fed is fixing the dollar-pound exchange rate at $2.50 = £1. If the Fed's reserve of pounds falls by £500 million, by how much would the supply of dollars increase, all other things equal?

> Return to problem 3 and assume that the exchange rate is fixed at 110. In year 1, what would be the minimum initial size of the U.S. reserve of loonies such that the United States could maintain the peg throughout the year? What about the minimum initial

> In 2015, Forbes magazine listed Bill Gates, the founder of Microsoft, as the richest person in the United States. His personal wealth was estimated to be $76 billion. Given that there were about 322 million people living in the United States that year,

> Suppose that a delivery company currently uses one employee per vehicle to deliver packages. Each driver delivers 50 packages per day, and the firm charges $20 per package for delivery. a. What is the MRP per driver per day? b. Now suppose that a union

> Generally speaking, how is the dollar price of euros determined? Cite a factor that might increase the dollar price of euros. Cite a different factor that might decrease the dollar price of euros. Explain: “A rise in the dollar price of euros necessarily

> Suppose that the opportunity-cost ratio for fish and lumber is 1F ≡ 1L in Canada but 2F ≡ 1L in Iceland. Then should specialize in producing fish while should specialize in producing lumber. a. Canada; Iceland. b. Iceland; Canada.

> What is an export supply curve? What is an import demand curve? How do such curves relate to the determination of the equilibrium world price of a tradable good?

> Migration between North Korea and South Korea has been prohibited since the end of the Korean War in 1953. South Korea is now much richer than North Korea and has a much higher marginal product of labor and a much higher wage rate than North Korea. If wo

> Suppose initially that immigrant labor and native-born labor are complementary resources. Explain how a substantial immigration might change the demand for native-born workers, altering their wages. (Review the relevant portion of Chapter 14 if necessary

> By increasing demand, health insurance creates: a. A deadweight loss related to overconsumption. b. A deadweight loss related to underconsumption. c. Neither of the above.

> What are the main groups without health insurance?

> If women are crowded into elementary education and away from fire fighting, wages in fire fighting will tend to be than if women weren’t crowded into elementary education. a. Higher. b. Lower.

> Briefly discuss the major causes of income inequality. With respect to income inequality, is there any difference between inheriting property and inheriting a high IQ? Explain.

> Which of the following are elements of current U.S. farm policy? a. Farmers are free to choose how much to plant of any particular crop. b. Direct payments. c. Price supports. d. Countercyclical payments.

> Use quintiles to briefly summarize the degree of income inequality in the United States. How and to what extent does government reduce income inequality?

> Explain and evaluate: “Industry complains of the higher taxes it must pay to finance subsidies to agriculture. Yet the trend of agricultural prices has been downward while industrial prices have been moving upward, suggesting that on balance agriculture

> True or false. Economists believe that social regulation is an exception to the MB = MC rule because social regulation should in every case extend as far as possible in order to ensure safe products, less pollution, and improved working conditions.

> Suppose a proposed merger of firms would simultaneously lessen competition and reduce unit costs through economies of scale. Do you think such a merger should be allowed?

> The efficiency loss of imposing an excise tax is due to: a. Paying a higher price per unit. b. Producing and consuming fewer units.

> For state and local governments, what are the three most important sources of revenue and types of expenditure?

> Ingvar and Olaf are the only two fishermen in their area. Each has been assigned an ITQ that allows him to catch 20 tons of salmon. Ingvar’s MC of catching salmon is $6 per ton while Olaf’s MC of catching salmon is $7 per ton. If the price of salmon is $

> Suppose that you hear two people arguing about energy. One says that we are running out of energy. The other counters that we are running out of cheap energy. Explain which person is correct and why.

