Econ Questions McConnell

On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine (a) the market demand schedule on the assumption that the good is a private good and (b) the collective demand schedule on the assumption that the good is a public good.

(a) Private Demand Qd: 1, 2, 4, 7, 10, 13, 16, 19 (b) Public Demand Price: 19, 16, 13, 10, 7, 4, 2, 1 Explanation a. Derive the market demand schedule on the assumption that the good is a private good. To accomplish this, we use the principle of horizontal summation. That is, we fix price and add up the quantities demanded by the individuals. At a price of $8, individual 1 (I1) demands 0, individual 2 (I2) demands 1, and individual 3 (I3) demands 0. Thus, we have the following market demand ordered pair (1,8). At a price of $7, I1 demands 0, I2 demands 2, and I3 demands 0. Thus, we have the following market demand ordered pair (2,7). At a price of $6, I1 demands 0, I2 demands 3, and I3 demands 1. Thus, we have the following market demand ordered pair (4 [3 + 1],6). At a price of $5, I1 demands 1, I2 demands 4, and I3 demands 2. Thus, we have the following market demand ordered pair (7 [1 + 4 + 2],5). At a price of $4, I1 demands 2, I2 demands 5, and I3 demands 3. Thus, we have the following market demand ordered pair (10,4). At a price of $3, I1 demands 3, I2 demands 6, and I3 demands 4. Thus, we have the following market demand ordered pair (13,3). At a price of $2, I1 demands 4, I2 demands 7, and I3 demands 5. Thus, we have the following market demand ordered pair (16,2). At a price of $1, I1 demands 5, I2 demands 8, and I3 demands 6. Thus, we have the following market demand ordered pair (19,1). b. Derive the collective demand schedule on the assumption that the good is a public good. To accomplish this, we use the principle of vertical summation. That is, we fix quantity and add up the price (willingness to pay) for the individuals. The logic here is that the individuals (society) can pool resources to purchase a given quantity because this good will be shared (public good). At the quantity 1, I1 is willing to pay $5, I2 is willing to pay $8, and I3 is willing to pay $6. Thus, we have the following collective demand ordered pair (1,19 [5 + 8 + 6]). At the quantity 2, I1 is willing to pay $4, I2 is willing to pay $7, and I3 is willing to pay $5. Thus, we have the following collective demand ordered pair (2,16). At the quantity 3, I1 is willing to pay $3, I2 is willing to pay $6, and I3 is willing to pay $4. Thus, we have the following collective demand ordered pair (3,13). At the quantity 4, I1 is willing to pay $2, I2 is willing to pay $5, and I3 is willing to pay $3. Thus, we have the following collective demand ordered pair (4,10). At the quantity 5, I1 is willing to pay $1, I2 is willing to pay $4, and I3 is willing to pay $2. Thus, we have the following collective demand ordered pair (5,7). At the quantity 6, I1 is willing to pay $0, I2 is willing to pay $3, and I3 is willing to pay $1. Thus, we have the following collective demand ordered pair (6,4). At the quantity 7, I1 is willing to pay $0, I2 is willing to pay $2, and I3 is willing to pay $0. Thus, we have the following collective demand ordered pair (7,2). At the quantity 8, I1 is willing to pay $0, I2 is willing to pay $1, and I3 is willing to pay $0. Thus, we have the following collective demand ordered pair (8,1).

On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine (a) the market demand schedule on the assumption that the good is a private good and (b) the collective demand schedule on the assumption that the good is a public good. (2)

(a) Private Demand Qd: 2, 5, 8, 11, 14, 17, 20, 23 (b) Public Demand Price: 46, 40, 34, 28, 22, 16, 10, 4 Explanation a. Derive the market demand schedule on the assumption that the good is a private good. To accomplish this, we use the principle of horizontal summation. That is, we fix price and add up the quantities demanded by the individuals. At a price of $16, individual 1 (I1) demands 0, individual 2 (I2) demands 1, and individual 3 (I3) demands 1. Thus, we have the following market demand ordered pair (2,16). At a price of $14, I1 demands 1, I2 demands 2, and I3 demands 2. Thus, we have the following market demand ordered pair (5,14). Using the same technique for the rest of the prices, we get the following: At a price of $12, we have the following market demand ordered pair (8,12). At a price of $10, we have the following market demand ordered pair (11,10). At a price of $8, we have the following market demand ordered pair (14,8). At a price of $6, we have the following market demand ordered pair (17,6). At a price of $4, we have the following market demand ordered pair (20,4). At a price of $2, we have the following market demand ordered pair (23,2). b. Derive the collective demand schedule on the assumption that the good is a public good. To accomplish this, we use the principle of vertical summation. That is, we fix quantity and add up the price (willingness to pay) for the individuals. The logic here is that the individuals (society) can pool resources to purchase a given quantity because this good will be shared (public good). At the quantity 1, we have the following collective demand ordered pair (1,46). At the quantity 2, we have the following collective demand ordered pair (2,40). At the quantity 3, we have the following collective demand ordered pair (3,34). At the quantity 4, we have the following collective demand ordered pair (4,28). At the quantity 5, we have the following collective demand ordered pair (5,22). At the quantity 6, we have the following collective demand ordered pair (6,16). At the quantity 7, we have the following collective demand ordered pair (7,10). At the quantity 8, we have the following collective demand ordered pair (8,4).

