Final Exam Econ

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Assume that an industry that began as a perfectly competitive industry becomes a monopoly. Compared to when the industry was perfectly​ competitive, the monopolist will

charge a higher price and produce less output.

What is a public​ franchise? Part 2 A public franchise is

a firm designated by the government as the only legal provider of a good or service.

c. In the six months following Hurricane​ Katrina, production of oil in the Gulf of Mexico declined by 25 percent.

change in supply

Explain why market power leads to deadweight loss. Part 2 Firms with market power create deadweight loss because they

charge a price that is greater than marginal cost to maximize profits.

The economic penalty is not enough to eliminate discrimination because of the presence of all of the following except​:

compensating differentials.

Why​ wouldn't another entrepreneur have already opened a bookstore in the Bronx before Santos​ did? It is likely that another entrepreneur did not already open a bookstore in the Bronx due to

competition from online booksellers and bookstores in other New York City boroughs.

If the federal government paid for all medical​ care, as in the​ "Medicare for​ All" proposal, the wages you receive from your employer will likely

rise

Any cost that changes as output changes represents a​ firm's

variable cost.

Which costs are affected by the level of output​ produced?

variable costs

In the market for health​ insurance, asymmetric information problems arise because

buyers of health insurance policies always know more about the state of their health than do the insurance companies.

Match the countries below on the left with the health care system descriptions to their right. Do this by inserting into each​ country's response box the number associated with the description of its health care system. enter your response here Canada 1. Most people have private health insurance through​ employers, with the government also providing insurance to the​ poor, aged, and military veterans. enter your response here Japan 2. Has a system of universal health insurance under which every resident is required to either enroll in a​ non-profit health insurance society or in a government health insurance program. enter your response here the United Kingdom 3. Has a ​single-payer health care system where the government provides national health insurance to all residents. enter your response here the United States 4. The government owns most hospitals and employs most​ doctors, so the health care system is referred to as socialized medicine.

canada #3 japan #2 UK #4 US #1

You observe that when the price of Oscar Mayer hot dogs decreases the demand for Wonder hot dog buns increases. Part 2 Oscar Mayer hot dogs and Wonder hot dog buns are considered to be

complementary

The goal of the Google Books project is to produce a digital version of every book ever written. An academic paper by Abhishek Nagaraj of University of​ California, Berkeley and Imke Reimers of Northeastern University analyzed the effect of Google Books on the market for​ print, or​ physical, books. They concluded that for their sample of​ books, "Digitization...increased sales of physical editions by about​ 35%, especially for less popular​ works." ​Source: Abhishek Nagaraj and Imke​ Reimers, "Digitization and the Demand for Physical​ Works: Evidence from the Google Books​ Project," February​ 21, 2019. Does this paper indicate that digital books and print books are substitutes or​ complements? The findings of Nagaraj and Reimer show that digital and print copies of books are

complements because the decrease in the price of digital books to zero is causing an increase in the quantity demanded for print copies of the same book.

From the list​ below, select the variable that will cause the demand curve to​ shift:

consumer income

Complete the following​ statement: ​"When there is a shortage .. of a good Part 2

consumers compete against one another by bidding the price upward.

Is the real estate​ broker's observation that the market for office space was moving in a way that would result in greater opportunities for tenants connected to the fact that there was a glut in the​ market? The glut in the market will result in the ▼ risedecline in the equilibrium price of office space in this market. This ▼ higherlower rental price of office space will result in ▼ greaterfewer opportunities for office tenants.

decline, lower, greater

Imagine that the table shows the quantity demanded of UGG boots at five different prices in 2020 and in 2021. Which of the following variables could cause the demand for UGG boots to change as indicated from 2020 to​ 2021? ​(Check all that​ apply.)

decrease in substitute increase in price of compliementary goods decrease in number of buyers

An article in the Wall Street Journal on the recreational vehicle​ (RV) industry listed several factors that led to a larger quantity of RVs​ sold: a. Increasing confidence among households that their future incomes would rise b.​ Low-interest loans from banks to finance the purchase of an RV c. Falling gasoline prices d.​ "The 'glamping' trend that has seen a much younger generation embrace the RV​ lifestyle" ​Source: Spencer​ Jakab, "RV Stocks May Stay in the​ Wilderness," Wall Street Journal​, January​ 1, 2019. Briefly explain whether the following factor caused a movement along the demand curve for RVs or a shift in the demand curve for RVs. If you believe the demand curve​ shifted, explain whether the curve shifted to the right or to the left. Low−interest loans from banks to finance the purchase of an RV As a result of the change in the factor​ above,

downward movement in the RV curve

The widespread acceptance that bacteria causes diseases helped lead to a public health movement in the late nineteenth and early twentieth centuries. This movement eventually brought​ sewers, clean drinking​ water, and garbage removal to all U.S. cities. The public health movement in the United States in the late nineteenth and early twentieth centuries was like a technological advance to the​ country's production​ possibilities, since both ▼ secured/ expanded the​ economy's productive​ capacity, the former by increasing the​ nation's

expanded effective workforce

improvements in health care can increase a country's total income by

expanding the aviable workforce improving worker morale enabling people to work harder

In a competitive​ market, firms can dictate what the equilibrium price of a good or a service will be.

false

In terms of comparisons in health care outcomes across​ countries, the​ economist's observation

has relevance because health care outcomes are affected by many different factors and can be difficult to measure.

When economists speak of a surplus​, they mean a situation in which

he market price is above the equilibrium price. B. firms have unsold goods piling up. C. the quantity supplied exceeds quantity demanded.

Hospitals and doctors sometimes perform tests that may not be of any value to patients because

health care providers are paid for each service they render.

An article in the Economist magazine argues that the real problem with health insurance is as​ follows: The healthy people who decide not to buy insurance out of rational​ self-interest, and who turn out to be right. By not buying​ insurance, those​ (largely young) healthy people will be failing to subsidize the people insurance is meant​ for: the ones who end up getting sick. ​Source: "To Boldly Go Where He Had Already Been​ Before," Economist​, May​ 13, 2011. Part 2 Why is it rational for healthy people not to buy health​ insurance? Part 3

hey anticipate having small or negligible medical bills. B. They perceive little risk of becoming sick. C. They anticipate little benefit from purchasing health insurance.

In which of the following ways is the market for health care in the United States different from the markets for other goods and​ services?

the govenment plays a large role on the market for health care consumer of health typically plays less than full

A news article on production of oil and natural gas in the Permian Basin of western Texas and New Mexico noted the following two​ facts: i.​ "Shale drillers in the Permian Basin are producing vast amounts of gas as a byproduct of prospecting for​ oil." ii.​ "Gas prices in parts of the prolific region hovered near zero last month and some trades went​ negative, to as low as a negative 25 cents per million British thermal​ units...." ​Source: Rebecca​ Elliott, "In Booming​ Oilfield, Natural Gas Can Be​ Free," Wall Street Journal​, December​ 27, 2018. a. What does it mean for a price to be​ negative? A negative​ 25-cent price means that

the seller has to pay the buyer 25 cents so that the buyer agrees to receive the product.

An increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More​ specifically,

the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in​ consumers' purchasing power.

A student looks at the data in the table to the right and draws this​ conclusion: ​"The marginal product of labor is increasing for the first 3 workers​ hired, and then it declines for the next 3 workers. I guess each of the first 3 workers must have been hard workers. Then Jill must have had to settle for increasingly poor​ workers." Part 2 Do you agree with the​ student's analysis? Briefly explain.

. No. Marginal product initially increases due to division of labor and then decreases due to the law of diminishing returns.

Some objections raised by economists to​ Fogel's analysis of the drivers behind increases in spending on health care cite its

. lack of attention to​ short-run financing considerations. B. failure to adequately assess the role of distorted price signals for buyers of health care. Your answer is not correct. C. ​de-emphasis of cost​ factors, particularly those related to technological change.

Who is in charge of enforcing​ them?

Both a and b.

What is the price paid by consumers of medical​ services?

P3

One way for a firm to become a monopoly is by controlling a key resource.

True

The law of demand is the assertion that

the quantity demanded of a product is inversely related to its price.

When output is 10,000​, what is the average fixed​ cost? ​$

2.00

When output is 10,000​, what is the average variable​ cost?

4.00

Suppose the total cost of producing 10,000 tennis balls is ​$60,000​, and the fixed cost is ​$20,000. Part 2 What is the variable​ cost? ​$enter your response here. ​(Enter a numeric response using an​ integer.)

40000

Frank Gunter owns an apple orchard. He employs 84 apple pickers and pays them ​$7 per hour to pick​ apples, which he sells for ​$1.40 per box. If Frank is maximizing​ profits, what is the marginal revenue productLOADING... of the last worker he​ hired? What is that​ worker's marginal productLOADING...​? Part 2 Marginal revenue product of the last worker=​$enter your response here per hour. ​(Enter your response as an​ integer.)

7

According to the​ graph, what is the equilibrium price of coal​? ​ $enter your response here. ​(Enter a numeric response using an​ integer.)

70

When introduced in the late​ 1970s, the videocassette​ recorder, or​ VCR, was the first technology that allowed consumers to play recorded movies on their televisions. VCRs eventually declined in popularity following the introduction of DVD and​ Blu-ray players, and after most people had Internet connections that allowed them to stream movies. A columnist for the Wall Street Journal notes that​ "the last known manufacturer of​ [VCRs], ceased production in​ 2016." Therefore, nothing prevents you from establishing a monopoly in the VCR market. ​Source: Paul​ Schrodt, "Why You Might Actually Want a​ VCR," Wall Street Journal​, January​ 25, 2018. The accompanying graph shows the situation your VCR firm would be in. It includes your​ demand, marginal​ revenue, average total​ cost, and marginal cost curves. Are you likely to make a profit or a​ loss?

A loss equal to area ABCD because the demand for VCRs is below the average total cost​ (ATC) at the​ profit-maximizing quantity, Q1.

Define economic discrimination.

Economic discrimination is paying a person a lower wage or excluding a person from an occupation on the basis of an irrelevant characteristic such as race.

Which of the following is true about economic​ discrimination?

Economic discrimination is​ illegal, but it is possible that employers ignore the law.

In June​ 2018, a federal court judge ruled against the U.S. Department of​ Justice, which was attempting to block a merger between​ AT&T and Time Warner. In addition to its wireless​ business, AT&T owned the DirectTV satellite television service. Time Warner owned​ HBO, TBS,​ TNT, and the Warner Brothers film studio. An article in the Wall Street Journal on the​ judge's ruling​ noted, "The case marked the first time in 40 years that a court had seen a fully litigated challenge to a​ so-called vertical merger . . . Such cases are considered more difficult for the government to win than the typical​ 'horizontal' merger​ case." ​Source: Brent Kendall and Drew​ FitzGerald, "AT&T Beats U.S. in Antitrust Fight over Time​ Warner," Wall Street Journal​, June​ 12, 2018. a. What is a vertical merger​ case?

A vertical merger is a merger between firms at different stages in the production of a good.

Suppose that a large oil field is discovered in Michigan. By imposing a tax on the​ oil, the state government is able to eliminate the state income tax on wages. What is likely to be the effect on the labor supply curve in​ Michigan?

A. The quantity of labor supplied in Michigan will increase if the substitution effect is larger than the income effect.

Many of the firms that were the first to use fracking techniques to produce oil were small. By​ 2018, though, many large oil​ companies, such as Chevron and​ Exxon-Mobil, had begun using fracking techniques. An article in the Wall Street Journal quotes an industry analyst as arguing that​ "these bigger companies have the scale to build or finance infrastructure and secure the best equipment and​ supplies." The article then​ notes, "The​ 'bigger is​ better' mantra has started pushing smaller operators toward a new era of consolidation in​ fracking." ​Source: Bradley​ Olson, "Oil Giants Use Size to Overcome Fracking​ Challenges," Wall Street Journal​, September​ 20, 2018. Assuming that this analysis is​ correct, ______ represents the long run average cost curve for a smaller oil firm and​ ______ represents the long run average cost curve for a larger oil firm.

ATC1.ATC2

In​ 2019, wireless firms​ T-Mobile and Sprint proposed merging. They were the third and fourth largest wireless firms in the United​ States, behind​ AT&T and Verizon. The companies argued that without a​ merger, they​ wouldn't be able to successfully compete because of the high costs of building new 5G​ networks: "5G services will require heavy investment in cellular spectrum and installing hundreds of thousands of antennas around the​ country." An industry analyst agreed with the​ companies, arguing,​ "You can't win a race by having half the​ horses." ​Sources: Drew​ Fitzgerald, "T-Mobile's Sprint Takeover Comes under New​ Attack," Wall Street Journal​, February​ 13, 2019; and Drew​ FitzGerald, Dana​ Cimilluca, and Dana​ Mattioli, "T-Mobile Agrees to Buy Sprint in​ $26 Billion​ Deal," Wall Street Journal​, April​ 29, 2018. a. Assuming that the analysis of​ T-Mobile and Sprint executives is correct and that the two firms​ don't merge,​ _______ represents the​ long-run average cost curve for​ AT&T or Verizon and​ _______ represents the​ long-run average cost curve for​ T-Mobile or Sprint. If the firms do​ merge, the​ newly-merged firm​ _________________________________.

ATC2 ATC1 ​; becomes similar in size to​ AT&T and its​ long-run average cost would decrease to the level of​ AT&T's cost.

For Jill​ Johnson's pizza​ restaurant, explain whether each of the following is a fixed or variable cost. Part 2 The payment she makes on her fire insurance policy is a ▼ fixedvariable cost. B. The payment she makes to buy pizza dough is a ▼ fixed variable cost. C.The wages she pays her workers is a ▼ variable fixed cost. C. The lease payment she makes to her landlord who owns the building where her store is located is a ▼ fixed variable cost. D.The​ $300-per-month payment she makes to her local newspaper for running her weekly advertisements is a ▼ variable fixed cost.

Afixed B. variable C.variable D. fixed E.fixed

According to an estimate by the Pew Research​ Center, the number of people between the ages of 25 and 64 born in the United States from​ U.S.-born parents will decline by 8.2 million between 2015 and 2035. ​Source: Eduardo​ Porter, "Short of​ Workers, U.S. Builders and Farmers Crave More​ Immigrants," New York Times​, April​ 3, 2019. a. Holding other factors​ constant, briefly explain the effect this decline would have on the labor supply curve in the United States.

All else​ equal, a decrease in the​ working-age population will cause the labor supply curve to shift to the left.

How are implicit costs different from explicit​ costs?

An explicit cost is a cost that involves spending​ money, while an implicit cost is a nonmonetary cost.

In the book publishing​ industry, how are firms able to price discriminate across​ time?

An​ author's most devoted book fans want to buy the​ author's books as soon as they are published.

Why is the supply curve of labor usually upward​ sloping?

As the wage increases​, the opportunity cost of leisure increases​, causing individuals to devote more time to working.

If automation has led to job losses in some occupations and​ industries, how can it not have resulted in a reduction of the total number of jobs available in the​ economy?

Automation may be a complement for some occupations. By increasing worker​ productivity, it raises the demand for these workers. B. Workers who lose their jobs may receive training that allows them to gain the skills needed to shift into other jobs. Your answer is not correct. C. Automation may lead to the creation of new jobs in some occupations.

What is the relationship between a​ monopolist's demand curve and the market demand​ curve?

A​ monopolist's demand curve is the same as the market demand curve.

What is the relationship between a​ monopolist's demand curve and its marginal revenue​ curve?

A​ monopolist's marginal revenue curve has twice the slope of its demand​ curve, because to sell more​ output, a monopoly must lower price.

Which area represents the deadweight loss resulting from consumers not paying the full price of medical​ services?

B

Suppose that GM reduces its production of cars. Compare what happens to​ GM's average total cost of production in a situation where​ (i) the company​ doesn't have this union​ agreement, and​ (ii) the company does have this agreement. If GM is initially at point​ A, then when it reduces its production of​ cars, it will move to point

B if the company​ doesn't have this union agreement and point C if the company does have this agreement.