> As shown in Table 18.2, $1,000 invested at 10 percent compound interest will grow into $1,331 after three years. What is the present value of $2,662 in three years if it is discounted back to the present at a 10 percent compound interest rate? (Hint: $2,

> You are currently a worker earning $60,000 per year but are considering becoming an entrepreneur. You will not switch unless you earn an accounting profit that is on average at least as great as your current salary. You look into opening a small grocery

> Why is the supply of loanable funds upsloping? Why is the demand for loanable funds downsloping? Explain the equilibrium interest rate. List some factors that might cause it to change.

> Suppose that the demand for olive oil is highly inelastic. Also suppose that the supply of olive oil is fixed for the year. If the demand for olive oil suddenly increases because of a shortage of corn oil, you would expect a in the price of olive oil. a

> Contrast the voice mechanism and the exit mechanism for communicating dissatisfaction. In what two ways do labor unions reduce labor turnover? How might such reductions increase productivity?

> On average, 50-year old workers are paid several times more than workers in their teens and twenties. Which of the following options is the most likely explanation for that huge difference in average earnings? a. Older workers have more human capital an

> Suppose that a car dealership wishes to see if efficiency wages will help improve its salespeople’s productivity. Currently, each salesperson sells an average of one car per day while being paid $20 per hour for an eight-hour day. a. What is the current

> Assume a monopsonistic employer is paying a wage rate of Wm and hiring Qm workers, as indicated in Figure 15.8. Now suppose an industrial union is formed that forces the employer to accept a wage rate of Wc. Explain verbally and graphically why in this i

> Suppose the productivity of capital and labor are as shown in the accompanying table. The output of these resources sells in a purely competitive market for $1 per unit. Both capital and labor are hired under purely competitive conditions at $3 and $1, r

> Florida citrus growers say that the recent crackdown on illegal immigration is increasing the market wage rates necessary to get their oranges picked. Some are turning to $100,000 to $300,000 mechanical harvesters known as “trunk, shake, and catch” picke

> Which statement about market structure and innovation is true? a. Innovation helps only dominant firms. b. Innovation keeps new firms from ever catching up with leading firms. c. Innovation often leads to creative destruction and the replacement of esta

> Some analysts consider oligopolies to be potentially less efficient than monopoly firms because at least monopoly firms tend to be regulated. Arguments in favor of a more benign view of oligopolies include: a. Oligopolies are self-regulating. b. Oligopo

> What assumptions about a rival’s response to price changes underlie the kinked-demand curve for oligopolists? Why is there a gap in the oligopolist’s marginal-revenue curve? How does the kinked-demand curve explain price rigidity in oligopoly? What are t

> Suppose that corn currently costs $4 per bushel and that wheat currently costs $3 per bushel. Also assume that the price elasticity of corn is .10 while the price elasticity of wheat is .15. For the following questions about elasticities, simply use the

> A DVC’s population is growing 2 percent per year and output is growing 3 percent per year. If the government wants to improve living standards over coming decades, which of the following would probably be the best savings rate for the economy? a. 2 perc

> What is the demographic transition? Contrast the demographic transition view of population growth with the traditional view that slower population growth is a prerequisite for rising living standards in the DVCs.

> A meal at a McDonald’s restaurant in New York costs $8. The identical meal at a McDonald’s restaurant in London costs £4. According to the purchasing-power-parity theory of exchange rates, the exchange rate between U.S. dollars and British pounds should

> Suppose that the current Canadian dollar (CAD) to U.S. dollar exchange rate is $.85 CAD = $1 US and that the U.S. dollar price of an Apple iPhone is $300. What is the Canadian dollar price of an iPhone? Next, suppose that the CAD to US dollar exchange ra

> "Exports pay for imports. Yet in 2012 the nations of the world exported about $540 billion more of goods and services to the United States than they imported from the United States." Resolve the apparent inconsistency of these two statements.

> Suppose that the opportunity-cost ratio for sugar and almonds is 4S ≡ 1A in Hawaii but 1S ≡ 2A in California. Which state has the comparative advantage in producing almonds? a. Hawaii. b. California. c. Neither.

