Food service firms buy meat, vegetables, and other foods and resell them to restaurants, schools, and hospitals. US Foods and Sysco are by far the largest firms in the industry. In 2015, these firms were attempting to combine or merge to form a single firm. A news story quoted one restaurant owner as saying: “There was definite panic in the restaurant industry … when the merger was announced. They know they’re going to get squeezed.” a. Analyze the effect on the food service market of US Foods and Sysco combining. Draw a graph to illustrate your answer. For simplicity, assume that the market was perfectly competitive before the firms combined and would be a monopoly afterward. Be sure your graph shows changes in the equilibrium price, the equilibrium quantity, consumer surplus, producer surplus, and deadweight loss. b. Why would restaurant owners believe they would be “squeezed” by this development? Sources: Tess Stynes, “Sysco Extends merger Pact with U.S. Foods to May,” Wall Street Journal, March 9, 2015; and Annie Gasparro and Jesse Newman, “Restaurants Fear Clout of a New Food Giant,” Wall Street Journal, January 6, 2014.
> Would you expect a centrally planned economy to be better at productive efficiency or allocative efficiency? Be sure to define productive efficiency and allocative efficiency in your answer.
> An article in the Wall Street Journal notes that although U.S. oil production has increased rapidly in recent years, the increase has still amounted to only 5 percent of world production. Still, that increase has been “enough to help trigger a price coll
> Are the cross-price elasticities of demand between the following pairs of products likely to be positive or negative? Briefly explain. a. Iced coffee and iced tea b. French fries and ketchup c. Steak and chicken d. Blu-ray players and Blu-ray discs
> Suppose that Jill and Joe are the only two people in the small town of Andover. Andover has land available to build a park of no more than 9 acres. Jill and Joe’s demand schedules for the park are as follows: The supply curve is as fol
> Suppose the current equilibrium price of a quarter-pound hamburger is $5, and 10 million quarter-pound hamburgers are sold per month. After the federal government imposes a tax of $0.50 per hamburger, the equilibrium price of hamburgers rises to $5.20, a
> Briefly explain whether you agree with the following assertion: “Microeconomics is concerned with things that happen in one particular place, such as the unemployment rate in one city. In contrast, macroeconomics is concerned with things that affect the
> What is anchoring? How might a firm use anchoring to influence consumer choices so as to increase sales?
> While running for the 2016 Democratic nomination for president, Vermont Senator Bernie Sanders opposed the Trans- Pacific Partnership in part because he believed that as a result of the agreement, “the U.S. will lose more than 130,000 jobs to Vietnam and
> One leading explanation for odd pricing is that it allows firms to trick buyers into thinking they are paying less than they really are. If this explanation is correct, in what types of markets and among what groups of consumers would you be most likely
> According to an article in the Wall Street Journal, “Companies in Standard & Poor’s 500 stock index elected the smallest number of new directors last year in 10 years.” Is having members of boards of directors serve for longer periods likely to be good n
> What arguments do economists and policymakers who believe that the federal government should have a larger role in the health care system make in criticizing the ACA?
> In the following graph, the demand for hot dog buns has shifted to the right because the price of hot dogs has fallen from $2.20 to $1.80 per package. Calculate the cross-price elasticity of demand between hot dogs and hot dog buns. Price (dollars p
> The merry-go-round in Ross Park, a public park in Binghamton, New York, was first installed in 1920 and has been periodically refurbished by the city in the years since. There is no entry fee to visit the park or to ride the merry-goround. Is the merry-g
> After a federal court judge had found Apple guilty of conspiring with book publishers to raise e-book prices, the Department of Justice recommended that the judge order Apple not to sign agency pricing model contracts with publishers for five years. The
> As explained in the chapter, economic efficiency is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production. Using this explanation of economic efficiency, explain why a tax create
> According to an article in the Wall Street Journal, a decline in demand for ethanol, which is made from corn, has reduced the demand for corn. Many U.S. farmers can use the same acreage to grow either corn or soybeans. Use a demand and supply graph to an
> Briefly explain whether each of the following is primarily a microeconomic issue or a macroeconomic issue. a. The effect of higher cigarette taxes on the quantity of cigarettes sold b. The effect of higher income taxes on the total amount of consumer spe
> Does using rules of thumb increase or decrease the likelihood of a consumer making an optimal choice? Briefly explain.