What happens as a firm increases the number of workers that it​ hires?

Both the marginal product of labor and the marginal revenue product of labor decrease.

An article in the Wall Street Journal discussed the large amounts that music companies are willing to pay in contracts with some hip hop or rap artists. According to the​ article, these large contracts are​ "driven almost entirely by the rise of streaming​ services" such as Spotify and Apple Music. But the article also notes that​ "for many​ acts, it's still tough to get a record​ deal." ​Source: Neil​ Shah, "Behind​ Hip-Hop's Bidding​ Wars," Wall Street Journal​, September​ 4, 2018. The financial payoff to streaming is concentrated among a relatively few artists. Which of the following is a possible explanation for this​ trend?

By streaming the most popular​ artists, it increases the chances that the streaming service will be successful.

b. Although most books were published as scrolls in the first century​ A.D., by the third​ century, most were published as codices. Considering only the factors mentioned in this​ problem, explain why this change may have taken place.

By the third​ century, enough books were being published such that the average cost of producing a book as a codex was lower than the average cost of producing a book as a scroll.

Why would it be economically efficient to require a natural monopoly... to charge a price equal to marginal​ cost?

Economic efficiency requires the last unit of a good produced to provide an additional benefit to consumers equal to the additional cost of producing it.

Which of the following is part of the economic analysis of​ discrimination?

Employers who discriminate pay an economic penalty imposed by market competition.

What is perfect price​ discrimination?

Charging every consumer a different price equal to their willingness to pay.

Why do you think the same method of pricing​ isn't used by all​ cities?

Cities have different marginal costs of providing water. B. Cities are unaware of which pricing system is more likely to result in economic efficiency.

Prior to the early twentieth​ century, a worker who was injured on the job could collect damages only by suing his employer. To sue​ successfully, the worker—or his​ family, if the worker had been killed—had to show that the injury was due to the​ employer's negligence, that the worker did not know the job was​ hazardous, and that the​ worker's own negligence had not contributed to the accident. These lawsuits were difficult for workers to​ win, and even workers who had been seriously injured on the job often were unable to collect any damages from their employers. Beginning in​ 1910, most states passed​ "workers' compensation" laws that required employers to purchase insurance that would compensate workers for injuries suffered on the job. A study by Price Fishback and Shawn Kantor of the University of Arizona shows that after the passage of​ workers' compensation​ laws, wages received by workers in the coal and lumber industries fell. ​Source: Price V. Fishback and Shawn Everett​ Kantor, "Did Workers Pay for the Passage of​ Workers' Compensation​ Laws?" Quarterly Journal of Economics​, Vol.​ 100, No.​ 3, August​ 1995, pp.​ 713-742. Part 2 Passage of​ workers' compensation laws would lead to a fall in wages in some industries because what had​ declined?

Compensating differentials.

Is it possible for technological change to be​ negative? If​ so, give an example.

It is possible for technological change to be negative. An example is when a firm hires less−skilled workers.

How did De Beers attempt to convince consumers that used diamonds were not good substitutes for new​ diamonds?

De Beers developed the slogan​ "a diamond is​ forever" to increase sentimental value.

Devra​ Gartenstein, a restaurant​ owner, made the following observation about preparing​ food: "Cooks become increasingly less productive as a kitchen becomes increasingly​ crowded." ​Source: Devra​ Gartenstein, "Law of Diminishing Marginal Returns in Restaurant​ Operations," smallbusiness.chron.com. What do economists call the problem she is​ describing? What are its implications for the marginal product of labor for​ cooks?

Diminishing marginal​ returns, where additional cooks produce less additional output.

Which of the following refers to the​ principal-agent problem in the market for health​ care?

Doctors pursuing their own interests rather than the interests of their patients.

The market supply curve of labor is determined by adding up the wages for each worker at each quantity of labor​ supplied, holding constant all other variables that might affect the willingness of workers to supply labor.

False

When there is a firm with a monopsony in the labor​ market, which of the following​ occurs?

Fewer workers will be hired at lower wages.

For which of the following​ reason(s) may firms experience economies of​ scale?

Firm's production may increase with a smaller proportional increase in at least one input. B. Large firms may be able to purchase inputs at lower costs than smaller​ competitors; they can also borrow money at a lower interest rate. C. Both managers and workers may become more specialized and hence more productive as output expands.

If consumers cannot resell​ products, which of the following is​ true?

Firms can practice price discrimination.

What is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store or​ factory?

Firms have difficulty coordinating production.

In early​ 2017, a headline in the Wall Street Journal​ read: "Pricey​ Virtual-Reality Headsets Slow to Catch​ On." ​Source: Sarah E.​ Needleman, "Pricey​ Virtual-Reality Headsets Slow to Catch​ On," Wall Street Journal​, February​ 14, 2017. Is it possible that​ Sony, Facebook, and the other firms producing​ virtual-reality headsets were better off keeping prices high when initially offering them for sale even if the result was a smaller quantity​ sold? Briefly explain.

Firms may have been better off charging a higher price initially if the elasticity of demand was more inelastic.

Suppose that Henry Ford had continued to experience increasing returns to​ scale, no matter how large an automobile factory he built. Discuss what the implications of this would have been for the automobile industry.

Ford could have profitably sold his cars at a lower price than competitors. B. Ford would have been able to produce his cars at lower​ long-run average cost than competitors.

Many firms include on their employment applications a box that job seekers are asked to check if they have ever been convicted of a crime. Some firms automatically reject applicants who check the box. As a​ result, some people with criminal convictions have difficulty finding a​ job, which may increase the likelihood that they will commit another crime. Some states and cities have enacted​ "ban the​ box" legislation that forbids firms from asking about criminal histories on job​ applications, although typically the firms are allowed to ask such questions in job interviews. A study by Jennifer L. Doleac of Texas​ A&M and Benjamin Hansen of the University of Oregon found that ban the box legislation significantly reduces the probability of employment among young male​ African-American job applicants. The economists note that ban the box​ legislation: "does not address​ employers' concerns about hiring those with criminal​ records, and so could increase discrimination against groups that are more likely to include​ recently-incarcerated ex-offenders..." ​Source: Jennifer L. Doleac and Benjamin​ Hansen, "Does​ 'Ban The​ Box' Help or Hurt​ Low-Skilled Workers? Statistical Discrimination and Employment Outcomes When Criminal Histories Are​ Hidden," National Bureau of Economic Research Working Paper 22469​, July 2016. Briefly explain why this result might have occurred. Relate your answer to the reasons firms might be more likely to interview an applicant with a​ white-sounding name even if the​ applicant's resume was identical to that of an applicant with a​ black-sounding name.

Hiring firms may have believed that those with​ black-sounding names were more likely to have a criminal conviction.

Which type of merger is more likely to increase the market power of a newly merged​ firm? Part 5 ▼ Horizontal Vertical mergers are more likely to increase market power.

Horizontal

In the ancient​ world, a book could be produced either on a scroll or as a​ codex, which was made of folded sheets glued​ together, something like a modern book. One scholar has estimated the following variable costs​ (in Greek​ drachmas) of the two​ methods: Part 2 Scroll Codex Cost of writing​ (wage of a​ scribe) 11.33 drachmas 11.33 drachmas Cost of paper 16.50 drachmas 9.25 drachmas Part 3 Another scholar points out that a significant fixed cost was involved in producing a​ codex: ​"In order to copy a codex...the amount of text and the layout of each page had to be carefully calculated in advance to determine the exact number of sheets...needed. No​ doubt, this is more​ time-consuming and calls for more experimentation than the production of a scroll would. But for the next copy these calculations would be used​ again." ​Source: T. C.​ Skeat,"The Length of the Standard Papyrus Roll and the​ Cost-Advantage of the ​Codex,"Zeitschrift fur Papyrologie and Epigraphik​, ​1982, p​ 175; and David​ Trobisch, The First Edition of the New Testament​, New​ York: Oxford University​ Press, 2000, p 73. Suppose that the fixed cost of preparing a codex was 58 drachmas and that there was no similar fixed cost for a scroll. Would an ancient book publisher who intended to sell 5 copies of a book be likely to publish it as a scroll or as a​ codex? What if he intended to sell 10​ copies? Briefly explain. Part 5

If a publisher intended to sell 5​ copies, he would publish the book as a scroll because the average cost would be lower than as a codex. If he intended to sell 10​ copies, he would publish the book as a codex because the average cost would be lower than as a scroll.

According to an article in the Wall Street Journal​, ​"United [Airlines] rolled out a new app to its flight attendants earlier this year with so much information about​ people, the airline has been reluctant to turn on all the functionality. The tool can show flight attendants information on each frequent​ flier's five previous flights....But United is worried some customers might consider that​ stalking." ​Source: Scott​ McCartney, "What the Airline Knows about the Guy in Seat​ 14C," Wall Street Journal​, June​ 20, 2018. Is the app an example of positive technological​ change? Negative technological​ change? Does the answer depend on how costumers react to​ United's use of the​ app?

If the app allows flight attendants to access information about customers more efficiently and makes them more productive in helping passengers the app is a positive technological change. B. If the app allows flight attendants to know whether a passenger needs a special diet or help getting on and off the​ plane, the app is a positive technological change. C. If customers dislike the app enough that they switch to another airline or get into lengthy arguments with flight​ attendants, the app is a negative technological change.

Using the broader definition of​ monopoly, in which of the following cases could we argue that Microsoft has a monopoly in computer operating​ systems?

If​ Apple's computer operating system and the Linux operating system were not considered close substitutes for Windows.

What is the difference between the short run and the long​ run?

In the short​ run, at least one of a​ firm's inputs is​ fixed, while in the long​ run, a firm is able to vary all its inputs and adopt new technology.

Which of the following is a provision of the Affordable Care​ Act?

Insurance companies are required to participate in a​ high-risk pool that will insure individuals with​ pre-existing medical conditions. B. Each state will have an Affordable Insurance Exchange. C. Every firm with more than 200 employees is required to offer health insurance to its employees.

A report from an economic policy organization​ concludes, "Yes, automation has led to job displacements in particular occupations and industries in the​ past, but there is no basis for claiming that automation has led—or will lead—to increased​ joblessness, unemployment, or wage stagnation​ overall." ​Source: Lawrence Mishel and Josh​ Bivens, "The Zombie Robot Argument Lurches​ on," www.epi.org/126750, May​ 24, 2017. a. What does the report mean by​ "automation"?

It refers to using machines to carry out tasks that had previously been performed by workers.

When a​ firm's demand curve slopes downward and the firm decides to cut​ price, which of the following​ happens?

It sells more units but receives lower revenue per unit.

Suppose Jill Johnson operates her pizza restaurant in a building she owns in the center of the city. Similar buildings in the neighborhood rent for​ $4,000 per month. Jill is considering selling her building and renting space in the suburbs for​ $3,000 per month. Jill decides not to make the move. She​ reasons, "I would like to have a restaurant in the​ suburbs, but I pay no rent for my restaurant​ now, and I​ don't want to see my costs rise by​ $3,000 per​ month." Part 2 What do you think of​ Jill's reasoning?

Jill is incorrectly ignoring the opportunity cost of using the building she owns.

If Jill expects to produce 1,400 pizzas per​ week, should she build a smaller restaurant or a larger​ restaurant? Briefly explain.

Jill should build a larger restaurant because average total costs will be lower than for a smaller restaurant.

Suppose that Jill Johnson has to choose between building a smaller restaurant and a larger restaurant. In the​ graph, the relationship between costs and output for the smaller restaurant is represented by the curve ATC1​, and the relationship between costs and output for the larger restaurant is represented by the curve ATC2. Part 2 If Jill expects to produce 250 pizzas per​ week, should she build a smaller restaurant or a larger​ restaurant? Briefly explain. Part 3

Jill should build a smaller restaurant because average total costs will be lower than for a larger restauran

What potential problems do opponents of​ "Medicare for​ all" foresee in abolishing private health​ insurance?

Less medical innovation because the lower prices that the government imposes on pharmaceutical products and manufacturers of medical devices will reduce their incentive to bring new products to market.

After the Sears department store chain emerged from​ bankruptcy, its CEO Edward Lampert was quoted as​ saying: "Our goal is to continue to shrink the size of our​ stores." ​Source: Suzanne​ Kapner, "Edward​ Lampert's Plan for​ Sears: Smaller​ Stores, Less​ Apparel," Wall Street Journal​, February​ 13, 2019. Is​ Lampert's remark referring to​ Sears's economic short run or its economic long​ run? Briefly explain.

Long​ run, because changing the size of stores takes a significant amount of time.

According to a Congressional Budget Office​ forecast, less than half of future increases in spending on Medicare and Medicaid as a percentage of GDP will be due to the aging of the population. Which of the following factors explain most of the​ increase? Part 2

Low rates of productivity in the health care sector. B. The introduction of higher cost drugs and medical equipment. C. Excessive​ paperwork, duplication, and waste. D. Malpractice​ lawsuits, including the costs of unnecessary tests and procedures.

Which of the following is not among its major​ provisions?

Makes all health care professionals employees of the federal government.

A 2019 Wall Street Journal column described the changes in how airlines have priced tickets over​ time: "Airline pricing executives would come to work​ Monday, tally up weekend sales and launch a sale with newspaper ads on Tuesday. Now pricing is largely a​ computer-controlled, 24/7​ business." ​Source: Scott​ McCartney, "Before You Buy Plane​ Tickets, Remember These Four​ Things," Wall Street Journal​, March​ 6, 2019. Is the​ airlines' adoption of computer analysis of big data likely to have resulted in fewer or more different ticket prices offered on a given​ flight? Briefly explain.

More different ticket​ prices, because computer programs can continually analyze data and adjust prices in response to that data more frequently.

Economic discrimination is paying a person a lower wage or excluding a person from an occupation on the basis of an irrelevant characteristic such as race.

No. Differences in earnings between groups could be due to worker productivity. B. No. Differences in earnings between groups could be due to worker preferences.

Suppose a firm has no fixed​ costs, so all of its costs are​ variable, even in the short run. Part 2 If the​ firm's marginal costs are continually increasing​ (that is, marginal cost is increasing from the first unit of output​ produced), will the​ firm's average total cost curve have a U​ shape?

No. The average total cost curve will be continually increasing.

or most of the​ 1800s, the United States did not recognize the copyrights of books written by foreign authors. As a​ result, many U.S. publishers printed ​"pirated"—unauthorized—editions of Charles Dickens and other British authors without paying them royalties. A history of book publishing notes​ that: "[U.S.] publishers claimed that pirating​ [foreign] works allowed their prices to remain​ low, which in turn made the works more accessible to the public at​ large." There were​ (eventually successful) attempts in Congress to recognize foreign copyrights in exchange for other countries recognizing U.S. copyrights. At the​ time, one U.S. publisher described these efforts as the​ "clamor of two hundred authors against the interests of​ fifty-five million​ people." ​Source: J.P. Romney and Rebecca​ Romney, ​Printer's Error: Irreverent Stories from Book History​, New​ York: Harper,​ 2017, pp. 218 and 227. Do copyright laws benefit authors at the expense of​ readers?

Not​ necessarily, since fewer books are likley to be written without copyright​ laws, thus providing readers with more books to read.

Suppose consumers pay less than the true cost of medical services because a third​ party, such as an insurance company or the​ government, pays most of the bill. In the​ graph, D1 represents the demand for medical services if consumers paid the full price of medical​ services; D2 represents the demand for medical services when consumers pay only a fraction of the true cost of medical​ services; and S represents the supply of medical services. Use the graph to answer the following questions. Part 2 The equilibrium market price received by doctors and other suppliers of medical services is

P2

In discussing​ "output-based compensation​ schemes," such as​ piece-rate systems, Stanford economist Edward Lazear​ observed, "One major advantage of this approach is that it accommodates a variety of worker​ preferences." But he also​ noted, "A disadvantage is that a pure​ piece-rate scheme makes the worker bear risk associated with variations in . . . business​ conditions." ​Source: Edward P.​ Lazear, "Compensation and Incentives in the​ Workplace," Journal of Economic Perspectives​, Vol.​ 32, No.​ 3, Summer​ 2018, pp. 195-214. a. What does Lazear mean by the first quote​ above? How do these compensation schemes accommodate different worker​ preferences? Preferences for​ what?