> Refer to Figure 3.6, page 63. Assume that the graph depicts the U.S. domestic market for corn. How many bushels of corn, if any, will the United States export or import at a world price of $1, $2, $3, $4, and $5? Use this information to construct the U.S

> Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. Assuming constant costs, in which product

> Use the accompanying tables for Neon and Zeon to answer the questions that follow. Assume that the wage rate shown equals hourly output and income, and that the accumulated output and income are the sum of the marginal revenue products (MRPs) of each wor

> In 2012, an estimated 7.8 million Mexican-born immigrants were employed in the United States. a. If 60 percent of the Mexican-born immigrants remitted money to family members in Mexico in 2012, and if they each sent $100 per month, how much money did the

> Carefully evaluate: “The supply and demand for agricultural products are such that small changes in agricultural supply result in drastic changes in prices. However, large changes in agricultural prices have modest effects on agricultural output.” (Hint:

> How might the output and income gains from immigration shown by the simple immigration model be affected by a. Unemployment in the originating nation b. Remittances by immigrants to the home country, and c. Backflows of migrants to the home country?

> All MegaCorp employees who stay on the job for more than three years are rewarded with a 10 percent pay increase and coverage under a private health insurance plan that MegaCorp pays for. Tina just passed three years as a MegaCorp employee and reacts to

> What are the implications of rapidly rising health care prices and spending for: a. The growth of real wage rates b Government budgets c. Offshoring of U.S. jobs? Explain.

> Suppose that the last dollar that Victoria receives as income brings her a marginal utility of 10 utils while the last dollar that Fredrick receives as income brings him a marginal utility of 15 utils. If our goal is to maximize the combined total utilit

> The desire to maximize profits can work against racial and other types of discrimination. To see this, consider two equally productive accountants named Ted and Jared. Ted is black, and Jared is white. Both can complete 10 audits per month. a. Suppose t

> Why is the lifetime distribution of income more equal than the distribution in any specific year?

> The majority of farm subsidies flow toward ____________. a. Poor, small-scale farmers. b. Rich, large-scale farmers. c. Government employees. d. Grain wholesalers.

> In 2013, it was estimated that the total value of all corn-production subsidies in the United States totaled about $4.8 billion. The population of the United States was approximately 315 million people that year.. a. On average, how much did corn subsid

> The key to efficient resource allocation is shifting resources from low-productivity to high-productivity uses. In view of the high and expanding physical productivity of agricultural resources, explain why many economists want to divert additional resou

> Which of the following is the correct name for the idea that certain firms prefer government regulation because regulation shields them from the pressures of competition and, in effect, guarantees them a regulated profit? a. The public interest theory o

> True or false. Under the “rule of reason” that was established by the Supreme Court in the U.S. Steel case, a monopoly seller should be found guilty of violating antitrust laws even if it is charging low prices to consumers and acting the same way a comp

> Why might one administration interpret and enforce the antitrust laws more strictly than another? How might a change of administrations affect a major monopoly case in progress?

> Identify each of the following taxes as being either progressive or regressive. a. Personal income tax b. Sales taxes c. Payroll taxes d. Property taxes

> What is the most important source of revenue and the major type of expenditure at the federal level?

> Good methods for helping to protect natural resources include: a. Establishing property rights and giving them to local users. b. Encouraging first-come-first-served property rights. c. Teaching people to consider user cost. d. Having the government set

> Eric and Kyle are fishermen with different equipment and, as a result, different costs for catching fish. Eric’s costs for catching fish are $1,000 per ton for the first five tons and then $2,500 per ton for any additional tons. Kyle can harvest fish at

> A community has a nighttime energy demand of 50 megawatts but a peak daytime demand of 75 megawatts. It has the chance to build a 90-megawatt coal-fired plant that could easily supply all of its energy uses even at peak daytime demand. Should it necessar

> Angela puts $1,000 in a savings account that pays 3 percent per year. What is the future value of her money one year from now? a. $970. b. $1,000. c. $1,003. d. $1,030.