> Political commentator B. Bruce-Briggs once wrote the following in the Wall Street Journal: “This is not to say that the case for international free trade is invalid; it is just irrelevant. It is an ‘if only everybody … argument… . In the real world almos
> Briefly explain how international trade increases a country’s consumption.
> The following is from an article in USA Today: In what some call a worldwide corporate governance movement, shareholders are pushing for stronger corporate-governance laws, teaming with investors from different countries and negotiating behind the scenes
> Briefly discuss how economists explain the rapid increases in health care spending.
> When lettuce prices doubled, from about $1.50 per head to about $3.00, the reaction of one consumer was quoted in a newspaper article: “I will not buy [lettuce] when it’s $3 a head,” she said, adding that other green vegetables can fill in for lettuce. “
> What is the tragedy of the commons? How can it be avoided?
> Does who is legally responsible for paying a tax—buyers or sellers—make a difference in the amount of tax each pays? Briefly explain.
> Writer Mathew Yglesias disagrees with critics who claim that Amazon has a monopoly in the e-book market: “Amazon doesn’t have any kind of monopoly… . One important hint … can be found in its quarterly financial reports. That’s where you find out about a
> Suppose the demand for smart watches increases rapidly during 2016. At the same time, six more firms begin producing smart watches. A student remarks that, because of these events, we can’t know for certain whether the price of smart watches will rise or
> Is every economic issue either strictly microeconomic or strictly macroeconomic? Briefly explain.
> Define behavioral economics. What are the three common mistakes that consumers often make? Give an example of each mistake.
> Who gains and who loses when a country imposes a tariff or a quota on imports of a good?
> What is the difference between a firm’s assets and its liabilities? Give an example of an asset and an example of a liability.
> What was the source of the problems encountered by many financial firms during the crisis of 2007–2009?
> In the United States, what has been the trend in health care spending as a percentage of GDP? Compare the increases in health care spending per person in the United States with the increases in health care spending per person in other high-income countri
> Define the income elasticity of demand. How does the income elasticity of a normal good differ from the income elasticity of an inferior good. Is it possible to tell from the income elasticity of demand whether a product is a luxury good or a necessity g
> What is free riding? How is free riding related to the need for public goods?
> What do economists mean by an efficient tax?
> If, over time, the demand curve for a product shifts to the right more than the supply curve does, what will happen to the equilibrium price? What will happen to the equilibrium price if the supply curve shifts to the right more than the demand curve? Fo
> Between them, Zillow and Trulia have a very large share of the market for online real estate listings. Real estate brokers who want to advertise their services next to online listings of houses for sale have few other choices. Zillow and Trulia have cons
> Briefly discuss the difference between microeconomics and macroeconomics.
> What does it mean to be economically rational?
> What is a tariff? What is a quota? Give an example, other than a quota, of a nontariff barrier to trade.
> Define the following terms: a. Asymmetric information b. Adverse selection c. Moral hazard d. Principal–agent problem
> What is the Sarbanes-Oxley Act? Why was it passed?
> What is the Patient Protection and Affordable Care Act (ACA)? Briefly list its major provisions.
> Define the cross-price elasticity of demand. What does it mean if the cross-price elasticity of demand is negative? What does it mean if the cross-price elasticity of demand is positive?
> Define rivalry and excludability and use these terms to discuss the four categories of goods.
> What is meant by tax incidence?
> Draw a demand and supply graph to show the effect on the equilibrium price in a market in the following situations. a. The demand curve shifts to the right. b. The supply curve shifts to the left.
> An editorial in the Economist magazine discusses the fact that in most countries—including the United States—it is illegal for individuals to buy or sell body parts, such as kidneys. a. Draw a demand and supply graph for the market for kidneys. Show on y
> Suppose that initially the gasoline market is in equilibrium, at a price of $2.50 per gallon and a quantity of 45 million gallons per month. Then a war in the Middle East disrupts imports of oil into the United States, shifting the supply curve for gasol
> University towns with major football programs experience an increase in demand for hotel rooms during home football weekends. Hotels respond to the increase in demand by increasing the prices they charge for rooms. Periodically, there is an outcry agains
> If the demand for orange juice is inelastic, will an increase in the price of orange juice increase or decrease the revenue that orange juice sellers receive?