Piece-rate compensation can benefit both workers who have less ability as well as those who have greater ability. B. ​Piece-rate pay can benefit workers who prefer to earn more income as well as those who prefer more leisure time. Your answer is not correct. C. A​ piece-rate system can benefit workers who prefer a slower work pace and those who prefer a faster work pace.

Segment.com, based in San​ Francisco, develops and sells software that allows companies to gather data on customers and manage the​ companies' social media presence. Segment reorganized its office as part of its​ "anti-distraction campaign." According to an article in the Wall Street​ Journal, the company cut back on its internal text messaging service and moved​ "some of its communication back to email to reduce the number of notifications employees were​ receiving." ​Source: Rachel​ Feintzeig, "How One Firm Lowered Its​ Open-Office Noise," Wall Street Journal​, November​ 15, 2016. Does this movement from a new technology—text messaging—to an older technology—email—represent positive or negative technological change at​ Segment? Briefly explain.

Positive technological​ change, because more output can be produced using the same inputs.

Which of the following are key results of price​ discrimination?

Profits increase and consumer surplus decreases.

The efficient quantity of medical services is

Q1 because this is the quantity if consumers paid the full price of medical services.

Why do most regulatory agencies require natural monopolies to charge a price equal to average cost​ instead?

Regulating price instead to equal marginal cost would result in the firm suffering a loss.

Through the 2018​ season, Nick​ Saban's record as the head football coach at the University of Alabama was 146 wins and 21 losses. The​ $8.3 million salary the university paid him in 2019 was the highest received by any college sports​ coach, as well as the highest paid to any public employee in the country. Yet a column on forbes.com has the headline​ "Nick Saban Gets Another Pay Raise from Alabama and the Numbers Show He Deserves​ It." ​Source: Kristi​ Dosh, "Nick Saban Gets Another Pay Raise from Alabama and the Numbers Show He Deserves​ It," forbes.com, July​ 28, 2018. Part 2 In what sense might a college football coach​ "deserve" such a high​ salary?

Saban's marginal product might not be greater than other successful football​ coaches, but​ Saban's marginal revenue product is substantially higher because revenue generated from winning at Alabama is much greater.

Some people—usually business travelers—have a very strong desire to fly to a particular city on a particular​ day, and airlines charge these travelers higher ticket prices than they charge other​ people, such as families who are planning vacations months in advance. Some people really like Big Macs and other people only rarely eat Big​ Macs, preferring to eat other food for lunch on most days. Part 2 Consider the following possible explanations of why airlines can charge different people different​ prices, while​ McDonald's can't. Which is​ correct?

Since people​ can't resell airline​ tickets, they cannot buy them at a low price and resell them at a high​ price, whereas people can resell hamburgers.

Which of the following statements is true of health care spending in the United​ States?

Spending on health care as a percentage of GDP has increased since 1965.

What is the difference between the average cost of production​ (ATC) and marginal cost of production​ (MC)?

TC = TC/Q​; MC =ΔTC/ΔQ.

What is the difference between technology and technological​ change?

Technology is the process of using inputs to make​ output, while technological change is when a firm is able to produce the same output using fewer inputs.

Which of the following is the health care reform legislation passed by Congressed and signed by President Obama in March​ 2010?

The Affordable Care Act

Harvard Business School started using case studies—descriptions of strategic problems encountered at real companies—in their courses in 1912.​ Today, Harvard Business Publishing​ (HBP) sells its case studies to about​ 4,000 colleges worldwide. HBP is the sole publisher of the Harvard Business​ School's case studies. Part 2 What criteria would you use to determine whether HBP has a monopoly on the sale of business case studies to be used in college​ courses?

The ability to ignore the actions of other​ firms, the persistence of economic​ profits, and the availability of close substitutes.

Briefly explain whether you agree or disagree with the following​ argument: Adam​ Smith's idea of the gains to firms from the division of labor makes a lot of sense when the good being manufactured is something complex like automobiles or​ computers, but it​ doesn't apply in the manufacturing of less complex goods or in other sectors of the​ economy, such as retail sales. Part 2

The argument is incorrect. Gains from division of labor will occur whenever production of a good or provision of a service has multiple tasks.

Older oil wells that produce fewer than 10 barrels of oil a day are called​ "stripper" wells. Suppose that you and a partner own a stripper well that can produce eight barrels of oil per day and you estimate that the marginal cost of producing another barrel of oil is​ $80. In making your​ calculation, you take into account the cost of​ labor, materials and other inputs that increase when you produce more oil. Your partner looks over your calculation of marginal cost and​ says: "You forgot about that bank loan we received two years ago. If we take into account the amount we pay on that​ loan, its adds​ $10 per barrel to our marginal cost of​ production." Which of the following statements is most​ true?

The bank loan should not be included in marginal cost because it cannot be avoided by not producing another barrel.

Which of the following have been offered by economists to explain the rapid increase in health care spending in the United​ States? ​(Check all that apply.​) Part 2

The development of advanced medical technology and new prescription drugs. This is the correct answer. B. A slow rate of growth of labor productivity in health care. This is the correct answer. C. An aging U.S. population. Your answer is correct. D. Distorted economic incentives for consumers and suppliers of health care.

Which of the statements below best describes the marginal productivity theory of income​ distribution?

The distribution of income is determined by the marginal productivity of the factors of production that individuals own.

In the United​ States, how do the average weekly earnings of union workers compare with the earnings of nonunion​ workers?

The earnings of union workers are higher than the earnings of nonunion workers.

In what sense do employers who discriminate pay an economic​ penalty?

The employers face higher​ costs, lower profit and eventual elimination from the market.

A student​ asks, "If the average cost of producing pizzas is lower in the larger restaurant when Jill produces​ 1,100 pizzas per​ week, why​ isn't it also lower when Jill produces 500 per​ week?" Give a brief answer to the​ student's question.

The larger restaurant has higher fixed costs than the smaller restaurant.

Why would modern systems​ "in which firms produce a greater variety of products to a more demanding quality and delivery​ standard" than manufacturers used previously result in firms choosing a salary system rather than​ piece-rate pay to pay their​ workers?

The manufacturing conditions of modern systems will induce firms to choose a salary system because the quality of output produced is now more important.

What is the difference between the marginal product of labor and the marginal revenue product of labor for a firm in a perfectly competitive​ market?

The marginal revenue product of labor is equal to the marginal product of labor multiplied by the product price.

In San​ Francisco, the minimum wage is​ $15 per hour. Restaurants that have more than 20 employees must also provide them with health​ insurance, paid sick​ leave, and paid parental leave. In​ response, some restaurants hire fewer workers and ask customers to pick up their meals from a counter and bus their own dirty dishes. As a news article put​ it: "Restaurants​ haven't developed a way to serve meals with less labor.​ They've gotten customers to do the labor they had been paying employees to​ do." One restaurant owner was quoted as saying that to hire workers to perform these​ tasks, "a​ $10 hamburger would be a​ $20 hamburger, and it​ wouldn't make sense​ anymore." ​Source: Emily​ Badger, "San Francisco Restaurants​ Can't Afford Waiters. So​ They're Putting Diners to​ Work," New York Times​, June​ 25, 2018. a. What does the restaurant owner mean by saying that a​ $20 hamburger​ "wouldn't make​ sense"?

The owner meant that he would have difficulty selling the hamburgers at a price of​ $20.

When the DuPont chemical company first attempted to enter the paint​ business, it was not successful. According to a company​ report, in one year it ​"lost nearly​ $500,000 in actual cash in addition to an expected return on investment of nearly​ $500,000, which made a total loss of income to the company of nearly a​ million." Why did this report include as part of the​ company's loss the amount it had expected to earn​ -- but​ didn't -- on its investment in manufacturing​ paint? ​Source: Alfred D.​ Chandler, Jr., Thomas K.​ McCraw, and Richard​ Tedlow, Management Past and​ Present,​ Cincinnati: South-Western,​ 2000, pp.​ 3-92.

The report sought to include implicit costs because DuPont could have invested its money elsewhere and earned​ $500,000.

Pew forecasts that the total population of the United States between the ages of 25 and 64 will increase by 13.6 million between 2015 and 2035. Given the information provided in this​ problem, which of the following best explains the source of this​ increase?

The source would have to be immigrants or children of immigrants.

If students​ don't increase their earnings later in life by attending a highly selective college rather than a less selective​ college, why do they​ (and their​ parents) make so much effort to be admitted to a highly selective​ college? ​(Check all that apply​.)

They believe that students who attend an elite college will learn more and become more successful later in life. Your answer is correct. C. Students and parents may value the prestige of attending a highly selective college. Your answer is correct. D. They may not be aware of research such as the study by Stacy Dale and Alan Kreuger on this topic.

Why would supporters of​ market-based reforms to health care propose to make the tax treatment of​ employer-provided health insurance the same as the tax treatment of​ individually-purchased health​ insurance?

This change would result in an increase in​ employees' out-of-pocket spending on health care. B. This change would result in a reduction in health insurance premiums.

Is Jill Johnson correct when she says the​ following: ​"I am currently producing​ 20,000 pizzas per month at a total cost of ​$70,000. If I produce​ 20,001 pizzas, my total cost will rise to ​$70,003. ​Therefore, my marginal cost of producing pizzas must be​ increasing." Part 2

Though​ Jill's average total cost of production is​ decreasing, her marginal cost of producing pizzas could be increasing or decreasing.

The marginal social benefit from vaccinations is greater than the marginal private benefit to people being vaccinated.

True

An article in the New York Times​ observes, "At the heart of the​ 'Medicare for​ all' proposals championed by Senator Bernie Sanders and many Democrats is a revolutionary​ idea: Abolish private health​ insurance." ​Source: Reed Abelson and Margot​ Sanger-Katz, "Medicare for All Would Abolish Private Insurance.​ 'There's No Precedent in American​ History,'" New York Times​, March​ 23, 2019. What potential benefits do supporters of​ "Medicare for​ all" expect from abolishing private health​ insurance?

Universal coverage because everyone will be insured.

Why might it be more difficult under the federal antitrust laws for the government to persuade the courts to stop a vertical merger than to persuade the courts to stop a horizontal​ merger?

Vertical mergers do not as clearly reduce competition in a way that is likely to increase market​ power, leading to higher prices and a reduction in consumer surplus.

WeWork buys or rents office space and converts it to shared space that it then rents to individuals and firms. According to an article in the Wall Street Journal​, until it agreed to stop doing so as part of a court​ settlement, WeWork​ "required 'nearly​ all' employees, including baristas and​ receptionists, to sign agreements barring them from working at similar businesses for a year after leaving​ WeWork." ​Source: Eliot​ Brown, "WeWork Reaches Settlement on Noncompete​ Pacts," Wall Street Journal​, September​ 18, 2018. a. What benefit did WeWork receive from requiring its employees to sign such​ agreements?

WeWork was able to limit the ability of other firms to hire its workers by offering them higher wages.

Let MRP equal the marginal revenue product of labor and W equal the wage rate. When should a firm hire more workers to increase​ profit?

When MRP ​> W

Jason Furman and Tim​ Simcoe, who served on President Barack​ Obama's Council of Economic​ Advisors, wrote,​ "Economists have studied​ [price discrimination] for many​ years, and while big data seems poised to revolutionize pricing​ practice, it has not altered the underlying principles...Those principles suggest that​ [price discrimination] is often good for both firms and their​ customers." Furman and Simcoe describe​ "need-based financial aid for college​ students" as an example of price discrimination that is good for consumers. ​Source: Jason Furman and Tim​ Simcoe, "The Economics of Big Data and Differential​ Pricing," ​www.whitehouse.gov/blog/2015/02/06/economics-big-data-and-differential-pricing​, February​ 6, 2015. Part 2 What do Furman and Simcoe mean by​ "underlying principles"?

When prices reflect a​ buyer's ability to​ pay, sellers can serve customers who would otherwise get priced out of the market.

column on barrons.com discussing General Motors​ (GM) made the following​ observation: "Even the seemingly​ 'variable' costs of hourly workers were made burdensome by union agreements whereby​ 95% of hourly​ workers' salaries were paid when they were laid​ off, turning variable labor compensation into a fixed​ cost." ​Source: Christine​ Jurzensk, "Why GM Shares Have a​ 58% Upside: Hedge​ Funder," barrons.com, April​ 3, 2019. a.​ Aren't workers' salaries always a variable cost and not a fixed​ cost?

While​ workers' salaries are typically a variable​ cost, because of this union​ agreement, 95 percent of​ GM's production​ workers' salaries were a fixed cost to the​ firm, with only 5 percent being a variable cost.

b. What are the advantages and disadvantages to​ Frito-Lay from the change in its compensation​ scheme?

With the new pay​ scheme, Frito-Lay can control costs​ better, thus increasing its​ revenue, but it may also reduce the incentives for drivers to work hard.

In​ 2018, Frito-Lay changed the compensation of drivers of trucks delivering​ Doritos, Cheetos, and other snacks to convenience stores and supermarkets.​ Previously, drivers' compensation depended primarily on commissions tied to the revenue from the snacks they delivered.​ Frito-Lay shifted to drivers receiving a straight salary with few opportunities to earn commissions. Some drivers in New York and other cities had their compensation cut by as much as 30 percent. A significant number of drivers​ quit, leading to temporary shortages of Doritos in some stores. A​ Frito-Lay spokesman was quoted as​ saying, "This is a national initiative with the aim of aligning all sales associates. Participating sales representatives have on average seen an increase in overall​ compensation." ​Source: Josh​ Kosman, "There Is a Massive​ Frito-Lay Shortage in NYC​ Bodegas," nypost.com, March​ 19, 2018; and Clark​ Wolf, "A Dearth of Doritos Results from a​ Frito-Lay-Off," forbes.com, March​ 19, 2018. a. What are the advantages and disadvantages to drivers from the change in​ Frito-Lay's compensation​ scheme?

With the new pay​ scheme, drivers' incomes will not exhibit large​ variations, but more productive workers will see a decline in their total earnings.

If​ so, why does the U.S. Constitution give Congress the right to enact copyright​ laws?

Without copyedit​ laws, individuals may be less likely to invest in creating new​ books, films, and software.

Is it possible for average total cost to be decreasing over a range of output where marginal cost is​ increasing? Briefly explain.

Yes. If marginal cost is less than average total​ cost, then average total cost will be decreasing.

If you own the only hardware store in a small​ town, do you have a​ monopoly?

Yes. You would have a monopoly if your profits are not competed away in the long run.

Which of the following factors shifts the labor supply​ curve?

a change in demographics B. a change in alternatives available in other labor markets C. a change in population

Which of the factors listed below does not cause the demand curve for labor to​ shift?

a change in the wage

When an employer pays higher wages to compensate workers for unpleasant aspects of their​ jobs, which of the following is the employer​ offering?

a compensating differential

Quora.com is a website where people post questions and users suggest answers. One user posted the following​ question: "If monopolies are price​ makers, why​ don't they charge an infinite​ price?" a. What does the person posting the question mean by a​ "price maker"? By a​ "price maker," the person posting the question means

a firm that has some control over its price—that ​is, if it raises its​ price, it will lose​ some, but not​ all, of its customers.

What is a​ monopoly? Part 2 A monopoly is Part 3

a firm that is the only seller of a good or service that does not have a close substitute.

What is a merger between firms in the same industry​ called?

a horizontal merger

What are implicit​ costs? Part 2 An implicit cost is

a nonmonetary opportunity cost.

A monopoly is a market structure that is characterized by

a single seller of a good or service that does not have a close substitute.

What is the definition of market​ power? Market power is the

ability of a firm to charge a price greater than marginal cost.

The Department of Justice and the FTC consider markets as highly concentrated if the postmerger HHI for a proposed horizontal merger is

above​ 2,500.