> Suppose that the interest rate is 4 percent. What is the future value of $100 four years from now? How much of the future value is total interest? By how much would total interest be greater at a 6 percent interest rate than at a 4 percent interest rate?

> If money is not an economic resource, why is interest paid and received for its use? What considerations account for the fact that interest rates differ greatly on various types of loans? Use those considerations to explain the relative sizes of the inte

> True or false. “To the extent that they succeed in their goals, unions only ever reduce productivity and efficiency.”

> Suppose that there are only three types of fruit sold in the United States. Annual sales are 1 million tons of blueberries, 5 million tons of strawberries, and 10 million tons of bananas. Suppose that of those total amounts, the Sunny Valley Fruit Compan

> What is the estimated size of the union wage advantage? How might this advantage diminish the efficiency with which labor resources are allocated in the economy? Normally, labor resources of equal potential productivity flow from low-wage employment to h

> The market equilibrium wage is currently $12 per hour among hairdressers. At that wage, 17,323 hairdressers are currently employed in the state. The state legislature then sets a minimum wage of $11.50 per hour for hairdressers. If there are no changes t

> Suppose that low‐skilled workers employed in clearing woodland can each clear one acre per month if each is equipped with a shovel, a machete, and a chainsaw. Clearing one acre brings in $1,000 in revenue. Each worker’s equipment costs the worker’s emplo

> Suppose the formerly competing firms in review question 1 form an employers’ association that hires labor as a monopsonist would. Describe verbally the effect on wage rates and employment. Adjust the graph you drew for review question 1, showing the mono

> FreshLeaf is a commercial salad maker that produces “salad in a bag” that is sold at many local supermarkets. Its customers like lettuce but don’t care so much what type of lettuce is included in each bag of salad, so you would expect FreshLeaf’s demand

> Consider a small landscaping company run by Mr. Viemeister. He is considering increasing his firm’s capacity. If he adds one more worker, the firm’s total monthly revenue will increase from $50,000 to $58,000. If he adds one more tractor, monthly revenue

> In each of the following four cases, MRPL and MRPC refer to the marginal revenue products of labor and capital, respectively, and PL and PC refer to their prices. Indicate in each case whether the conditions are consistent with maximum profits for the fi

> The inverted-U theory suggests that R&D expenditures as a percentage of sales __________ with industry concentration after the four-firm concentration ratio exceeds about 50 percent. a. Rise. b. Fall. c. Fluctuate. d. Flat-line.

> Answer the following lettered questions on the basis of the information in this table: a. If the interest-rate cost of funds is 8 percent, what will be the optimal amount of R&D spending for this firm? b. Explain why $20 million of R&D spending

> In an oligopoly, each firm’s share of the total market is typically determined by: a. Scarcity and competition. b. Kinked demand curves and payoff matrices. c. Homogeneous products and import competition. d. Product development and advertising.

> Both antitrust policy and industrial regulation deal with monopoly. What distinguishes the two approaches? How does government decide to use one form of remedy rather than the other?

> Explain the general meaning of the following profit payoff matrix for oligopolists C and D. All profit figures are in thousands. a. Use the payoff matrix to explain the mutual interdependence that characterizes oligopolistic industries. b. Assuming no

> Suppose a country’s total output is growing 10 percent per year but its population is growing 11 percent per year. What will happen to living standards? a. Remain the same. b. Fall. c. Rise.

> Explain how each of the following can be obstacles to the growth of income per capita in the DVCs: lack of natural resources, large populations, low labor productivity, poor infrastructure, and capital flight.

> The exchange rate between the U.S. dollar and the British pound starts at $1 = £0.5. It then changes to $1 = £0.75. Given this change, we would say that the U.S. dollar has _________ while the British pound has _____________. a. Depreciated; appreciated