Description

Chapter: 3 -Problem: 1 >> When the price of a good increases, the quantity demanded _______  When the price of a good decreases, the quantity demanded ______
Answer Preview: When the price of a good increases, the quantity demanded decreases When the price of a good decreas…

, Chapter: 2 -Problem: 3 >> Opportunity cost is one of the tougher ideas in economics. Let’s make it easier by starting with some simple examples. In the following examples, find the opportunity cost: Your answer should be a rate, as in “1.5 widgets per year” or “6 lectures per month.” Ignoring Adam Smith’s insight from the previous question, assume that these relationships are simple linear ones, so that if you put in twice
Answer Preview: Answer. a) The opportunity cost of repairing …

, Chapter: 1 -Problem: 1 >> In recent years, Zimbabwe has had hyperinflation, with prices tripling (or more!) every month. According to what you learned in this chapter, what do you think the government can do to end this hyperinflation?
Answer Preview: The government can end hyperinflation by implementing fiscal and monetary policies that will help to …

, Chapter: 21 -Problem: 3 >> The line between “having a meddlesome preference” and “recognizing an externality” is not always clear. Both are ways of saying, “What you’re doing bothers me.” As we used it in this chapter, a “meddlesome preference” is something that reasonable people should just not worry about so much. By contrast, “recognizing an externality” is a way of advancing the subject for public discussion and perhaps
Answer Preview: a. amount of pollution emitted is a meddlesome preference. It would be better to let people choose t…

, Chapter: 7 -Problem: 1 >> Andy enters into a futures contract, allowing him to sell 5,000 troy ounces of gold at $1,000 per ounce in 36 months. After that time passes, the market price of gold is $950 per troy ounce. How much does Andy make or lose?
Answer Preview: Andy's gain per ounce …

, Chapter: 21 -Problem: 3 >> Philosopher Alastair Norcross poses the following question. Suppose that 1 billion people are suffering from a moderately severe headache that will last a few hours. The only way to alleviate their headache is for one person to die a horrible death. Can the death of this one person ever be justified in a cost-benefit sense?
Answer Preview: Yes, the death of this one person could be justified in a cost-benefit sense if it would alleviate t…

, Chapter: 20 -Problem: 7 >> Perhaps it was in elementary school that you first realized that if everyone in the world gave you a penny, you’d become fantastically rich. This insight is at the core of modern politics. Sort the following government policies into “concentrated benefits” and “diffuse benefits.” a. Social Security b. Tax cuts for families c. Social Security Disability Insurance for the severely disabled d. Nation
Answer Preview: a. Social Security is a very concentrated benefit. The vast majority of us get back less than we put …

, Chapter: 3 -Problem: 2 >> The economist Bryan Caplan recently found a pair of $10 arch supports that saved him from the pain of major foot surgery. As he stated on is blog (econlog.econlib.org), he would have been willing to pay $100,000 to fix his foot problem, but instead he paid only a few dollars. a. How much consumer surplus did Bryan enjoy from this purchase? b. If the sales tax was 5 percent on this product, how muc
Answer Preview: a. Consumer Surplus=$100000…

, Chapter: 21 -Problem: 5 >> You would probably sacrifice yourself to save all of humanity, but you probably wouldn’t sacrifice yourself to save the life of one random stranger. What number is your cutoff: How many lives would you have to save for you to voluntarily face sure death?
Answer Preview: Most people would not be willing to sacrifice themselves for the sake of one random stranger. The re…

, Chapter: 4 -Problem: 7 >> When supply falls, what happens to quantity demanded in equilibrium? (This should get you to notice that both suppliers and demanders change their behavior when one curve shifts.)
Answer Preview: In equilibrium, quantity demanded falls when supply falls. A fall in supply …

, Chapter: 4 -Problem: 2 >> When the price is above the equilibrium price, does greed (in other words, self-interest) tend to push the price down or up?
Answer Preview: down 8. In a market when the pric…