Current trends in U.S. health care​ spending, if not​ altered, will cause the growth of federal government spending in the United States to

accelerate

What is the law of diminishing​ returns? Part 2 The law of diminishing returns states that part b: Does it apply in the long​ run?

adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline. Part B;No

Which of the following is one of the major reasons for rapid increases in health care spending in the United​ States?

advances in medical technology and new prescription drugs that have higher costs

Which of the following industries uses sophisticated methods to calculate the price of each unit sold each​ day?

airlines

What term describes laws aimed at promoting competition among​ firms?

antitrust laws

Are all public franchises natural​ monopolies? Part 5 All public franchises ▼ are notare natural​ monopolies, and all natural monopolies ▼ are notare public franchises.

are not, are not

All of the following cost measures reach their minimum points when they are equal to the value of marginal​ cost, except one. Which cost measure is the​ exception?

average fixed cost

What cost measure is equal to AFC +AVC​?

average total cost

Employees in most circumstances do not pay taxes on the value of the health insurance provided by their employers. Part 2 If the federal government started taxing employees on the value of the​ employer-provided health​ insurance, the value of the​ employer-provided health care benefit would

become less​ valuable, and firms would need to raise wages to compensate for this lost value to keep total compensation the same.

What is the difference between a horizontal merger and a vertical​ merger? Part 2 A horizontal merger is a merger

between firms in the same​ industry, while a vertical merger is a merger between firms at different stages of the production of a good.

Related to Making the​ Connection] When the contact lens firm changed the compensation plan for its salespeople from salary plus​ quota-based commission to straight commission on​ sales, who benefited from the​ change?

both the salespeople and the company

Most cities own the water system that provides water to homes and businesses. Some cities charge a flat monthly​ fee, while other cities charge by the gallon. Which method of pricing is more likely to result in economic efficiency in the water​ market? Part 2 Economic efficiency is more likely to result in the water market if cities charge

by the gallon because homes and businesses will not consume gallons of water for which marginal benefit is less than price.

Sean​ Astin, who played Sam in the Lord of the Rings​ movies, wrote the following about an earlier film he had appeared​ in: ​"Now I was in a movie I​ didn't respect, making obscene amounts of money​ (five times what a teacher​ makes, and teachers do infinitely more important​ work) ..." ​Source: Sean​ Astin, with Joe​ Layden, There and Back​ Again: An​ Actor's Tale​, New​ York: St.​ Martin's, 2004, p. 35. Part 2 Are salaries determined by the importance of the work being​ done? If​ not, what are they determined​ by? Part 3 Salaries are determined

by the marginal revenue product of the last worker hired and the supply of labor.

The substitution effect of a wage increase

causes a worker to supply a larger quantity of​ labor, and the income effect causes a worker to supply a smaller quantity of labor.

Consider the following​ chart: ​Source: U.S. Department of Health and Human​ Services, Centers for Medicare​ & Medicaid Services. Part 2 From the figure we can conclude that

consumers of health care have been directly paying for only a small fraction of the true cost of providing health care.

By shifting the costs of Medicare to​ beneficiaries, the growth of Medicare spending may be restrained since

consumers will demand fewer health care services than they would if a third party pays most of the bill. B. health care consumers will become more knowledable about the effectiveness and value of health care services. Your answer is not correct. C. beneficiaries will be more prudent when it comes to choosing which health care services to acquire

Which of the following is most likely to a variable cost for a business​ firm?

cost of shipping products

Assuming that the cost curves have the usual​ shape, the dollar difference between average total costs and average variable costs ▼ decreases increases remains constant as output increases.

decreases

Economies of scale happen when the​ firm's long run average total cost​ ________ as output increases.

decreases

As the level of output​ increases, what happens to the difference between the value of average total cost and average variable​ cost? Part 2 As the level of output​ increases, the difference between the value of average total cost and average variable cost Part 3

decreases because average fixed cost decreases as output increases.

The demand for labor is called a derived​ demand, because

demand for labor is derived from the​ firm's output choice.

What is​ "natural" about a natural​ monopoly? Part 2 A natural monopoly

develops automatically due to economies of scale.

Most economists believe that only part of the gap between the wages of white males and the wages of other groups is due to discrimination. Economists believe that some of the gap is explained by which of the following​ factors?

differences in education B. differences in experience C. differing preferences for types of jobs

In his​ autobiography, T. Boone​ Pickens, a​ geologist, entrepreneur, and oil company​ executive, wrote: ​It's unusual to find a large corporation​ that's efficient ... When you get an inside​ look, it's easy to see how inefficient big business really is. Most corporate bureaucracies have more people than they have work. ​Source: T. Boone​ Pickens, The Luckiest Man in the World​, ​Washington, DC: Beard​ Books, 2000, p. 275. Pickens was describing

diseconomies of​ scale, because he is referring to the inefficieny of a large scale business operation.

Some economists and policymakers have argued that one way to control federal government spending on Medicare would be to have a board of experts decide whether new medical technologies are worth their higher costs. If the board decided that they are not worth the​ costs, Medicare would not pay for them. Other economists and policymakers argue that the costs to beneficiaries should more closely reflect the costs of providing medical services. This result might be attained by raising​ premiums, deductibles, and​ co-payments, or by​ "means testing," which would limit the Medicare benefits​ high-income individuals receive. Political columnist David Brooks has summarized these two ways to restrain the growth of spending on​ Medicare: ​"From the​ top, a body of experts can be empowered to make rationing decisions....​ Alternatively, at the​ bottom, costs can be shifted to beneficiaries with premium supports to help them handle the​ burden." ​Source: David​ Brooks, "The Missing​ Fifth," New York Times​, May​ 9, 2011. Part 2 "Rationing decisions" are decisions aimed at controlling the

distribution of scarce resources

Does a monopolist have a supply​ curve? Briefly explain. ​(​Hint: Look again at the definition of a supply curve in Chapter 3 and consider whether this applies to a​ monopolist.) Part 2 A monopolist

does not have a supply curve because it is a price maker with one​ profit-maximizing price-quantity combination.

Why are there superstar basketball players but no superstar​ plumbers? Part 2 There are superstar basketball players but not superstar plumbers Part 3

due to technological advances that have increased the number of viewers for basketball games.

Why is the demand curve for labor downward​ sloping? Part 2 The demand curve is downward sloping

due to the law of diminishing returns.

Consider the market for a natural resource such as coal. Assume the supply curve for coal is a vertical​ line, indicating that the quantity supplied does not respond to changes in​ prices, as illustrated in the graph. Part 2 The price of a factor of production that is in fixed supply is called

economic rent. B. pure rent.

A natural monopoly occurs when

economies of scale are large enough so that one firm can supply the entire market at a lower average total cost than can two or more firms.

Is perfect price discrimination economically​ efficient? Part 6 Perfect price discrimination is

efficient because it converts into producer surplus what had been consumer surplus and deadweight loss.

A task force established by the Trump administration to evaluate the USPS recommended that Congress consider making the USPS a private​ firm, although the Postal Rate Commission might keep the authority to regulate the prices the new firm would charge. The administration noted that the​ "USPS is caught between a mandate to operate like a business but with the expenses and the political oversight of a public​ agency." ​Source: Jennifer​ Smith, "Trump's Fix for Postal​ Service: Privatize​ It," New York Times​, June​ 22, 2018; and Task Force on the United States Postal​ System, "United States Postal​ Service: A Sustainable Path​ Forward," December 2018. a. Suppose that Congress allowed the USPS to retain its monopoly on deliveries to residential mailboxes but also allowed it to operate as a private business without needing to have its prices approved by the Postal Rate Commission and without having to meet the universal service obligation that Congress requires of it. What changes might the USPS make in how it​ operates? If Congress allowed the USPS to operate as a private​ firm, the USPS would be likely to

eliminate some services that under the universal service obligation it is obligated to provide. raise the rates of some services if it were allowed to do so.

In​ equilibrium, what determines the price of​ capital? Part 2 The price of capital is determined by

equilibrium in the market for​ capital, where the marginal revenue product of capital equals the marginal cost of capital.

It might be possible to distinguish between the effects of these different developments on the labor market by

examining the evidence about robotic and technological job replacement on jobs that have been offshored and that support the manufacture of goods imported into the​ U.S., and comparing those trends to similar​ U.S.-based occupations.

Spending on health care has been growing faster than the economy as a whole for at least the past several decades. What has caused this​ trend? Part 2 Health care as a proportion of GDP has been increasing because

expense medical equipment has been invented

n​ 2019, the Alliance of American Football​ (AAF), a professional football​ league, went out of business. The AAF played its games in the​ spring, while the National Football League​ (NFL) plays its games in the fall. In discussing the failure of the​ AAF, a columnist for the San Antonio​ Express-News asks the​ question, "Can any upstart football league take on the NFL​ monopoly, and​ win?" The NFL has 32 teams located in cities around the United States. ​Source: Michael​ Taylor, "The NFL Monopoly Rolls ​On,"expressnews.com​, April​ 3, 2019. In what sense can the NFL be considered a​ monopoly? The NFL can be considered a monopoly because

few football fans have found the games offered by new leagues to be close substitutes to those offered by the NFL.

Prior to the early​ 1920s, there were ▼ few many restrictions on immigration into the United States. Congressional legislation ▼ increased limited immigration from the 1920s through the​ mid-1960s, until Congress ▼ tightened eased restrictions with passage of the Immigration Act of 1965. A ▼ decline surge in immigration followed the passage of the Immigration Act of 1990.

few,limited, eased,surge

Most labor economists believe that many adult males are on the vertical section of their labor supply curves. Explain when and why​ someone's supply of labor curve would be​ vertical, using the concepts of income and substitution effects. ​Source: Robert​ Whaples, "Is There Consensus among American Labor​ Economists? Survey Results on Forty​ Propositions," Journal of Labor Research​, Vol.​ 17, No.​ 4, Fall 1996. Part 2 Suppose an adult male is on the vertical section of their labor supply curve. Part 3 If the wage decreases​, then the substitution effect would prompt the individual to work ▼ morethe same number offewer hours and the income effect would prompt the individual to work ▼ fewerthe same number ofmore ​hours, with the size of the substitution effect being ▼ smaller thanequal tolarger than the size of the income effect​ (in absolute​ value).

fewer,more,equal to

By​ "premium supports" Brooks alludes to some form of ▼ financial assistance moral support to beneficiaries as they cope with the burden of higher costs.

financial assistance

What is price​ discrimination? Part 2 Price discrimination is when

firms charge a higher price to customers who are less sensitive to price and a lower price to consumers who are more sensitive to price. B. firms charge a higher price for a product when it is first introduced and a lower price later. Your answer is not correct. C. firms charge each consumer a different price equal to that​ consumer's willingness to pay.

A book providing advice to entrepreneurs describes some business costs as being​ "the amount of money that will go out even if none at all comes​ in." ​Source: Tom​ Hodgkinson, Business for​ Bohemians: Live​ Well, Make Money​, New​ York: The Overlook​ Press, 2018, p. 40. a. The author isdescribing a​ business's ▼ fixedvariable cost. b. Which of the following is an example of this type of​ cost?

fixed rent for a store or warehouse

Any cost that remains unchanged as output changes represents a​ firm's

fixed cost.

An article on bloomberg.com discussed the situation at the mining firm BHP Billiton​ Ltd., which is headquartered in​ Australia: "The fixed element of mining costs​ doesn't change​ much, regardless of how many tons are being​ produced, so the declines in output...pushed up the average​ [cost per​ ton]." ​Source: David​ Fickling, "BHP's Costs Crash Diet Is Running Out of​ Steam," bloomberg.com, August​ 20, 2018. a. What does the article mean by the​ "fixed element of mining​ cost"? Give an example. The​ "fixed element of mining​ cost" refers to the

fixed costs in mining. An example is the cost of mining equipment.

According to an article in the Wall Street Journal​, Parsley Energy has been very active in drilling oil wells in the Permian Basin of Texas and New Mexico. In​ 2019, the company decided to cut back spending on exploring for new oil deposits. ​Source: Clifford​ Krauss, "How a​ 'Monster' Texas Oil Field Made the U.S. a Star in the World​ Market," Wall Street Journal​, February​ 3, 2019. Briefly explain how​ Parsley's decision will affect the​ firm's marginal cost of producing oil. Since costs incurred from exploring for new oil fields are part of Parsley​ Energy's

fixed​ costs, if they cut back on oil​ exploration, their marginal cost of producing oil​ won't change.

Financial aid is

good for both colleges and students because students get an education and colleges get paying students.

The government can block the entry to a market through

granting a copyright. B. granting a public franchise. C. granting a patent. Your answer is not correct.

As a percentage of​ GDP, health care spending in the United States has been

growing rapidly

How were De​ Beers' profits​ affected? Part 8 De Beers ▼ has remainedis no longer profitable.

has remained

In a competitive labor​ market, imposing a minimum wage should reduce the equilibrium level of employment. Will this also be true if the labor market is a monopsonyLOADING...​? Briefly explain. Part 2 Imposing a minimum wage will ▼ increasedecreasenot affect employment because a firm with a monopsony otherwise will ▼ hire morehire fewer workers to pay ▼ higherlower wages.

increase,hire fewer,lower

Airlines are likely to have particularly ▼ high low fixed costs relative to their variable costs compared with an Old Navy clothing store or a Panera Bread restaurant

high

During the​ 1970s, many women changed their minds about whether they would leave the labor force after marrying and having children or whether they would be in the labor force most of their adult lives. In​ 1968, the National Longitudinal Survey asked a representative sample of women aged 14 to 24 whether they expected to be in the labor force at age 35. ​ Twenty-nine percent of white women and 59 percent of black women responded that they expected to be in the labor force at that age. In​ fact, when these women were​ 35, 60 percent of those who were married and 80 percent of those who were unmarried were in the labor force. In other​ words, many more women ended up being in the labor force than expected to be when they were of high school and college age. ​Source: Claudia​ Goldin, Explaining the Gender​ Gap: An Economic History of American Women​, New​ York: Oxford University​ Press, 1990, p. 155. Part 2 What impact did this fact have on the earnings of these​ women? Briefly explain. Part 3 Had they known they would be in the labor​ force, then the earnings of these women would have been

higher because they would have sought more training.

The Creator restaurant has replaced cooks and food preparers with a robot. On its​ website, the company describes the people who work there as​ "a motley crew of​ engineers, culinary​ scientists, human-centered​ designers, machinists, and tested​ fabricators." ​Source: creator.rest. a. The average wage of people who work at Creator is likely to be ▼ higher thanlower thanthe same as the average wage at typical​ fast-food restaurants such as​ McDonald's.

higher than

A baseball columnist calculated that during the 2016 and 2017 baseball​ seasons, outfielder Jason Hayward of the Chicago Cubs had a value of −​$25.8 million to the team. ​Source: Zachary D.​ Rymer, "Metrics​ 101: Exposing​ MLB's Worst Contracts Entering 2018​ Season," bleacherreport.com, March​ 28, 2018. Part 2 How could a baseball player have negative value to a baseball​ team? Part 3 Jason Hayward would have negative value to the Chicago Cubs if Part 4

his salary is greater than his marginal revenue product.

If the​ firm's marginal costs are​ $5 at every level of​ output, what shape will the​ firm's average total cost​ have? Part 5 The​ firm's average total cost curve will be ▼ verticalhorizontalU shaped.

horizontal

Which of the following is most likely to increase market​ power?

horizontal mergers

What are the five most important variables that cause the market demand curve for labor to​ shift? Part 2 The demand curve for labor shifts with changes in

human​ capital, technology, the price of the​ product, the quantity of other​ inputs, and the number of firms in the market.

What is a production​ function? A​ firm's production function is best described as

illustrating the relationship between inputs and the maximum amounts of output that the firm can produce with these inputs.

The​ short-run average cost can never be less the​ long-run average costs because

in the long​ run, all inputs are adjusted including the ones that are fixed in the short run.

The law of diminishing returns applies

in the short run.

What is the marginal productivity theory of income​ distribution? The marginal productivity theory of income distribution suggests that

income is determined by the marginal productivity of the factors of production that individuals own.

