Econ Final
Ira Goldman, the inventor of the Knee Defender, used to keep the airline seat in front of you from reclining, 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 by allowing the occupant of that seat to recline it. Source: Damon Darlin, "In Defense of the Knee Defender," New York Times, August 28, 2014. Assuming that Goldman is correct, according to the Coase theorem, does this airline policy make it impossible for passengers to achieve an economically efficient outcome with respect to the issue of reclining seats?
no, because in this case, since the passengers are hear each other and transactions cost are low, private bargaining can result in an efficient solution to the problem of externalities
An article in the Economist discussing the struggle among airline passengers over reclining seats offered the following observation: "Given that airlines are unlikely to increase the [distance between] their seats any time soon, better that all planes come with fixed, non-reclining chairs in the first place." Source: "Upright and Uptight," Economist, June 7, 2014. Would the proposed change result in an economically efficient outcome?
no, because in this case, the passengers are not able to negotiate and achieve an economically efficient outcome
would it be economically efficient to reduce the amount of crime to zero? Briefly explain
no. it would not be efficient to completely reduce crime because the marginal cost of doing so likely exceeds the marginal benefit.
Mabel is an advocate for a "zero tolerance" policy regarding all illegal street drugs, including cocaine, marijuana, and heroin. Mabel has witnessed high crime and violence in her neighborhood and believes that only by arresting and prosecuting anyone who sells or uses illegal drugs will she and her neighbors and their children live without fear. The policy that Mabel endorses is
not economically efficient because at some point the additional benefit from reducing drug use would be less than the additonal cost
which one of the following facotrs helps determine the marginal benefitof reducing crime?
personal injury from crime
Do producers tend to favor price floors or price ceilings? Why?
price floors because, when binding, price floors increase price above the equilibrium and may increase producer surplus
revenue =
price of product multipled by quantity sold
Absolute advantage is the ability of an individual, a firm, or country to
produce more of a good or service than competitors using the same amount of resources
which one of the following factors helps determine the marginal cost of reducing crime?
resources devoted to courts
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 fruits produced in the United States." This producer apparently assumed apples and bannas to be In a graph (not shown) of the banana market in the United States, the imposition of a tariff on banana imports would
substitutes Shift supply leftward, increasing equilibrium price and decreasing equilibrium quantity. Because a tariff on bananas acts as an increase in the cost of supplying bananas in the United States, the supply curve shifts leftward. Given an unchanging demand, the result is a higher equilibrium price for bananas and a lower equilibrium quantity.
What is comparative advantage?
the ability to produce a good or service at a lower opportunity than other producers
What is the absolute advantage?
the ability to produce more of a good or service than competitors using the same amount of resources
Marginal benefit is
the additional benefit from consuming one more unit
Marginal cost is
the additional cost of producing one more unit
consumer surplus is
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays
which of the following is the defintion of consumer surplus?
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays
Producer surplus is
the difference between the lowest price a firm would be willing to accept and the price it actually receives
Which of the following is the defintion of producer surplus?
the difference between the lowest price a firm would have been willing to accept and the price it actually receives
When the demand curve shifts to the right,
the equilibrium price and quantity will both increase
If demand decreases and supply increases, which of the following will definitely occur?
the equilibrium price will decrease
Which of the following statements about the idea that people are rational is correct?
the idea assumes that consumers and firms use all available information as they act to achieve their goals
Economists believe that an activity should be continued up to the point where
the marginal benefit from the activity is equal to the marginal cost
What do economists mean by "an economically efficent level pollution"? The economically efficient level pollution is that amount where
the marginal cost of pollution reduction equals the marginal benefit of pollution reduction.
When economists speak of a shortage, they mean a situation in which
the market price is below the equilibrium price / the quantity demanded exceeds quantity supplied / some consumers are unable to make a purchase at the current price When economists talk of a shortage, they mean a situation in which some consumers are unable to make a purchase at the current price, which translates into an excess of quantity demanded over quantity supplied. This can only happen when the market price is below the equilibrium price.
