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. Penny: Demand increased, but supply decreased at the same time. Howard: Supply decreased, but demand was unit elastic. Raj: Supply decreased, but demand was perfectly inelastic. Who could possibly be right? Use graphs to explain your answer.
> 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.
> Use a production possibilities frontier to describe the idea of “efficiency.”
> 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?
> 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
> Which of the following trade policies would benefit producers, hurt consumers, and increase the amount of trade? a. the increase of a tariff in an importing country b. the reduction of a tariff in an importing country c. starting to allow trade when the
> What happens to the deadweight loss and tax revenue when a tax is increased?
> Lovers of classical music persuade Congress to impose a price ceiling of $40 per concert ticket. As a result of this policy, do more or fewer people attend classical music concerts? Explain.
> Give three examples of important trade-offs that you face in your life.
> After economics class one day, your friend suggests that taxing food would be a good way to raise revenue because the demand for food is quite inelastic. In what sense is taxing food a “good” way to raise revenue? In what sense is it not a “good” way to
> The Laffer curve illustrates that, in some circum- stances, the government can reduce a tax on a good and increase the a. deadweight loss. b. government’s tax revenue. c. equilibrium quantity. d. price paid by consumers.
> Name two types of market failure. Explain why each may cause market outcomes to be inefficient.
> Ernie owns a water pump. Because pumping large amounts of water is harder than pumping small amounts, the cost of producing a bottle of water rises as he pumps more. Here is the cost he incurs to produce each bottle of water: Cost of first bottle $1 Cost
> When a market is in equilibrium, the buyers are those with the ________ willingness to pay and the sellers are those with the ________ costs. a. highest, highest b. highest, lowest c. lowest, highest d. lowest, lowest
> Suppose the government removes a tax on buyers of a good and levies a tax of the same size on sellers of the good. How does this change in tax policy affect the price that buyers pay sellers for this good, the amount buyers are out of pocket (including a
> A senator wants to raise tax revenue and make workers better off. A staff member proposes raising the payroll tax paid by firms and using part of the extra revenue to reduce the payroll tax paid by workers. Would this accomplish the senator’s goal? Expla
> Which of the following would increase quantity supplied, increase quantity demanded, and decrease the price that consumers pay? a. the imposition of a binding price floor b. the removal of a binding price floor c. the passage of a tax levied on producers
> If demand is elastic, how will an increase in price change total revenue? Explain.
> Cups of coffee and donuts are complements. Both have inelastic demand. A hurricane destroys half the coffee bean crop. Use appropriately labeled diagrams to answer the following questions. a. What happens to the price of coffee beans? b. What happens to
> When the government imposes a binding price floor, it causes a. the supply curve to shift to the left. b. the demand curve to shift to the right. c. a shortage of the good to develop. d. a surplus of the good to develop.
> An increase in the supply of a good will decrease the total revenue producers receive if a. the demand curve is inelastic. b. the demand curve is elastic. c. the supply curve is inelastic. d. the supply curve is elastic.
> What are the supply schedule and the supply curve, and how are they related? Why does the supply curve slope upward?
> Over the past 40 years, technological advances have reduced the cost of computer chips. How do you think this has affected the market for computers? For computer software? For typewriters?
> If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods? a. Prices and quantities both rise. b. Prices and quantities both fall. c. Prices rise and quantities fall. d. Prices fall and quantities rise.
> If two parties trade based on comparative advantage and both gain, in what range must the price of the trade lie?
> England and Scotland both produce scones and sweaters. Suppose that an English worker can produce 50 scones per hour or 1 sweater per hour. Suppose that a Scottish worker can produce 40 scones per hour or 2 sweaters per hour. a. Which country has the abs
> Suppose that in the United States, producing an air- craft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor and producing a shirt takes 4 hours of labor. What will these
> Name one economic interaction that isn’t covered by the simplified circular-flow diagram.
> Classify the following topics as relating to microeconomics or macroeconomics. a. a family’s decision about how much income to save b. the effect of government regulations on auto emissions c. the impact of higher national saving on economic growth d. a