When a firm moves from​ straight-time pay to commission or​ piece-rate pay, the productivity of a​ firm's employees may

increase as less productive employees leave and those who remain have an incentive to sell more.

Improvements in technology usually result in lower costs of production or new and improved consumer goods and services. Part 2 Assume that an improvement in medical technology results in an increase in life expectancy for people 65 years of age and older. This technological advance is likely to

increase expenditures on health care because aging people require increasing levels of health care.

Suppose that Congress decides to end the​ USPS's monopoly on making deliveries to residential mailboxes. Part 2 Consumer surplus and economic efficiency wll

increase so long as residential mail delivery is not a natural monopoly.

Explain how the listed events would affect the following at Southwest​ Airlines: i. Marginal cost ii. Average variable cost iii. Average fixed cost iv. Average total cost Part 2 Southwest signs a new contract with the Transport Workers Union that requires the airline to increase wages for its flight attendants. Part 3 Marginal cost would ▼ decreaseremain unchangedincrease​, average variable cost would ▼ increasedecreaseremain unchanged​, average fixed cost would ▼ decreaseremain unchangedincrease​, and average total cost would ▼

increase,increase, remains unchanged, increase

The federal government starts to levy a​ $20 per passenger carbon emissions tax on all commerical air travel. Part 5 Marginal cost would ▼ increasedecreaseremain unchanged​, average variable cost would ▼ remain unchangedincreasedecrease​, average fixed cost would ▼ decreaseincreaseremain unchanged​, and average total cost would ▼ decreaseremain unchangedincrease.

increase,increase, remains unchanged, increase

When the marginal product of labor is greater than the average product of​ labor, then the average product of labor must be

increasing

Which of the following is most likely to be a fixed cost for a​ farmer?

insurance premiums on property

A firm cuts its workforce and is able to maintain its initial level of output. Part 9 This ▼ is notis an example of positive technological change.

is

An exercise program makes a​ firm's workers more healthy and productive. Part 7 This ▼ is notis an example of positive technological change.

is

training program makes a​ firm's workers more productive. Part 5 This ▼ is notis an example of positive technological change.

is

The Affordable Care Act​ (ACA)

is health care legislation passed by Congress and signed into law by President Barack Obama in 2010.

Which of the following are examples of a firm experiencing positive technological​ change? Part 2 a. A firm is able to cut each​ worker's wage rate by 10 percent and still produce the same level of output. Part 3 This ▼ isis not an example of positive technological change.

is not

firm rearranges the layout of its factory and finds that by using its initial set of​ inputs, it can produce exactly as much as before. Part 11 This ▼ isis not an example of positive technological change.

is not

Will it be maximizing​ production? Briefly explain. Part 5 A monopoly that maximizes profit

is not also maximizing production because price must be reduced to sell additional output.

Will a monopoly that maximizes profit also be maximizing​ revenue? Briefly explain. Part 2 A monopoly that maximizes profit

is not also maximizing revenue because revenue is highest when marginal revenue equals zero.

Provide an answer to this​ person's question. A monopolist cannot charge an infinite price because

it faces a​ downward-sloping demand​ curve, so to sell more units of the​ product, it must lower its price.

If​ piece-rate or commission systems of compensating workers have important advantages for​ firms, why​ don't more firms use​ them? Some firms​ don't use​ piece-rate or commission systems of compensation because

it is difficult to attribute output to any particular worker.

​Need-based financial aid is an example of price discrimination because those with the

least ability to pay receive the most aid.

The consumers who are likely to pay the highest prices for similar items in the Shanghai market are those who are ​(select all that​ apply)

least willing to haggle. unfamiliar with the product.

n​ 2019, Disney offered a complex variety of ticket options for admission to Walt Disney World. ​Source: Bob Sehlinger and Len​ Testa, The Unofficial Guide to Walt Disney​ World, 2019​, ​Birmingham, AL:​ AdventureKEEN, 2019, p. 63. Disney charged different prices for​ 1-day tickets to its Disney World​ parks, depending on the time of the year. Summer and the winter holiday season had the highest ticket​ prices, while most weeks in the winter and spring had the lowest. But people buying tickets that could be used for more than 1 day paid the same price whatever time of the year they attended. Briefly explain what assumptions Disney must be making for this pricing strategy to increase its profit. Disney must believe demand during the summer and winter seasons is ▼ lessmore elastic than during other times of the year.

less

Daniel had been earning ​$73 per hour and working 45 hours per week. Then​ Daniel's wage changes to ​$58 per​ hour, and as a​ result, he now works 40 hours per week. What can we conclude from this information about the income effect and the substitution effect of a wage change for​ Daniel? Part 2 The substitution effect causes Daniel to devote less time to working​, the income effect causes Daniel to devote ▼ lessmorethe same amount of time to working and the substitution effect is ▼ the same size as larger than smaller than the income effect.

less more larger than

A news article described the situation at Weifield Group​ Contracting, a firm based in​ Centennial, Colorado, that installs electrical systems. Because the firm was having trouble hiring enough new​ workers, managers asked many existing workers to work overtime—which means working more than 40 hours per week. Federal law requires firms to pay wages for overtime work that are at least 50 percent more than the regular hourly wage rate. The​ firm's CEO was quoted as​ saying, "There are some guys that will not work overtime. You​ can't pay​ 'em enough to work​ overtime." ​Source: Rachel Feintzeig and Lauren​ Weber, "Companies Pressured to Pay More in Overtime Wonder if​ It's Worth​ It," Wall Street Journal​, April​ 13, 2018. For these​ workers, what can we say about the size of the income effect of a wage change relative to the size of the substitution​ effect? The income effect resulting from the higher wage must have been ▼ equal togreater thanless than the substitution effect.

less than

From the information​ given, what can we conclude about the marginal revenue product of the servers in these restaurants relative to the compensation—wage plus health insurance plus paid sick and parental leave—they would​ receive? The​ servers' marginal revenue product was ▼ greater thanequal toless than the compensation they would receive.

less than

b. What does Lazear mean by the second quote​ above? What are​ "business conditions"? How do they affect worker compensation when a firm is using a​ piece-rate scheme? When business conditions are​ poor, workers will produce ▼ moreless output. If they are paid a straight​ salary, their income will ▼ increasenot changedecrease​, but if they are on a​ piece-rate system, their incomes will likely ▼ not changeincreasedecrease. As a​ result, piece-rate workers often bear ▼ lessmore risk and their incomes are ▼ moreless stable than workers who are paid a straight salary.

less,not change,decrease,more,less

Which of the following is an example of a way in which health insurance companies have dealt with the problem of adverse​ selection?

limiting insurance coverage on​ pre-existing conditions

What information would you need in order to determine whether consumers would be better off if Google and Facebook were broken up or regulated as public utilities rather than being allowed to continue operating as they do​ now? In order to determine if consumers would be better off breaking up Google or​ Facebook, we would need to

look at the consumer benefits provided by these services and how they might be reduced if the firms were broken up. look at the services that each one offers and the price that consumers pay for these services.

A columnist for the Boston Globe ​observes, "Google is a​ 'monopoly' only in its corner of the Internet playing​ field: search engine advertising. That is certainly an important​ corner, but it​ isn't the whole digital universe. It​ isn't even the whole search universe. . . For the soaring population of online​ shoppers, Google is no longer the leading search destination. Amazon​ is." ​Source: Jeff​ Jacoby, "Don't Break Up Google—The Market Will Sort Everything​ Out," Boston Globe​, June​ 14, 2018. a. How do the Department of Justice and the Federal Trade Commission determine the extent of the market a firm competes​ in? These agencies usually identify the industry that the firm is in by

looking for other firms that sell close substitutes to the good or service that the firm is selling.

From an economic​ perspective,

losing the trademark on its Monopoly game would have cost Hasbro millions of dollars per year as other companies could have begun to market similar games using the same title.

These decisions would restrain the growth of Medicare spending by denying payments for technologies with ▼ low high ​benefit-to-cost ratios.

low

In​ 2007, the European airplane manufacturer Airbus began selling its​ "super jumbo"​ jet, the A380. By​ 2019, smaller jets using carbon fiber parts and more efficient engines were also on the market. According to an article in the Wall Street Journal​, ​"Airlines, it turns​ out, preferred​ [the smaller​ jets] to the A380 and​ Boeing's own humpbacked​ giant, the 747. The smaller jets were easier to fill and could fly direct to more places around the world without funneling through​ hubs." ​Source: Robert​ Wall, "Airports Worried the A380 Was Too Big. Turns​ Out, That​ Wasn't the​ Problem," Wall Street Journal​, February​ 14, 2019. a. What does the observation that the smaller jets were easier to fill with passengers imply about the average cost of flying a passenger in a smaller jet and in an​ A380? The implication is that the average cost of flying a passenger on a smaller jet is ▼ higher thanthe same aslower than the cost of flying a passenger on a larger jet.

lower than

What is the purpose of the antitrust​ laws? Part 2 Antitrust laws are intended to

make illegal any attempts to form a monopoly or to collude.

Because the word discrimination has unfavorable​ connotations, many firms call their pricing strategies

management

How is the rental price of capital​ determined? Part 2 The rental price of capital is the price where the

marginal revenue product of capital equals the supply of capital.

Why was De Beers worried that people might resell their old​ diamonds? If people resell their old​ diamonds, then

market competition would​ increase, decreasing market prices.

The marginal cost curve intersects both the average variable cost and the average total cost curves at their ▼ maximum minimum points.

minimum

Which of the following terms refers to the problem in which one person with no deductible on his or her health insurance policy tends to engage in a less healthy lifestyle than another person with a high insurance​ deductible?

moral hazard

When a positive technological change​ occurs,

more output can be produced from the same inputs. B. the same output can be produced with fewer inputs.

Compared to the increases in health care spending per person in other​ high-income countries, the increases in health care spending per person in the United States have grown

more rapidly

If discrimination makes it difficult for a member of a group to find employment in a particular​ occupation, his or her incentive to be trained to enter that occupation is reduced. Which of the terms below is most closely associated with this​ situation?

negative feedback loop

The more cell phones in​ use, the more valuable they become to consumers. This is an example of

network externalities.

Is the amount of time that separates the short run from the long run the same for every​ firm?

no

According to a columnist in the Wall Street Journal​, ​"The fact that​ smart, ambitious children who attend elite colleges also do well in life​ doesn't mean the first caused the​ second." Briefly discuss what evidence there is for this statement. ​Source: Greg​ Ip, "Is Elite College Worth​ It? Maybe​ Not," Wall Street Journal​, March​ 20, 2019. Research shows​ that, holding constant​ students' characteristics, the earnings of people who graduate from elite colleges are ▼ no higher thanmuch higher thanlower than the earnings of people who graduate from less selective colleges.

no higher than

Because public goods must be both ▼ rival nonrival and ▼ excludable nonexcludable ​, health care ▼ does does not qualify as a public good under the usual definition.

nonrival nonexcludable does not

A column on bloomberg.com argues that natural gas pipelines​ "are a natural monopoly. Almost all of the costs are the fixed ones involved in building​ them; as long as​ there's spare​ capacity, the incremental expense of moving an extra cubic meter of gas down the line is​ infinitesimal." ​Source: David​ Fickling, "China's Pipeline Champion Misses an​ Opportunity," bloomberg.com​, June​ 12, 2018. Briefly explain why the cost structure of pipelines as the columnist describes it makes pipelines a natural monopoly. Be sure to define​ "natural monopoly" in your answer. A natural monopoly arises when

one firm can supply the entire market at a lower average total cost than can two or more firms.

Research by economists Susan​ Helper, Morris​ Kleiner, and Yingchun Wang has found that the use of​ pay-for-performance, or​ piece-rate pay, has declined in manufacturing industries in recent decades. In a summary of this​ research, Lester Picker​ writes: "...this change has come about with the adoption of modern manufacturing systems in which firms produce a greater variety of products to a more demanding quality and delivery​ standard." What characteristics determine whether a salary system is likely to be more profitable for a manufacturing​ firm? ​Source: Lester​ Picker, "The Decline of​ 'Piece Rate' Compensation in​ Manufacturing," The​ Digest, National Bureau of Economic Research​ http://www.nber.org/digest/may11/w16540.html. Manufacturing firms are likely to consider a salary system to be more profitable if

output is difficult to measure and attribute to individual workers.

Which of the following terms refers to what occurs when a person gets a vaccination against a disease and that action reduces the chances that other people will contract that​ disease?

positive externality

While in​ Shanghai, China to teach an MBA​ course, Craig​ Richardson, an economics professor from​ Winston-Salem State​ University, asked his American students to haggle with sellers in a market where prices for the same items can vary widely. Professor Richardson explained that the same item with the same sticker price at different market stalls can have a final price that varies​ "by 1,500% or​ more, depending on the negotiating skills of the​ buyer." ​Source: Craig J.​ Richardson, "An Econ Lesson in a Shanghai​ Market," Wall Street Journal​, July​ 6, 2015. Part 2 Shanghai merchants

practice price discrimination because they charge different prices for the same good.

When employers interview a job applicant with a​ white-sounding name and not an applicant with an​ African-American-sounding name, they are actually

practicing racial discrimination.

Price discrimination might be legally acceptable but ethically unacceptable when

price discrimination seems unfair.

The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs is called the

production function.

Criticisms of the ACA made by economists and policymakers who believe that the federal government should have a larger role in the health care system include all of the following except

rationing will be required under ACA unless government has total control of the system.

ow did De​ Beers' strategy affect the demand curve for new​ diamonds? Part 6 The demand for new diamonds has ▼ remained unchanged.decreased.

remained unchanged.

Southwest decides to cut its television advertising budget. Part 9 Marginal cost would ▼ increaseremain unchangeddecrease​, average variable cost would ▼ decreaseremain unchangedincrease​, average fixed cost would ▼ increasedecreaseremain unchanged​, and average total cost would

remains unchanged, remains unchanged, decrease, decrease

Southwest decides on an​ across-the-board 10 percent increase in executive salaries. Part 7 Marginal cost would ▼ remain unchangedincreasedecrease​, average variable cost would ▼ increasedecreaseremain unchanged​, average fixed cost would ▼ increasedecreaseremain unchanged​, and average total cost would ▼ remain unchangeddecreaseincrease.

remains unchanged, remains unchanged, increases, increase

b. Which of the following is an example of this type of​ cost?

rent for a store or warehouse

Refer to the graph. Suppose initially one firm supplies 30 billion​ kilowatt-hours of electricity. If a second firm enters the market and each firm now supplies 15 billion​ kilowatt-hours of​ electricity, then the average total cost of electricity

rises from​ $0.04 to​ $0.06.

For​ years, the Goodyear Tire​ & Rubber Company compensated its sales force by paying a salesperson a salary plus a bonus based on the number of tires he or she sold. In early​ 2002, Goodyear made two changes to this​ policy: ​(1) The basis for the bonus was changed from the quantity of tires sold to the revenue from tires​ sold, and ​(2) salespeople were required to get approval from corporate headquarters in​ Akron, Ohio, before offering to sell tires to customers at reduced prices. ​Source: Timothy​ Aeppel, "Amid Weak​ Inflation, Firms Turn Creative to Boost​ Prices," Wall Street Journal​, September​ 18, 2002. Part 2 Explain why these changes were likely to increase​ Goodyear's profits. Part 3 These changes were likely to increase​ Goodyear's profits because previously

salespeople had an incentive to sell more tires by reducing tire prices.

A study analyzed the costs to a pharmaceutical firm of developing a prescription drug and receiving government approval. An article in the Wall Street Journal noted that included in the​ firm's costs was​ "the return that could be gained if the money​ [used to develop the​ drug] were invested​ elsewhere." Briefly explain whether you agree that this return should be included in the​ firm's costs. ​Source: Ed​ Silverman, "Can It Really Cost​ $2.6 Billion to Develop a​ Drug?," Wall Street Journal​, November​ 21, 2014. This return

should be included in the​ firm's costs because the opportunity cost of the​ firm's investment is one of the​ firm's implicit production costs.

