Governments often have multiple objectives in imposing a tax. In each part of this question, use a demand and supply graph to illustrate your answer. a. If the government wants to minimize the excess burden from excise taxes, should these taxes be imposed on goods that have price-elastic demand or goods that have price-inelastic demand? b. Suppose that rather than minimizing excess burden, the government is most interested in maximizing the revenue it receives from the tax. In this situation, should the government impose excise taxes on goods that have price-elastic demand or on goods that have price-inelastic demand? c. Suppose that the government wants to discourage smoking and drinking alcohol. Will a tax be more effective in achieving this objective if the demand for these goods is price elastic or if the demand is price inelastic?
> What is a black market? Under what circumstances do black markets arise?
> Briefly explain whether you agree with Manager 2’s reasoning: Manager 1: “The only way we can increase the revenue we receive from selling our frozen pizzas is by cutting the price.” Manager 2: “Cutting the price of a product never increases the amount o
> Writing in the New York Times, Michael Lewis argued, “Good new technologies are a bit like good new roads: Their social benefits far exceed what any one person or company can get paid for creating them.” Does this observation justify the government subsi
> In Allentown, Pennsylvania, in the summer of 2014, the average price of a gallon of gasoline was $3.68—a 22-cent increase from the year before. Many consumers were upset by the increase. One consumer was quoted in a local newspaper as saying, “It’s crazy
> Suppose that your college decides to give away 1,000 tickets to the football game against your school’s biggest rival. The athletic department elects to distribute the tickets by giving them away to the first 1,000 students who show up at the department’
> If the labor supply curve shifts to the left and the labor demand curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.
> If a market is in equilibrium, is it necessarily true that all buyers and sellers are satisfied with the market price? Briefly explain.
> Nobel Prize–winning economist Kenneth Arrow of Stanford University once wrote that the argument that the outcomes in a market system “may be very different from, and even opposed to, intentions is surely the most important intellectual contribution that
> A study analyzed the costs to a pharmaceutical firm of developing a prescription drug and receiving government approval. An article in the Wall Street Journal noted that included in the firm’s costs was “the return that could be gained if the money [used
> In early 2015, gasoline prices in many parts of the United States had fallen to below $2.00 per gallon, which a news story called “one of the swiftest declines on record.” Is gasoline likely to be an inferior good or a normal good for most people? Is you
> What effect would the following events be likely to have on the price of Google’s stock? a. A competitor launches a search engine that is better than Google’s. b. The corporate income tax is abolished. c. Google’s board of directors becomes dominated by
> Ira Goldman invented the Knee Defender, which keeps the airline seat in front of you from reclining. He argues that airlines have sold the space between two seats to the person occupying the seat but also to the person in the seat in front of that seat b
> What are the main variables that will cause the demand curve to shift? Give an example of each.
> Using the following graph, explain why economic surplus would be smaller if Q1 or Q3 were the quantity produced than if Q2 is the quantity produced. Price Supply Demand Q, Quantity
> Alberto Chong of the University of Ottawa and several colleagues conducted an experiment to test the efficiency of government postal services around the world. They mailed letters to nonexistent businesses in 159 countries and kept track of how many of t
> Suppose that Bill owns an automobile collision repair shop. The following table shows how the quantity of cars Bill can repair per month depends on the number of workers he hires. Assume that he pays each worker $4,000 per month and his fixed cost is $6,
> If the labor demand curve shifts to the left and the labor supply curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.
> In studying the consumption of very poor families in China, Robert Jensen and Nolan Miller found that in both Hunan and Gansu, “Giffen behavior is most likely to be found among a range of households that are poor (but not too poor or too rich).” a. What
> While running for president, Barack Obama made the following statement: “Well, look, people don’t want a cheaper T-shirt if they’re losing a job in the process.” What did Obama mean by the phrase “losing a job in the process”? Using the economic concept
> Investors use the bond ratings from Moody’s, S&P, and Fitch to determine which bonds they will buy and the prices they are willing to pay for them. The rating services charge the firms and governments that issue bonds, rather than investors, for their se
> Warren Buffet is the chief executive officer of the investment firm Berkshire Hathaway and one of the wealthiest people in the world. In an editorial in the Wall Street Journal, Buffet argued that economic policies in the United States should be designed
> What is odd pricing?
