... Arc elasticity estimates
the elasticity over a range of prices.
¶
Chapter 4: Individual and Market Demand
41
CHAPTER 4
INDIVIDUAL AND MARKET DEMAND
QUESTIONS FOR REVIEW
1. Explain the difference ... 1.5
lines
Formatted: Font: Times New Roman
Formatted: Font: Times New
Roman, 12 pt
Chapter 4: Individual and Market Demand
44
economics, and the economics class can motivate mathematics. If the classes ... curve to shift out. The equilibrium quantity and price will
increase.
Chapter 4: Individual and Market Demand
49
individual prefers to be different from other individuals. As more people adopt...
... complementary. This will also reduce the demand for
labor.
Chapter 14: Markets for Factor Inputs
232
CHAPTER 14
MARKETS FOR FACTOR INPUTS
REVIEW QUESTIONS
1. Why is a firm’s demand ... longer hours: the substitution effect. Because the two effects work in
Chapter 14: Markets for Factor Inputs
2 34
the high demand for rock music, the wage will be very high and there will be ... finds that the
average worker can produce 50 cookies per day, the cost of the average worker is $ 64 per
day, and the price of a cookie is $1. Is the cookie company maximizing its profit?
Explain....
... the cost of producing the
other output is increased. Suppose the MRT is 4 in absolute value terms, then we
must give up 4 units of the output on the vertical axis to get one more unit of output ... the total cost of producing the 4 units is the
same as the total cost of producing the one unit, or that the marginal cost of the
good on the horizontal axis is 4 times the marginal cost of the ... only have a comparative advantage in
the production of some goods. Suppose Country A requires 4 units of labor to
produce good 1 and 8 units of labor to produce good 2, whereas Country B
requires...
... produced from the point of view of society as a whole.
Chapter 18: Externalities and Public Goods
2 84
12. Public television is funded in part by private donations, even though anyone with a
television ... government
intervention, including the expected cost of choosing the wrong policy instrument.
4. Consider a market in which a firm has monopoly power. Suppose in addition that the
firm produces...
... function:
P = 20 - 4 - 4 = $12.
The profits for each firm are equal to total revenue minus total costs:
π
D
= (4) (12) - (10 + (8) (4) ) = $6 and
π
O
= (4) (12) - (10 + (8) (4) ) = $6.
Therefore, ... is
(0.5)(20 - 14) (6) = $18.
Social welfare is the sum of consumer surplus plus profits, or
18 + 26 = $44 .
With entry, social welfare is $32 (consumer surplus) plus $12 (industry profit), or $44 .
Social ... solving for
Q
D
:
Q
D
= 6 - (0.5)(6 - 0.5Q
D
) = 4.
Substituting into Defendo’s reaction function and solving for Q
O
:
Q
O
= 6 - (0.5) (4) = 4.
Total industry output is therefore equal to 8....
...
For 1996, we have 40 /1 or 40 cents, and for 1999, we have 22/1.1 or 20
cents. The real price therefore fell from 40 to 20 cents, a 50% decline.
4. 13− 4. 07
4. 07
= 0.0 147 , or about 1.5%.
... The price of long-distance telephone service fell from 40 cents per minute in 1996
to 22 cents per minute in 1999, a 45 -percent (18 cents /40 cents) decrease. The
Consumer Price Index increased ... education has increased? How have these changes
affected consumer choices?
Chapter 1: Preliminaries
4
The price and quantity of goods (e.g., eggs) and services (e.g., a college
education) are determined...
... the new quantity supplied will be
140 percent of the old quantity supplied at every price. The new supply curve is
therefore
Q’ = 1 .4* ( -4. 5+16P) = -6.3+22.4P. To find the new equilibrium price ... shift to the right by 40 percent. How
will the price of copper change?
10
Chapter 2: The Basics of Supply and Demand
11
If the supply curve shifts to the right by 40 % then the new quantity ... at the price of $2.00. Q=10-
2(2)+2=8.