Nobel Laureate Robert Fogel of the University of Chicago has​ argued: ​"Expenditures on healthcare are driven by​ demand, which is spurred by income and by advances in biotechnology that make health interventions increasingly​ effective." ​Source: Robert​ Fogel, "Forecasting the Cost of U.S.​ Healthcare," The American​, September​ 3, 2009. Part 2 If Fogel is​ correct, projected increases in health care spending as a percentage of GDP ▼ shouldshould not be of concern to policymakers.

should not

In the United​ States, the loss in economic efficiency due to market power is

small

The total deadweight loss from market power for the economy is

small

Does your answer to part​ (a) mean that there are no economies of scale with respect to​ jets? The implication is that because technological change has made it possible for firms manufacturing jets to use carbon fiber parts and more efficient​ engines, the minimum efficient size of jets is ▼ largersmaller than it had been. In these​ circumstances, building larger jets may lead to ▼ economies of scalediseconomies of scaleeconomies of scope.

smaller ​, diseconomies of scale

Under what circumstances can a firm successfully practice price​ discrimination? Part 5 To successfully practice price​ discrimination,

some consumers must have greater willingness to pay for the product than others and a firm must know consumer willingness to pay for the product.

In what other ways could the Department of Justice and the Federal Trade Commission evaluate​ Google's situation in the context of the antitrust​ laws? The DOJ and the FTC could

study the advertising market to see if firms will be able to find more alternatives to Google in the future. B. calculate the​ cross-price elasticity of demand to determine how close substitutes two services are. Your answer is not correct. C. look at whether Google is suppressing competition​ by, for​ instance, buying other potential competitors. D. Only A and C are correct.

According to Joseph​ Schumpeter, what does economic progress depend​ on?

technological change in the form of new products

Why might it be difficult for new leagues to enter the market for professional football in the United​ States? It might be difficult for new entrants to compete with the NFL because

the NFL has control over a key resource-ownership or​ long-term leases on large stadiums in major cities.

Which of the following laws was the first to make monopolization​ illegal?

the Sherman Act

Airlines have begun selling more​ "basic economy" tickets. According to a columnist in the Wall Street Journal​, these tickets are usually the​ lowest-priced seats available on a​ flight, but the tickets​ "lack advance seat​ assignments, typically board in the last​ group, often prohibit​ carry-on bags in overhead bins and​ aren't eligible for upgrades or any kind of​ changes." Many corporate travel officers block employees from buying these​ tickets: "Whatever savings come from paying​ $50 to​ $100 less each way could be obliterated by a business traveler missing one flight and having to buy a new ticket that costs more than​ $1,000." The columnist concludes that basic economy tickets are a new means for airlines to practice price discrimination. ​Source: Scott​ McCartney, "The Secret Other Reason Basic Economy Is​ Everywhere," Wall Street Journal​, April​ 4, 2018. Briefly explain his reasoning. Selling basic economy tickets is a way for airlines to price discriminate because

the airlines can charge lower prices to travelers who have a more elastic demand for airline travel.

What does the​ short-run production function hold​ constant? A​ short-run production function holds constant

the amount of capital.

What is personnel​ economics? Personnel economics is

the application of economic analysis to human resource issues such as the link between differences among jobs and differences in the way workers are paid. Your answer is not correct. B. the application of economic analysis to human resource issues such as training.

Natural gas pipelines are a natural monopoly because

the average total cost curve for moving natural gas through a pipeline is still falling at the point where it crosses the demand curve.

A Federal Reserve publication notes​ "Airlines have high fixed​ costs." ​Source: Scott A. Wolla and Carolyn​ Backus, "The Economics of​ Flying: How Competitive Are the Friendly​ Skies?" Federal Reserve Bank of St​ Louis, Page One Economics​, November 2018. Which of the following is likely to be one of the most important fixed costs for an​ airline?

the cost of its planes

As the wage​ increases,

the demand for labor curve does not​ shift, but the quantity demanded of labor decreases.

What determines the price of natural​ resources? Part 5 The economic rent or pure rent of natural resources is determined by

the demand for the natural​ resource, which is the marginal revenue product of the natural resource.

Which of the following rights is given to the holder of a​ patent?

the exclusive right to a new product for a limited period

Refer to the table below. Which of the following costs are implicit​ costs? Type of Cost Amount Paper ​$20,000 Wages ​48,000 Lease payment for copy machines ​10,000 Electricity ​6,000 Lease payment for store ​24,000 Foregone salary ​30,000 Foregone interest ​3,000 Total ​141,000 Part B: Which of the following are sometimes called accounting​ costs?

the forgone salary and interest Part B: explicit costs

What are the four most important ways a firm becomes a​ monopoly? Part 2 The four main reasons a firm becomes a monopoly​ are:

the government blocks​ entry, control of a key​ resource, network​ externalities, and economies of scale.

Why are the analysts quoted in the article using​ "monopoly" in this​ context? In this​ sense, the analysts mean that

the iOS operating system is a significant barrier to other firms competing with Apple in the smartphone industry.

What is minimum efficient​ scale? Part 2 Minimum efficient scale is Part 3

the level of output at which the long−run average cost of production no longer decreases with output.

In this​ case,

the losers would be those salespeople who have poor sales skills and had previously relied on their salary.

If the marginal product of labor is rising​, is the marginal cost of production rising or​ falling? Briefly explain. Part 2 If the additional output from each new worker is rising​, Part 3

the marginal cost of that output is falling because the only additional cost to producing more output is the additional wages paid to hire more workers.

At the​ equilibrium, the price of capital is equal to

the marginal revenue product of capital.

Why are major league baseball players on average paid substantially more than college​ professors? Explain. Part 2 Major league baseball players are paid more than college professors because

the marginal revenue product of major league baseball players is high relative to college professors.

What is a​ monopsony? A monopsony is

the only buyer of a factor of production.

If the federal government were to require that employer health care plans have deductibles that were no greater than​ $200 per​ year, the employees in these plans would be better off if

the premiums did not increase to offset the lower deductible.

What is the definition of economic​ rent?

the price of a factor of production that is in fixed supply

What is economic​ rent? Economic rent is

the price of a factor of production that is in fixed supply.

As output​ increases, the vertical distance between average total cost and average variable cost curves gets​ _______ and equals​ _______.

​smaller; average fixed cost

What is the difference between total cost and variable cost in the long​ run? Part 2 In the long​ run, Part 3

the total cost of production equals the variable cost of production.

How can we measure the opportunity cost of​ leisure? The opportunity cost of leisure is Part 2

the wage rate.

It is difficult to estimate how much of the gap between what men and women are paid is due to discrimination because

there are many other factors that influence wage differences.

In what ways are Google and Facebook different from public​ utilities? Google and Facebook are different from public utilities because

they do not charge consumers a fee to use their services.

In discussing Senator Elizabeth​ Warren's proposal to treat technology firms like Google and Facebook as public​ utilities, an article on bloomberg.com​ observes, "Public utility regulation is usually an acknowledgement that monopolies occur naturally in some markets and the best thing to do is to come up with a way to live with​ them." ​Source: Joshua​ Brustein, "Elizabeth Warren Imagines Big Tech After the​ Breakup," bloomberg.com​, March​ 8, 2019. a. In what ways are Google and Facebook like public​ utilities? Google and Facebook are like public utilities because

they have grown large enough to have economies of scale that allow them to monopolize the industry they are in.

These individual choices can result in differences between how much men and women are paid because

they will result in differences in experience and skill over time.

Which Congressional Act was passed in 1936 to outlaw price discrimination that reduces​ competition?

the​ Robinson-Patman Act

Which of the following terms refers to the lowest cost at which a firm is able to produce a given level of output in the long​ run, when no inputs are​ fixed?

the​ long-run average cost curve

What are the three most important variables that cause the market supply curve for labor to​ shift? Part 2 The supply curve for labor shifts with changes in

the​ population, demographics, and opportunities in other labor markets.

If patents reduce​ competition, why does the federal government grant​ them? Part 2 The federal government grants patents

to encourage firms to spend money on research to create new products.

The market demand curve for labor is determined by adding up the wages for each worker at each quantity of labor​ demanded, holding constant all other variables that might affect the willingness of firms to hire workers.

true

Perfect price discrimination is

unlikely to occur because firms typically do not know how much each consumer is willing to pay.

b. The president of a foundation connected with the technology industry argued against​ Warren's proposal,​ noting, "The proposal ignores the fact that many of the services big tech companies now provide free used to cost consumers​ money." What services do Google and Facebook provide now for free that consumers had to pay for prior to the development of the​ Internet? Examples of services that Google and Facebook provide for free that were not free before include

video chat. B. messaging. C. navigation services.

The following problem is somewhat advanced. Using​ symbols, we can write that the marginal product of labor is equal to ΔQ/ΔL. Marginal cost is equal to ΔTC/ΔQ. Because fixed costs by definition​ don't change, marginal cost is also equal to ΔVC/ΔQ. If Jill​ Johnson's only variable cost is labor​ cost, then her variable cost is just the wage times the quantity of workers​ hired, or w×L. Part 2 If the wage Jill pays is​ constant, then what is ΔVC in terms of w and​ L? partB: Use your answer above and the expressions given for the marginal product of labor and the marginal cost of output to find an expression for marginal​ cost, ΔTC/ΔQ​, in terms of the​ wage, w, and the marginal product of​ labor, ΔQ/ΔL. Part 4 Marginal cost equal Part c:Use your answer above to determine​ Jill's marginal cost of producing pizzas if the wage is ​$1000 per week and the marginal product of labor is 100. The marginal cost of production is ​$enter your response here. ​(Enter your response rounded to two decimal​ places.) Part D; If the wage falls to ​$900 per week and the marginal product of labor is​ unchanged, then​ Jill's marginal cost ▼ part E;If instead the wage is unchanged at ​$1000 per week and the marginal product rises to 150​, then​ Jill's marginal cost

w x change in(triangle) L part b: w/(traingle q/ traignle L) partc; $10 partD; decrease Part E; decreases

The great baseball player Ty Cobb was known for being very thrifty. Near the end of his life he was interviewed by a reporter who was surprised to find that Cobb used​ candles, rather than​ electricity, to light his home. From Ty​ Cobb's point of​ view, was the local electric company a​ monopoly? Part 2 For​ Cobb, the local electric company

was not a monopoly because candles were a good substitute for electricity.

A monopolist is a price maker because

when a monpolist raises its​ prices, it loses some but not all customers.

Economies of scale occur

when a​ firm's long-run average costs decrease with output.

What are diseconomies of​ scale? Part 2 Diseconomies of scale is Part 3

when a​ firm's long-run average costs increase with output.

What is a compensating​ differential? Give an example. A compensating differential is

when higher wages are paid to compensate a worker for unpleasant aspects of a​ job, such as when workers are paid higher wages for dangerous work.

Explain why the marginal cost curve intersects the average total cost curve at the level of output where average total cost is at a minimum. Part 2 The marginal cost curve intersects the average total cost curve at the level of output where average total cost is at a minimum because Part 3

when the marginal cost of the last unit produced is below the​ average, it pulls the average​ down, and when the marginal cost is above the​ averge, it pulls the average up.

Refer to the table below. When do diminishing returns in the production of pizzas​ start?

when the third worker is hired

Suppose that last semester your semester GPA was 1.60 and your resulting cumulative GPA was 2.75. Part 2 ​Next, suppose that this semester your semester GPA will be 2.40. Part 3 If​ so, then your cumulative GPA

will decrease because your​ "marginal" GPA will be below your cumulative GPA.

Leaving aside legal​ penalties, the employers who follow this practice

will also incur an economic penalty that is imposed on them by the market.

Some firms offer their employees a health care plan with high​ deductibles, sometimes as much as​ $4,500 per year. Part 2 With​ high-deductible plans, people

will hesitate to go to a doctor to avoid the cost outlay.

What is likely to happen in the long run to firms that do not reach minimum efficient​ scale? Part 5 A firm that does not reach its minimum efficient scale

will lose money if it remains in business.

A columnist on forbes.com offers the following advice to retailers practicing price​ discrimination: "Consumers​ don't much like the idea of other people getting better deals than are offered to​ them, and retailers need to be careful not to turn differentiated pricing into discriminatory pricing. There has to be a legal and ethical rationale for offering different prices to different​ customers." ​Source: Nikki​ Baird, "Dynamic​ Pricing: When Should Retailers​ Bother?" forbes.com, April​ 18, 2017. What would be a legally acceptable reason for offering different prices to different​ customers? What would be a legally unacceptable​ reason? A legally acceptable reason for offering different prices to different customers would be differences in ▼ costwillingness to payracegender​, and a legally unacceptable reason for offering different prices would be differences in ▼

willingness to pay race

Lawrence​ Katz, an economist at​ Harvard, was quoted in a newspaper article as arguing that differences between the incomes of male physicians and female physicians​ "are largely explained by individual​ choices." He also noted that discrimination could account for part of the gap​ "though it​ isn't clear how​ much." ​Source: Josh​ Mitchell, "Women Notch​ Progress," New York Times​, December​ 4, 2012. When Katz used the phrase​ "individual choices," he meant that female physicians may

work fewer hours or take time off for child care.

Which of the following is a reason for choosing a salary system rather than the more profitable​ commission, or​ piece-rate system, of​ compensation?

worker dislike of risk B. difficulty in measuring output C. concerns about quality

According to an Associated Press news​ article, 1,400 newspapers closed between 2004 and 2019. The same article quotes an estimate by the Pew Research Center that employment at newspapers declined by 45 percent during roughly the same period. ​Source: David Bauder and David A.​ Lieb, "Decline in​ Readers, Ads Leads Hundreds of Newspapers to​ Fold," apnews.com, March​ 11, 2019. Can we be certain that the wages of journalists have declined since​ 2004? What other information would we need to be​ sure? The wages of journalists would have declined since 2004 if

workers left journalism for other​ occupations, and the leftward shift in the demand curve for journalists was larger than the leftward shift in the supply curve.

If the federal government were to require that employer health care plans have deductibles that were no greater than​ $200 per​ year, the employers with these plans would be

worse off because the​ premium, and their share of the​ premium, would be higher.

A market initially has 5​ firms, each with a 20 percent market share. Of the​ firms, 3 propose to​ merge, leaving a total of 3 firms in the industry. Are the Department of Justice and the Federal Trade Commission likely to oppose the​ merger? Part 5 The Department of Justice and the Federal Trade Commission ▼ would not challengewould not challengemay challengemay challengewould challengewould challenge such a merger.

would challange

Look again at the section​ "The Department of Justice and the Federal Trade Commission Merger​ Guidelines" in the textbook. Evaluate the following​ situations: Part 2 A market initially has 20​ firms, each with a 5 percent market share. Of the​ firms, 3 propose to​ merge, leaving a total of 18 firms in the industry. Are the Department of Justice and the Federal Trade Commission likely to oppose the​ merger? Part 3 The Department of Justice and the Federal Trade Commission ▼ would challengewould challengewould not challengewould not challengemay challengemay challenge such a merger.

would not challange

Which of the following is a result of perfect price​ discrimination?

zero consumer surplus

In the long​ run, the monopolist can earn

zero or positive economic profit.

What is the value of the​ Herfindahl-Hirschman Index​ (HHI) when there are four firms in an industry and each firm has an equal market​ share?

​2,500

Refer to the graph. Which level of output in the graph below represents the minimum efficient​ scale? Which size bookstore is more likely to experience diseconomies of​ scale?

​20,000 books A bookstore selling​ 80,000 books per month

Joe Morgan is a sportscaster and former baseball player. After he stated that he thought the salaries of Major League Baseball players were​ justified, a baseball fan wrote the following to Rob​ Neyer, a sports​ columnist: ​"Mr. Neyer, What are your feelings about Joe​ Morgan's comment that players are justified in being paid what​ they're being​ paid? How is it ok for​ A-Rod [New York Yankees infielder Alex​ Rodriguez] to earn​ $115,000 per GAME while my boss works 80 hour weeks and earns​ $30,000 per​ year?" ​Source: ESPN.com, August​ 30, 2002. Part 2 How would you answer this​ fan's questions

​A-Rod's marginal revenue product is much higher than the marginal revenue product of the​ fan's boss.

