Use a production possibilities frontier to describe the idea of “efficiency.”
> A farmer grows wheat, which she sells to a miller for $100. The miller turns the wheat into flour, which she sells to a baker for $150. The baker turns the wheat into bread, which she sells to consumers for $180. Consumers eat the bread. a. What is GDP i
> Assume the United States is an importer of televisions and there are no trade restrictions. U.S. consumers buy 1 million televisions per year, of which 400,000 are produced domestically and 600,000 are imported. a. Suppose that a technological advance am
> Hotel rooms in Smalltown go for $100, and 1,000 rooms are rented on a typical day. a. To raise revenue, the mayor decides to charge hotels a tax of $10 per rented room. After the tax is imposed, the going rate for hotel rooms rises to $108, and the numbe
> One of the largest changes in the economy over the past several decades is that technological advances have reduced the cost of making computers. a. Draw a supply-and-demand diagram to show what happened to price, quantity, consumer surplus, and producer
> What happens to consumer and producer surplus when the sale of a good is taxed? How does the change in consumer and producer surplus compare to the tax revenue? Explain.
> At Fenway Park, home of the Boston Red Sox, seating is limited to about 38,000. 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
> 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.
> 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?
> Describe the role of prices in market economies.
> 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
> 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 talented people have a comparative advant
> What is the difference between a positive and a normative statement? Give an example of each.
> What is inflation and what causes it?
> 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
> Describe two ways the U.S. government tries to encourage advances in technological knowledge.
> The market for pizza is characterized by a downward-sloping demand curve and an upward-sloping supply curve. a. Draw the competitive market equilibrium. Label the price, quantity, consumer surplus, and producer surplus. Is there any deadweight loss? Expl
> International data show a positive correlation between income per person and the health of the population. a. Explain how higher income might cause better health outcomes. b. Explain how better health outcomes might cause higher income. c. How might the
> The chapter explains that Social Security benefits are increased each year in proportion to the increase in the CPI, even though most economists believe that the CPI overstates actual inflation. a. If the elderly consume the same market basket as other p
> Why is it desirable for a country to have a large GDP? Give an example of something that would raise GDP and yet be undesirable.
> Having rejected a tariff on textiles (a tax on imports), the president of Isoland is now considering the same- sized tax on textile consumption (including both imported and domestically produced textiles). a. Using Figure 4, identify the quantity consume
> This chapter analyzed the welfare effects of a tax on a good. Now consider the opposite policy. Suppose that the government subsidizes a good: For each unit of the good sold, the government pays $2 to the buyer. How does the subsidy affect consumer surpl
> There are four consumers willing to pay the following amounts for haircuts: Gloria: $35 Jay: $10 Claire: $40 Phil: $25 There are four haircutting businesses with the following costs: Firm A: $15 Firm B: $30 Firm C: $20 Firm D: $10 Each firm has the capac
> 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
> If a fixed quantity of a good is available, and no more can be made, what is the price elasticity of supply?
> The New York Times reported (Feb. 17, 1996) that subway ridership declined after a fare increase: “There were nearly four 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 prev
> 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?
> A tax on a good has a deadweight loss if a. the reduction in consumer and producer surplus is greater than the tax revenue b. the tax revenue is greater than the reduction in consumer and producer surplus c. the reduction in consumer surplus is greater t
> The market for pizza has the following demand and supply schedules: a. Graph the demand and supply curves. What are the equilibrium price and quantity in this market? b. If the actual price in this market were above the equilibrium price, what would dri
> 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
> What are the two subfields into which economics is divided? Explain what each subfield studies.
> Why is productivity important?
> 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
> How does the rate of population growth influence the level of GDP per person?
> The International Property Right Index scores countries based on the legal and political environment and how well property rights are protected. Go online and find a recent ranking. Choose three countries with high scores and three countries with low sco
> A dozen eggs cost $0.88 in January 1980 and $2.11 in January 2015. The average wage for production workers was $7.58 per hour in January 1980 and $19.64 in January 2015. a. By what percentage did the price of eggs rise? b. By what percentage did the wage
> In the year 2017, the economy produces 100 loaves of bread that sell for $2 each. In the year 2018, the economy produces 200 loaves of bread that sell for $3 each. Calculate nominal GDP, real GDP, and the GDP deflator for each year. (Use 2017 as the base
> Consider the following data on U.S. GDP: Year Nominal GDP (in billions of dollars) GDP What was the growth rate of nominal GDP between 1994 and 2014? (Hint: The growth rate of a variable X over an N-year period is calculated as 100 × [(X fin
> Draw a demand curve for turkey. In your diagram, show a price of turkey and the consumer surplus at that price. Explain in words what this consumer surplus measures.