Price elasticity of demand =
P
Q
Δ
Q
ΔP
=
2
8
(−2) =−
4
8
=−0.5.
Cross-price elasticity of demand =
P
s
Q
Δ
Q
ΔP
s
=
2
8
(1) = 0.25.
12. Suppose that...
... defines his MRS. His MRS is 4 so this means that the marginal
utility of a basketball game is 4 and the marginal utility of a movie is 1:
MRS = 4 =−
M
U
ball
MU
movie
=−
4
1
.
Now the marginal ... preferences, Bill is willing to trade 4 movie tickets for 1 ticket to a
basketball game. If movie tickets cost $8 each and a ticket to the basketball game costs
$40 , should Bill make the trade? Why ... =−
M
U
ball
MU
movie
=−
4
1
.
Now the marginal utility per dollar can be computed:
M
U
ball
P
ball
=
4
40
=
1
10
MU
movie
P
movie
=
1
8
.
12. Describe the equal marginal principle. Explain why this...
... risk
averse he may choose fund A even if it subject to more variability in its
expected return.
4. What does it mean for consumers to maximize expected utility? Can you think
of a case where ... the payoff is the loss of the
consumer’s life.
Chapter 5: Uncertainty and Consumer Behavior
64
CHAPTER 5
UNCERTAINTY AND CONSUMER BEHAVIOR
QUESTIONS FOR REVIEW
1. What does it mean to say...
... the other and still maintain the same level
of output. For example, the firm may require exactly 4 units of capital for
each unit of labor, in which case one input cannot be substituted for the ... employees must
share the computers, the marginal product of each additional employee will
diminish.
4. You are an employer seeking to fill a vacant position on an assembly line. Are
you more concerned ...
production, the firm will be so large that when inputs are doubled, output
Chapter 6: Production
74
CHAPTER 6
PRODUCTION
QUESTIONS FOR REVIEW
1. What is a production function? How does a long-run...
... child or elderly person at home, which would have had a
value to those receiving the service.
4. Suppose that labor is the only variable input to the production process. If the
marginal cost ... average variable cost is increasing or decreasing?
Explain.
Chapter 7: The Costs of Production
84
CHAPTER 7
THE COST OF PRODUCTION
QUESTIONS FOR REVIEW
1. A firm pays its accountant an annual ... scale and economies of scope, so production
can exhibit one without the other. See Exercise ( 14) for a case with constant
product-specific returns to scale and multiproduct economies of scope....
... Chapter 8: Profit Maximization and Competitive Supply
1 04
revenue minus other costs is just equal to what could be earned elsewhere,
then the owner is ... firms to enter tobacco production,
and the supply curve for the industry shifts out to the right
14. A certain brand of vacuum cleaners can be purchased from several local stores
as well as from ... Entry
will stop, and equilibrium will be achieved, when economic profits have
fallen to zero.
4. What is the difference between economic profit and producer surplus?
While economic profit is...
... relatively inelastic)
consumers in the aggregate will enjoy an increase in consumer surplus.
4. Suppose the government regulates the price of a good to be no lower than some
minimum level....
... Barb Sam Barb
Price of G Price of L L(hours) L(hours) G($) G($)
1 8 16 14 64 80
1 9 15 14 81 90
1 10 14 15 100 90
1 11 14 16 110 88
Formatted: Space Before: 1.2 line,
After: 1.2 line, Line ... below.
Chapter 4: Individual and Market Demand
49
changes and utility is kept at the same level, Jane will choose the same point (12, 24) . The income
effect causes her to buy 4 more units of ... Q=1200 elasticity=
P
Q
ΔQ
ΔP
=
40 (45 )
1200
=−1.5.
P=30 and Q=1800 elasticity==
P
Q
ΔQ
ΔP
=
40 (30)
1800
=−0.67.
P=37.5 and Q=1500 elasticity==
P
Q
ΔQ
ΔP
=
40 (37.5)
1500
=−1.
Given...