> In the court case over whether anyone could use Conan Doyle’s character Sherlock Holmes without paying a fee, Judge Posner argued that the first Sherlock Holmes story was written in 1887, so allowing the author’s descendants to continue to claim a copyri
> According to a Congressional Budget Office report, the burden of a carbon tax would fall disproportionately on low-income households. a. What does the report mean by the “burden” of the tax? b. Why would the burden of a carbon tax fall disproportionately
> A student makes the following argument: “A price floor reduces the amount of a product that consumers buy because it keeps the price above the competitive market equilibrium. A price ceiling, though, increases the amount of a product that consumers buy b
> The British historian Thomas Macaulay once remarked that copyrights are “a tax on readers.” In what senses are copyrights a tax on readers? If copyrights are a tax on readers, why do governments enact them?
> Explain whether you agree with the following statement: Providing health care is obviously a public good. If one person becomes ill and doesn’t receive treatment, that person may infect many other people. If many people become ill, then the output of the
> An economist discussing the Obama administration’s Clean Power Plan argued, “The best solutions would involve replacing EPA-centered regulation with better-suited tools, including a carbon tax.” a. Why might implementing a carbon tax be a better approach
> According to a news story, after taxi drivers in Paris protested against Uber, the government passed a new regulation “requiring a minimum 15-minute wait between the time a car is booked and the passenger is picked up.” Why would taxi drivers believe the
> According to an article on Phillyburbs.com, some farmers in rural Pennsylvania are causing a “stink” by using pig manure for fertilizer. The farmers purchase the pig manure, which is an organic fertilizer, from a nearby pork processing plant and spread i
> Why would it be economically efficient to require a natural monopoly to charge a price equal to marginal cost? Why do most regulatory agencies require natural monopolies to charge a price equal to average cost instead?
> An article in the Los Angeles Times describes a healthy 23-year-old woman who has decided not to buy health insurance as “exactly the type of person insurance plans, states and the federal government are counting on to make health reform work.” Why are h
> What is a Pigovian tax? How large should a Pigovian tax be to achieve efficiency?
> The graph on the next page illustrates the situation in the dry cleaning market, assuming that the marginal social cost of the pollution increases as the quantity of items cleaned per week increases. The graph includes two demand curves: one for a smalle
> Use the information on the market for apartments in Bay City in the table to answer the following questions: a. In the absence of rent control, what is the equilibrium rent, and what is the equilibrium quantity of apartments rented? Draw a demand and s
> In a report on property rights around the world, Peruvian economist Hernando De Soto noted the increasing evidence of a strong relationship between “economic successes and countries that include protective policy measures over property rights.” Why would
> Instagram is a smartphone app that Facebook now owns. According to an article that discusses the climate for software firms in the San Francisco Bay Area, the success of Instagram “is a tale about the culture of the Bay Area tech scene, driven by a tight
> An article in the Economist argues that the real problem with health insurance is: The healthy people who decide not to buy insurance out of rational self-interest, and who turn out to be right. By not buying insurance, those (largely young) healthy peo
> Former Massachusetts Governor Deval Patrick once proposed that criminals would have to pay a “safety fee” to the government. The size of the fee would be based on the seriousness of the crime (that is, the fee would be larger for more serious crimes). a.
> Briefly explain whether you agree with the following statement: “If there is a shortage of a good, it must be scarce, but there is not a shortage of every scarce good.”
> Some economists have been puzzled that although entrepreneurs take on the risk of losing money by starting new businesses, on average their incomes are lower than those of people with similar characteristics who go to work at large firms. Economist Willi
> President Barack Obama described a trade agreement reached with the government of Colombia as a “‘win–win’ for both our countries.” Is everyone in both countries likely to win from the agreement? Briefly explain. Source: Kent Klein, “Obama: Free Trade A
> What is the difference between a horizontal merger and a vertical merger? Which type of merger is more likely to increase the market power of a newly merged firm?
> Why do some consumers tend to favor price controls while others tend to oppose them?