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 agree with the student's argument.
the student is incorrect because the price consumers are willing to pay and the market price are only equal for the last unit consumed
The demand for grapefruits is highest during summer and lowest during winter. Yet Grape fruit prices are normally lower in the summer than in winter. What must be happening to the supply of grapefruits, from winter to summer, for the equilibrium price to fall?
the supply increases more than the demand increases
Examples of transaction costs include:
the time required to negotiate an agreement, the cost of monitoring an agreement, the cost of drafting a contract or agreement
Economists assume that people are rational in the sense that
they use all avaliable information as they take actions intended to achieve their goals
The basis for trade is comparative advantage, not absolute advantage
true
Which of the following best describes scarcity?
unlimited wants exceed the limited resources available.
When are we likely to see private solutions to the problem of externalities?
when: transaction costs are low, the parties involved have information about the externalitiy, when the number of parties involved is small
is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good
will have a comparative advantage if it has a lower opportunity cost of producing that good
the net benefit...
(the difference in the marginal benefit and the marginal cost) is the area under the marginal benefit curve and above the marginal cost curve.
Is the columnist arguing that spain has an absolute advantage over China in producing textiles, a comparative advantage, or both?
A comparative advantage in producing textiles
What do economists mean by market equilibrium?
A market outcome where quantity supplied is equal to quantity demanded
Why is the demand curve referred to as a marginal benefit curve?
It shows the willingness of consumers to purchase a product at different prices
which of the folowing statements is true when the difference between TR and TC is at its mxium positive value?
MR = MC, Slope of TR = SLope of TC When the gap between the Total Revenue (TR) curve and the Total Cost (TC) curve is at its maximum positive value, slope of TR (or MR) must be equal to slope of TC (or MC)
Many universities and corporations offer a health wellness program that helps their employees improve or maintain their health and get paid (a relatively small amount) for doing so. The programs vary, but typically consist of employees completing a health assessment, receiving a healthy living program, and monitoring their monthly health activities. Corporations and universities are willing to pay employees to take care of themselves because a healthier workforce
Translates into lower costs, in part by reducing illness-related absentessim and premature retirements / performs more effciently, thereby improving overall productivity in the workplace Corporations and universities are willing to pay employees to take care of themselves because healthier employees are more productive and, additionally, the employers are less burdened by costs associated with unhealthy workers.
A student writes the following: "Increased production leads to a lower price, which in turn increases demand." this student must be referring to
an increase in quantity demanded
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 20 percent less than the price on the tag. After the discount was applied, Melanie paid $63.96, $15.99 less than the original price. The value of Melanie's consumer surplus from this purchase is
at least $15.99 since this is the difference between the price Melanie is willing to pay for the coat and the actual price she pays, but she could have be willing to pay more than $79.95 for the coat.
Regarding the question of whether health insurance provides people with an incentive to become obese, the finding of Bhattacharya and Bundorf seems
Relevant since the link between insurance and obesity was establish while holding many other variables constant. Because the study examined such a large sample and carefully controlled for a large number of other factors, the positive link between insurance and obesity seems very relevant to the question of whether health insurance provides people with an incentive to become obese.
The columnist notes that, in fact, Spain exports significant quantities of textiles. If his description of the situation in China and Spain is accurate, briefly explain how Spanish firms are able export textiles in competition with Chinese firms
Spain must be able to produce textiles at a lower opportunity cost than China can
If a shortage exists in a market, we know that the actual price is
below the equilibrium price, and the quantity demanded is greater than the quantity supplied
the parties involved in an externality have an incentive to reach an efficient solution because
both parties become better off when an efficient solution is reached
With respect to consumption, individuals and countries
can, through trade, consume beyond their production possibilites frontiers.
What is the basis for trade?
comparative advantage
Consumer surplus is the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays. When the price is not zero, consumer surplus is the area below the demand curve and above the market price. [(($3.90−$3.68)×10,000)×0.5] = $1,100. The the total amount of producer surplus in a market is equal to the area above the market supply curve and below the market price. Producer surplus is the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives. [(($3.68−$3.32)×10,000)×0.5] = $1,800.
consumer and producer
Consumer surplus is the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays. When the price is not zero, consumer surplus is the area below the demand curve and above the market price. [(($3.90−$3.82)×4,000)×0.5] + [($3.82−$3.46)×4,000]. The the total amount of producer surplus in a market is equal to the area above the market supply curve and below the market price. Producer surplus is the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives. [(($3.46−$3.32)×4,000)×0.5]. OK
consumer surplus and producer surplus after price ceilings
"When there is a shortage of a good...