You visit an animal shelter and are in a financial position to either adopt a single dog for $500 or donate the $500 to marginally improve the welfare for all dogs at the shelter by providing each dog with slightly better bedding and food. Assume that by marginally increasing the welfare of the rest of the dogs in shelter, this enhances the likelihood that they will be adopted. Of the options below, which is the best choice from an economics perspective and does it make a difference whether this is a "no-kill" shelter, where dogs' lives would not be in danger without your assistance? Donate the $500 to all of the dogs. The total amount of welfare given does depends on the shelter type. Adopt the single dog. The increased help you can give one animal does more good than a small amount of help for all dogs in the shelter. Donate the $500 to all the dogs. It doesn't matter if it is a no-kill shelter or not, it is better to help each animal a little bit than to help just one a great deal.

- Donate the $500 to all of the dogs. The total amount of welfare given does depends on the shelter type. (You will receive points for any choice in the version of the question I had, although the answer above was stated to be the correct answer, so I would go with that choice as that may not be the case in the future as questions are modified throughout the years.) Explanation This question centers on the topic of whether it's better to help one entity a great deal or several entities a small amount. "Adopt the single dog. The increased help you can give one animal does more good than a small amount of help for all dogs in the shelter.": While this option saves a dog's life for sure, no additional welfare beyond the $500 is generated for the remaining dogs. "Donate the $500 to all the dogs. It doesn't matter if it is a no-kill shelter or not, it is better to help each animal a little bit than to help just one a great deal.": This option spends the $500 to enhance the living conditions of all the dogs, but also creates additional welfare as it increases the chances that all of the other dogs will get adopted. However, the increased chance of adoption is worth more in a kill shelter versus a no-kill shelter. "Donate the $500 to all of the dogs. The total amount of welfare given does depends on the shelter type.": This option spends the full $500 and increases the chances that all of the other dogs will get adopted. This option also recognizes that the likelihood of adoption is worth more in a kill versus no-kill shelter. In other words, equality is more desirable (worth more) in a kill shelter.

a. On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine the collective demand schedule on the assumption that the good is a public good.

Demand Public Good Price: 23, 20, 17, 14, 11, 8, 5, 2 b. Use the public demand schedule above and the following supply schedule to ascertain the optimal quantity of this public good. Optimal Quantity = 6 Explanation a. Collective demand schedule: Remember that the collective demand schedule is found by keeping the quantity constant and adding up the price that each individual is willing to pay at that quantity. b. Combining this collective demand schedule with the following supply schedule, we can determine the optimal provision (quantity) of the public good. The optimal quantity can be found by finding the price where the willingness to pay equals the price required by the firm to supply that last unit (basically, the price that clears the market). In this case, the optimal quantity is 6 units.

a. What is the formula for measuring the price elasticity of supply? b. Suppose the price of apples goes up from $20 to $22 a box. In direct response, Goldsboro Farms supplies 1,300 boxes of apples instead of 1,200 boxes. Compute the coefficient of price elasticity (midpoints approach) for Goldsboro's supply.

Percentage change in quantity supplied/percentage change in price Price elasticity = 0.84 c. Is its supply elastic, or is it inelastic? Inelastic Explanation a. The formula for measuring the elasticity of supply is the same as the formula for measuring the elasticity of demand. Divide the percentage change in quantity by the percentage change in price. The only difference is that we do not need to take the absolute value here because price and quantity move in the same direction (implying the elasticity is already positive). b. Here we have two ordered pairs (1,200,$20) and (1,300,$22). Note the form is (Q,P). Es = ((Q2−Q1)/((Q2+Q1)/2)) / ((P2−P1)/((P2+P1)/2)) Using the values above, Q1 = 1,200, Q2 = 1,300, P1 = $20, and P2 = $22, we get the elasticity of supply = 0.84. c. The same interpretation as for the price elasticity of demand also applies to the price elasticity of supply. Supply is elastic if greater than 1, inelastic if less than 1, and unit-elastic if the elasticity equals 1. Thus, in this case, supply is Inelastic.

