The chapter states, “Firms will supply all those goods that provide consumers with a marginal benefit at least as great as the marginal cost of producing them.” A student objects to this statement, arguing, “I doubt that firms will really do this. After all, firms are in business to make a profit; they don’t care about what is best for consumers.” Evaluate the student’s argument.
> Some coal is mined by private companies on land owned by the federal government. Two economists writing in an opinion column argue, “The federal government should also take into account the economic consequences of burning coal when pricing this fuel. Th
> Suppose that a firm in which you have invested is losing money. Would you rather own the firm’s stock or the firm’s bonds? Briefly explain.
> What is meant by the phrase “health outcome”? How do health outcomes in the United States compare with those of other high-income countries? What problems arise in attempting to compare health outcomes across countries?
> According to a news story about the bus system in the Lehigh Valley in Pennsylvania, “Ridership fell 14 percent in 2012 after a 33 percent increase” in bus fares. Based on this information, is the demand for bus trips price elastic or price inelastic? Ex
> Is it ever possible for an increase in pollution to make society better off? Briefly explain, using a graph like Figure 5.3 on page 154. Figure 5.3: Cost or Here the marginal benefit from pollution reduction of $300 per ton is higher than the margina
> Briefly explain whether you agree with the following statement: “A lower price in a market always increases economic efficiency in that market.”
> What is the law of supply? What are the main variables that cause a supply curve to shift? Give an example of each.
> Suppose you read the following item in a newspaper article, under the headline “Price Gouging Alleged in Pencil Market”: Consumer advocacy groups charged at a press conference yesterday that there is widespread price gouging in the sale of pencils. They
> What would need to be true for a demand curve to be upward sloping?
> In the 2012 Summer Olympic Games, Ashton Eaton (from the United States) won a gold medal in the decathlon, which requires athletes to compete in 10 different track and field events. In one of these events Eaton ran a 100-meter race in 10.35 seconds. In a
> In the preface to the 2004 reprint of In Search of Excellence, Thomas Peters and Robert Waterman wrote: “Our main detractors point to the decline of some of the companies we featured. They miss the point… . We weren’t writing Forever Excellent, just as i
> How do the stock and bond markets provide information to businesses? Why do stock and bond prices change over time?
> Can economic analysis provide a final answer to the question of whether the government should intervene in markets by imposing price ceilings and price floors? Briefly explain.
> Briefly compare the health care systems in Canada, Japan, and the United Kingdom with the health care system in the United States.
> Briefly explain whether the demand for each of the following products is likely to be elastic or inelastic: a. Milk b. Frozen cheese pizza c. Cola d. Prescription medicine
> What are transactions costs? When are we likely to see private solutions to the problem of externalities?
> A Wall Street Journal article about a drought in California indicated that one result would be a smaller tomato crop. Use a demand and supply graph of the tomato market to illustrate the effect of the drought. Is economic efficiency affected? Briefly exp
> What is the difference between a change in supply and a change in the quantity supplied?
> How the market demand curve is derived from consumers’ individual demand curves?
> A World Trade Organization (WTO) publication calls comparative advantage “arguably the single most powerful insight in economics.” What is comparative advantage? What makes it such a powerful insight? Source: World Trade Organization, “Understanding the
> Discuss the following statement: “In a perfectly competitive market, in the long run consumer’s benefit from reductions in costs, but firms don’t.” Don’t firms also benefit from cost reductions because they are able to earn larger profits?
> Briefly explain whether the value of U.S. exports is typically larger or smaller than the value of U.S. imports.
> Why is a bond considered to be a loan but a share of stock is not? Why do corporations issue both bonds and shares of stock?
> What are the main sources of health insurance in the United States?
> Briefly explain whether you agree with the following statement: “When there is a shortage of a good, consumers eventually give up trying to buy it, so the demand for the good declines, and the price falls until the market is finally in equilibrium.”
> Is the demand for most agricultural products elastic or inelastic? Briefly explain.
> What is the Coase theorem? Why do the parties involved in an externality have an incentive to reach an efficient solution?