> An article in the Economist notes that about 10 percent of people in the United States work in health care and that “these workers have the crucial job of making American health care more efficient, probably the country’s top domestic challenge.” a. How
> Suppose that a country has 20 million households. Ten million are poor households that each have labor market earnings of $20,000 per year, and 10 million are rich households that each have labor market earnings of $80,000 per year. If the government ena
> One of the trade-offs Tesla faces is between safety and the maximum range someone can drive an all-electric car before having to recharge it. For example, adding steel to a car makes it safer but also heavier, which results in fewer miles between recharg
> Why do economists often use a lower poverty threshold for low-income countries than for high-income countries such as the United States? Is there a difference between relative poverty and absolute poverty? Briefly explain.
> Evaluate the following statement: “Policies to redistribute income are desperately needed in the United States. Without such policies, the roughly 15 percent of the population that is currently poor has no hope of ever climbing above the poverty line.”
> Identify whether each of the following transactions will take place in the factor market or in the product market and whether households or firms are supplying the good or service or demanding the good or service. a. George buys a Tesla Model S. b. Tesla
> An article in the Wall Street Journal explained that the 10 wealthiest four-year colleges in the United States accounted for one-third of the total cash and investments held by all four-year colleges. The 40 wealthiest colleges accounted for two-thirds o
> An article in the New York Times about former Secretary of State Hillary Clinton’s campaign for president noted that she proposed to “increase taxes on the wealthiest Americans to combat a widening gap between rich and poor.” a. Currently, does the effec
> Mabel is an advocate for a “zero tolerance” policy regarding all illegal street drugs, including cocaine, marijuana, and heroin. Mabel has witnessed high crime and violence in her neighborhood and believes that only if police arrest and prosecute anyone
> Use the following Lorenz curve graph to answer the questions. a. Did the distribution of income become more equal in 2016 than it was in 2015, or did it become less equal? Briefly explain. b. If area A 5 2,150, area B 5 250, and area C = 2,600, calcula
> Las Vegas is one of the most popular tourist destinations in the United States. Several years ago, the Rio Hotel and Casino in Las Vegas dropped the price of its breakfast buffet to $5.99 for local residents, while keeping the regular price of $14.99 for
> A column in the New York Times observes that the “growing trend of ‘assortative mating’ is a major cause of income inequality.” a. What is assortative mating? b. How can assortative mating contribute to income inequality? c. If assortative mating is a ma
> In a column in the Washington Post, Robert J. Samuelson wrote: “As for what’s caused greater inequality, we’re also in the dark. The Reagan and Bush tax cuts are weak explanations, because gains have occurred in pretax incomes… . Up to a point, inequalit
> According to the FBI Bank Crime Statistics, there were nearly 4,000 bank robberies in the United States in 2014. The FBI claims that banks have made themselves easy targets by refusing to install clear acrylic partitions, called bandit barriers, that sep
> Describe the trend in global poverty rates.
> State whether each of the following events will result in a movement along the market supply curve of agricultural labor in the United States or whether it will cause the market supply curve of agricultural labor to shift. If the supply curve shifts, ind
> Describe the main factors economists believe cause inequality of income.
> What is a Lorenz curve? What is a Gini coefficient? If a country had a Gini coefficient of 0.48 in 1960 and 0.44 in 2016, would income inequality in the country have increased or decreased?
> Define poverty line and poverty rate. How has the poverty rate changed in the United States since 1960?
> Discuss the extent of income inequality in the United States. Has inequality in the distribution of income in the United States increased or decreased over time? Briefly explain.
> Suppose the government decides to tax sales of pizzas. Use the following graph to answer the questions. a. How much of a per unit tax did the government impose on pizzas? b. Before the tax, what price do consumers pay for pizza? How does the price cons
> A student argues: “Economic surplus is greatest at the level of output where the difference between marginal benefit and marginal cost is largest.” Do you agree? Briefly explain.
> Explain whether you agree with the following statement: “For a given demand curve, the excess burden of a tax will be greater when supply is less price elastic than when it is more price elastic.” Illustrate your answer with a demand and supply graph.
