Mexico has daily (rather than hourly) minimum wage laws. In 2016, the daily minimum wage in Mexico was about 73 pesos per day, and the exchange rate between Mexican pesos and U.S. dollars was about 17 pesos per dollar. a. In 2016, what was the Mexican minimum daily wage in terms of dollars? b. Given that Mexican employees typically work 8-hour days, about how much per hour is the Mexican minimum wage in terms of dollars? c. In 2016, the Federal minimum wage in the United States was $7.25 per hour. How many times larger was the hourly U.S. federal minimum wage than the hourly Mexican minimum wage? d. If unskilled workers have a tendency to migrate to where they can obtain the highest compensation for their labor, which country is more likely to be receiving low-skilled immigrants?
> In Country A, a worker can make 5 bicycles per hour. In Country B, a worker can make 7 bicycles per hour. Which country has an absolute advantage in making bicycles? a. Country A. b. Country B.
> True or false. In the United States, unions have been gaining in membership and power for several decades.
> How might protective tariffs reduce both the imports and the exports of the nation that levies tariffs? In what way do foreign firms that “dump” their products onto the U.S. market in effect provide bargains to American consumers? How might the import co
> If someone favors the free movement of labor within the United States, is it inconsistent for that person to also favor restrictions on the international movement of labor? Why or why not?
> Explain how health care insurance results in an over allocation of resources to the health care industry. Use a demand and supply diagram to specify the resulting efficiency loss.
> How do government statisticians determine the poverty rate? How could the poverty rate fall while the number of people in poverty rises? Which group in each of the following pairs has the higher poverty rate: (a) children or people age 65 or over? (b) Af
> What are the effects of farm subsidies such as those of the United States and the European Union on (a) domestic-agricultural prices, (b) world agricultural prices, and (c) the international allocation of agricultural resources?
> In view of the problems involved in regulating natural monopolies, compare socially optimal (marginal-cost) pricing and fair-return pricing by referring again to Figure 12.9. Assuming that a government subsidy might be used to cover any loss resulting fr
> True or False. The MB = MC level of immigration is likely to be achieved if we simply let in every person who wishes to immigrate to the United States.
> Given the inelasticity of cigarette demand, discuss an excise tax on cigarettes in terms of efficiency loss and tax incidence.
> Various cultures have come up with their own methods to limit catch size and prevent fishery collapse. In old Hawaii, certain fishing grounds near shore could be used only by certain individuals. And among lobstermen in Maine, strict territorial rights a
> How do the concepts of accounting profit and economic profit differ? Why is economic profit smaller than accounting profit? What are the three basic sources of economic profit? Classify each of the following according to those sources: a. A firm’s profi
> Speculate as to why we see unnecessary occupational licensing only in some industries but not others. Consider both costs and benefits, who gets them, and how hard it would be to organize opposition to unnecessary licensing in various industries.
> Assume that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata: Canswicki: 1 can baby formula ≡ 2 cans tuna fish Tunata: 1 can baby formula ≡ 4 cans tuna fish In what product shoul
> Evaluate: “Society does not need laws outlawing monopolization and monopoly. Inevitably, monopoly causes its own self-destruction since its high profit is the lure for other firms or entrepreneurs to develop substitute products.”
> Look back at Figure 14.8. Suppose that the two firms switch places—the firm that was the follower now gets to go first while the firm that was the leader now has to go second. The new subgame perfect Nash equilibrium will lead to terminal node: a. A. b.
> Refer to the payoff matrix in question 8 at the end of this chapter. First, assume this is a one-time game. Explain how the $60/$57 outcome might be achieved through a credible threat. Next, assume this is a repeated game (rather than a one-time game) an
> Why do you think there is so much government corruption in some developing countries?
> If the economy booms in the United States while going into recession in other countries, the U.S. trade deficit will tend to ______. a. Increase. b. Decrease. c. Remain the same.
> In July 2007 The Wall Street Journal (WSJ) reported that a growing shortage of skilled labor in Eastern European countries such as Slovakia was driving up wages in key industries and reducing business income. The reason for the shortages was a large migr
> Would it be accurate to think of a fixed exchange rate as a simultaneous price ceiling and price floor?
> True or False: If a country is open to international trade, the domestic price for a homogeneous good can differ from the international price for the same good.
> In 2013, manufacturing workers in the United States earned average compensation of $36.34 per hour. That same year, manufacturing workers in Mexico earned average compensation of $6.82 per hour. How can U.S. manufacturers possibly compete? Why isn’t all
> Why are so many state and local governments greatly concerned about the federal government’s allegedly lax enforcement of the immigration laws and Congressional proposals to grant legal status (amnesty) to the 11.3 million illegal immigrants in the Unite
> How do advances in medical technology and health insurance interact to drive up the cost of medical care?