Why would​ AT&T buying Time Warner be an example of a vertical​ merger? It is an example of a vertical merger because

​AT&T and Time Warner were operating at different stages in producing and delivering television programs.

In​ 2019, an article in the Wall Street Journal noted that the federal​ government's Office of the Comptroller of the Currency had said about Wells Fargo​ bank, "We continue to be disappointed with...its inability to execute effective corporate governance and a successful risk management​ program." According to the​ article, a senior member of Congress​ "suggested the bank should be downsized because it was too large to​ manage." ​Source: Rachel Louise Ensign and Andrew​ Ackerman, "Regulator Slams Wells Fargo after CEO Testifies to​ Congress," Wall Street Journal​, March​ 12, 2019. After reading this​ article, a student​ remarks: "It seems that Wells Fargo is suffering from diminishing​ returns." Briefly explain whether you agree with this remark.

​Disagree: the student confused diminishing​ returns, which refers to the behavior of costs in the short​ run, with diseconomies of scale.

EOG, a​ Texas-based producer of oil and​ gas, is called the​ "Apple of​ oil" because of the​ company's history of developing innovative methods to extract energy from shale rock. Using one of​ EOG's innovations, called​ iSteer, the company can navigate through thousands of feet of rock with a drill bit that allows for greater recovery of oil and gas than methods the company previously used. ​Source: Erin​ Ailworth, "Fracking​ 2.0: Shale Drillers Pioneer New Ways to Profit in Era of Cheap​ Oil," Wall Street Journal​, March​ 30, 2017. Briefly explain why economists would consider​ EOG's use of iSteer an example of technological change.

​EOG's use of iSteer enables it to recover more oil and gas with a certain quantity of inputs.

Charles Darrow claimed to have invented and played a game that closely resembles​ Hasbro's Monopoly​ game, decades before​ Hasbro's Monopoly game was introduced. In the legal debate about the right to use the name Monopoly for a​ game, whether or not Professor Anspach is correct matters because

​Hasbro's loss of the trademark on its Monopoly game would have allowed other companies to market similar games using the same title.

Is Jill Johnson correct when she says the​ following: ​"I am currently producing​ 10,000 pizzas per month at a total cost of ​$40,000. If I produce​ 10,001 pizzas, my total cost will rise to ​$40,050. ​Therefore, my marginal cost of producing pizzas must be​ increasing."

​Jill's average total cost of production is​ increasing, so her marginal cost of producing pizzas must be increasing.

During the same period that robots and other new technologies have been affecting the labor​ market, there has been an increase in imports to the United States of manufactured goods—including ​shoes, clothing, and automobiles—from countries in which workers receive lower wages. In​ addition, some U.S. firms have engaged in​ "offshoring" in which they move some operations—such as telephone helplines—to other countries where wages are lower. Part 2 Which workers are most likely to lose their jobs to robots and​ offshoring?

​Middle-skilled workers whose jobs do not involve​ face-to-face contact.

An article in the Wall Street Journal discussing the smartphone market notes that industry analysts make the following​ observation: Apple's​ "biggest advantage has been its role as the only seller of devices featuring its iOS operating system. The iOS monopoly means users who switch to a rival device would have to learn a new system and potentially give up some stored​ information, analysts​ say." ​Source: Tripp​ Mickle, "Diverging​ Fortunes: High Prices Propel​ Apple, Sink​ Samsung," Wall Street Journal​, August​ 1, 2018. Does Apple have a monopoly on​ smartphones?

​No, Apple is not the only producer of smartphones in the​ market, so it does not have a monopoly on smartphones.

If a market is a​ monopoly, will a negative externality in production always lead to production beyond the level of economic​ efficiency?

​No, a monopoly may produce an inefficiently high or low level of output in the presence of a negative externaility.

b. Will a reduction in a​ firm's output always result in an increase in the​ firm's average total cost​ (ATC) of​ production?

​No, a reduction in a​ firm's output will result in an increase in the​ firm's average total cost of production only if the quantities are small and the firm is producing at a level of output where its ATC curve is downward sloping.

b. Will this procedure work when applied to​ Google? Briefly explain.

​No, because it will be difficult to determine which other firms are selling close substitutes for​ Google's service.

in​ 2019, Noëlle Santos opened The Lit. Bar bookstore in the Bronx borough of New York City. Her bookstore is the only one located in the​ Bronx, which has a population of about 1.5 million. ​Source: Ginia​ Bellafante, "A​ Bookstore, Finally, Comes to the ​Bronx,"New York Times​, April​ 25, 2019. Should the only bookstore in the​ Bronx, or any other​ city, be considered a​ monopoly?

​No, in the narrow definition of the​ term, The Lit. Bar bookstore would be considered a monopoly only if it had no close substitutes.

​Shouldn't streaming make it easier for all artists to get recording​ contracts?

​No, since less popular acts are unlikely to increase the chances of someone signing up for a streaming service.

b. Were there any benefits to employees as a result of signing the​ agreements? If​ not, why would they have signed​ them?

​No, the agreement was a condition for​ employment, and if applicants​ didn't sign​ it, they probably​ weren't hired.

Suppose that competition for software engineers results in Segment.com having to pay them higher salaries. Would the fact that the firm will now face an increased cost of providing its services be an example of negative technological​ change? Briefly explain.

​No, this would not represent technological change because the same output can be produced using the same inputs.

A technology website estimated that the cost of materials and components in​ Apple's iPhone XS Max was​ $453. Apple was selling this phone for​ $1,249. ​Source: Daniel Yang and Stacy​ Wegner, "Apple iPhone XS Max​ Teardown," techinsights.com, October​ 3, 2018. Can we conclude from this information that Apple was making a profit of about​ $796 on each of these​ iPhones?

​No; to calculate economic​ profit, all implicit and explicit costs relating to the production of the iPhone must be subtracted from the total revenue earned from selling the​ phones, so Apple made less than​ $796 on each iPhone.

Sally looks at her college transcript and says to​ you, ​"How is this​ possible? My grade point average​ (GPA) for this​ semester's courses is higher than my GPA for last​ semester's courses, but my cumulative GPA still went down from last semester to this​ semester." Part 2 Explain to Sally how this is possible.

​Sally's GPA for this semester is lower than her cumulative GPA.

Assuming again that the analysis of​ T-Mobile and Sprint executives is​ correct, if the federal government decides to stop their​ merger, what is likely to happen to the firms once the infrastructure for 5G wireless technology has been​ completed?

​T-Mobile and Sprint will have higher costs than​ AT&T or Verizon and they may be driven out of business.

Daniel​ Hamermesh, an economist at the University of​ Texas, has done a great deal of research on labor markets. In a​ book, Hamermesh wrote that ​"there is a penalty to earnings for bad looks and a premium for good​ looks." According to his statistical​ estimates, "the bottom 15 percent of women by looks...received 4 percent lower pay than​ average-looking women. The top​ one-third of women by looks...received 8 percent more than​ average-lookers. For​ men, the comparable figures are a 13 percent penalty and a 4 percent​ premium." ​Source: Daniel​ Hamermesh, Beauty Really​ Pays: Why Attractive People Are More Successfull​, ​Princeton, NJ: Princeton University​ Press, 2011, p. 45. Is this difference in earnings due to economic​ discrimination?

​Yes, because it is not acceptable to give someone a lower raise just because they are ugly.

In New York​ City, many people buy their Christmas trees from sidewalk vendors. An article about these vendors in the New York Times has the headline​ "How Much for That​ Tree? $35 in​ Harlem, or​ $135 in​ SoHo." Harlem is a​ lower-income neighborhood, and SoHo is a​ higher-income neighborhood. ​Source: Luis​ Ferré-Sadurni, "How Much for That​ Tree? $35 in​ Harlem, or​ $135 in​ SoHo," New York Times​, December​ 10, 2017. a. Are the sidewalk Christmas tree vendors in New York City practicing price​ discrimination? Briefly explain.

​Yes, because, all else​ equal, they are charging different prices to different people for roughly the same product.

A Disney World guidebook notes that families have many different ticket options to choose from and that​ "adding to the​ complexity, Disney's reservation agents are trained to avoid answering . . . which ticket option is​ 'best.' Many​ families, we​ suspect, become overwhelmed . . . and simply purchase a more expensive ticket with more features than​ they'll use." Can the complexity of​ Disney's ticket options be a form of price​ discrimination? If​ so, which people are likely to pay the higher ticket prices and which people the lower ticket​ prices?

​Yes, consumers who are unwilling to spend the time required to determine the pricing option that is​ "best" for them have a more inelastic demand​ (and are willing to pay higher​ prices) than those consumers who spend the time needed to determine their best pricing options.

Do restaurant owners have a solution to this problem in the long​ run? Briefly explain.

​Yes, restaurant owners can vary the​ size, or​ number, of kitchens.

The article also notes that the Christmas tree vendors must pay rent to the owners of the buildings that front the sidewalks. According to the​ article, "The most​ sought-after spots in​ high-end neighborhoods have created notorious price wars among vendors plotting to outbid one another. The cutthroat competition has increased rents . . . by as much as 500 percent in eight​ years." Does this additional information affect your answer to part​ (a)? Briefly explain.

​Yes, since it indicates the price differences may be due to differences in the costs of selling trees in the two neighborhoods.

Should Congress and the president be concerned about the growth of Medicare​ spending?

​Yes, since most​ observers/analysts see unrestrained growth in spending as having the potential to undermine the financial health and stability of the government.

If labor demand is​ unchanged, an increase in labor supply will​ ________ the equilibrium wage and​ ________ the number of workers employed.

​decrease; increase

Labor unions are organizations of​ __________ that have the legal right to bargain with​ __________ about​ __________.

​employees; employers; wages and working conditions

If labor supply is​ unchanged, an increase in labor demand will​ ________ the equilibrium wage and​ ________ the number of workers employed.

​increase; increase

The GPA you earn in a particular semester is your​ ________ GPA, and your cumulative GPA for all completed semesters is your​ ________ GPA.

​marginal; average

A column in the Washington Post argues that​ "network externalities turn market forces on their​ head." Consider two new products—product A and product B—neither of which receives patent protection. Assume that there are no network externalities when consumers use product​ A, whereas there are very large network externalities when consumers use product B. ​Source: Daniel W.​ Drezner, "The Best Work on Political Economy in​ 2018," Washington Post​, December​ 31, 2018. Briefly explain how market forces will determine the level of competition in equilibrium in industry A and in industry B. We would expect​ that, in​ equilibrium, the market for product A will be​ _______ competitive than the market for product B. This is because​ __________.

​more; the very large network externalities in market B will make it difficult for new firms to enter the market

b. The success of​ Apple's iPod leads more firms to begin producing digital music players.

A change in supply

Do you agree that health insurance is meant for people who end up getting​ sick?

No. While it obviously directly benefits those who do become​ sick, it indirectly benefits all since everyone faces some risk of sickness. There is a​ "psychic" benefit to knowing that one is​ "covered" if sickness should befall them.

Identify whether each of the following statements describes a change in supply or a change in the quantity supplied. Part 2 a. To take advantage of high prices for snow shovels during a very snowy​ winter, Alexander​ Shovels, Inc., decides to increase output

A change in quantity supplied

What do economists mean by market​ equilibrium?

A market outcome where quantity supplied is equal to quantity demanded.

Indicate which of the following could cause a movement from point A to C. ​(Check all that​ apply.)

A rise in buyer incomes. This is the correct answer. B. A decline in vegetarianism.

Health insurance companies deal with asymmetric information problems by

A. requiring policy holders to pay deductible conducting their own medical examinations Your answer is not correct. C. limiting the coverage of​ pre-existing conditions

While teaching the concepts of asymmetric​ information, a professor asked his students for examples of adverse selection or moral hazard in marriage. Which of the following examples most accurately describes adverse selection and moral hazard in​ marriage? Part 2

Adverse selection because the​ husband's secret alcoholism comes out after the wedding. Moral hazard because a spouse lets their appearance go after marriage.

Which of the following illustrates the law of​ supply?

An increase in price causes an increase in the quantity​ supplied, and a decrease in price causes a decrease in the quantity supplied.

Briefly discuss what might account for this result and why it differs from the answer you gave to part​ (a). ​(​Hint: Why was the finding of increased sales of physical books particularly strong for less popular​ books?)

As more books become available as free​ downloads, readers of these books recommend them to other​ readers, causing an increase in the demand for both the print and the digital versions of the​ book, particularly among readers who prefer to read a physical book.

Which of the following countries operates under a​ single-payer health insurance​ system?

Canada

Which of the following is one of the difficulties in making​ cross-country comparisons in health care​ outcomes?

Countries do not always collect health care related data in the same way. B. Countries do not deliver health care services in the same way. Your answer is not correct. C. Countries may have different lifestyle choices that affect health care outcomes apart from the effectiveness of the​ countries' health care system.

c. Briefly explain whether the glut in this market is likely to eventually disappear.

The rental price of offices will eventually fall until the quantity of offices supplied equals the quantity of offices​ demanded, eliminating the glut.

Briefly explain whether you agree with the following​ statement: ​"The reluctance of healthy young adults to buy medical insurance creates a moral hazard problem for insurance​ companies."

Disagree. Moral hazard becomes a problem after one purchases insurance. In this​ case, the reluctance of​ young, healthy adults to purchase insurance in the first place leads to an adverse selection problem.

b. Why would firms drilling in the Permian Basin continue producing natural gas if they receive a zero or negative price for​ it?

Firms continue to produce natural gas because it is a byproduct of producing​ oil, so long as oil is profitable enough to cover the price of disposing of the natural​ gas, the firms will continue to produce it.

b. Which would be better news for firms selling traditional canned​ tuna: Fact ​(i​) is more important in explaining their declining sales than fact ​(ii​), or the​ reverse?

Firms would prefer fact ​(ii​) more than fact ​(i​) because it is easier for the traditional canned tuna producers to change their marketing strategy and also offer their tuna in pouches and trendy flavors than it is to change the minds of millennial and generation Z consumers about the desirability of eating tuna.

Given the following​ statement: ​"Providing health care is obviously a public good. If one person becomes ill and​ doesn't receive​ treatment, that person may infect many other people. If many people become​ ill, then the output of the economy will be negatively affected.​ Therefore, providing health care is a public good that should be supplied by the​ government." Health​ care, as a​ good, is best described​ by:

Health care should be supplied by the government because it generates positive externalities. B. Health care should not be supplied by the government because the private market preserves incentives to improve health care with innovation and medical technology.

b. As an​ economist, how can you hope that your analysis of the demand for butter is accurate if you neglect thousands and thousands of other​ variables?

In the model of demand and​ supply, we focus only on the variables that experience has shown are the most important in determining the demand for a​ product: income, price of substitutes and​ complements, taste for the​ good, population, and the expected future price.

Which of the following are examples of activities that generate externalities in the market for health​ care? ​(Check all that​ apply.)

Individuals engaging in injurious or reckless lifestyle choices. People receiving vaccinations against infectious diseases.

Which of the following statements is true about the health of people in the United States during the past 150​ years?

Infant mortality has decreased. B. Life expectancy has more than doubled. C. The average person has become taller.

From 1979 to​ 2015, China had a policy that allowed couples to have only one child.​ (Since 2016, couples have been allowed to have two​ children.) The​ one-child policy caused a change in the demographics of China. Between 1980 and​ 2017, the share of the population aged 14 and under decreased from 36 percent to 18 percent.​ And, as parents attempted to ensure that the lone child was a​ son, the number of male children relative to female children increased. ​Sources: World​ Bank, World Development Indicators​, February​ 2019; and Steven Lee​ Myers, Jin​ Wu, and Claire​ Fu, "China's Looming​ Crisis: A Shrinking​ Population," New York Times​, January​ 21, 2019. Part 2 How has the​ one-child policy changed the relative demand for goods and services in​ China?

