Question: Suppose that oil prices sharply increase, while

> Historically, the production of many perishable foods, such as dairy products, was highly seasonal. As the supply of those products fluctuated, prices tended to fluctuate tremendously—typically by 25 to 50 percent or more— over the course of the year. On

> The following excerpt is from a letter sent to a financial advice columnist: “My wife and I are trying to decide how to invest a $250,000 windfall. She wants to pay off our $114,000 mortgage, but I’m not eager to do that because we refinanced only nine m

> According to an editorial in the Washington Post, “Sugar protectionism is a burden on consumers and a job-killer.” a. In what sense does the United States practice “sugar protectionism”? b. In what way is sugar protectionism a burden on consumers? In wha

> Employees in most circumstances do not pay taxes on the value of the health insurance provided by their employers. If employees were taxed on the value of the employer-provided health insurance, what would you expect to happen to the overall compensation

> How is the separation of ownership from control related to the principal–agent problem?

> Jeff and James have different opinions regarding the amount the U.S. government should spend on national defense. Jeff believes that more should be spent in order to ensure that the country’s enemies will not challenge the United States militarily. James

> A woman who owned a music store in New York City was quoted in an article in the Wall Street Journal as “bemoaning the comparative salaries of tubists and stockbrokers. ‘People should be paid in terms of what they contribute to people’s well-being.’” a.

> Use the following graph of a monopoly to answer the questions. a. What quantity will the monopoly produce, and what prices will the monopoly charge? b. Suppose the monopoly is regulated. If the regulatory agency wants to achieve economic efficiency, wh

> According to one news story, the cost of producing 4K televisions has been declining. According to a second story, many people have switched from watching programs on television sets to watching them on smart phones, tablets, or laptops. After reading th

> Do producers tend to favor price floors or price ceilings? Briefly explain.

> The Washington National Football League team paid a very high price to select Baylor quarterback Robert Griffin III in the 2012 player draft. In addition to paying Griffin a high salary, the team made a trade with the St. Louis team in which they had to

> The following graph shows the situation after the U.S. government removes a tariff on imports of canned tuna. a. Which areas show the gain in consumer surplus? b. Which area shows the loss in producer surplus? c. Which area shows the loss in government

> The late Nobel Laureate Robert Fogel of the University of Chicago argued, “Expenditures on health care are driven by demand, which is spurred by income and by advances in biotechnology that make health interventions increasingly effective.” a. If Fogel w

> Barney subscribes to the NFL Sunday Ticket, a program package offered by DirecTV that allows Barney to watch every regular season NFL game played on Sundays. The subscription price for the Sunday Ticket is in addition to the fee paid for Barney’s DirecTV

> Suppose the government imposes a payroll tax of $1 per hour of work and collects the tax from employers. Use a graph for the market for labor to show the effect of the payroll tax, assuming the special case of a vertical supply curve of labor. By how muc

> Years ago, an apple producer argued that the United States should enact a tariff, or a tax, on imports of bananas. His reasoning was that “the enormous imports of cheap bananas into the United States tend to curtail the domestic consumption of fresh frui

> The widespread realization in the late nineteenth century that bacteria causes diseases helped lead to a public health movement. This movement eventually brought sewers, clean drinking water, and garbage removal to all U.S. cities. What effect did the pu

> What is market failure? When is market failure likely to arise?

> Rob Neyer is a baseball writer for sbnation.com. He has described attending a Red Sox game at Fenway Park in Boston and having a seat in the sun on a hot, humid day: “Granted, I could have moved under the overhang and enjoyed today’s contest from a nice,

> The following graph shows the effect on consumer surplus, producer surplus, government tariff revenue, and economic surplus of a tariff of $1 per unit on imports of plastic combs into the United States. Use the areas denoted in the graph to answer the fo

> The text refers to health care as a normal good. Briefly explain why. In the future, is it possible that health care in the United States could become an inferior good? Briefly explain how it would be possible to tell if this change had occurred.

> Consider the natural monopoly shown in Figure 15.7 on page 520. Assume that the government regulatory agency sets the regulated price, PR, at the level of average total cost at which the demand curve intersects the ATC curve. If the firm knows that it wi

> What do economists mean by shortage? By surplus?