> An opinion column in the Wall Street Journal observes about “defensive medicine” that “many physicians maintain that fear of lawsuits significantly affects the practice of medicine, and that reform of the malpractice system is crucial for containing cost
> The Delaware River Joint Toll Bridge Commission increased the toll from $0.50 to $1.00 on the bridges on Route 22 and Interstate 78 from New Jersey to Pennsylvania. Use the information in the following table to answer the questions. (Assume that besides
> Companies that produce toilet paper bleach the paper to make it white. Some paper plants discharge the bleach into rivers and lakes, causing substantial environmental damage. Suppose the following graph illustrates the situation in the toilet paper marke
> The competitive equilibrium rent in the city of Lowell is currently $1,000 per month. The government decides to enact rent control and establish a price ceiling of $750 per month for apartments. Briefly explain whether rent control is likely to make each
> To receive a medical license in the United States, a doctor must complete a residency program at a hospital. Hospitals are not free to expand their residency programs in a particular medical specialty without approval from a residency review committee (R
> Suppose the graph on the next page shows Tanzania’s production possibilities frontier for cashew nuts and mangoes. Assume that the output per hour of work is 8 bushels of cashew nuts or 2 bushels of mangoes and that Tanzania has 1,000 h
> A news story notes that some features of the U.S. health care system contribute “to the high cost of medical care by encouraging hospitals and doctors to perform tests and procedures regardless of the value to a patient.” What features is the article ref
> Amazon allows authors who self-publish their e-books to set the prices they charge. One author was quoted as saying: “I am able to drop prices and, by sheer volume of sales, increase my income.” Was the demand for her books price elastic or price inelast
> The fumes from dry cleaners can contribute to air pollution. Suppose the following graph illustrates the situation in the dry cleaning market. a. Explain how a government can use a tax on dry cleaning to bring about the efficient level of production. W
> If San Francisco were to repeal its rent control law, would the prices for short-term rentals in the city listed on Airbnb and other peer-to-peer sites be likely to rise or fall? Briefly explain.
> What do economists mean by market equilibrium?
> What is the purpose of the antitrust laws? Who is in charge of enforcing these laws?
> Writing in the New York Times, Michael Lewis argued that “a market economy is premised on a system of incentives designed to encourage an ignoble human trait: selfinterest.” Do you agree that self-interest is an “ignoble human trait”? What incentives doe
> Suppose you were building an economic model to forecast the number of physicians and physician’s assistants likely to be needed in 2020. Should your model take into account the growth of the home medical device industry? Briefly explain.
> Hal Varian, chief economist at Google, has made the following two observations about international trade. a. Trade allows a country “to produce more with less.” b. “There is little doubt who wins [from trade] in the long run: consumers.” Briefly explain
> While teaching the concepts of asymmetric information, a professor asked his students for examples of adverse selection or moral hazard in marriage. One of the students, who happened to be married, replied: “Your spouse doesn’t bring you flowers anymore!
> According to an article in the New York Times, some small publishers have argued that Amazon has been increasing the prices it charges for their books on its Web site. Amazon was increasing the prices by reducing the discount it offered consumers on the
> Solved Problem 5.3 contains the statement “Of course, the government actually collects the tax from sellers rather than from consumers, but we get the same result whether the government imposes a tax on the buyers of a good or on the sellers.” Demonstrat
> A Wall Street Journal article noted that a study by the U.S. Congressional Budget Office “estimated raising the minimum wage to $10.10 an hour would reduce U.S. employment by 500,000 but lift 900,000 Americans out of poverty.” Why might raising the minim
> Evaluate the following argument: “Adam Smith’s analysis of the market system is based on a fundamental flaw: He assumes that people are motivated by self-interest. But this isn’t true. I’m not selfish, and most people I know aren’t selfish.”
> An article in the Wall Street Journal discussing Sanadu’s prospects for successfully selling its home medical devices observes, “Another challenge will be getting doctors on board with the idea of patients bringing them information from home.” What econo
> What is a circular-flow diagram, and what does it demonstrate?
> Suppose that Uber decides that its strategy of using surge pricing during times of high demand is causing the company to receive too much bad publicity. It decides that it will maintain its regular prices even during periods of high demand. a. If you are
> Thomas Kinnaman, an economist at Bucknell University, has analyzed the pricing of garbage collection: Setting the appropriate fee for garbage collection can be tricky when there are both fixed and marginal costs of garbage collection…. A curbside price s
> What is a monopsony?
> An article in the New Yorker states, “the main burden of trade-related job losses and wage declines has fallen on middle- and lower-income Americans. But … the very people who suffer most from free trade are often, paradoxically, among its biggest benefi