, Chapter: 3 -Problem: 13 >> Do taxes usually increase the supply of a good or reduce the supply?
Answer Preview: From the firm's perspective, taxes or regulations are an addit…

, Chapter: 3 -Problem: 4 >> What are three things that you’ll buy less of once you graduate from college and get a good job? What kinds of goods are these called?
Answer Preview: Three things that I'll buy less of once I graduate from college and get a good job are- 1) Unbranded …

, Chapter: 4 -Problem: 4 >> Now, Jon is in Japan, trying to get a job as a full-time translator; he wants to translate English TV shows into Japanese and vice versa. He notices that the wage for translators is very low. Who is the “competition” pushing the wage down: Does the competition come from businesses who hire the translators or from the other translators?
Answer Preview: The competition comes from the other translators. Explanation The reason is that there are …

, Chapter: 23 -Problem: 2 >> Mr. Wolf calls you with what he says is a tremendous opportunity in the stock market. He has inside knowledge about a pharmaceutical company and he says that the price will go up tomorrow. Of course, you are skeptical and decline his offer. The next day the price does go up. Mr. Wolf calls again and says not to worry, tomorrow the price will go down and that will be a good time to buy. Again, you
Answer Preview: It's possible that Mr. Wolf was using insider information to make his predictions, which is ill…

, Chapter: 4 -Problem: 12 >> In recent years, there have been news reports that toys made in China are unsafe. When those news reports show up on CNN and Fox News, what probably happens to the demand for toys made in China? What probably happens to the equilibrium price and quantity of toys made in China? Are Chinese toymakers probably better or worse off when such news comes out?
Answer Preview: The demand for toys made in China is probably decrease when su…

, Chapter: 3 -Problem: 10 >> When is a pharmaceutical business more likely to hire highly educated, cutting-edge workers and use new, experimental research methods: When the business expects the price of its new drug to be low or when it expects the price to be high?
Answer Preview: When the price of a new drug is expec…

, Chapter: 12 -Problem: 2 >> Suppose that two industries, the pizza industry and the calzone industry, are equally risky, but rates of return on capital investments are only 5% in the pizza industry and 8% in the calzone industry. Which way will capital flow—from the pizza industry to the calzone industry, or from the calzone industry to the pizza industry.
Answer Preview: The capital flows to the industry with greater returns. Thus, in the above cas…

, Chapter: 14 -Problem: 2 >> Two customers, Fred and Lamont, walk into Grady’s Used Pickups. Who probably has a more inelastic demand for one of Grady’s pickups: people like Lamont, who are good at shopping around, or people like Fred, who know what they like and just buy it?1
Answer Preview: People like Lamont probably have a more inelastic demand for one of Gradys pickups. Expla…

, Chapter: 14 -Problem: 8 >> When will a monopoly create more output: when it is allowed to and can perfectly price-discriminate or when the government bans price discrimination?
Answer Preview: A monopoly will create more output when it is allo…

, Chapter: 21 -Problem: 1 >> Should responsible adults be allowed to sell a kidney? Why or why not? If so, what restrictions would you place on such sales, if any?
Answer Preview: No, responsible adults should not be allowed to sell a kidney. Kidneys are vit…

, Chapter: 5 -Problem: 3 >> Henry Ford famously mass-produced cars at the beginning of the twentieth century, starting Ford Motor Company. He made millions because mass production made cars cheap to make, and he passed some of the savings to the consumer in the form of a low price. Cars became a common sight in the United States thereafter. Keeping total revenue and its relationship with price in mind, do you expect the dema
Answer Preview: Given the story of Henry Ford, the demand for cars is likely to …

, Chapter: 11 -Problem: 1 >> You’ve been hired as a management consultant to four different companies in competitive industries. They’re each trying to figure out if they should produce a little more output or a little bit less in order to maximize their profits. The firms all have typical marginal cost curves:They rise as the firm produces more.Your staff did all the hard work for you of figuring out the price of each firm’s
Answer Preview: Answer. Here the prices charged by firms are their marginal revenues from additional units p…