> What is economic efficiency? Why do economists define efficiency in this way?
> Why does scarcity imply that every society and every individual face trade-offs?
> Explain how a downward-sloping demand curve results from consumers adjusting their consumption choices to changes in price.
> What is the difference between absolute advantage and comparative advantage? Will a country always be an exporter of a good in the production of which it has an absolute advantage? Briefly explain.
> What is the difference between direct finance and indirect finance? If you borrow money from a bank to buy a new car, are you using direct finance or indirect finance?
> What are the three major types of firms in the United States? Briefly discuss the most important characteristics of each type.
> Define the following terms: a. Health insurance b. Fee-for-service c. Single-payer health care system d. Socialized medicine
> The following graph represents the situation of Karl’s Kumquats, a kumquat grower. a. How much profit is Karl earning? b. Does the current situation of Karl’s firm illustrate productive efficiency or allocative effic
> Many people have predicted, using a model like the one in panel (b) of Figure 17.12 on page 583, that the price of natural resources should rise consistently over time in comparison with the prices of other goods because the demand curve for natural reso
> What is an entrepreneur? Why do entrepreneurs play a key role in a market system?
> What are the key determinants of the price elasticity of demand for a product? Which determinant is the most important?
> What do economists mean by “an economically efficient level of pollution”?
> Define economic surplus and deadweight loss.
> What is a supply schedule? What is a supply curve?
> What are the three economic questions that every society must answer? Briefly discuss the differences in the way centrally planned, market, and mixed economies answer these questions.
> According to an article in the Wall Street Journal in 2015, “Apple Inc.’s surging smartphone sales in China may have busted a myth: that many Chinese consumers couldn’t, or wouldn’t, shell out for an iPhone.” The article noted that iPhone sales were grow
> Briefly discuss the most important differences between the market for health care and the markets for other goods and services.
> A journalist wrote the following about the effects of falling gasoline prices: “With lower prices, demand rises and people consume more.” Briefly explain whether you agree with the journalist’s analysis. Source: Jeff Sommer, “Cheaper Oil, Fatter Wallets
> An article in the Wall Street Journal noted that an “increase in the price of oil quickly reduces demand for oil.” Do you agree with this statement? Briefly explain. Source: Josh Zumbrun, “Oil’s Plunge Could Help Send Its Price Back Up,” Wall Street Jour
> Private equity firms, such as Blackstone and Kohlberg Kravis Roberts & Co., search for firms where the managers appear not to be maximizing profits. A private equity firm can buy stock in these firms and have its employees elected to the firms’ boards of
> Suppose the following table shows the price of a base model Toyota Prius hybrid and the quantity of Priuses sold for three years. Do these data indicate that the demand curve for Priuses is upward sloping? Briefly explain. Year Price Quantity $31,88
> What is the difference between normative analysis and positive analysis? Is economics concerned mainly with normative analysis or positive analysis? Briefly explain.
> Salespeople, whether selling life insurance, automobiles, or pharmaceuticals, typically get paid on commission instead of a straight hourly wage. How does paying a commission help solve the principal–agent problem between the owners of a business and the
> The following graph shows the market for tickets to a concert that will be held in a local arena that seats 15,000 people. What is the producer surplus in this market? How does it differ from the producer surplus in the markets you have studied up to thi
> Lawrence Summers served as secretary of the Treasury in the Clinton administration and as director of the National Economic Council in the Obama administration. He has been quoted as giving the following defense of the economic approach: There is nothing
> In a public corporation, the principal–agent problem between ownership and top management results from asymmetric information. What information, if known, would prevent this principal–agent problem?
> Write the formula for the price elasticity of demand. Why isn’t elasticity just measured by the slope of the demand curve?