> During the nineteenth century, the U.S. Congress encouraged railroad companies to build transcontinental railways across the Great Plains by giving them land grants. At that time, the federal government owned most of the land on the Great Plains. The lan
> Use the following graph of the market for cigarettes to answer the questions. a. If the government imposes a 10-cent-per-pack tax on cigarettes, will the price consumers pay rise more if the demand curve is D1 or if the demand curve is D2? Briefly expl
> Which of the following are examples of a firm experiencing positive technological change? a. A fall in the wages it pays its mechanics leads United Airlines to lower its ticket prices. b. A training program makes a firm’s workers more productive. c. An e
> A columnist in the New York Times notes that the U.S. labor supply “in the next decade is expected to expand at less than half the pace of the 1960s, 1970s and 1980s.” What explains these changing growth rates in the U.S. labor supply? Source: Eduardo P
> According to an article in the New York Times, when the French government imposed a new tax on sales of beer, it estimated that the retail price of beer would rise by the equivalent of 6 cents per half pint. A spokesman for the beer industry argued that
> Business historian John Steele Gordon noted in a Wall Street Journal column that the first federal corporate income tax was enacted in 1909, before passage of the Sixteenth Amendment made a federal income tax constitutional. According to Gordon, Congress
> According to an article in the New York Times, some New Yorkers were deciding to buy existing condominiums (condos) rather than newly constructed condos. One reason given was that “[some buyers] seek to avoid the 1.825 percent transfer tax that buyers mu
> According to the 2004 Economic Report of the President, “Another crucial principle [of tax incidence] is that only people can pay taxes. Businesses and other artificial entities cannot pay taxes.” Do you agree that businesses cannot pay taxes? Don’t busi
> According to the 2004 Economic Report of the President, “The actual incidence of a tax may have little to do with the legal specification of its incidence.” Briefly explain what this statement means and discuss whether you agree with it. Source: Executi
> Briefly discuss the effect of price elasticity of supply and demand on tax incidence.
> What does tax incidence mean?
> In late 2014, oil prices were falling, but some energy traders were convinced that oil prices would begin to rise within a few months. According to a news story, these expectations were causing some “traders to put oil in storage while they wait for pric
> The following data summarize the trade between Canada and the United States in 2013 and 2014. In each year, the value of Canada’s exports to the United States exceeded the value of U.S. exports to Canada. Can we conclude that foreign
> What is producer surplus? How does producer surplus change as the equilibrium price of a good rises or falls?
> Briefly explain which of the following statements represent positive analysis and which represent normative analysis. a. A 50-cent-per-pack tax on cigarettes will lead to a 12 percent reduction in smoking by teenagers. b. The federal government should sp
> Under Armour, Inc., was founded in 1996 by Kevin Plank, a 23-year-old former University of Maryland football player. The company specializes in manufacturing and selling athletic and casual apparel made from synthetic material that repels moisture. The c
> The following graph represents the situation of a perfectly competitive firm. Indicate on the graph the areas that represent the following: a. Total cost b. Total revenue c. Variable cost d. Profit or loss Briefly explain whether the firm will continue
> Matt Rafferty produces hiking boots in the perfectly competitive hiking boots market. a. Fill in the missing values in the following table. b. Suppose the equilibrium price in the hiking boots market is $100. How many pairs of boots should Matt produce
> Ed Scahill produces table lamps in the perfectly competitive desk lamp market. a. Fill in the missing values in the following table. b. Suppose the equilibrium price in the desk lamp market is $50. How many table lamps should Ed produce, and how much p
> Consider a firm in each of the following three situations. For each situation, carefully explain whether the firm will produce in the short run or shut down in the short run. Situation 1 Situation 2 Situation 3 Price $10 $10 $10 Quantity 1,000 1,000
> How is the market supply curve derived from the supply curves of individual firms?
> What is the relationship between a perfectly competitive firm’s marginal cost curve and its supply curve?
> At one point, Time Warner and the Walt Disney Company discussed merging their news operations. Time Warner owns Cable News Network (CNN), and Disney owns ABC News. After analyzing the situation, the companies decided that a combined news operation would
> What is the difference between a firm’s shutdown point in the short run and in the long run? Why are firms willing to accept losses in the short run but not in the long run?
> The following graph represents the situation of Marguerite’s Caps, a firm selling caps in the perfectly competitive cap industry: a. How much output should Marguerite produce to maximize her profits? b. How much profit will she earn?
> Suppose that the price of oil doubles, raising the cost of home-heating oil and electricity. What effect would this development have on U.S. firms manufacturing solar panels? Illustrate your answer with two graphs: one showing the situation in the market
> What is limited liability? Why does the government grant limited liability to the owners of corporations?
> Use the midpoint formula for calculating elasticity to calculate the price elasticity of supply between point A and point B for each panel of Figure 6.5 on page 206. Figure 6.5: Price Price (dollars (dollars Supplyet 1. With olastic supply, an increa
> In The Wealth of Nations, Adam Smith discussed what has come to be known as the “diamond and water paradox”: Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrar
> An article in the Wall Street Journal discussed the financial results for BlackBerry, the smart phone and software company: “Revenue tumbled 32% from a year earlier to $658 million in the quarter ended May 30 from $966 million a year earlier…. BlackBerry
> A student examines the following graph and argues: “I believe that a firm will want to produce at Q1, not at Q2. At Q1, the distance between price and marginal cost is the greatest. Therefore, at Q1, the firm will be maximizing its prof
> Suppose the equilibrium price of basketballs falls to $2.50. Now how many basketballs will Andy produce? What price will he charge? How much profit (or loss) will he make?