consumers compete agaisnt one another by bidding the price upward. The process continues until the market is finally in equilibrium."
the optimal decision is to...
continue any activity up to the point where the marginal benefit equals the marginal cost
If teachers put too much weight in grading scale on a certain part of the course, like readings outside of the textbook, students might respond by _______________ other parts of the course
de-emphasizing
The reduction in economic surplus resulting from a market not being in competitive equilibrium is called the deadweight loss. In this case the deadweight loss is [(($3.82−$3.46)×6,000)×0.5].
deadwieght loss after price ceiling
when an employers offers a wellness program to its employees, the health insurance premiums the employer pays on behalf of the employees are likely to __________
decrease
If demand and supply both increase, which of the following will definitely occur?
The equilibrium quantity will increase
In colonial America, the population was spread thinly over a large area, and transportation costs were very high because it was difficult to ship products by road for more than short distances. As a result, most of the free population lived on small farms where they not only grew their own food but also usually made their own clothes and very rarely bought or sold anything for money. Why were the incomes of these farmers likely to rise as transportation costs fell? As transportation costs fell,
The farmers gained access to new markets and customers. Using comparative advantage, the farmers specialized, producing those goods for which they had lower opportunity cost. As they traded for other goods, their incomes and living standards increased.
When a supply line shifts to the right....the equilibrium price will _________ and equilibrium quanitty will _______
decrease increase
How does consumer suplus change as the equilibrium price of a good rises or falls? As the price of a good rises, consumer surplus _________, and as the price of a good falls, consumer surplus ____________
decreases increases
if the marginal cost of reducing a certain type of pollution is zero, should all of that pollution be eliminated? Briefly explain
economic theory typically shows that it is not efficient to completely reduce pollution because the marginal cost of doing so typically exceeds the marginal benefit. However, one instance when pollution should completely be eliminated is when the marginal cost of reducing pollution is zero.
scarcity is central to the study of economics because it implies that
every choice involves an opportunity cost
In The Wealth of Nations, Adam Smith discussed what has come to be known as the "diamond and water paradox": "Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it." It is possible for the price of water to be much lower than the price of diamonds if which of the following is true?
The supply of water is greater than the supply of diamonds
What do economists mean by the word "marginal"?
extra or additional
An increase in demand causes an increase in the equilibrium price. The increase equilibrium price will then cause an increase in supply
false
Economists assume that the only reason people take actions they do is in response to economic incentives.
false
consumer surplus and producer surplus measure the total benfit consumers and producers receive from participating in a market
false
in the case where transactions cost are zero, if the vicitims of pollution could legally enforce the right of their property not to be damaged, the amount of pollution reduction would increase
false
During the 1928 presidential election campaign, Hebert Hoover, the Republican candidate, argued that the United States should only import those products that could not be produced here, Do you believe that this would be a good policy? Explain.
This is not a good policy because it does not necessarily result in countries producing those goods for which they have a comparative advantage.
If you and your neighbor both grow oranges and grapefruits and you are better than your neighbor at picking both oranges and grapefruits, there can be no advantage to you in specializing in growing one type of fruit and trading with your neighbor for the other.
false, it is possible for you to beenfit from trading with your neighbor even though you are better than he is at picking both oranges and grapefruits
In a competitive market, firms can dictate what the equilibrium price of a good or a service will be
false; The interaction of demand and supply determines the equilibrium price. No firm can sell anything at any price unless it can find a willing buyer, and no consumer can buy anything at any price without finding a willing seller.
Explain why it is true that for a firm in a perfectly competitive market that P = MR = AR. In a perfectly competitive market, P = MR = AR because
firms can sell as much output as they want at the market price Average revenue is total revenue divided by the quantity of the product sold. Marginal revenue is the change in total revenue from selling one more unit of a product. If a firm can sell as much of a product as it wants at the market price, then P = AR = MR because each additional unit sells for the price.