Which statement best describes a capitalist economy?

Society determines production and the allocation of goods and services only through markets.

If the six people listed in the table are the only consumers in the market and the equilibrium price is $14, how much consumer surplus will the market generate? Max Price: 21, 16, 14, 12, 10, 8 Equilibrium Price: 14

Total consumer surplus = $9 21 - 14 = 7 16 - 14 = 2 7 + 2 = 9 Explanation Using the values above and assuming an equilibrium price of $14, we first note that an individual will only purchase the good if his or her "maximum willing-to-pay price" is greater than or equal to the price of the product ($14). Now we can calculate the consumer surplus by adding up the difference between the "maximum willing-to-pay price" and the actual price paid of those who will purchase the product, which, in this case, will equal $9.

If the six people listed in the table are the only producers in the market and the equilibrium price is $10, how much producer surplus will the market generate? Max Price: 2, 4, 6, 8, 10, 12 Equilibrium Price: 10

Total producer surplus = $20 10 - 2 = 8 10 - 4 = 6 10 - 6 = 4 10 - 8 = 2 8 + 6 + 4 + 2 = 20 (Explanation in previous card)

Demand and supply often shift in the retail market for gasoline. Here are two demand curves and two supply curves for gallons of gasoline in the month of May in a small town in Maine. Some of the data are missing.

Using the table, answer the following questions: Price: 6, 5, 4, 3 D1: 10,000, 12,000, 14,000, 16,000 S1: 18,000 16,000, 14,000, 10,000 S2: 19,000, 18,000, 17,000, 16,000 a. Use the following facts to fill in the missing data in the table. If demand is D1 and supply is S1, the equilibrium quantity is 14,000 gallons per month. When demand is D2 and supply is S1, the equilibrium price is $5.00 per gallon. When demand is D2 and supply is S1, there is an excess demand of 8,000 gallons per month at a price of $3.00 per gallon. If demand is D1 and supply is S2, the equilibrium quantity is 16,000 gallons per month. b. Compare the two equilibriums: In the first, demand is D1 and supply is S1. In the second, demand is D1 and supply is S2. By how much does the equilibrium quantity change? - Equilibrium quantity (increases) by (2,000) gallons per month. By how much does the equilibrium price change? - Equilibrium price (falls) by $ (1.00) c. If supply falls from S2 to S1 while demand simultaneously declines from D2 to D1, does the equilibrium price rise, fall, or stay the same? - Stays the same. What if only supply falls? Rises What if only demand falls? Falls. d. Suppose that supply is fixed at S1 and that demand starts at D1. By how many gallons per month would demand have to increase at each price level such that the equilibrium price per gallon would be $5.00? - 4,000 gallons per month By how many gallons per month would demand have to increase at each price level such that the equilibrium price per gallon would be $6.00? - 8,000 gallons per month. Explanation a. If demand is D1 and supply is S1, the equilibrium quantity is 14,000 gallons per month. We can eliminate all rows except the third row in the table above because we actually have values for the first two rows for D1 and S1 and the fourth row has a value of 10,000 for S1. In equilibrium, S1 must equal D1, so the only row where this can hold is row 3. So, the entry for row 3 for D1 is 14,000 and the entry for row 3 for S1 is 14,000 as well. When demand is D2 and supply is S1, the equilibrium price is $5.00 per gallon. Equilibrium for D2 and S1 occurs at a quantity of 16,000. Therefore, the price in row 2 is $5.00. When demand is D2 and supply is S1, there is an excess demand of 8,000 gallons per month at a price of $3.00 per gallon. The excess demand of 8,000 occurs in row 4 for D2 and S1. This implies the price in row 4 is $3.00.If demand is D1 and supply is S2, the equilibrium quantity is 16,000 gallons per month. Since the equilibrium quantity must equal 16,000 for D1 and S2 and the only remaining missing quantity entries are in row 4 for D1 and S2, this implies that the entries for D1 and S2 in row 4 (quantities) are 16,000. b. The initial equilibrium for D1 and S1 is Q = 14,000 and P = $4.00. The second equilibrium for D1 and S2 (an increase in supply) is Q = 16,000 and P = $3.00. Thus, the change in quantity is an increase of 2,000 gallons per month and the change in price is a decrease of $1.00. c. The initial equilibrium for S2 and D2 is Q = 17,000 and P = $4.00. The second equilibrium for S1 and D1 (both supply and demand fall) is Q = 14,000 and P = $4.00. The equilibrium price remains the same at P = $4.00. The third equilibrium for D2 and S1 (only supply falls) is Q = 16,000 and P = $5.00. Compared to the initial equilibrium, price increases from $4.00 to $5.00. The fourth equilibrium for S2 and D1 (only demand falls) is Q = 16,000 and P = $3.00. Compared to the initial equilibrium, price falls from $4.00 to $3.00. d. Since supply is fixed at S1 and demand starts at D1, the initial equilibrium is Q = 14,000 and P = $4.00. For the equilibrium price to increase to $5.00 (from $4.00), demand would need to increase to the level of supply at this price; in this case, it would need to increase by 4,000 gallons. Using the same process, for the equilibrium price to increase to $6.00, demand would have to increase by 8,000 gallons.