> Consider firms selling three goods: One firm sells a good with an income elasticity of demand less than zero, one firm sells a good with an income elasticity of demand greater than zero but less than one, and one firm sells a good with an income elastici

> Put each of the following goods or services into one of the categories shown in Figure 5.7 on page 166. That is, categorize them as private goods, public goods, quasi-public goods, or common resources. Figure 5.7: a. A television broadcast of baseball&ac

> According to a news story, Pennsylvania’s liquor tax is “paid by the seller—the restaurant or bar owner—when the seller buys liquor from state-run wine and spirit stores.” Briefly explain the effect of how liquor taxes in Pennsylvania are collected has o

> According to one observer of the lobster market: “After Labor Day, when the vacationers have gone home, the lobstermen usually have a month or more of good fishing conditions, except for the occasional hurricane.” Use a demand and supply graph to explain

> Someone who owns a townhouse wrote to a real estate advice columnist to ask whether he should sell his townhouse or wait and sell it in the future, when he hoped that prices would be higher. The columnist replied: “Ask yourself: Would you buy this townho

> Sean Astin, who played the hobbit Sam in The Lord of the Rings movies, wrote the following about an earlier film he had appeared in: “Now I was in a movie I didn’t respect, making obscene amounts of money (f ive times what a teacher makes, and teachers d

> The following comments were made by two employers regarding a proposed increase in the federal minimum wage: Dillon Edwards, founder of Parlor Coffee: “[The increase] should definitely be [to] more than [$8.75 an hour]… . It needs to be at least in doubl

> According to a news story, during the summer of 2015, gasoline prices were expected to decline by 32 percent, while “U.S. drivers are expected to consume slightly more gasoline, a 1.6 percent increase, during the summer.” Given this information, calculat

> Use the following graph of the market for basketball tickets at State University to answer the questions. a. What is the price elasticity of supply? b. Suppose the basketball team at State University goes undefeated in the first half of the season, and

> Suppose China decides to pay large subsidies to any Chinese company that exports goods or services to the United States. As a result, these companies are able to sell products in the United States at far below their cost of production. In addition, China

> Some economists and policymakers have argued that one way to control federal government spending on Medicare is to have a board of experts decide whether new medical technologies are worth their higher costs. If the board decides that they are not worth

> The elasticities reported in this Making the Connection were calculated using price data for many brands of beer. Why might price elasticity estimates be less reliable if they use data for only one brand of beer?

> Vaccines don’t provide immunity from disease for some people. But if most people get vaccinated against a disease, such as measles, then the population achieves “herd immunity,” which means that there are so few cases of the disease that even people for

> Suppose the federal government decides to impose a sales tax of $1.00 per pizza. Briefly explain whether you agree with the following statement, made by a representative of the pizza industry: The pizza industry is very competitive. As a result, pizza s

> What are the two main categories of participants in markets? Which participants are of greatest importance in determining what goods and services are produced?

> The following table shows the market shares during the first three months of 2015 for companies in the U.S. personal computer (PC) market, which includes desk-based PCs and mobile PCs, such as mini-notebooks, but not tablet computers, such as iPads: Us

> What is the marginal productivity theory of income distribution?

> An article in the Wall Street Journal discussed why the hotel workers’ union in New York City was against a proposal for more hotels to be built in Midtown Manhattan: “The union is concerned that rapid hotel development shrinks room prices and profit mar

> The demand for watermelons is highest during summer and lowest during winter. Yet watermelon prices are normally lower in summer than in winter. Use a demand and supply graph to demonstrate how this is possible. Be sure to carefully label the curves in y

> Suppose that you are a big fan of the Harry Potter books. You would love to own a copy of the very first printing of the first book, but unfortunately you can’t find it for sale for less than $5,000. You are willing to pay at most $200 for a copy but can

> How might a monopolistically competitive firm continually earn an economic profit?

> A student makes the following argument: Tariffs on imports of foreign goods into the United States will cause the foreign companies to add the amount of the tariff to the prices they charge in the United States for those goods. Instead of putting a tarif

> Improvements in technology usually result in lower costs of production or new and improved consumer goods and services. Assume that an improvement in medical technology results in an increase in life expectancy for people 65 years of age and older. How w

> Rank the following four goods from lowest income elasticity of demand to highest income elasticity of demand. Briefly explain your ranking. a. Bread b. Pepsi c. Mercedes-Benz automobiles d. Laptop computers

> Nancy Folbre, an economist at the University of Massachusetts, Amherst, argued, “We must take responsibility for governing the commons—not just the quaint old fashioned village green, but things that cannot easily be privatized—[such as] clean air.” Do y

> Use the following graph of the market for cigarettes to answer the questions. a. According to the graph, how much is the government tax on cigarettes? b. What price do producers receive after paying the tax? c. How much tax revenue does the government

> Why do economists use models? How are economic data used to test models?

> Two health care analysts argue that in the United States, “we have arrived at a moment where we are making little headway in defeating various kinds of diseases. Instead, our main achievements today consist of devising ways to marginally extend the lives

> Richard Thaler, an economist at the University of Chicago, is the person who first used the term endowment effect to describe placing a higher value on something already owned than would be placed on the object if not currently owned. According to an art

> When Congress was considering a bill to impose quotas on imports of textiles, shoes, and other products, the late Milton Friedman, a Nobel Prize–winning economist, made the following comment: “The consumer will be forced to spend several extra dollars to

> Look again at the section “The Department of Justice and FTC Merger Guidelines,” which begins on page 518. Evaluate the following situations. a. A market initially has 20 firms, each with a 5 percent market share. Of the firms, 4 propose to merge, leavin

> Briefly explain the relationship between property rights and the existence of externalities.

