In the first years following the passage of the Clean Air Act in 1970, air pollution declined sharply, and there were important health benefits, including a decline in infant mortality. According to an article in the Economist, however, recently some policymakers “worry that the EPA is constantly tightening restrictions on pollution, at ever higher cost to business but with diminishing returns in terms of public health.” a. Why might additional reductions in air pollution come at “ever higher cost”? What does the article mean when it says that these reductions will result in “ever diminishing returns in terms of public health”? b. How should the federal government decide whether further reductions in air pollution are needed? Source: “Soaring Emissions,” Economist, June 2, 2011.
> What is a monopoly? Can a firm be a monopoly if close substitutes for its product exist?
> Describe the five competitive forces model.
> Refer to Figure 14.5 on page 484. Consider the entries in the row of the payoff matrix that correspond to Saudi Arabia choosing “Low Output.” Suppose the numbers change so that Nigeria’s profit is $15
> Suppose that in the situation shown in Figure 14.7 on page 487, TruImage’s prof it is $1.5 million if the firm accepts Dell’s contract offer of $20 per copy. Now will Dell offer TruImage a contract for $20 per copy or
> During the 1970s, many women changed their minds about whether they would leave the labor force after marrying and having children or whether they would be in the labor force most of their adult lives. In 1968, the National Longitudinal Survey asked a re
> Use the information on the kumquat market in the table to answer the following questions: a. What are the equilibrium price and quantity? How much revenue do kumquat producers receive when the market is in equilibrium? Draw a graph showing the market e
> In June 2013, Microsoft announced that its new Xbox One video game console would have a price of $499. Sony then announced that its new PlayStation 4 video game console would have a price of $399. An article on the event where Microsoft introduced the ne
> Bradford is a small town that currently has no fast food restaurants. McDonald’s and Burger King both are considering entering this market. Burger King will wait until McDonald’s has made its decision before deciding w
> Adam operates a pin factory. Suppose Adam faces the situation shown in the following table and the cost of renting a machine is $550 per week. a. Fill in the blank cells in the table and determine the prof it-maximizing number of machines for Adam to ren
> How are decision trees used to analyze sequential games?
> What is a sequential game?
> Anheuser-Busch InBev is the Belgian company that produces Budweiser, which has a large market share in the U.S. beer industry. According to an article in the New York Times, “Anheuser-Busch (InBev) signals to its competitors that if they lower prices, it
> An article in the Economist on evaluating health outcomes is subtitled “To Improve Health Care, Governments Need to Use the Right Data.” Among the data not currently being collected in most countries, the article mentions “how soon after surgery patients
> Suppose there are four large manufacturers of toilet tissue. The largest of these manufacturers announces that it will raise its prices by 15 percent due to higher paper costs. Within three days, the other three large toilet tissue manufacturers announce
> Finding dominant strategies is often a very effective way of analyzing a game. Consider the following game: Microsoft and Apple are the two firms in the market for operating systems. Each firm has two strategies: charge a high price or charge a low price
> Draw a graph of a perfectly inelastic demand curve. Think of a product that would have a perfectly inelastic demand curve. Explain why demand for this product would be perfectly inelastic.
> For many years, airlines would post proposed changes in ticket prices on computer reservation systems several days before the new ticket prices went into effect. Eventually, the federal government took action to end this practice. Now airlines can post p
> Airlines sometimes find themselves in price wars. Consider the following game: Delta and United are the only two airlines flying the route from Houston to Omaha. Each firm has two strategies: charge a high price or charge a low price. a. What (if any)
> An article discusses the market for autographs by Mickey Mantle, the superstar center fielder for the New York Yankees during the 1950s and 1960s: “At card shows, golf outings, charity dinners, Mr. Mantle signed his name over and over.” One expert on spo
> In 2015, the U.S. Department of Justice was investigating whether the four major U.S. airlines were colluding by restraining increases in capacity with the goal of avoiding price cutting. An airline industry analyst commented on the investigation, “I don
> How can improvements in health increase a country’s total income? How can increases in a country’s total income improve health?