, Chapter: 18 -Problem: 5 >> As mentioned, OSHA fines companies for unsafe workplaces. At the same time, the labor market also “fines” companies that give their workers dangerous jobs. The fines of the marketplace are larger than the U.S. government’s fines by about what factor: a factor of 10, of 100, of 1,000, or of 10,000?
Answer Preview: The fines of the marketplace are actually much larger …

, Chapter: 5 -Problem: 8 >> In the world of fashion, the power to imitate a trendy look is the power to make money. Stores such as H&M and Forever 21 focus on imitating fashions wherever possible: As soon as they see that a new look is coming along, something people are willing to pay a high price for, they start cranking out that look. Do these imitation-centered stores make the supply of clothing more elastic or less elast
Answer Preview: The imitation centered stores make the supply of clothing mor…

, Chapter: 7 -Problem: 5 >> Suppose you are bidding on a used car and someone else bids above the highest amount that you are willing to pay. What can you say for sure about that person’s monetary value of the good compared to yours?
Answer Preview: The person bidding above the amount that you are willing to pay likely values the good more than you …

, Chapter: 23 -Problem: 2 >> Let’s do something boring just to drive home a point: Count up the number of years in Figure 23.1 in which more than half of the mutual funds managed to beat the S&P 500 index. (Recall that the Standard and Poor’s 500 is just a list of 500 large U.S. corporations—it’s a list that overlaps a lot with the Fortune 500.) What percentage of the time did the experts actually beat the S&P 500?Figure 23.1
Answer Preview: Answer. Times when the mutu…

, Chapter: 3 -Problem: 5 >> The industrial areas in northeast Washington, D.C., were relatively dangerous in the 1980s. Over the last two decades, the area has become a safer place to work (although there are still several times more violent crimes per person in these areas compared with another D.C. neighborhood, Georgetown). When an area becomes a safer place to work, what probably happens to the “supply of labor” in that
Answer Preview: The supply of labor would likely increase in the area as it becomes safer to work. …

, Chapter: 8 -Problem: 12 >> A review of the jargon: Is the minimum wage a “price ceiling” or a “price floor”? What about rent control?
Answer Preview: The minimum wage is a price floor, meani…

, Chapter: 14 -Problem: 4 >> As we saw in this chapter, drug companies often charge much more for the same drug in the United States than in other countries. Congress often considers passing laws to make it easier to import drugs from these low-price countries (it also considers passing laws to make it illegal to import these drugs, but that’s another story).If one of these laws passes, and it becomes effortless to buy AIDS d
Answer Preview: Drug companies will most likely increase the prices they charge in L…

, Chapter: 3 -Problem: 2 >> When will people search harder for substitutes for oil: When the price of oil is high or when the price of oil is low?
Answer Preview: Generally speaking , people will search harder fo…

, Chapter: 8 -Problem: 6 >> Between 2000 and 2008, the price of oil increased from $30 per barrel to $140 per barrel, and the price of gasoline in the United States rose from about $1.50 per gallon to more than $4.00 per gallon. Unlike in the 1970s when oil prices spiked, there were no long lines outside gas stations. Why?
Answer Preview: The dramatic increase in the price of oil has been the most significant factor relating to the increase in the price of gasoline. The high price of oi…

, Chapter: 21 -Problem: 6 >> Would a “global utilitarian” (someone who values the utility of everyone in the world equally, without giving more weight to people in their own country) who lives in America want more immigrants from poor countries or more immigrants from rich countries? Why?
Answer Preview: A global utilitarian would want more immigrants fr…

, Chapter: 1 -Problem: 3 >> Let’s connect Big Ideas Six and Nine: Do you think that people in poor countries are poor because they don’t have enough money? In other words, could a country get richer by printing more pieces of paper called “money” and handing those out to its citizens?
Answer Preview: No , I don 't think so . People in poor co…