If the market price (Pmkt) is above the price (P0) then the quantity supplied is ____________ quantity demanded and the market is in ________
greater than surplus
If a country has a comparative advantage in the production of a good, then that country
has a lower opportunity cost in the production of that good
teachers often wish that students came to class prepared having read the upcoming material. A teacher could design the grading system to motivate students to come to class prepared by __________ the grade weight assigned to being prepared
increasing
whether carried out by an individual or a country, production beyond the production possibilities frontier
is not physically possible production by an individual or country is limited to points along (or inside) its production possibilties frontier
an unexpected frost in the orange groves of California would cause
a decrease in the supply of orange juice, increasing the equilibrium price
Price floor
a legally determined minimum price that sellers may receive
A black market is
a market in which buying and selling occur at prices that violate government price regulations
A news story from 2017 about the oil market stated, "crude oil prices fell ... in part [due to] renewed concerns about the global supply glut." Source: Paul Ebeling, "Crude Oil Prices Falling, Traders Worry About Global Supply Glut," livetradingnews.com, March 27, 2017. a. In referring to a "global glut," the article describes the result of a significant b. this change resulted in a c. In response to the global glut of oil, the market price will d. the glut will start to shrink when crude oil producers
a. increase in supply of, relative to the demand for, crude oil. b. a surplus of oil such that there is greater quantity supplied than quantity demanded for crude oil. c. fall to a new, lower equilibrium price at which the quantity demanded would equal the quantity supplied d. reduce the amount that they offer for sale, and buyers increase the amount they buy
If a surplus exists in a market, we know that the actual price is
above the equilibrium price, and the quantity supplied is greater than the quantity demanded
Imagine that the next time the New England Patriots play the Miami Dolphins at Gillette Stadium in Foxborough, Massachusetts, Patriots star quarterback Tom Brady has a temporary lack of judgment and plans to sell Patriots memorabilia during the game because he realizes that he can sell five times more Patriots products than anyone in the stadium sports gear store. Likewise, imagine that you are a creative and effective manager at work and that you tell your employees that during the next six months, you plan to clean the offices because you can clean five times better than the cleaning staff. Both you and Tom are making an error in judgment by assuming that specialization should be based upon
Absolute advantage Specialization should not be based upon absolute advantage. Instead, specialization is based on relative, or comparative, advantage. Being better at something than someone else doesn't necessarily confer a comparative advantage.
According to the FBI Bank Crime Statistics, there were more than 4,000 bank robberies in the United States in 2015, an increase of 3.9 percent over 2014. The FBI claims that banks have made themselves easy targets by refusing to install clear acrylic partitions, called bandit barriers, that separate bank tellers from the public. According to a special agent with the FBI, "Bandit barriers are a great deterrent. We've talked to guys who rob banks, and as soon as they see a bandit barrier, they go find another bank." Sources: U.S. Department of Justice, Federal Bureau of Investigation, "Bank Crime Statistics 2015," and "Bank Crime Statistics 2014"; and Richard Cowen, "FBI: Banks Are to Blame for Rise in Robberies," NorthJersey.com, March 10, 2009. Despite this finding, many banks have been reluctant to install these barriers. Wouldn't banks have a strong incentive to install bandit barriers to deter robberies? Why, then, do so many banks not do so?
Banks have no economic incentive to install the barriers.
The grading system plays an important role in student learning. In their book Effective Grading: A Tool for Learning and Assessment in College, Barbara Walvoord and Virginia Anderson state that "grading infuses everything that happens in the classroom." They also argue that grading "needs to be acknowledged and managed from the first moment that an instructor begins planning a class." Source: Barbara E. Walvoord and Virginia Johnson Anderson, Effective Grading: A Tool for Learning and Assessment in College, 2nd edition, San Francisco: Jossey-Bass, 2010, p. 1. The grading system used by a teacher can affect the incentives of students to learn the course material by
By altering the payoffs to achieving success on the various components of a course, a teacher has the flexibility to affect the incentives students have to learn the course material. alterting the payoffs to achieving success on the various components of the course
A columnist for Forbes argues that: "Even if China is always better than Spain at producing textiles, if the best thing that Spain could be doing is textiles then that's what Spain should be doing." Source: Tim Worstall, "Inditex's Zara and the Power of Comparative Advantage," forbes.com, July 7, 2015. What does the columnist mean by writing that China "is always better than Spain" in producing textiles (which include clothing, sheets, and similar products)?