> In 2014, Walmart decided that it would begin a new policy in which its stores would match prices being charged by large Web retailers such as Amazon. For example, if it was selling a 4K television for $899 and Amazon was selling it for $799, Walmart woul
> World War I began in August 1914 and on the Western Front quickly bogged down into trench warfare. In Belgium and northern France, British and French troops were dug into trenches facing German troops a few hundred yards away. The troops continued firing
> An economist argues that with respect to advertising in some industries, “gains to advertising firms are matched by losses to competitors” in the industry. Briefly explain the economist’s reasoning. If his reasoning is correct, why do firms in these indu
> Coca-Cola and Pepsi both advertise aggressively, but would they be better off if they didn’t? Their commercials are usually not designed to convey new information about their products. Instead, they are designed to capture each other’s customers. Constru
> UPS and FedEx both struggle to deliver the surge of packages they receive during the end-of-year holiday season. According to an article in the Wall Street Journal, in 2014, both firms considered charging firms such as Amazon rates that would be 10 perce
> The following table is similar to Table 17.2 on page 573, except that it includes the earnings of Asian males and females. Table 17.2: Does the fact that Asian males are the highest earning group in the table affect the likelihood that economic discri
> The entrance fee into Yellowstone National Park in northwestern Wyoming is “$50 for a private, noncommercial vehicle; $40 for a motorcycle; or $20 for each visitor 16 and older entering by foot, bike, ski, etc.” The fee provides the visitor with a seven-
> The total amount of oil in the earth is not increasing. Does this mean that in the market for oil, the supply curve is perfectly inelastic? Briefly explain.
> A student argues: “The prisoner’s dilemma game is unrealistic. Each player’s strategy is based on the assumption that the other player won’t cooperate. But if each player assumes that the other player will cooperate, the ‘dilemma’ disappears.” Briefly ex
> For several years, a professor at Johns Hopkins University had been using the following grading scheme for his final exam: He would give an A to the student with the highest score. The grades of the remaining students were then based on what percentage t
> What are property rights? What role do they play in the working of a market system? Why are independent courts important for a well-functioning economy?
> What is the midpoint formula for calculating price elasticity of demand? How else can you calculate the price elasticity of demand? What is the advantage of using the midpoint formula?
> Under “early decision” college admission plans, students apply to a college in the fall and, if they are accepted, they must enroll in that college. Some critics of early decision plans, including some college presidents, argue that the plans put too muc
> Explain how collusion makes firms better off. Given the incentives to collude, briefly explain why every industry doesn’t become a cartel.
> Bob and Tom are two criminals who have been arrested for burglary. The police put Tom and Bob in separate cells. They offer to let Bob go free if he confesses to the crime and testif ies against Tom. Bob also is told that he will serve a 15-year sentence
> What is a prisoner’s dilemma game? Is the outcome of the game likely to be different in a repeated game? Briefly explain.
> Prior to the early twentieth century, a worker who was injured on the job could collect damages only by suing his employer. To sue successfully, the worker—or his family, if the worker had been killed—had to show that the injury was due to the employer’s
> What is the difference between explicit collusion and implicit collusion? Give an example of each.
> Why do economists refer to the methodology for analyzing oligopolies as game theory?
> Give brief definitions of the following concepts. a. Game theory b. Cooperative equilibrium c. Noncooperative equilibrium d. Dominant strategy e. Nash equilibrium f. Price leadership
> The North Carolina State Board of Dental Examiners had been requiring that only licensed dentists be allowed to sell teeth-whitening services. The board brought legal action against hair salons and spas that also offered these services, arguing that only
> In discussing the reduction of air pollution in the developing world, Richard Fuller of the Blacksmith Institute, an environmental organization, observed, “It’s the 90/10 rule. To do 90 percent of the work only costs 10 percent of the money. It’s the las
> Alfred Chandler, who was a professor at the Harvard Business School, once observed: “Imagine the diseconomies of scale—the great increase in unit costs—that would result from placing close to one-fourth of the world’s production of shoes, or textiles, or
> What is economic efficiency? How do externalities affect the economic efficiency of market equilibrium?