> In an article in the agriculture magazine Choices, Oregon State University economist JunJie Wu made the following observation about the conversion of farmland to urban development: Land use provides many economic and social benefits, but often comes at a
> The Making the Connection states that the value of the area representing consumer surplus from broadband Internet service is $890.4 million. Use the information from the graph in the Making the Connection to show how this value was calculated. (For a rev
> Since 1979, China has had a policy that allows couples to have only one child. This policy has caused a change in the demographics of China. Between 1980 and 2013, the share of the population under age 14 decreased from 36 percent to 18 percent. And, as
> State government Medicaid programs provide medical insurance to poor and disabled people. Under federal law, the programs must provide reimbursements to people who use any prescription drug that has been approved as effective by the U.S. Food and Drug Ad
> When the price of pizza falls in the Super Bowl example on pages 327–328, both the income effect and the substitution effect cause you to want to consume more pizza. If pizza were an inferior good, how would the analysis be changed? In this case, is it p
> How does the fact that consumers apparently value fairness affect the pricing decisions that businesses make?
> The principal–agent problem arises almost everywhere in the business world, and it also crops up even closer to home. Discuss the principal–agent problem that exists in the college classroom. Who is the principal? Who is the agent? What potential conflic
> How does perfect competition lead to allocative and productive efficiency?
> In recent years, companies have used fracking, or hydraulic fracturing, in drilling for oil and natural gas that previously could not be profitably recovered. According to an article in the New York Times, “horizontal drilling has enabled engineers to in
> Assume that the following graph illustrates the market for a breast cancer–fighting drug, without which breast cancer patients cannot survive. What is the consumer surplus in this market? How does it differ from the consumer surplus in
> What is an externality? Give an example of a positive externality, and give an example of a negative externality.
> Both smartwatches and smartphones use applications, or “apps,” which are software that consumers can download and use to play games, check stock market prices, and read news stories, among many other activities. Particularly useful apps are called “kille
> In a paper written by Bentley College economists Patricia M. Flynn and Michael A. Quinn, the author’s state: We find evidence that Economics is a good choice of major for those aspiring to become a CEO [chief executive officer]. When adjusting for size o
> LaToya is buying corn chips and soda. She has 4 bags of corn chips and 5 bottles of soda in her shopping cart. The marginal utility of the fourth bag of corn chips is 10, and the marginal utility of the fifth bottle of soda is also 10. Is LaToya maximizi
> An Associated Press article noted that some groups have filed law suits over what the groups describe as “overzealous licensing schemes, in occupations such as hair braiders, yoga teachers and casket makers.” a. What effect might such government licensi
> Tom and Jacob are college students. Each of them will probably get married later and have two or three children. Each knows that if he studies more in college, he’ll get a better job and earn more money. Earning more will enable them to spend more on the
> In the following graph, is the consumer surplus larger with demand curve D1 or demand curve D2? Briefly explain. Compare the producer surplus with demand curve D1 and with demand curve D2. Price D2 D, Quantity
> A review of Kappo Masa, a popular restaurant in New York City, notes, “The markup that New York restaurants customarily add to retail wine and sake prices is about 150 percent. The average markup at Kappo Masa is 200 percent to 300 percent.” Even 150 per
> Suppose that the curves in the following graph represent two demand curves for traditional chicken wings (basket of six) at Buffalo Wild Wings. What would cause a movement from point A to point B on D1? Name two variables that if their values were to cha
> Suppose the U.S. president is attempting to decide whether the federal government should spend more on research to find a cure for heart disease. Imagine that you are the president’s economic advisor and need to prepare a report discussing the relevant f
> What is meant by allocative efficiency? What is meant by productive efficiency? Briefly discuss the difference between these two concepts.
> What is marginal benefit? Why is the demand curve referred to as a marginal benefit curve?