> An article on forbes.com about corporate fraud stated that “misleading accounting and disclosure practices weaken the integrity of capital markets.” The article noted that using incentive contracts for top managers can create a “‘perverse’ incentive to m

> Figure 7.7 on page 236 shows that the Congressional Budget Office forecasts that only about 10 percent of future increases in spending on Medicare as a percentage of GDP will be due to the aging of the population. What factors explain the other 90 percen

> According to an article on the Boston Globe’s Web site, during the last three months of 2014, gasoline prices dropped 33 percent at the same time as ridership on mass transit, such as subways and trains, increased by 1 percent. According to a spokesperso

> As readers of Herman Melville’s 1851 novel Moby Dick know, at one time oil made from whale blubber was an important source of energy that was widely used by households and f irms in oil lamps. Other sources of energy supplanted whale oil in the second ha

> The following graph shows the effect of a tax imposed on soft drinks. Use this graph to answer the questions. a. Which areas in the graph represent the excess burden (deadweight loss) of the tax? b. Which areas represent the revenues collected by the

> According to an article in the Wall Street Journal, the demand for orange juice is declining in the United States “as newer entrants in the beverage aisle, including more exotic fruit juices, such as pomegranate, energy drinks and ready-to-drink coffee,

> In a competitive labor market, imposing a minimum wage should reduce the equilibrium level of employment. Will this result still hold if the labor market is a monopsony? Briefly explain.

> Marvin visits his aunt and uncle who live in Milwaukee. The Milwaukee Bucks basketball team is scheduled to play a home game against the Golden State Warriors during Marvin’s visit. An online broker has a ticket for sale in Section 212 of the arena where

> In which of the following situations are social influences on consumer decision making likely to be greater: choosing a restaurant for dinner or choosing which brand of toothpaste to buy? Briefly explain.

> Suppose Jill Johnson operates her pizza restaurant in a building she owns in the center of the city. Similar buildings in the neighborhood rent for $4,000 per month. Jill is considering selling her building and renting space in the suburbs for $3,000 per

> The United States produces beef and also imports beef from other countries. a. Draw a graph showing the demand and supply of beef in the United States. Assume that the United States can import as much as it wants at the world price of beef without causin

> On a shopping trip, Melanie decided to buy a light blue coat made from woven fabric. A tag on the coat stated that the price was $79.95. When she brought the coat to the store’s sales clerk, Melanie was told that the coat was on sale, and she would pay 2

> Michael Dell founded PCs Limited in 1984. The firm had an initial public offering (IPO) in 1988, under the name Dell Computer Corporation, which enabled the company to raise money it used for expansion. In 2013, Michael Dell and a private equity firm bou

> What arguments do economists and policymakers who believe that market-based reforms are the key to improving the health care system make in criticizing the ACA?

> Draw a graph like Figure 15.6 on page 518 that shows a merger lowering costs. On your graph, show producer surplus and consumer surplus before a merger and consumer surplus and producer surplus after a merger.

> In a famous essay on the market system, the economist Leonard Read discussed how a pencil sold by the U.S. firm Eberhard Faber Pencil Company (now owned by Paper Mate) was made. He noted that logging companies in California and Oregon grew the cedar wood

> The Making the Connection feature explains that there are both positive and normative elements to the debate over whether medical schools should charge tuition and whether hospitals should continue to pay residents who pursue primary care but not residen

> Over time, the gap between the wages of workers with college degrees and the wages of workers without college degrees has been increasing. Shouldn’t this gap have increased the incentive for workers to earn college degrees, thereby increasing the supply

> An article in the New York Times notes that classic rock star Tom Petty likes to perform in smaller venues that don’t have as many seats as large venues such as Madison Square Garden in New York. According to the article, Petty insists that tickets to hi

> If you visited Disneyland between 1955 and 1982, most rides would have required a ticket—in addition to the ticket necessary to enter the park. Explain why this pricing strategy earned Disney a lower profit than the current strategy of requiring visitors

> Is free trade likely to benefit a large, populous country more than a small country with fewer people? Briefly explain.

> Twitter was founded in 2006, but it wasn’t until 2013 that Twitter filed its first annual report with the Securities and Exchange Commission (SEC). Briefly explain why.

> Under the Social Security retirement system, the federal government collects a tax on most people’s wage income and makes payments to retired workers above a certain age who are covered by the system. (The age to receive full Social Security retirement b

> 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?