> Quantitatively, how important is international trade to the United States relative to the importance of trade to other nations? What country is the United States’ most important trading partner, quantitatively? With what country does the United States ha
> Comment on or explain: a. Endowing everyone with equal income will make for very unequal enjoyment and satisfaction. b. Equality is a “superior good”; the richer we become, the more of it we can afford. c. The mob goes in search of bread, and the means
> Do you agree with each of the following statements? Explain why or why not. a. The problem with U.S. agriculture is that there are too many farmers. That is not the fault of farmers but the fault of government programs. b. The Federal government ought to
> What types of industries, if any, should be subjected to industrial regulation? What specific problems does industrial regulation entail?
> What is the tax incidence of an excise tax when demand is highly inelastic? Highly elastic? What effect does the elasticity of supply have on the incidence of an excise tax? What is the efficiency loss of a tax, and how does it relate to elasticity of de
> True or False. Under the PPACA, Americans are free to decide for themselves whether or not they should have health insurance coverage.
> User cost is equal to the present-value of future profits in the model presented in Figure 19.7. Will the optimal quantity to mine in the present year increase or decrease if the market rate of interest rises? Does your result make any intuitive sense? (
> Historically, usury laws that put below-equilibrium ceilings on interest rates have been used by some states to make credit available to poor people who could not otherwise afford to borrow. Critics contend that poor people are those most likely to be hu
> What is the principal-agent problem? Have you ever worked in a setting where this problem has arisen? If so, do you think increased monitoring would have eliminated the problem? Why don’t firms simply hire more supervisors to eliminate shirking?
> Make a case that neither pure competition nor pure monopoly is conducive to a great deal of R&D spending and innovation. Why might oligopoly be more favorable to R&D spending and innovation than either pure competition or pure monopoly? What is the inver
> Look back at Figure 14.7. Suppose that the payouts at terminal node B change to (13,12) while everything else in the game stays the same. The new subgame perfect Nash equilibrium will consist of the two line segments: a. Build at BB followed by Build at
> Is the game shown by Figure 14.1 a zero-sum game or is it a positive-sum game? How can you tell? Are there dominant strategies in this game? If so, what are they? What cell represents a Nash equilibrium and why? Explain why it is so difficult for Uptown
> Each year, the number of legal immigrants to the United States is ___________ the number of illegal immigrants. a. Less than. b. Equal to. c. Greater than. d. Less than, but only in most years, not every year.
> True or False: Some economists argue that the single best thing that IACs could do for DVCs in terms of economic growth would be to eliminate trade barriers between IACs and DVCs.
> Do you think that the nature of the problems the DVCs face requires a government-directed or a private-sector directed development process? Explain your reasoning.
> Suppose that a country follows a managed-float policy but that its exchange rate is currently floating freely. In addition, suppose that it has a massive current account deficit. Other things equal, are its official reserves increasing, decreasing, or st
> What are the estimated income and price elasticities of demand for health care? How does each relate to rising health care costs?
> Explain why you agree or disagree with the following statements: a. A country that grows faster than its major trading partners can expect the international value of its currency to depreciate. b. A nation whose interest rate is rising more rapidly than
> Which of the following are benefits of international trade? Choose one or more answers from the choices shown. a. A more efficient allocation of resources. b. A higher level of material well-being. c. Gains from specialization. d. Promoting competition.
> Evaluate the effectiveness of artificial trade barriers, such as tariffs and import quotas, as a way to achieve and maintain full employment throughout the U.S. economy. How might such policies reduce unemployment in one U.S. industry but increase it in
> Why is each of these statements somewhat misleading? a. “Illegal immigrants take only jobs that no American wants.” b. “Deporting 100,000 illegal immigrants would create 100,000 job openings for Americans.”
> Briefly discuss the demand and supply factors that contribute to rising health costs. Specify how a. Asymmetric information b. Fee-for-service payments c. Defensive medicine d. Medical ethics might cause health care costs to rise.
> Do you agree or disagree? Explain your reasoning. “There need be no trade-off between equality and efficiency. An ‘efficient’ economy that yields an income distribution that many regard as unfair may cause those with meager incomes to become discouraged
> Explain the economic effects of price supports. Explicitly include environmental and global impacts in your answer. On what grounds do economists contend that price supports cause a misallocation of resources?
> “The social desirability of any particular firm should be judged not on the basis of its market share but on the basis of its conduct and performance.” Make a counterargument, referring to the monopoly model in your statement.