China can produce textile at a lower cost in terms of resouces than Spain can
Suppose that the market for premium bottled water is initially in equilibrium at point A. Further suppose the demand for premium bottled water increases rapidly during 2018. At the same time, six more firms begin producing premium bottled water. A student remarks that, because of these events, we can't know for certain whether the price of premium bottled water will rise or fall. The student's remarks (that, because of these events, we can't know for certain whether the price of premium bottled water will rise or fall) is
Correct. When there is an increase in supply and an increase in demand, the new equilibtium quantity increases but whether the equilibrium price increases or decreases is unknown By itself, the increase in demand for premium bottled water would cause the demand curve to shift to the right along an unchanged supply curve. This shift would result in an increase in the price of premium bottled water. But an increase in the number of firms producing premium bottled water would result in an increase in supply and a lower price-if demand remained unchanged. The relative size of the shift of the demand curve and the supply curve will determine whether the equilibrium price rises or falls. OK
As part of his 2016 federal budget proposals, President Obama recommended significant changes to the federal student loan programs. Given your answer to the previous question, do you think President Obama was likely to have recommended changes that would increase, or changes that would decrease, the payments that borrowers would have to make? President Obama was likely to have recommended changes that would
Increase the payments that borrowers would have to make so that the government would be paid back sooner. Given the answer to the previous question, that the 2011 changes to the student loan program increased the amount that students borrowed under the program, we know that the cost to the federal government from the programs has increased. To reduce these costs, it's likely that President Obama recommended changes to the programs that would increase the payments borrowers would have to make. In fact, that is what the president proposed.
After Russia seized what had formerly been the Ukrainian territory of Crimea in February 2014, the United States and many other countries imposed economic sanctions that reduced the ability of Russia to engage in international trade. A columnist writing in the New York Times noted that, "If sanctions push Russia onto a path of greater self-reliance, its manufacturing and service industries will surely grow faster...." Source: Anatole Kaletsky, "Reasons to Welcome a Ukraine Deal," New York Times, September 18, 2014. If the columnist is correct about the effect of the sanctions, then, in the long run, the sanctions will
Decrease the economic well-being of the average Russian because Russia will have to produce some goods and services at a higher cost than its trading partners Countries benefit when they import goods and services that other countries produce at a lower cost, and export goods and services that they can produce at a lower cost than other countries can. Assuming that the sanctions "push Russia onto a path of greater self-reliance," this means that Russia will have to produce some goods and services at a higher cost than its trading partners can. Therefore, the sanctions will decrease, not increase, the economic well-being of the average Russian in the long run.
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? Why or why not?
Economic analysis cannot provide such an answer becasue it seeks to address positive questions such as "what is"
Consider the following statement: "The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes mistakes." What is the most correct response to this statement?
Economics assumes that consumers and firms are rational, not that they always make the right decisions.
In a paper written by Bentley College economists Patricia M. Flynn and Michael A. Quinn, the authors state: "We find evidence that EconomicsLOADING... is a good choice of major for those aspiring to become a CEO [chief executive officer]. When adjusting for size of the pool of graduates, those with undergraduate degrees in Economics are shown to have had a greater likelihood of becoming an S&P 500 CEO than any other major." A list of famous economics majors published by Marietta College includes business leaders Warren Buffet, Donald Trump, Ted Turner, and Sam Walton, as well as former presidents George H.W. Bush, Gerald Ford, and Ronald Reagan. Sources: Patricia M. Flynn and Michael A. Quinn, "Economics: A Good Choice of Major for Future CEOs," Social Science Research Network, November 28, 2006; and Famous Economics Majors, Marietta College, Marietta Ohio, May 15, 2012. Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in government?
Economics teaches us how to look at the tradeoffs involved in every decision
In the 1950s, the economist Bela Balassa compared 28 manufacturing industries in the United States and Britain. In every one of the 28 industries, Balassa found that the United States had an absolute advantageLOADING.... In these circumstances, would there have been any gain to the United States from importing any of these products from Britain? Explain.
Even with an absolute advantage, the United States would have benefited from importing those products for which Britain had a comparative advantage
When economists speak of a surplus, they mean a situation in which
Firms have unsold goods piling up / the quantity supplied exceeds quantity demanded / the market price is above the equilibrium price When economists talk of a surplus, they mean a situation in which firms have unsold goods piling up which translates into an excess of quantity supplied over quantity demanded. This can only happen when the market price is above the equilibrium price.