> Like many other cities, Denver experienced a sharp decline in construction of new homes in the years following 2006. Many carpenters, roofers, and other skilled workers left the area or found jobs in other industries. In addition, builders stopped buying
> Dr. Strangelove’s theory is that the price of mushrooms is determined by the activity of subatomic particles that exist in another universe parallel to ours. When the subatomic particles are emitted in profusion, the price of mushrooms is high. When suba
> The graph on the next page illustrates the average total cost curves for two automobile manufacturing firms: Little Auto and Big Auto. Under which of the following conditions would you expect to see the market composed of firms like Little Auto, and unde
> Sam Goldwyn, a movie producer during Hollywood’s Golden Age in the 1930s and 1940s, once remarked about one of his stars: “We’re overpaying him, but he’s worth it.” a. In what sense did Goldwyn mean that he was overpaying this star? b. If he was overpayi
> While a professor at the Harvard Business School, the late Thomas McCraw wrote: “Throughout American history, entrepreneurs have tried, sometimes desperately, to create big businesses out of naturally smallscale operations. It has not worked.” What advan
> An article in the Wall Street Journal noted that Google was planning on entering the market to provide wireless data services. According to the article, “Google has said it isn’t looking to supplant the big carriers, and Verizon’s and AT&T’s enormous sca
> Michael Porter has argued that “the intensity of competition in an industry is neither a matter of coincidence nor bad luck. Rather, competition in an industry is rooted in its underlying economic structure.” What does Porter mean by “economic structure”
> Give an example of a government-imposed barrier to entry. Why would a government be willing to erect barriers to firms entering an industry?
> What do barriers to entry have to do with the extent of competition in an industry? What is the most important reason that some industries, such as music streaming, are dominated by just a few firms?
> In his review of a book, business writer Nick Schultz cited the following passage that refers to the market for high-speed Internet access: “There are two enormous monopoly submarkets—one for wireless and one for wired transmission. Both are dominated by
> What is an oligopoly? Give three examples of oligopolistic industries in the United States.
> JustFab is an online fashion retailer that analyzes information about customers obtained from its Web site to gauge the clothing they like most and the frequency of their purchases. This information has enabled the company to respond quickly to changes i
> What is consumer surplus? How does consumer surplus change as the equilibrium price of a good rises or falls?
> Briefly explain whether you agree with the following statement: “If consumer surplus in a market increases, producer surplus must decrease.”
> Why are there superstar basketball players but no superstar plumbers?
> Writing about a trip to Switzerland in an article in the New York Times, economist Daniel Hamermesh noted that electrical outlets in Switzerland use an unusual threeprong plug. Adapters for that type of plug are not typically included in adapter sets, so
> Some companies have done a poor job protecting the images of their products. For example, Hormel’s Spam brand name is widely ridiculed and is associated with annoying commercial messages received via e-mail. Think of other cases of companies failing to p
> For years, the Abercrombie & Fitch clothing stores received free advertising by placing the company logo prominently on the shirts, hoodies, and other clothing they sell. A news story indicated that in 2015, Abercrombie intended to remove its logos from
> A skeptic says: “Marketing research and brand management are unnecessary. If a company wants to find out what customers want, it should simply look at what they’re already buying.” Do you agree with this comment? Explain.
> Draw a graph that shows the effect on a firm’s profit when it increases spending on advertising but the increased advertising has no effect on the demand for the firm’s product.
> Why are many companies so concerned about brand management?
> Define marketing. Is marketing just another name for advertising?
> In recent years, consumers have been less willing to buy packaged foods that contain gluten or high levels of fat and salt or soft drinks containing sugar. Firms such as General Mills, Kellogg, and Coca-Cola have responded by modifying many of their prod
> Consider the following graph: a. At the profit-maximizing level of output, how much economic profit is this firm earning? Briefly explain. b. Is this firm allocatively efficient? Is it productively efficient? Briefly explain. Price and MC ATC cost
> What is the difference between a change in demand and a change in quantity demanded?
> According to Alan Krueger, an economist at Princeton University, the share of concert ticket revenue received by the top 1 percent of all acts rose from 26 percent in 1982 to 56 percent in 2003. Does this information indicate that the top acts in 2003 mu
> In describing what happened to Crumbs Bakery, an analyst of the food industry noted the entry of competitors such as Sprinkles and Georgetown Cupcake. He concluded, “It got to the level where there were too many cupcakes and not enough people who wanted
> Consider the following graph: a. Is it possible to say whether this firm is a perfectly competitive firm or a monopolistically competitive firm? If so, explain how you are able to make this determination. b. Does the graph show a short-run equilibrium
> Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you find some indication about whether a publishing company actually is using cost-plus pricing for all its books?