Suppose there are three buyers of candy in a market: Tex, Dex, and Rex. The market demand and the individual demands of Tex, Dex, and Rex are shown in the table below.

a. Fill in the table (gray-shaded cells) for the missing values. Tex: 2, 4, 6, 8, 10 Dex: 1, 2, 3, 4, 5 Rex: 2, 6, 10, 14, 18 Total Quantity Demanded: 5, 12, 19, 26, 33 b. Which buyer demands the least at a price of $11? Dex The most at a price of $13? Rex c. Which buyer's quantity demanded increases the most when the price is lowered from $13 to $12? Rex d. Which direction would the market demand curve shift if Tex withdrew from the market? To the left What if Dex doubled his purchases at each possible price? To the right e. Suppose that at a price of $12, the total quantity demanded increases from 19 to 29. Is this a "change in the quantity demanded" or a "change in demand"? Change the demand (Explanation in previous card)

Suppose there are three buyers of candy in a market: Tex, Dex, and Rex. The market demand and the individual demands of Tex, Dex, and Rex are shown below.

a. Fill in the table (gray-shaded cells) for the missing values. Tex: 3, 8, 12, 17, 23 Dex: 1, 2, 3, 4, 5 Rex: 0, 2, 4, 6, 8 Total Quantity Demanded: 4, 12, 19, 27, 36 b. Which buyer demands the least at a price of $5? Dex The most at a price of $7? Tex c. Which buyer's quantity demanded increases the most when the price is lowered from $7 to $6? Tex d. Which direction would the market demand curve shift if Tex withdrew from the market? To the left What if Dex doubled his purchases at each possible price? To the right e. Suppose that at a price of $6, the total quantity demanded increases from 19 to 38. Is this a "change in the quantity demanded" or a "change in demand"? - Change in demand Explanation a. At each price (row), the total quantity demanded will equal the sum of the individual quantities demanded. To find the total quantity demanded at the price of $8, add the quantities demanded by Tex, Dex, and Rex, which equals 4 (3 + 1 + 0). Total quantity demanded = 4 units. To find Rex's quantity demanded at the price of $7, we use the same logic as above. The sum of the individual quantities demanded equals 12 units (total quantity demanded). We also know that the sum for Tex and Dex equals 10 (8 + 2). This implies Rex's quantity demanded at $7 must equal 2 (12 (Total) - 8 (Tex) - 2 (Dex)). The same types of calculations can be applied to the other rows. At $6, the quantity demanded by Tex equals 12 (19 - 3 - 4). At $5, the quantity demanded by Dex equals 4 (27 - 17 - 6). At the price of $4, the total quantity demanded equals 36 (23 + 5 + 8). b. At a price of $5, Dex demands the least amount of goods, which equals 4. Tex demands 17, and Rex demands 6. At a price of $7, Tex demands the most amount of goods, which equals 8. Dex demands 2, and Rex demands 2. c. When the price is lowered from $7 to $6, Tex's quantity demanded increases by 4 (12 - 8), Dex's quantity demanded increases by 1 (3 - 2), and Rex's quantity demanded increases by 2 (4 - 2). Thus, Tex's quantity demanded increases the most when the price is lowered from $7 to $6. d. If Tex withdrew from the market, there would be less demand at every price level. This implies that the demand schedule would shift to the left. If Dex doubled his purchases at every price level, this would increase demand. This implies that the demand schedule would shift to the right. e. Since the price is fixed in the statement, this is a change in demand. A change in the quantity demanded results from a change in price.