> To fund its wars against Napoleon, the British government sold consol bonds. They were referred to as “perpetuities” because they would pay £3 every year in perpetuity (forever). If a citizen could purchase a consol for £25, what would its annual interes
> How does Henry George’s proposal for a single tax on land relate to the elasticity of the supply of land? Why are there so few remaining advocates of George’s proposal?
> Look back at Figure 2. In the union sector, the union’s ability to raise wages from Wn to Wu decreases total employment from N1 to N2. Thus N1 – N2 workers are displaced from the union sector and will seek employment in the nonunion sector. But suppose t
> What is meant by a progressive tax? A regressive tax? A proportional tax? Comment on the progressivity or regressivity of each of the following taxes, indicating in each case where you think the tax incidence lies: a. The federal personal income tax; b.
> Should a nation’s income be distributed to its members according to their contributions to the production of that total income or according to the members’ needs? Should society attempt to equalize income or economic opportunities? Are the issues of equi
> Explain how featherbedding and other restrictive work practices can reduce labor productivity. Why might strikes reduce the economy’s output less than the loss of production by the struck firms?
> True or false. When a labor market consists of a single monopsony buyer of labor interacting with a single monopoly seller of labor (such as a trade union), the resulting quantity of labor that is hired will always be inefficiently low.
> Assume a firm is a monopsonist that can hire its first worker for $6 but must increase the wage rate by $3 to attract each successive worker (so that the second worker must be paid $9, the third $12, and so on). a. Draw the firm’s labor supply and marg
> Describe wage determination in a labor market in which workers are unorganized and many firms actively compete for the services of labor. Show this situation graphically, using W1 to indicate the equilibrium wage rate and Q1 to show the number of workers
> Alice runs a shoemaking factory that utilizes both labor and capital to make shoes. Which of the following would shift the factory’s demand for capital? You can select one or more answers from the choices shown. a. Many consumers decide to walk barefoot
> Suppose that a monopoly firm finds that its MR is $50 for the first unit sold each day, $49 for the second unit sold each day, $48 for the third unit sold each day, and so on. Further suppose that the first worker hired produces 5 units per day, the seco
> What factors determine the elasticity of resource demand? What effect will each of the following have on the elasticity or the location of the demand for resource C, which is being used to produce commodity X? Where there is any uncertainty as to the out
> The long-run downward trend in commodity prices is consistent with the idea that: a. We are quickly running out of resources. b. Resource demands have been increasing faster than resource supplies. c. Birthrates will soon increase due to the falling cos
> An additional unit of Old Product X will bring Cindy an MU of 15 utils; an additional unit of New Product Y will bring Cindy an MU of 30 utils; and an additional unit of New Product Z will bring Cindy an MU of 40 utils. If a unit of Old Product X costs $
> Consider the effect that corporate profit taxes have on investing. Look back at Figure 15.4. Suppose that the r line is the rate of return a firm earns before taxes. If corporate profit taxes are imposed, the firm’s after-tax returns will be lower (and t
> Suppose that a government wants to reduce its economy’s dependence on coal and decides as a result to tax coal mining companies $1 per ton for every ton of coal that they mine. Assuming that coal mining companies treat this tax as an increase in extracti
> Consider an oligopoly industry whose firms have identical demand and cost conditions. If the firms decide to collude, then each one will want to produce the amount of output that it would if it were: a. A monopolistic competitor. b. A pure competitor. c
> Examine the following game tree. Fred and Sally are planning on running competing restaurants. Each must decide whether to rent space or buy space. Fred goes first at decision node F. Sally goes second at either decision node S1 or decision node S2 (depe
> Answer the following questions, which relate to measures of concentration: a. What is the meaning of a four-firm concentration ratio of 60 percent? 90 percent? What are the shortcomings of concentration ratios as measures of monopoly power? b. Suppose t
> True or False: A DVC that has little in the way of natural resources is destined to remain poor.
> Assume that a very tiny and very poor DVC has income per capita of $300 and total national income of $3 million. How large is its population? If its population grows by 2 percent next year while its total income grows by 3 percent, what will be its new i
> Explain how the absolute per capita income gap between rich and poor nations might increase, even though per capita income (or output) is growing faster in DVCs than in IACs.
> Suppose that a country has a trade surplus of $50 billion, a balance on the capital account of $10 billion, and a balance on the current account of -$200 billion. The balance on the capital and financial account will be: a. $7,200 billion. b. $1,200 bill
> China had a $214 billion overall current account surplus in 2012. Assuming that China’s net debt forgiveness was zero in 2012 (its capital account balance was zero), by how much did Chinese purchases of financial and real assets abroad exceed foreign pur
> Suppose that the current (first) generation consists of 1 million people, half of whom are women. If the total fertility rate is 1.3 and the only way people die is of old age, how big will the fourth generation (the great-grandchildren) be? How much smal
> Explain: “U.S. exports earn supplies of foreign currencies that Americans can use to finance imports.” Indicate whether each of the following creates a demand for or a supply of European euros in foreign exchange markets: a. A U.S. airline firm purchases
> Distinguish between nominal and real interest rates. Which is more relevant in making investment and R&D decisions? If the nominal interest rate is 12 percent and the inflation rate is 8 percent, what is the real rate of interest?