> Late in the semester, a friend tells you, “I was going to drop my psychology course so I could concentrate on my other courses, but I had already put so much time into the course that I decided not to drop it.” What do you think of your friend’s reasonin
> Maya spends her $50 budget on two goods, cans of tuna and bottles of ginger ale. Initially, the marginal utility per dollar she spends on tuna is equal to the marginal utility per dollar she spends on ginger ale. Then the price of ginger ale decreases, w
> Two economists at the Brookings Institution argue that “new firms rather than existing ones have accounted for a disproportionate share of disruptive and thus highly productivity enhancing innovations in the past—the automobile, the airplane, the compute
> The publisher of a magazine gives his staff the following information: The publisher tells the staff, “Our costs are currently $150,000 more than our revenues each month. I propose to eliminate this problem by raising the price of the
> In a study at a large state university, students were randomly assigned roommates. Researchers found that, on average, males assigned to roommates who reported drinking alcohol in the year before entering college earned GPAs one-quarter point lower than
> A student makes the following argument: “When a market is in equilibrium, there is no consumer surplus. We know this because in equilibrium, the market price is equal to the price consumers are willing to pay for the good.” Briefly explain whether you ag
> Suppose that the following table shows the quantity demanded 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 demanded of UGG boots to change from 2016 to
> What are the main sources of comparative advantage?
> A column in the Wall Street Journal listed “trying to forecast what stocks will do next” as one of the three mistakes investors make repeatedly. Briefly explain why trying to forecast stock prices would be a mistake for the average investor. Source: Morg
> What is a demand schedule? What is a demand curve?
> McDonald’s typically serves breakfast until only 10:30 a.m. on weekdays and 11:00 a.m. on weekends. In 2015, the company began to experiment with serving breakfast all day at various locations in San Diego. Several owners of McDonald’s restaurants, howev
> Joe has $55 to spend on apples and oranges. Given the information in the following table, is Joe maximizing utility? Briefly explain. Total Price Quantity Utility Marginal Utility of Last Únit Apples $0.50 50 1,000 20 Oranges $0.75 40 500 30
> Wealthy investors often invest in hedge funds. Hedge fund managers use investors’ money to buy stocks, bonds, and other investments with the intention of earning high returns. But an article in the New York Times notes, “Even professionals have a problem
> According to an article in the Economist, historian David Faure has argued that the Chinese economy failed to grow rapidly during the nineteenth century because “family run companies … could not raise sufficient capital to exploit the large-scale opportu
> In 1916, the Ford Motor Company sold 500,000 Model T Fords at a price of $440 each. Henry Ford believed that he could increase sales of the Model T by 1,000 cars for every dollar he cut the price. Use this information to calculate the price elasticity of
> John Cassidy, a writer for the New Yorker, wrote a blog post arguing against New York City’s having installed bike lanes. Cassidy complained that the bike lanes had eliminated traffic lanes on some streets as well as some on-street parking. A writer for
> A Wall Street Journal article noted that as manufacturers began to produce more 4K television sets, their production costs declined. a. Use a demand and supply graph to show the effect of these falling costs on consumer surplus in the marker for 4K telev
> State whether each of the following events will result in a movement along the demand curve for McDonald’s Big Mac hamburgers or whether it will cause the curve to shift. If the demand curve shifts, indicate whether it will shift to the left or to the ri
> Use the following production possibilities frontier for a country to answer the questions. a. Which point or points are unattainable? Briefly explain why. b. Which point or points are efficient? Briefly explain why. c. Which point or points are ineffic
> Distinguish between a firm’s explicit costs and its implicit costs and between a firm’s accounting profit and its economic profit.
> Instacart is an Internet startup that offers home delivery of groceries. It buys the groceries in regular brick-andmortar supermarkets, marks up the prices it pays, and then charges consumers the higher prices in exchange for making home deliveries. Acco
> Jay Bhattacharya and Kate Bundorf of Stanford University have found evidence that people who are obese and who work for firms that provide health insurance receive lower wages than workers at those firms who are not obese. At firms that do not provide he
> Joe has $16 to spend on Twinkies and Ho-Hos. Twinkies have a price of $1 per pack, and Ho-Hos have a price of $2 per pack. Use the information in these graphs to determine the number of Twinkies and Ho-Hos packs Joe should buy to maximize his utility. Br
> Evaluate the following argument: I would like to invest in the stock market, but I think that buying shares of stock in a corporation is too risky. Suppose I buy $10,000 of Twitter stock, and the company ends up going bankrupt. Because as a stockholder I