Look at the tables below, which show, respectively, the willingness to pay and willingness to accept of buyers and sellers of individual bags of oranges. For the following questions, assume that the equilibrium price and quantity will depend on the indicated changes in supply and demand. Assume that the only market participants are those listed by name in the two tables.

a. Given that the equilibrium price is $8, what is the equilibrium quantity given the data displayed in the two tables? Q = 6 bags b. What if, instead of bags of oranges, the data in the two tables dealt with a public good like fireworks displays? If all the buyers free ride, what will be the quantity supplied by private sellers? Q = 0 bags c. Assume that we are back to talking about bags of oranges (a private good), but that the government has decided that tossed orange peels impose a negative externality on the public that must be rectified by imposing a $2-per-bag tax on sellers. What is the new equilibrium price? P = 9 bags What is the new equilibrium quantity? Q = 5 bags If the new equilibrium quantity is the optimal quantity, by how many bags were oranges being overproduced before? Q = 1 bag Explanation a. To determine the equilibrium price of oranges, we begin by comparing the highest willingness to pay with the lowest minimum acceptable price. Bob is willing to pay $13 and Carlos is willing to accept at minimum $3. This trade is made because Bob is willing to pay more than Carlos requires for the sale. We then move on to the trade between Barb and Courtney. This trade is also made because Barb is willing to pay $12 and Courtney only requires $4 to make the sale. This goes on until the "maximum willingness to pay" equals the "minimum acceptable price." This occurs for the trade between Betty and Chad. Betty's "maximum willingness to pay" is $8 and Chad's "minimum acceptable price" is also $8. Since the six purchasers (each person purchases 1 unit) buy the 6 units produced by the six producers (each produces 1 unit), the equilibrium quantity is 6 at the equilibrium price of $8. b. If, instead of bags of oranges, the data in the two tables dealt with a public good like fireworks displays, and all the buyers free ride, then the quantity supplied will be zero. Everyone will try to pay a zero price. c. If the government decides that tossed orange peels impose a negative externality on the public that must be rectified by imposing a $2-per-bag tax on sellers, then the "minimum acceptable price" will increase by the amount of the tax. The reason behind this increase is that the producers must now pay an additional $2 on top of their production costs. This implies that the "minimum acceptable price" for Carlos is $5 ($3 + $2), Courtney $6, Chuck $7, Cindy $8, Craig $9, and Chad $10. Comparing this new "minimum acceptable price" schedule with the original "maximum willingness to pay" schedule, we have the following new equilibrium. Bob is willing to pay $13 and Carlos is willing to accept at minimum $5. This trade is made because Bob is willing to pay more than Carlos requires for the sale. We then move on to the trade between Barb and Courtney. This trade is also made because Barb is willing to pay $12 and Courtney only requires $6 to make the sale. This goes on until the "maximum willingness to pay" equals the "minimum acceptable price." This occurs for the trade between Brent and Craig now. Brent's "maximum willingness to pay" is $9 and Craig's "minimum acceptable price" is also $9. The potential trade between Betty and Chad no longer takes place. Betty is only willing to pay $8 and Chad requires $10 to make the sale. Since only five purchasers (each person purchases 1 unit) buy the 5 units produced by the five producers (each produces 1 unit), the new equilibrium quantity is 5 at the equilibrium price of $9. If this is the optimal quantity, then the market was overproducing by 1 unit before the tax was imposed on orange producers.

ADVANCED ANALYSIS Currently, at a price of $1 each, 200 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply. In the short run, a price increase from $1 to $2 is unit-elastic (Es = 1). In the long run, a price increase from $1 to $2 has an elasticity of supply of 1.50. (Hint: Apply the midpoints approach to the elasticity of supply.)

a. How many popsicles will be sold each day in the short run if the price rises to $2 each? 400 per day b. How many popsicles will be sold per day in the long run if the price rises to $2 each? 600 per day Explanation To answer this question, we need to use the midpoints approach. Assume we have the two ordered pairs (Q1,P1) and (Q2,P2). Es= (Q2−Q1)/((Q2+Q1)/2) / (P2−P1)/((P2+P1)/2) We can then solve this equation to determine the quantity sold as a result of a price increase. a. For the short run, we have the following information: Es = 1 with the ordered pairs of (200,$1) and (Q2,$2). Here we need to solve for Q2. Substituting the values into the formula above, we get Q2 = 400. b. We can do the same exercise for the long run. Here we have the following information: Es = 1.50 with the ordered pairs of (200,$1) and (Q2,$2). Here we need to solve for Q2. Substituting the values into the formula above, we get Q2 = 600. Thus, we sell 400 popsicles in the short run and 600 in the long run when price increases from $1 to $2. (Note this implies an increase in demand (shift to the right).)