Jay Bhattacharya and M. Kate Bundorf of Stanford University have found evidence that people who are obese and work for firms that have employer-provided health insurance receive lower wages than people working at those firms who are not obese. At firms that do not provide health insurance, obese workers do not receive lower wages than workers who are not obese. Source: Jay Bhattacharya and M. Kate Bundorf, "The Incidence of the Health Care Costs of Obesity," Journal of Health Economics, Vol. 28, No. 3, May 2009, pp. 649-58. Firms that provide workers with health insurance may pay a lower wage to obese workers than to workers who are not obese because the latter tend to be healthier and consequently
More productive at work/ experience lower rates of asenteeism and early retirement/ less costly to insure and therefore employ due to their lower claim submission rate Firms that provide workers with health insurance may pay a lower wage to obese workers than to workers who are not obese because the latter tend to be more productive at work and less costly to employ due to lower insurance claims and lower rates of absenteeism and early retirement.
The chapter mentions that in 1965 married women with children worked an average of 32 hours per week while men worked an average of only 4 hours on housework—a total of 36 hours of housework. In 2016, the estimated average weekly hours of housework for women declined to 15.7, while the hours worked by men increased to about 9.7—a total of 25.4 hours of housework. Source: U.S. Bureau of Labor Statistics, "American Time Use—2016," June 27, 2017. Does the decrease in the total number of hours of housework—from 36 to 25.4—mean that families are willing to live in messier homes?
No, because homes are larger now and would require more hours of housework to keep a home clean The decline in the number of hours spent on housework since the 1960s has been partly driven by technology, particularly improvements in household appliances, such as dishwashers and microwave ovens. The decline in the number of hours women devote to housework also reflects the greater job opportunities available to women today compared with the 1960s. In addition to taking advantage of improved appliances, many families have found that the cost of hiring specialists in household chores, such as cleaning services and lawn care services, is lower than the cost of the wife (or husband) performing those chores.
why do some consumers tend to favor price controls while others tend to oppose them?
Price ceilings generate shortages. Consequently, the consumers who obtain the product at a lower price win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage
President Obama and his advisers have failed to correctly forecast the effect of the 2011 changes to the loan programs because they
Underestimated the number of students who would take advantage of the programs President Obama and his advisers likely realized that the changes in the student loan programs would make it more likely that students would borrow more, but underestimated the number of students who would take advantage of the programs. In other words, the changes to the programs changed the economic incentives students and their families face more than the president and his advisers anticipated.
You shouldn't necessarily do what you are better than anyone else at doing
Unless your advanatage in that activity is greater than advantages you possess in other activties You should only do what you are better than anyone else at doing if the productivity advantage you possess exceeds any and all other productivity advantages you have. In other words, if you are better at everything than someone else, you should specialize in the activity for which you have the greatest advantage. Babe Ruth was a very highly regarded pitcher early in his baseball career and was his team's best pitcher, yet he went on to become an everyday player as a rightfielder. Although he was a better pitcher than anyone else on his team, he was much, much better as a power hitter. And as a pitcher, he wasn't able to hit each game. While advantaged at everything, slugging was the activity in which he possessed his greatest advantage. Next Question
For many years, McDonald's used frozen beef in its hamburgers. It recently began market testing how consumers in the United States would respond to hamburgers made of fresh beef that had never been frozen. In early 2017, McDonald's expanded the market test from only 55 restaurants to over 300. The switch to fresh, never-frozen beef patties would be a huge undertaking involving "how [the beef] is transported to the restaurants, how it is stored when it arrives and how much it affects employees' process of making burgers." Source: Samantha Bomkamp, "McDonald's Expands Fresh Beef Test Again," chicago.tribune.com, March 17, 2017. If you were a manager at McDonald's, how would you go about analyzing whether to switch to fresh, never-frozen beef patties? In your answer, consider whether your decision would have to be all or nothing—all fresh, never-frozen beef patties in all McDonald's hamburgers, and whether you would have to switch in all McDonald's locations around the world (they are in 119 countries), or just in certain countries.
You would want to compare the marginal benefits and marginal cost of serving hamburgers made with fresh beef.