> Suppose that the following table shows the quantity supplied of UGG boots at five different prices in 2016 and 2017: Name two different variables that if their values were to change would cause the quantity supplied of UGG boots to change from 2016 to
> A student makes the following comment: I can understand why a perfectly competitive firm won’t earn a profit in the long run because it charges a price equal to marginal cost. But a monopolistically competitive firm can charge a price greater than margin
> Does the fact that monopolistically competitive markets are not allocatively or productively efficient mean that there is a significant loss in economic well-being to society in these markets? In your answer, be sure to define what you mean by “economic
> Why is a monopolistically competitive firm not allocatively efficient?
> Why is a monopolistically competitive firm not productively efficient? In what sense does a monopolistically competitive firm have excess capacity?
> What are the differences between the long-run equilibrium of a perfectly competitive firm and the long-run equilibrium of a monopolistically competitive firm?
> An article in the Wall Street Journal reported that Western European brewers such as Heineken, Carlsberg, and Anheuser-Busch InBev are increasing their production and marketing of nonalcoholic beer. The article quotes a Carlsberg executive for new-produc
> Suppose that the government sets a price floor for milk that is above the competitive equilibrium price and that the government does not purchase any surplus milk. a. Draw a graph showing this situation. Be sure your graph shows the competitive equilibri
> What does an increasing marginal opportunity cost mean? What are the implications of this idea for the shape of the production possibilities frontier?
> Michael Korda was, for many years, editor-in-chief at the Simon & Schuster book publishing company. He has written about the many books that have become bestsellers by promising to give readers financial advice that will make them wealthy, by, for exampl
> In 2015, analysts at the Goldman Sachs investment bank were optimistic that Buffalo Wild Wings would increase its profit over the next few years. They cited two factors as favorable to the chain’s profitability: The chain’s “greater pricing power allows
> An article in the New York Times describes Chipotle as “the restaurant chain that has come to symbolize the tastes of the millennial generation” and lists the sources of Chipotle’s success as including the restaurant’s allowing “their customers to tailor
> The following table shows the hourly output per worker in two industries in Chile and Argentina. a. Explain which country has an absolute advantage in the production of hats and which country has an absolute advantage in the production of beer. b. Expl
> Competition from Amazon and other online booksellers has resulted in some brick-and-mortar bookstores suffering losses. According to an article in the New York Times, over the past 15 years, the number of bookstores in the borough of Manhattan in New Yor
> Consider an organization that exists to help the poor. The members of the organization are discussing alternative methods of aiding the poor, when a proponent of one particular method asserts, “If even one poor person is helped with this method, then all
> A student remarks: If firms in a monopolistically competitive industry are earning an economic profit, new firms will enter the industry. Eventually, a representative firm will find that its demand curve has shifted to the left, until it is just tangent
> Suppose Angelica opens a small store near campus, selling beef brisket sandwiches. Use the graph below, which shows the demand and cost for Angelica’s beef brisket sandwiches, to answer the following questions. a. If Angelica wants to
> Chipotle Mexican Grill restaurants have been a very popular “fast-casual” dining option—with better food choices than fast-food restaurants like McDonald’s and faster service and lower prices than traditional restaurants. Chipotle’s profit per restaurant
> Through the 2014 season, Nick Saban’s record as the head football coach at the University of Alabama was 86 wins and 17 losses. His $7 million salary is the highest received by any college football coach. One sports writer described Saban as the most und
> Is it possible for a monopolistically competitive firm to continue to earn an economic profit as new firms enter the market?
> What is scarcity? Why is scarcity central to the study of economics?
> What is the difference between zero accounting profit and zero economic profit?
> Why does the entry of new firms cause the demand curve of an existing firm in a monopolistically competitive market to shift to the left and to become more elastic?
> What effect does the entry of new firms have on the economic profit of existing firms?
> Use the following graph for Elijah’s Burgers to answer the questions. a. If Elijah produces at the profit-maximizing level of output, how much is his total revenue? How much is his total cost? Briefly explain your calculations. b. How
> Paolo currently has $100,000 invested in bonds that earn him 10 percent interest per year. He wants to open a pizza restaurant and is considering either selling the bonds and using the $100,000 to start his restaurant or borrowing $100,000 from a bank, w
