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 it employs is generally to wreck the bakeries. d. Some freedoms may be more important in the long run than freedom from want on the part of every individual. e. Capitalism and democracy are really a most improbable mixture. Maybe that is why they need each other—to put some rationality into equality and some humanity into efficiency. f. The incentives created by the attempt to bring about a more equal distribution of income are in conflict with the incentives needed to generate increased income.
> What are the combined rent, interest, and profit share of the income earned by Americans in a typical year if proprietors’ income is included within the labor (wage) share?
> Suppose you are playing a game in which you and one other person each picks a number between 1 and 100, with the person closest to some randomly selected number between 1 and 100 winning the jackpot. (Ask your instructor to fund the jackpot.) Your oppone
> Do you favor debt forgiveness to all DVCs, just the poorest ones, or none at all? What incentive problem might debt relief create? Would you be willing to pay $20 a year more in personal income taxes for debt forgiveness? How about $200? How about $2000?
> Suppose Super D’Hiver—a hypothetical French snowboard retailer—wants to order 5000 snowboards made in the United States. The price per board is $200, the present exchange rate is 1 euro = $1, and payment is due in dollars when the boards are delivered in
> Suppose that if Iceland and Japan were both closed economies, the domestic price of fish would be $100 per ton in Iceland and $90 per ton in Japan. If the two countries decided to open up to international trade with each other, which of the following cou
> Identify and state the significance of each of the following trade-related entities: a. The WTO b. The EU c. The Euro Zone d. NAFTA.
> What was the single most important reason for the decline in illegal immigration between 2007 and 2009? What other factors were at play? Going forward, why might people think it more likely that illegal immigration will fall rather than rise?
> How is the moral hazard problem relevant to the health care market?
> What are the essential differences between social insurance and public assistance programs? Why is Medicare a social insurance program whereas Medicaid is a public assistance program? Why is the earned-income tax credit considered to be a public assistan
> We see quite a bit of international trade in the real world. And trade is driven by specialization. So why don’t we see full specialization—for instance, all cars in the world being made in South Korea, or all the mobile phones in the world being made in
> Use public choice theory to explain the persistence of farm subsidies in the face of major criticisms of those subsidies. If the special-interest effect is so strong, what factors made it possible in 1996 for the government to end price supports and acre
> Do all international financial transactions necessarily involve exchanging one nation’s distinct currency for another? Explain. Could a nation that neither imports goods and services nor exports goods and services still engage in international financial
> How does social regulation differ from industrial regulation? What types of benefits and costs are associated with social regulation?
> Suppose the equation for the demand curve for some product X is P = 8 - .6Q and the supply curve is P = 2 + .4Q. What are the equilibrium price and quantity? Now suppose an excise tax is imposed on X such that the new supply equation is P = 4 + .4Q. How
> Aquaculture is the growing of fish, shrimp, and other seafood in enclosed cages or ponds. The cages and ponds not only keep the seafood from swimming away but also provide aquaculturalists with strong property rights over their animals. Does this provide
> Why is the distinction between insurable and uninsurable risks significant for the theory of profit? Carefully evaluate: “All economic profit can be traced to either uncertainty or the desire to avoid it.” What are the major functions of economic profit?
> How could spending less on Social Security now lead to an ability to increase Social Security in the future? Why don't businesses devote more of their R&D spending toward basic scientific research?
> Refer to the payoff matrix below. Assuming this is a sequential game with no collusion, what is the outcome if Firm A moves first to build a new type of commercial aircraft? Explain why first-mover strategies in the real-world are only as good as the
> What types of products do the DVCs typically export? How do those exports relate to the law of comparative advantage? How do tariffs by IACs reduce the standard of living of DVCs?
> Other things equal, if the United States continually runs trade deficits, foreigners will own ________ U.S. assets. a. More and more. b. Less and less. c. The same amount of.
> The potentially valid arguments for tariff protection—military self-sufficiency, infant industry protection, and diversification for stability—are also the most easily abused.” Why are these arguments susceptible to abuse?
> What have been the major causes of the large U.S. trade deficits in recent years? What are the major benefits and costs associated with trade deficits? Explain: “A trade deficit means that a nation is receiving more goods and services from abroad than it
> Suppose that the current international price of wheat is $6 per bushel and that the United States is currently exporting 30 million bushels per year. If the United States suddenly became a closed economy with respect to wheat, would the domestic price of
> 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
> 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?
> 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 m
> “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?