How can a country gain from specialization and trade?
a country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services
Uber is an app people use to arrange transportation with drivers who use their own cars for this purpose. Customers pay for their rides with the smartphone app. Uber's prices fluctuate with the demand for the service. This "surge pricing" can result in different prices for the same distance traveled at different times of day or days of the week. Annie Lowrey, a writer for the New York Times, explained that she paid $13 for a 10 p.m. two-mile trip in downtown Washington, D.C. on New Year's Eve. Three hours later she paid $47 for the return trip to her home. Source: Annie Lowrey, "Is Uber's Surge-Pricing an Example of High Tech Gouging?" New York Times, January 10, 2014. Did she receive negative consumer surplus on her return trip?
her willingness to pay was no less than $47, so she did not recieve negative consumer surplus from this trip
when there are many people involved in attempting to reach an agreement, the transactions cost are often ________ than the net benefits from reducing an externality. In such cases, a private solution to an externality problem _________ feasible
higher is not
The coase theorem states that...
if transaction costs are
The coase theorem states that
if transaction costs are low, private bargaining will result in an effcient solution to the problem of externalities
black markets may arise
in reaction to binding price ceilings
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 I decided not to drop it." Is your friend's reasoning correct or incorrect?
incorrect Your friend is failing to think at the margin. It doesn't matter how much time has already been spent studying psychology. What matters is the marginal benefit to be received from studying psychology relative to the marginal cost, where cost is measured as the opportunity cost of lower grades in other subjects. If the course is required, that may raise the marginal benefit.
When a demand curve shifts to the right... the equilibrium price will_______ and equilibrium quantity will _________
increase increase
The federal government subsidizes some loans to college students. Typically, the more students who participate in these programs and the more they borrow, the higher the cost to the federal government. In 2011, President Barack Obama convinced Congress to pass these changes to the federal student loan programs: (1) Payments were capped at 10 percent of a borrower's discretionary income; (2) any unpaid balances for people working for the government or in the non-profit sector were forgiven after 10 years; and (3) people working in the private sector had their loans forgiven after 20 years. Sources: Allesandra Lanza, "What Obama's 2016 Budget Proposal Means for Student Borrowers," usnews.com, February 11, 2015; and Josh Mitchell, "Student-Debt Forgiveness Plans Skyrocket, Raising Fears Over Costs, Higher Tuition," Wall Street Journal, April 22, 2014. As a result of these changes in the federal student loan program, you would predict that the total amount students' borrowed under these programs would have
increased because the terms of repayment have been made more generous As a result of changes in the federal student loan programs, the total amount students borrow should increase. The changes increase the incentive students have to borrow money under programs because they limit the amounts of the loans that must be repaid.
How does producer surplus change as the equilibrium price of a good rises or falls? As the price of a good rise, producer surplus ________, and as the price of a good falls, producer surplus _________
increases decreases
Using the same amount of resources, suppose that Nicaragua can produce twice as much coffee as Colombia. Nevertheless, Colombia could still have the comparative advantage in producing coffee if
it is even less efficient than Nicaragua in the production of goods other than coffee Even though Colombia is just one-half as productive as Nicaragua in coffee production, it will still have a comparative advantage in coffee if its productivity disadvantage is even greater in other goods. Suppose, for example, its productivity in wheat is only one-third the productivity Nicaragua possesses in wheat. This means that the opportunity cost of coffee in Colombia will be two-thirds of the opportunity cost of coffee in Nicaragua. So, Colombia has the comparative advantage in coffee because the possession of a lower opportunity cost is what gives one a comparative advantage. Next Question
Why is the supply curve reffered to as a marginal cost curve?
it shows the willingness of firms to supply a product at different prices
The incentive of employees to improve or maintain their health once they obtain health insurance may be ________ impacted
negatively
can two countries gain from trade if niether has a compartative advantage producing either good
no
If a market is in equilibrium, is it necessarily true that all potential buyer and sellers are satisfied with the market?
no, It only means that those willing to pay the market price received the goods. They would have been happier paying less. And there are likely to be consumers who want the good but are not willing (or able) to pay the market price. Similarly on the supply side, sellers would be happier to sell at a higher price, and there may be sellers who are only willing to sell at a higher price and, therefore, do not participate in the market.
In discussing dividing up household chores, Emily Oster, an economist at the University of Chicago, advises that: "No, you shouldn't always unload the dishwasher because you're better at it." Source: Emily Oster, "The Wrong Person Is Probably Doing the Dishes in Your Home," Slate, November 21, 2012. Even if you are better at unloading the dishwasher than your spouse, you shouldn't always be the one to unload it because
you may be even better at some other household task and must consider the opportunity cost