> Consider a country that imports a good from abroad. For each of following statements, state whether it is true or false. Explain your answer. a. “The greater the elasticity of demand, the greater the gains from trade.” b. “If demand is perfectly inelasti
> The government places a tax on the purchase of socks. a. Illustrate the effect of this tax on equilibrium price and quantity in the sock market. Identify the following areas both before and after the imposition of the tax: total spending by consumers, to
> The cost of producing flat-screen TVs has fallen over the past decade. Let’s consider some implications of this fact. a. Draw a supply-and-demand diagram to show the effect of falling production costs on the price and quantity of flat-screen TVs sold. b.
> What determines how the burden of a tax is divided between buyers and sellers? Why?
> 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 us
> How is the price elasticity of supply calculated? Explain what it measures.
> Suppose that your demand schedule for pizza is as follows: a. Use the midpoint method to calculate your price elasticity of demand as the price of pizza increases from $8 to $10 if (i) your income is $20,000 and (ii) your income is $24,000. b. Calculat
> Define the equilibrium of a market. Describe the forces that move a market toward its equilibrium.
> Ketchup is a complement (as well as a condiment) for hot dogs. If the price of hot dogs rises, what happens in the market for ketchup? For tomatoes? For tomato juice? For orange juice?
> 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 XX possible? Explain. b. For
> Explain how buyers’ willingness to pay, consumer surplus, and the demand curve are related.
> What are the two main causes of market failure? Give an example of each.
> If a nation has high and persistent inflation, the most likely explanation is a. the central bank creating excessive amounts of money. b. unions bargaining for excessively high wages. c. the government imposing excessive levels of taxation. d. firms usin
> Why would removing a trade restriction, such as a tariff, lead to more rapid economic growth?
> In many developing nations, young women have lower enrollment rates in secondary school than do young men. Describe several ways in which greater educational opportunities for young women could lead to faster economic growth in these countries.
> Thomas Robert Malthus believed that population growth would a. put stress on the economy’s ability to produce food, dooming humans to remain in poverty. b. spread the capital stock too thinly across the labor force, lowering each worker’s productivity. c
> Which of the problems in the construction of the CPI might be illustrated by each of the following situations? Explain. a. the invention of cell phones b. the introduction of air bags in cars c. increased personal computer purchases in response to a decl
> You deposit $2,000 in a savings account, and a year later you have $2,100. Meanwhile, the CPI rises from 200 to 204. In this case, the nominal interest rate is _____ percent, and the real interest rate is _____ percent. a. 1, 5 b. 3, 5 c. 5, 1 d. 5, 3
> Why do economists use real GDP rather than nominal GDP to gauge economic well-being?
> Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 3 bars and the price is $4. In year 2, the quantity produced is 4 bars and the price is $5. In year 3, the quantity produced is 5 bars and the price is $6. Year 1
> Melissa buys an iPhone for $240 and gets consumer surplus of $160. a. What is her willingness to pay? b. If she had bought the iPhone on sale for $180, what would her consumer surplus have been? c. If the price of an iPhone were $500, what would her cons
> If all quantities produced rise by 10 percent and all prices fall by 10 percent, which of the following occurs? a. Real GDP rises by 10 percent, while nominal GDP falls by 10 percent. b. Real GDP rises by 10 percent, while nominal GDP is unchanged. c. Re
> What is the difference between the unilateral and multilateral approaches to achieving free trade? Give an example of each.
> China is a major producer of grains, such as wheat, corn, and rice. Some years ago, the Chinese government, concerned that grain exports were driving up food prices for domestic consumers, imposed a tax on grain exports. a. Draw the graph that describes
> The main difference between imposing a tariff and handing out licenses under an import quota is that a tariff increases a. consumer surplus. b. producer surplus. c. international trade. d. government revenue.