, Chapter: 8 -Problem: 2 >> When a price ceiling is in place keeping the price below the market price, what’s larger: quantity demanded or quantity supplied? How does this explain the long lines and wasteful searches we see in price-controlled markets?
Answer Preview: When the price is kept below the equilibrium price, The quantity demanded is h…

, Chapter: 23 -Problem: 6 >> a. If you talk to a broker selling the high-fee mutual fund, what will he or she probably tell you when you ask them, “Am I getting my money’s worth when I pay your high fees?”b. According to Figure 23.1, is your broker’s answer likely to be right most of the time?Figure 23.1 Transcribed Image Text:
Answer Preview: a. When you talk to a broker selling the high-fee m…

, Chapter: 8 -Problem: 10 >> Business leaders often say that there is a “shortage” of skilled workers, and so they argue that immigrants need to be brought in to do these jobs. For example, an AP article was entitled “New York farmers fear a shortage of skilled workers,” and went on to point out that a special U.S. visa program, the H-2A program, “allows employers to hire foreign workers temporarily if they show that they wer
Answer Preview: a. Unregulated markets cure a "labor shortage" by allowing wages to rise until the quantity of labor …

, Chapter: 14 -Problem: 6 >> Where are you more likely to see businesses “bundling” a lot of goods into one package: in industries with high fixed costs and low marginal costs (like computer games or moviemaking), or in industries with low fixed costs and high marginal costs (like doctor visits, where the doctor’s time is expensive)?
Answer Preview: In industries with high fixed costs and low marginal costs, businesses are more likely to bundle a l…

, Chapter: 23 -Problem: 5 >> Let’s see how fees can hurt your investment strategy. Let’s assume that your mutual fund grows at an average rate of 7% per year—before subtracting the fees. Using the rule of 70:a. How many years will it take for your money to double if fees are 0.5% per year?b. How many years will it take for your money to double if fees are 1.5% per year (not uncommon in the mutual fund industry)?c. How many ye
Answer Preview: a. Since your fund starts at $100,000, it will take 10 years to double. b. Since you…

, Chapter: 14 -Problem: 5 >> There are people who absolutely must have the latest fashions. Can you classify them as probably having elastic or inelastic demand?
Answer Preview: People who must have the latest fashions are likely to have inelastic demand. This …

, Chapter: 3 -Problem: 3 >> For most young people, working full-time and going to school are substitutes: You tend to do one or the other. When it’s tough to find a job, does that raise the opportunity cost of going to college or does it lower it? When it’s tough to find a job, does the demand for college rise or fall?
Answer Preview: The opportunity cost of going to college includes the opportunit…

, Chapter: 13 -Problem: 7 >> Which of the following is true when a monopoly is producing the profit-maximizing quantity of output? More than one may be true. Marginal revenue = Average cost Total cost = Total revenue Price = Marginal cost Marginal revenue = Marginal cost
Answer Preview: Given: Suppose a monopolist is producing a quantity of output whe…

, Chapter: 5 -Problem: 11 >> A lot of American action movies are quests to eliminate a villain. If in real life, villains are elastically supplied (like guns for buyback programs), should we care whether the hero captures a particular villain? Why or why not?
Answer Preview: There are a few reasons why we should care whether the hero captures a particular villain. First, if …

, Chapter: 4 -Problem: 1 >> Suppose the market for batteries looks as follows:What are the equilibrium price and quantity? Transcribed Image Text: Price $7 4t 2 10 20 30 Supply Demand Quantity
Answer Preview: Market equilibrium at where demand is equal to supply. In ot…

, Chapter: 14 -Problem: 1 >> True or false? A business that price-discriminates will generally charge some customers more than marginal cost, and it will generally charge other customers less than marginal cost.
Answer Preview: The statement is true. When a business price-discriminates, it is essentially trying to find the opt…