Janice really likes potatoes. Potatoes cost $1.25 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. Suppose she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30.

a. How many pounds of potatoes will she purchase? - 1 pound b. What if she only had $3.00 to spend? 1 pound Explanation a. Janice will purchase potatoes until the value of potatoes is less than the cost of potatoes or until her income has been exhausted. From the table, we can see that the cost of the second of potatoes is greater than its value. Therefore, Janice will purchase a total of one pound of potatoes with her original income of $5.00. b. Now assume Janice only has $3.00 to spend on potatoes. She will purchase one pound of potatoes at a total cost of $1.25.

The table below shows two demand schedules for a given style of men's shoe—that is, how many pairs per month will be demanded at various prices at a men's clothing store in Seattle called Stromnord. Suppose that Stromnord has exactly 55 pairs of this style of shoe in inventory at the start of the month of July and will not receive any more pairs of this style until at least August 1.

a. If demand is D1, what is the lowest price that Stromnord can charge so that it will not run out of this model of shoe in the month of July? $80 What if demand is D2? $60 b. If the price of shoes is set at $80 for both July and August and demand will be D2 in July and D1 in August, how many pairs of shoes should Stromnord order if it wants to end the month of August with exactly zero pairs of shoes in its inventory? 11 pairs What if the price is set at $60 for both months? 59 pairs Explanation a. If demand is D1, the lowest price Stromnord can charge is $80 if it does not want to run out of shoes in the month of July. The next lowest price would result in a quantity demanded higher than that of Stromnord's quantity supplied. (Note: answers must use the values in the table). If demand is D2, the lowest price Stromnord can charge is $60 if it does not want to run out of shoes in the month of July, because the demand for shoes is only 27 pairs at this price. This is the lowest value in the table. b. If the price of shoes is set at $80 for both July and August and demand will be D2 in July and D1 in August, then the total quantity demanded for these months is 66 pairs of shoes. Since Stromnord has 55 pairs in inventory, it will need to order 11 more pair(s) to meet demand for both months. If the price is set at $60, total quantity demanded for both months will be 114. Here Stromnord will need to order 59 pairs (114 - 55).

Use the table below to answer the questions that follow:

a. If this table reflects the supply of and demand for tickets to a particular World Cup soccer game, what is the stadium capacity? $60,000 b. If the preset ticket price is $55, would we expect to see a secondary market for tickets? Yes If someone who purchased a ticket tried to resell it; would the price be higher than, the same as, or lower than the price in the primary (original) market? - Higher than c. Suppose for some other World Cup game, the quantity of tickets demanded is 20,000 lower at each ticket price than what is shown in the table. If the ticket price remains $55, would the event be a sellout? - The event would not be a sellout. Explanation a. The stadium capacity is 60,000. We can infer this from the constant supply independent of price. b. If the preset ticket price is $55, we would expect to see a secondary market because there is a shortage of tickets at the original price. c. If demand were 20,000 less at each price, the quantity demanded at $55 would only be 50,000 (70,000 (original demand) - 20,000 (decline in demand)). Since capacity is 60,000, this would not be a sellout.

Suppose that you are on a desert island and possess exactly 20 coconuts. Your neighbor, Friday, is a fisherman, and he is willing to trade 2 fish for every 1 coconut that you are willing to give him. Another neighbor, Kwame, is also a fisherman, and he is willing to trade 3 fish for every 1 coconut.

a. On the diagram below, draw budget lines for trading with Friday and for trading with Kwame. (Put coconuts on the vertical axis.) Kwame (y axis: 20, x axis: 60) Friday (y axis: 20, x axis: 40 b. What is the slope of the budget line from trading with Friday (coconuts for fish)? -0.5 c. What is the slope of the budget line from trading with Kwame (coconuts for fish)? -0.33 d. Which budget line features a larger set of attainable combinations of coconuts and fish? - The budget line from trading with Kwame e. If you are going to trade coconuts for fish, would you rather trade with Friday or Kwame? - Kwame Explanation b. The slope of the budget line from trading with Friday equals -(1/2). This implies that for every coconut you give up, Friday must give up two fish. Or, for every fish that Friday gives up, you must give up (1/2) of a coconut. c. The slope of the budget line from trading with Kwame equals -(1/3). This implies that for every coconut you give up, Kwame must give up three fish. Or, for every fish that Kwame gives up, you must give up (1/3) of a coconut. d. The budget line from trading with Kwame features a larger set of attainable combinations of coconuts and fish. Because Kwame is willing to give up one more fish per coconut, you can consume more of both goods (assuming you make a trade). This implies that you would prefer to trade with Kwame. e. Because Kwame is willing to give up one more fish per coconut, you can consume more of both (assuming you make a trade). This implies that you would prefer to trade with Kwame.