> Frances sells pencils in the perfectly competitive pencil market. Her output per day and her costs are as follows: a. If the current equilibrium price in the pencil market is $1.80, how many pencils will Frances produce, what price will she charge, and
> Draw a graph showing a firm that is operating at a loss in a perfectly competitive market. Be sure your graph includes the firm’s demand curve, marginal revenue curve, marginal cost curve, average total cost curve, and average variable cost curve and mak
> Draw a graph showing a firm that is making a profit in a perfectly competitive market. Be sure your graph includes the firm’s demand curve, marginal revenue curve, marginal cost curve, average total cost curve, and average variable cost curve and make su
> In Table 12.3 what are Farmer Parker’s fixed costs? Suppose that his fixed costs increase by $10. Will this increase change the profit-maximizing level of production for Farmer Parker? Briefly explain. How much profit will Farmer Parker
> An article in the Wall Street Journal discussed the purchase of the small Zipcar rental car firm by the much larger Avis. The article predicted that the purchase would be successful because of the “efficiencies gained by putting the two companies togethe
> In 1879, economist Henry George published Progress and Poverty, which became one of the best-selling books of the nineteenth century. In this book, George argued that all existing taxes should be replaced with a single tax on land. Tax incidence refers t
> Briefly describe changes over time in the health of the average person in the United States.
> Suppose that the marginal cost of wheat is $0.50 higher for every bushel of wheat produced. For example, the marginal cost of producing the eighth bushel of wheat is now $9.50. Assume that the price of wheat remains $7 per bushel. Will this increase in m
> Under what circumstances are firms likely to produce more of a good or service? Under what circumstances are firms likely to produce less of a good or service?
> Suppose the price of wheat falls to $5.50 per bushel. How many bushels of wheat will Farmer Parker produce, and how much profit will he make? Briefly explain. Table 12.3: (1) Quantity (bushels) (Q) (2) Total Revenue (4) Profit (TR – TC) (5) Marginal
> Why don’t firms maximize revenue rather than profit? Briefly explain whether a firm that maximized revenue would be likely to produce a smaller or larger quantity than if it were maximizing profit.
> A student argues: “To maximize profit, a firm should produce the quantity where the difference between marginal revenue and marginal cost is the greatest. If a firm produces more than this quantity, then the profit made on each additional unit will be fa
> Explain why it is true that for a firm in a perfectly competitive market, the profit-maximizing condition MR = MC is equivalent to the condition P = MC.
> Explain why at the level of output where the difference between TR and TC is at its maximum positive value, MR must equal MC.
> Explain why it is true that for a firm in a perfectly competitive market, P = MR = AR.
> In 2015, some beer drinkers f iled a lawsuit against Anheuser-Busch, the brewer of Beck’s beer. The beer drinkers claimed that Beck’s was marketed as an authentic German beer but was actually brewed in St. Louis. Other breweries have established faciliti
> The financial writer Andrew Tobias described an incident that occurred when he was a student at the Harvard Business School: Each student in the class was given large amounts of information about a particular firm and asked to determine a pricing strateg
> If a 10 percent increase in the price of Cheerios causes a 25 percent reduction in the number of boxes of Cheerios demanded, what is the price elasticity of demand for Cheerios? Is the demand for Cheerios elastic or inelastic?
> Explain whether you agree with the following remark: According to the model of perfectly competitive markets, the demand curve for wheat should be a horizontal line. But this can’t be true: When the price of wheat rises, the quantity of wheat demanded fa
> Suppose that Jill Johnson has to choose between building a smaller restaurant and a larger restaurant. In the graph on the next page, the relationship between costs and output for the smaller restaurant is represented by the curve ATC1, and the relations
> Suppose an economist develops an economic model and finds that “it works great in theory, but it fails in practice.” What should the economist do next?
> The late Nobel Prize–winning economist George Stigler once wrote, “the most common and most important criticism of perfect competition … [is] that it is unrealistic.” Since few firms sell identical products in markets where there are no barriers to entry
> Explain whether each of the following is a perfectly competitive market. For each market that is not perfectly competitive, explain why it is not. a. Corn farming b. Coffee shops c. Automobile manufacturing d. New home construction