> Daniel Patrick Moynihan, the late senator from New York, once introduced a bill that would levy a 10,000 percent tax on certain hollow-tipped bullets. a. Do you expect that this tax would raise much revenue? Why or why not? b. Even if the tax would raise
> If a policymaker wants to raise revenue by taxing goods while minimizing the deadweight losses, he should look for goods with ________ elasticities of demand and ________ elasticities of supply. a. small, small b. small, large c. large, small d. large, l
> Consider a market in which Bert from problem 4 is the buyer and Ernie from problem 5 is the seller. a. Use Ernie’s supply schedule and Bert’s demand schedule to find the quantity supplied and quantity demanded at prices of $2, $4, and $6. Which of these
> Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer’s willingness to pay is a. negative. b. zero. c. positive but less than the marginal seller’s cost. d. positive and greater than the marginal
> How does a tax on a good affect the price paid by buy- ers, the price received by sellers, and the quantity sold?
> 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.
> Jen values her time at $60 an hour. She spends 2 hours giving Colleen a massage. Colleen was willing to pay as much at $300 for the massage, but they negotiate a price of $200. In this transaction, a. consumer surplus is $20 larger than producer surplus.
> When a good is taxed, the burden of the tax falls mainly on consumers if a. the tax is levied on consumers. b. the tax is levied on producers. c. supply is inelastic, and demand is elastic. d. supply is elastic, and demand is inelastic.
> What do we call a good with an income elasticity less than zero?
> The price of coffee rose sharply last month, while the quantity sold remained the same. Five people suggest various explanations: Leonard: Demand increased, but supply was perfectly inelastic. Sheldon: Demand increased, but it was perfectly inelastic. Pe
> Over time, technological advance increases consumers’ incomes and reduces the price of smart phones. Each of these forces increases the amount consumers spend on smart phones if the income elasticity of demand is greater than ________ and if the price el
> Does a change in producers’ technology lead to a movement along the supply curve or to a shift in the supply curve? Does a change in price lead to a movement along the supply curve or to a shift in the supply curve?
> 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 appropria
> Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold? a. an increase in the price of peanut better, a complement to jelly b. an increase in the price of Marshmallow
> Why do economists oppose policies that restrict trade among nations?
> The following table describes the production possibilities of two cities in the country of Baseballia: Pairs of Red Socks Pairs of White Socks per Worker per Hour per Worker per Hour Boston 3 3 Chicago 2 1 a. Without trade, what is the price of white soc
> Kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. Her roommate takes half as long to do each task. How should the roommates allocate the work? a. Kayla should do more of the cooking based on her comparative advantage. b. Kayla shoul
> Define price ceiling and price floor and give an example of each. Which leads to a shortage? Which leads to a surplus? Why?
> Draw and explain a production possibilities frontier for an economy that produces milk and cookies. What happens to this frontier if a disease kills half of the economy’s cows?
> 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
> Which of the following is a positive, rather than a normative, statement? a. Law X will reduce national income. b. Law X is a good piece of legislation c. Congress ought to pass law X. d. The president should veto law X.
> What does the “invisible hand” of the marketplace do?
> A 1996 bill reforming the federal government’s anti- poverty 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 equalit
> Governments may intervene in a market economy in order to a. protect property rights. b. correct a market failure due to externalities. c. achieve a more equal distribution of income. d. All of the above.
> Does a higher rate of saving lead to higher growth temporarily or indefinitely?
> In the 1990s and the first decade of the 2000s, investors from the Asian economies of Japan and China made significant direct and portfolio investments in the United States. At the time, many Americans were unhappy that this investment was occurring. a.
> When the Japanese car maker Toyota expands one of its car factories in the United States, what is the likely impact of this event on the gross domestic product and gross national product of the United States? a. GDP rises and GNP falls. b. GNP rises and
> Explain the meaning of nominal interest rate and real interest rate. How are they related?
> Give an example of a price ceiling and an example of a price floor.
> A small nation of ten people idolizes the TV show The Voice. All they produce and consume are karaoke machines and CDs, in the following amounts: a. Using a method similar to the CPI, compute the percentage change in the overall price level. Use 2017 as
> If the CPI is 200 in year 1980 and 300 today, then $600 in 1980 has the same purchasing power as ________ today a. $400 b. $500 c. $700 d. $900
> Why should policymakers care about GDP?
> List the four components of GDP. Give an example of each.
> Below are some data from the land of milk and honey. a. Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2016 as the base year. b. Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2017 and 2018 from
> Which is the largest component of GDP? a. consumption b. investment c. government purchases d. net exports.
> List five arguments often given to support trade restrictions. How do economists respond to these arguments?
> The nation of Textilia does not allow imports of clothing. In its equilibrium without trade, a T-shirt costs $20, and the equilibrium quantity is 3 million T-shirts. One day, after reading Adam Smith’s The Wealth of Nations while on vacation, the preside