Suppose Natasha currently makes $40,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try to develop an Internet-based competitor to the local cable company. For the soap-making opportunity, she anticipates annual revenue of $465,000 and costs for the necessary land, labor, and capital of $395,000 per year. For the Internet opportunity, she anticipates costs for land, labor, and capital of $3,250,000 per year as compared to revenues of $3,275,000 per year.

a. Should she quit her current job to become an entrepreneur? Yes b. If she does quit her current job, which opportunity would she pursue? The organic soap company Explanation Natasha should quit her job only if the net revenue from the entrepreneurial business opportunity exceeds that of her current wage (net revenue equals revenue minus cost). This could also be defined as accounting profit. a. Net revenue from the organic soap company equals $465,000 (revenue) minus $395,000 (cost). If this net revenue of $70,000 exceeds Natasha's current wage of $40,000, she should develop this company instead of working for the cable TV company. If not, the soap company is not a good decision. The net revenue from the Internet company equals $3,275,000 (revenue) minus $3,250,000 (cost). If this net revenue of $25,000 exceeds Natasha's current wage of $40,000, she should develop this company instead of working for the cable TV company. If not, the Internet company is not a good decision. b. If both companies provide a net revenue greater than her wage at the cable TV company, she will choose the company with the greatest net revenue; if neither company provides a net revenue greater than her wage at the cable TV company, she will keep her current job.

Let's put dollar amounts on the flows in the circular flow diagram below. https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/econ/McConnell_Brief_3e/chapter2pro3a.png

a. Suppose that businesses buy a total of $170 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $88 billion in wages, $24 billion in rent, and $34 billion in interest, how much are households paid for providing entrepreneurial ability? $24 billion b. If households spend $90 billion on goods and $80 billion on services, how much in revenues do businesses receive in the product market? $170 billion Explanation a. $24 billion for entrepreneurial ability: $170 billion in total factor payments - $88 billion in wages- $24 billion in rent - $34 billion in interest. b. $170 billion: $90 billion + $80 billion, because household expenditures equal business revenues.

Indicate whether each of the following relationships is an indirect relationship or a direct relationship.

a. The number of inches of rainfall per month and the sale of umbrellas: Direct b. The amount of tuition and the level of enrollment at a university: Indirect c. The popularity of an entertainer and the price of her concert tickets: Direct Explanation a. The number of inches of rainfall per month and the sale of umbrellas: There is likely a direct relationship between the number of inches of rainfall per month and the sale of umbrellas (more rain implies more umbrellas). b. The amount of tuition and the level of enrollment at a university: There is likely an indirect relationship between the amount of tuition and the level of enrollment at a university. As tuition increases, fewer students will attend the university. c. The popularity of an entertainer and the price of her concert tickets: There is likely a direct relationship between the popularity of an entertainer and the price of her concert tickets. The more popular the entertainer, the more people are willing to pay to see her in concert.

Indicate whether each of the following relationships is an indirect (inverse) relationship or a direct relationship.

a. The number of sunny days per summer and the sale of suncreen: Direct b. The level of enrollment at a university and the amount of tuition: Indirect (Inverse) Explanation a. The number of sunny days per summer and the sale of suncreen will likely have a Direct relationship. As the number of sunny days per summer increases, so will the sale of suncreen. b. The level of enrollment at a university and the amount of tuition will likely have a Indirect (inverse) relationship. As the amount of tuition increases, the level of enrollment at a university will most likely decrease.

With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 5 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. Assume the firm can sell these 400 loaves at $2 per unit.