, Chapter: 4 -Problem: 3 >> Jon is on eBay, bidding for a first edition of the influential Frank Miller graphic novel Batman: The Dark Knight Returns. In this market, who is Jon competing with: the seller of the graphic novel or the other bidders?
Answer Preview: Jon is competing with the other bidders. Explanation …

, Chapter: 1 -Problem: 2 >> When bad weather in India destroys the crop, does this sound like a fall in the total “supply” of crops or a fall in people’s “demand” for crops? Keep your answer in mind as you learn about economic booms and busts later on.
Answer Preview: A fall in the total "supply" of crops. If bad weather i…

, Chapter: 18 -Problem: 7 >> True or false? Morticians are paid lower wages than other workers because very few people want to work with dead bodies.
Answer Preview: The correct answer is False The statement above is false because morticians are paid lower wages tha…

, Chapter: 18 -Problem: 4 >> According to the theory of compensating differentials, which low-skilled jobs in the United States will tend to pay the most: a. The safe jobs or the dangerous jobs? b. The fun jobs or the boring jobs? c. The dead-end jobs or the first-rung-on-the-ladder jobs?
Answer Preview: a. The safe jobs or the dangerous jobs The safe jobs will tend …

, Chapter: 21 -Problem: 6 >> What do you think best describes the reason that trade in recreational drugs is illegal: fear of exploitation, meddlesome preferences, notions of fairness, paternalism, concerns about equality, or some other factor?
Answer Preview: I believe the best reason that trade in recreational d…

, Chapter: 14 -Problem: 3 >> a. When will a firm find it easier to price-discriminate: before the existence of eBay or afterward?b. Which of the two “principles of price discrimination” does this invoke?
Answer Preview: a. A firm will find it easier to price-discriminate …

, Chapter: 23 -Problem: 3 >> How is “stock market diversification” like putting money in a bank account?
Answer Preview: How is "stock market diversification" like putting mone…

, Chapter: 21 -Problem: 3 >> One of Nozick’s arguments against utilitarianism was the “utility monster”: a person who always gets enormous happiness from every extra dollar, more happiness than anyone else in society. If such a person existed, the utilitarian solution would be to give all the wealth in society to Nozick’s utility monster; any other income distribution would needlessly waste resources. This possibility was app
Answer Preview: a. I do not know any utility monsters in my life, but I know some people who get a lot of happiness …

, Chapter: 21 -Problem: 6 >> Some people feel inequality is justified if the people with unequal outcomes accepted risks voluntarily; it was simply the case that some won and some lost. Imagine two people, each spending $10,000 on lottery tickets, but only one of them wins. We end up with one poor person and one multimillionaire. Is this inequality better or worse than if one person is born into a rich family and the other is
Answer Preview: There are a few key differences between these two scenarios. First, in the lottery example, both peo…

, Chapter: 1 -Problem: 2 >> Some problems that economists try to solve are easy as economic problems but hard as political problems. Medical doctors face similar kinds of situations: Preventing most deaths from obesity or lung cancer is easy as a medical problem (eat less, exercise more, don’t smoke) but hard as a self-control problem. With this in mind, how is ending hyperinflation like losing 100 pounds?
Answer Preview: Ending hyper in flation may be seen as a largely economic problem …

, Chapter: 23 -Problem: 4 >> In the United States, high-level corporate officials have to publicly state when they buy or sell a large number of shares in their own company. They have to make these statements a few days after their purchase or sale. What do you think probably happens (choose a, b, c or d) when newspapers report these true “insider trades”?a. When insiders sell, prices rise, since investors increase their dema
Answer Preview: c. When insiders sell, prices fall, since investors decrease their …

, Chapter: 17 -Problem: 3 >> Fill in the blanks with “=,” “<,” or “>” as appropriate to describe the long-run outcome in a monopolistically competitive market. a. MC ____ AC b. P ____ AC c. MR ____ MC d. P _____ MC
Answer Preview: a. MC < AC b. P > AC c. MR < MC d. P < MC a. In a monopolistically competitive market, the long-run …