> In Country A, the production of 1 bicycle requires using resources that could otherwise be used to produce 11 lamps. In Country B, the production of 1 bicycle requires using resources that could otherwise be used to produce 15 lamps. Which country has a
> The accompanying hypothetical production possibilities tables are for New Zealand and Spain. Each country can produce apples and plums. Plot the production possibilities data for each of the two countries separately. Referring to your graphs, answer the
> Distinguish among land-, labor-, and capital-intensive goods, citing an example of each without resorting to book examples. How do these distinctions relate to international trade? How do distinctive products, unrelated to resource intensity, relate to i
> The primary reason people immigrate to the United States is: a. To escape political or religious oppression back home. b. To reunite with family members. c. To improve earnings and living standards. d. None of the above.
> Differences in productivity are usually the major force behind differences in wages and unit labor costs. Suppose that a single unskilled worker at a pottery factory in Mexico can produce 1 mug per hour. By comparison, suppose that a single unskilled wor
> In what respect is the economic decision to move across international borders an investment decision? Why do economic migrants move to some countries but not to others? Cite an example of an explicit cost of moving; an implicit cost of moving. How do dis
> Which of the following make a person less likely to have health insurance? Select one or more answers from the choices shown. a. Working for a larger firm. b. Being a low-wage worker. c. Being employed. d. Having excellent health. e. Being chronically i
> The Federal tax code allows businesses but not individuals to deduct the cost of health insurance premiums from their taxable income. Consider a company named HeadBook that could either spend $5000 on an insurance policy for an employee named Vanessa or
> What are the “twin problems” of the health care industry as viewed by society? How are they related?
> Describe Thomas Malthus’ theory of human reproduction. Does it make sense for some species—say bacteria or rabbits? What do you think makes humans different?
> What is meant by investment in human capital? Use this concept to explain a. Wage differentials and b. The long-run rise of real wage rates in the United States.
> Some part of income inequality is likely to be the result of discrimination. But other factors responsible for inequality include (select as many as apply): a. Differences in abilities and talents. b. Differences in education and training. c. Different
> Imagine an economy with only two people. Larry earns $20,000 per year while Roger earns $80,000 per year. As shown in the following figure, the Lorenz curve for this two-person economy consists of two line segments. The first runs from the origin to poin
> Assume that Al, Beth, Carol, David, and Ed receive incomes of $500, $250, $125, $75, and $50, respectively. Construct and interpret a Lorenz curve for this five-person economy. What percentage of total income is received by the richest quintile and by th
> Use supply and demand curves to depict equilibrium price and output in a competitive market for some farm product. Then show how an above-equilibrium price floor (price support) would cause a surplus in this market. Demonstrate in your graph how governme
> Suppose that both wheat and corn have an income elasticity of .1. a. If the average income in the economy increases by 2 percent each year, by how many percentage points does the quantity demanded of wheat increase each year, holding all other factors c
> What relationship, if any, can you detect between the facts that farmers’ fixed costs of production are large and the supply of most agricultural products is generally inelastic? Be specific in your answer.
> How would you expect antitrust authorities to react to: a. A proposed merger of Ford and General Motors. b. Evidence of secret meetings by contractors to rig bids for highway construction projects. c. A proposed merger of a large shoe manufacturer and a
> Carrot Computers and its competitors purchase touch screens for their tablet computers from several suppliers. The six makers of touch screens have market shares of, respectively, 19 percent, 18 percent, 14 percent, 16 percent, 20 percent, and 13 percent
> Describe the major provisions of the Sherman and Clayton acts. What government entities are responsible for enforcing those laws? Are firms permitted to initiate antitrust suits on their own against other firms?
> Suppose George made $20,000 last year and that he lives in the country of Harmony. The way Harmony levies income taxes, each citizen must pay 10% in taxes on their first $10,000 in earnings and then 50% in taxes on anything else they might earn. So given
> Do you think the overall level of R&D would increase or decrease over the next 20 to 30 years if the lengths of new patents were extended from 20 years to, say, “forever”? What if the duration were reduced from 20 years to, say, 3 years?
> When using a supply-and-demand model to illustrate how land rents are set, economists typically draw the supply curve as a vertical line because: a. The supply of land is fixed. b. The supply of land is perfectly inelastic. c. The quantity supplied of l