a. What is its total revenue? $800 b. What is its total cost? $760 c.What is the firm's profit or loss? - The firm generates an economic (profit) of $40 d. Will it continue to produce banana bread? Yes e. If this firm's situation is typical for the other makers of banana bread, will resources flow toward or away from this bakery good? - Resources will (flow toward) this bakery good. Explanation a. To calculate total revenue multiply the selling price by the number of units sold. Total revenue equals $2 (price) multiplied by 400 (loaves of bread sold). So, total revenue equals $800 ($2 × 400). b. To calculate total cost multiply each input usage (number of units employed) by the price of the input and then add these values together. Total cost equals 5 × $40 (cost of labor) + 7 × $60 (cost of land) + 2 × $60 (cost of capital) + 1 × $20 (cost of entrepreneurial ability) = $760. c. The profit for this firm equals total revenue minus total cost. Here, profit equals $800 (total revenue) minus $760 (total cost) = $40. If total cost happened to be greater than total revenue, this firm would have a loss. d. Since the firm is earning positive economic profit, it will continue to produce banana bread. However, if the firm were losing money (suffering a loss because total cost exceeds total revenue), the firm will stop producing banana bread. e. Since the firm is earning positive economic profit, other firms or individuals will want to produce banana bread. Thus, resources will flow toward this bakery good. If the firm had been suffering from an economic loss, then resources would flow away from this bakery good, as firms or individuals would exit the market to avoid the loss.

ADVANCED ANALYSIS Given the following diagrams: Q1 = 20 bags. Q2 = 15 bags. Q3 = 27 bags. The market equilibrium price is $50 per bag. The price at point a is $110 per bag. The price at point c is $10 per bag. The price at point d is $65 per bag. The price at point e is $40 per bag. The price at point f is $64 per bag. The price at point g is $29 per bag. Apply the formula for the area of a triangle (Area = ½ × Base × Height) to answer the following questions.

a. What is the dollar value of the total surplus (producer surplus plus consumer surplus) when the allocatively efficient output level Q1 is being produced? $1,000 How large is the dollar value of the consumer surplus at the output level Q1? $600 b. What is the dollar value of the deadweight loss when output level Q2 is being produced? $62.5 What is the total surplus when output level Q2 is being produced? $937.5 c. What is the dollar value of the deadweight loss when output level Q3 is produced? $122.5 What is the dollar value of the total surplus when output level Q3 is produced? $877.5 Explanation The equilibrium quantity Q1 = 20. The market equilibrium price is $50 per bag. The price at a is $110 per bag. The price at c is $10 per bag.a. To calculate total surplus, we use the following formula for the area of a triangle: Area = ½ × Base × Height. The area between the demand curve and the supply curve for the quantity ranging from 0 to 20 is the total economic surplus. This is a triangle with a base that is the price difference at Q = 0, of points a and c (110 - 10), and a height of 20 (the number of units purchased in equilibrium). Using these values, we have a total surplus of $1000. The consumer surplus is the area between the demand curve and the equilibrium price line. Here we have a base that is the price difference between the demand schedule price at Q = 0, which is $110, and the equilibrium price of $50. The height of the triangle is once again 20 (the number of units purchased in equilibrium). Using these values, we have a consumer surplus of $600. b. To find the deadweight loss that is created by underproduction, we need to calculate the area of triangle bde. The base is formed by the difference in the prices at points d and e ($65 - $40), and the height is the amount of underproduction (20 - 15). This gives us a deadweight loss of $62.5. The total surplus can be found by subtracting the deadweight loss from the original total surplus that maximized efficiency. This is $1000 (maximum total surplus) - $62.5 (deadweight loss) = $937.5. c. Here we follow the same procedure. We are given the price at point f is $64 and the price at point g is $29. (We do not need to calculate these prices using the demand and supply schedule.) The quantity Q = 27 represents overproduction (the marginal cost to society exceeds the marginal benefit to society) of 27 - 20 units. To calculate the deadweight loss from this overproduction, we use the price difference as the base, which is ($64 - $29), and the amount of overproduction as the height, which is (27 - 20). This results in a deadweight loss of $122.5. The total surplus can be found by subtracting the deadweight loss from the original total surplus that maximized efficiency. This is $1000 (maximum total surplus) - $122.5 (deadweight loss) = $877.5. Note here that we capture all of the surplus from producing the equilibrium quantity, but we lose surplus from overproduction (inefficient use of resources).

With current technology, suppose a firm is producing 800 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 5 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. Assume the firm can sell these 800 loaves at $1 per unit.

a. What is the firm's total revenue? $800 b. What is its total cost? $760 c. Calculate the amount of economic profit or loss. $40 d. Will it continue to produce banana bread? Yes e. If this firm's situation is typical for the other makers of banana bread, will resources flow toward or away from this bakery good? Toward (Explanation in previous card)

Specialization and trade are beneficial to society because: the output of economic goods may be increased with no increase in resources. scarce resources are utilized more efficiently. a division of labor lowers prices for products.

all of these are correct.

For more questions and answers, here's a compilation of all my questions

https://docs.google.com/document/d/1irfDHKCU3fVK_Cd9U99vUKqH36x8OC-N485FBKZ6xDg/edit?usp=sharing