, Chapter: 7 -Problem: 7 >> You manage a department store in Florida, and one winter day you read in the newspaper that orange juice futures have fallen dramatically in price. Should your store stock up on more sweaters than usual, or should your store stock up on more Bermuda shorts?
Answer Preview: I should stock up more sweaters because of the winter season. As in winters people wil…

, Chapter: 1 -Problem: 3 >> How much did national output fall during the Great Depression? According to the chapter, which government agency might have helped to avoid much of the Great Depression had it acted more quickly and appropriately?
Answer Preview: There is no definitive answer to this question, as the extent to which …

, Chapter: 1 -Problem: 5 >> Who has a better incentive to work long hours in a laboratory researching new cures for diseases: a scientist who earns a percentage of the profits from any new medicine she might invent, or a scientist who will get a handshake and a thank you note from her boss if she invents a new medicine?
Answer Preview: The scientist who earns a percentage of the profits from any new medicine she might …

, Chapter: 8 -Problem: 4 >> If a government decides to make health insurance affordable by requiring all health insurance companies to cut their prices by 30%, what will probably happen to the number of people covered by health insurance?
Answer Preview: When the price of a good or service falls, people are more likely …

, Chapter: 3 -Problem: 11 >> Imagine that a technological innovation reduces the costs of producing high-quality steel. What happens to the supply curve for steel?
Answer Preview: The supply curve for steel shifts to the right. Explanation The technological innovation red…

, Chapter: 1 -Problem: 4 >> The chapter lists four things that entrepreneurs save and invest in. Which of the four are actual objects, and which are more intangible, like concepts or ideas or plans? Feel free to use Wikipedia or some other reference source to get definitions of unfamiliar terms.
Answer Preview: The four things that entrepreneurs save an…

, Chapter: 4 -Problem: 1 >> If the price in a market is above the equilibrium price, does this create a surplus or a shortage?
Answer Preview: Surplus and shortage: If the market price is above …

, Chapter: 4 -Problem: 6 >> What happened in Vernon Smith’s lab? Choose the right answer: a. The price and quantity were close to equilibrium but gains from trade were far from the maximum. b. The price and quantity were far from equilibrium and gains from trade were far from the maximum. c. The price and quantity were far from equilibrium but gains from trade were close to the maximum. d. The price and quantity were close t
Answer Preview: d. The price and quantity were close to equilibrium and gains from trade were close to the maxi…

, Chapter: 3 -Problem: 1 >> Michael is an economist. He loves being an economist so much that he would do it for a living even if he only earned $30,000 per year. Instead, he earns $80,000 per year.
Answer Preview: $50000 Explanation:- Producer surplus is the difference betwe…

, Chapter: 21 -Problem: 4 >> If the rich countries were able to send individual cash payments to people in poor countries, bypassing possibly corrupt governments, would you let rich countries pay people in poor countries to take their high?polluting factories? If so, how high would the annual payment have to be per family? If not, why not?
Answer Preview: If the rich countries were able to send individual cash payments to pe…

, Chapter: 14 -Problem: 8 >> When is a pharmaceutical company more likely to spend $100 million to research a new drug: when it knows it will be able to charge different prices in different countries or when it knows that it will be required to charge the same price in different countries? Why?
Answer Preview: It will spend that much research money when it knows it will be …

, Chapter: 20 -Problem: 1 >> Which of the following is the smallest fraction of the U.S. federal budget? Which are the two largest categories of federal spending?WelfareInterest on the federal debtDefenseForeign aidSocial SecurityHealth care
Answer Preview: The smallest fraction of the U . S . federal budget is foreign aid …

, Chapter: 7 -Problem: 4 >> For you, personally, what is your opportunity cost of doing this homework?
Answer Preview: The opportunity cost of doing homework is that you might be wasting an hour of your time. The opport…

Additional Information

8 Reviews for Modern Principles Of Microeconomics Textbook Questions And Answers