It has undoubtedly shifted away from goods and services appealing to youthful​ buyers, particularly youthful female buyers.

Under the Social Security retirement​ system, the federal government collects a tax on most​ people's wage income and makes payments to retired workers above a certain age who are covered by the system.​ (The age to receive full Social Security retirement benefits varies with the year the worker was​ born.) Part 2 What attributes of the Social Security retirement system make it a program of social​ insurance? ​(Mark all that​ apply.)

It is a transfer program. It provides a means of spreading the risk of bad outcomes.

An article in the Economist notes that the National Health Service​ (NHS) in the United Kingdom​ "is free at the point of​ delivery." ​Source: "The Three Myths of the​ NHS," Economist​, June​ 18, 2018. What does​ "free at the point of​ delivery" mean?

Patients pay virtually nothing when they receive health care services.

The same article suggested that the views of the average person in the United Kingdom​ "have made it impossible even to think about boosting NHS revenue by charging patients a nominal sum for visiting the​ doctor." Which of the following statements would be true if the NHS were allowed to charge patients for​ doctor's visits, as happens in most other​ countries, including the United​ States?

Patients would have more incentive to avoid making appointments for​ conditions, such as​ colds, where medical treatment is ineffective.

Stuart Butler of the Brookings Institution argues that​ "there is much more to achieving good health than just spending money on medical care. We could save billions of dollars repairing hip fractures for​ seniors, for​ instance, by investing a fraction of that money in such things as safer bathrooms and​ non-slip carpeting." ​Source: Stuart M.​ Butler, "There Are Good Reasons to Be Optimistic about True Health​ Reform," brookings.edu, August​ 14, 2018. Would changes of this type be observable in the health outcomes policymakers use to compare the health care systems of different​ countries? Which of the following statements is​ true?

The changes Butler proposed might increase​ well-being for the reasons he states.​ But, it seems unlikely that the changes would improve the health outcomes that policymakers typically focus on​ (curing diseases or injuries after people have already experienced​ them).

From the list​ below, select the variable that will cause the supply curve to​ shift:

The cost of raw materials

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." Part 2 LOADING... Click in the icon for a reference diagram. Part 3 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.

suppose you see a 2017 Honda Civic hatchback advertised in the campus newspaper for ​$9,500. If you knew the car was​ reliable, you would be willing to pay ​$13,000 for it. If you knew the car was​ unreliable, you would be willing to pay ​$6,000 for it. Part 2 You should buy the car if which of the following circumstances is​ true?

There is a​ 50-50 chance that it is a lemon.

Which of the following best describes the system of socialized​ medicine?

a health care system under which the government owns most of the hospitals and employs most of the physicians

In attempting to compare health care outcomes across​ countries, a problem encountered is

a lack of data consistency. B. getting an accurate measurement of health care delivery. Your answer is not correct. C. distinguishing health care effectiveness from lifestyle choices. D. properly assessing consumer preferences.

Which of the following is one of the major reasons for the improvement in U.S. health in the last two​ centuries?

better sanitation B. improvements in the distribution of food C. advances in medical equipment and prescription drugs

According to an article in the Wall Street Journal in early​ 2019, the price of oil produced in the United States had increased by 25 percent since the beginning of the year. At the same​ time, U.S. oil production was at a record high. ​Source: Dan​ Molinsky, "Oil Prices Decline as U.S. Crude Production Hits​ Record," Wall Street Journal​, February​ 21, 2019. a. Are these two facts​ alone, holding everything else​ constant, consistent with a movement along the supply curve for​ oil?

Yes. A higher price of oil causes an increase in the quantity of oil​ supplied, which we show by a movement upwards along the supply curve for oil.

Which of the following is the​ textbook's definition of a supply​ curve?

a curve that shows the relationship between the price of a product and the quantity of the product supplied

Imagine that the curves shown in the accompanying figure represent two demand curves for traditional wings​ (basket of​ six) at Buffalo Wild Wings. Further assume that wings are a normal good. Part 2 The movement from point A to B on D1 is caused by

a decrease in price of traditional wing baskets

Suppose that the curves in the figure to the right represent two supply curves for traditional wings​ (basket of​ six) at Buffalo Wild Wings. Part 2 The movement from point A to B on S1 is caused by

a decrease in the price of baskets of traditional wing

Which of the following events would shift the supply of smartphones to the​ right?

a decrease in the price of inputs used to produce smartphones

In recent​ years, fewer households have been relying on traditional cable television to provide entertainment. Traditional cable television is sometimes called​ "pay TV." According to an article in the Wall Street Journal​, ​"The pay-TV decline comes as many U.S. households are turning to the internet for entertainment and canceling their traditional​ subscriptions, a phenomenon called​ cordcutting." ​Source: Drew FitzGerald and Benjamin​ Mullin, "Outlook for Traditional TV Goes from Bad to​ Worse," Wall Street Journal​, November​ 19, 2018. Is the decline in the number of cable television subscriptions likely the result of a movement along the demand curve for cable television or a shift in the demand​ curve? What information would you need to be confident in your​ answer? The decline in the number of cable television subscriptions is likely the result of

a leftward shift in the demand​ curve, but you would need to have information on changes​ (if any) in the price of cable television subscriptions to be sure.

An article in the Wall Street Journal on the market for traditional canned tuna stated the following two​ facts: i. Firms selling traditional canned tuna are struggling to connect with millennial and generation Z​ consumers, "who favor​ fresher, less-processed​ options" in the food they eat. ii. Firms selling traditional canned tuna are facing competition from firms that offer tuna for sale in​ "pouches and kits with trendy flavors or as a healthy​ snack." ​Source: Jesse Newman and Annie​ Gasparro, "The Trouble With with​ Tuna: 'A Lot of Millennials​ Don't Even Own Can​ Openers,'" Wall Street Journal​, December​ 2, 2018. a. From this​ information, can we conclude that falling sales of traditional cans of tuna is likely the result of a movement along the demand curve for traditional cans of tuna or a shift in the demand​ curve? The falling sales of traditional cans of tuna are the result of

a shift in the demand curve for tuna to the left.

Which of the following is the​ textbook's definition of a supply​ schedule?

a table that shows the relationship between the price of a product and the quantity of the product supplied

Compared with those of other​ high-income countries, health care outcomes in the United States are

better on some​ indicators, inferior on others.

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.

The situation described here​ (of healthy people not subsidizing sick people through the purchase of​ insurance) is a problem for a system of health insurance since it

accentuates the adverse selection problem for insurers. B. may impose big losses on insurers. C. makes insurance premiums excessively high.

An article in the Wall Street Journal refers to​ "the basic principle of insurance—pooling risk in order to minimize liability from unforeseen​ dangers." ​Source: Amanda​ Foreman, "Insuring against​ Disaster," Wall Street Journal​, February​ 20, 2019. Part 2 The problem of ▼ moral hazard adverse selection perfect information is that it undermines the ability of insurance to provide the benefit of sharing risk.

adverse selection

Which of the following terms refers to the situation in which one party to an economic transaction takes advantage of knowing more than the other party to the​ transaction?

adverse selection

The​ "lemons problem" refers to the observation that the presence of asymmetric information in the used car market leads to the problem of ▼ adverse selection moral hazard ​, causing the cars offered for sale to be predominantly ▼ poor good in quality.

adverse selection poor

​Source: Organization for Economic​ Co-operation and​ Development, OECD Health Data 2018​, March 2019. Part 2 According to the​ figure, health care is a normal good for

all countries.

What do economists mean when they use the Latin expression ceteris paribus​?

all else equal

An article in the Wall Street Journal notes that the average height in the United States has increased slowly in recent​ years, while the average height in the Netherlands has been increasing more steadily. Although for many years the average person in the United States was taller than the average person in the​ Netherlands, in​ 2019, the average person in the Netherlands was 2 inches taller than the average person in the United States. Income per​ person, or per​ capita, in the United States is 50 percent higher than income per person in the Netherlands. The article​ asks, "Why​ isn't the​ U.S., with the highest disposable income per capita of any​ country, the​ world's tallest​ nation?" ​Source: Jo Craven​ McGinty, "Who's the Tallest of Them​ All? It's No Longer the​ Americans," Wall Street Journal​, March​ 22, 2019. Why might we expect a relationship between average income in a country and the average height of its​ residents? What might explain the difference between the average height in the United States and the average height in the​ Netherlands? The average height of residents in a country is highly correlated with income because a higher income

allows for the consumption of more—and more nutritious—food.

buffalo wild wings Indicate which of the following would cause a movement from point A to C. ​(Check all that​ apply.)

an increase in the prices of substitutes in production. Your answer is correct. C. A decrease in worker productivity.

the phrase​ "health care​ outcome" refers to

any indicator of societal health

Should policymakers be concerned about this height​ issue? To the extent that differences in height

are the result of poorer childhood​ nutrition, U.S. policymakers should be concerned.

The main sources of health insurance in the United States include all of the following except

household​ co-operatives, or​ co-ops.

​It's possible to buy many books either as​ print, or​ physical, books or as digital books. a. If the price of digital books​ rises, what would you expect to happen to the demand for print​ books? If many book readers consider print books and digital books to be​ substitutes, then an increase in the price of digital books will

increase the demand for print​ books, shifting the demand curve for print books to the right.

Improvements in the health of the average American caused the U.S. production possibilities frontier to shift out primarily by

increasing the​ country's effective workforce.

Life expectancy in the United States declined between 1916 and 1918. This decline likely caused the U.S. production possibilities frontier to shift ▼ outward inward because it signified a resource base made smaller by a less effective ▼ workforce capital stock .

inward workforce

According to the​ textbook, the data on the relationship between health care spending per person and income per person shows that health care

is a normal good.

b. Is it possible that the supply curve for oil also​ shifted? Suppose you were told that managers at oil firms were convinced that oil prices in the future were going to be significantly lower than they are today. Would this fact help you answer the​ question? Given that managers at oil firms were convinced that oil prices in the future were going to be significantly lower than they are​ today,

it is likely that the supply curve for oil shifted to the right because firms will be more likely to increase the supply of oil today when prices are higher.

The success of health care systems of different countries in extending the lives of the very sick

may be measured by examining​ illness/disease mortality ratios.

An externality

may require government intervention. interferes with the economic efficiency of a market equilibrium . refers to a benefit or cost of an economic activity that affects someone who is not directly associated with it.

If a market is in equilibriumLOADING...​, is it necessarily true that all potential buyers and sellers are satisfied with the market​ price?

no

The overall mortality rate in the United States decreased by more than 25 percent between 1981 and 2015. Which of the following is not a cause of this​ decline? Part 2 The decline in the mortality rate is due to all of the following except a decline in deaths due to Part 3

obesity

What is the term for the payment that a buyer agrees to make in a health insurance contract in exchange for the provider agreeing to pay some or all of the​ buyer's medical​ bills?

premium

In an opinion column in the Washington Post​, Daniel Morgan of the University of​ Maryland's School of Medicine described the result of a study he carried out with​ colleagues: "We found that nearly 90 percent of the patients received at least one unnecessary​ [medical] test and​ that, overall, nearly​ one-third of all the tests were​ superfluous." ​Source: Daniel​ Morgan, "What the Tests​ Don't Show," Washington Post​, October​ 5, 2018. Part 2 Are there features of the U.S. health care system that might be encouraging this​ behavior? The article is referring to the

prevalence of patient health insurance in the United States that results in the​ principal-agent problem.

The difference between a change in supply and a change in the quantity supplied is that the latter is

produce by a change in the product's own price while the former is caused by a variety of variables other than the product's price.

An article in the Los Angeles Times describes a healthy​ 23-year old woman who has decided not to buy health insurance as​ "exactly the type of person insurance plans that states and the federal government are counting on to make health reform​ work." ​Source: Anna​ Gorman, "Affordable Care​ Act's Challenge: Getting Young Adults​ Enrolled," Los Angeles Times​, June​ 2, 2013. Young healthy people must be forced to participate in health reform because they are needed to

provide a subsidy to older sicker people.

Two health care analysts argue that in the United​ States, ​"we have arrived at a moment where we are making little headway in defeating various kinds of diseases.​ Instead, our main achievements today consist of devising ways to marginally extend the lives of the very​ sick." ​Source: David​ Brooks, "Death and​ Budgets," New York Times​, July​ 14, 2011. Part 2 Should​ "marginally extend[ing] the lives of the very​ sick" be an important goal of a health care system​ and, if​ not, what other goals should have a higher​ priority? While this normative question has no definite correct or incorrect​ answer, it seems reasonable to expect that any health care system​ would, at a minimum and through multiple​ avenues, Part 3

reduce human suffering.

In the case of health​ insurance, a lemons problem exists since those more likely to want health insurance are ▼ healthy sick people.

sick

news story about the rental market for office space in big cities described the market as experiencing a​ "glut" and quoted a real estate broker as​ stating, "We are moving into greater opportunities for​ [office] tenants." ​Source: Keiko​ Morris, "Growing Glut of Office Supply to Pressure Rents Next​ Year," Wall Street Journal​, December​ 18, 2018. Part 2 a. What does the article mean by a​ "glut"? What does a glut imply about the quantity of offices demanded relative to the quantity​ supplied? A glut is another term for a ▼ shortagesurplus. When a market experiences a​ glut, the quantity supplied is ▼ less thanequal togreater than the quantity demanded at the current price.

surplus, greater than

Such data can be important in evaluating the effectiveness of a​ country's health care system because

the benefit may be greater than the cost of gathering the data.

The late Nobel Laureate Gary Becker once described how an economist should analyze the demand for​ butter: An economist​ "would want to consider the price of butter and probably the level of​ income, the price of​ margarine, and the size of the population as well. But​ [the economist] would neglect thousands and thousands of other​ variables...." ​Source: Gary​ Becker, Economic Theory​, New​ Brunswick, NJ: Aldine​ Transaction, 2007, p. 5. a. What approach to analyzing demand curves is Becker​ describing?

the ceteris paribus condition

Eric​ Topol, a​ cardiologist, has written about the potential for using artificial intelligence​ (AI) in health care. He argues that in the​ future, many patients will have the option to receive treatment in their own​ bedrooms, where they can be monitored by AI rather than be admitted to hospitals. Doing so would reduce the costs of delivering health care​ "because the large staff of doctors and nurses...would not be necessary in the​ future." ​Source: Sumathi​ Reddy, "A​ Doctor's Prescription for More AI in​ Medicine," Wall Street Journal​, March​ 4, 2019. If the U.S. health care system makes greater use of​ AI, what are the implications for the trends shown in the maps in the Apply the ConceptLOADING...​? Widely adopting AI in the U.S. health care sector will more likely result in

the employment of fewer workers as some tasks could be automated that are currently carried out by health care workers. If this outcome​ occurs, the trend highlighted in the maps would reverse.

In an opinion column in the Washington Post​, Megan McArdle​ argued, "In​ fact, it's debatable whether the other​ countries' [health​ care] systems get better​ outcomes" than the health care system in the United States. ​Source: Megan​ McArdle, "What's Really Obstructing​ Left-Wing Dreams?" Washington Post​, May​ 7, 2018. Part 2 Why is it difficult to measure health outcomes in a way that allows us to determine which​ country's system provides the best health​ care? It is difficult to measure outcomes like these because

there is no one statistic that measures outcomes like these.

An article in the Economist on evaluating health care outcomes is subtitled​ "To Improve Health​ Care, Governments Need to Use the Right​ Data." Among the data not currently being collected in most​ countries, the article mentions​ "how soon after surgery patients get back to​ work." ​Source: ​ "Measuring Health​ Care," Economist​, February​ 1, 2014. Part 2 Governments do not currently collect such data because

they have no reason to justify the cost of doing so.

Is health care actually free to residents of the United​ Kingdom? Briefly explain.

​No, health care is not free because residents of the United Kingdom pay for it through their income taxes.

According to an article on​ crainsnewyork.com, in​ 2018, the Metropolitan Museum of Art​ (the Met) in New York City had record attendance of 7.36​ million, an increase of 5 percent over the previous year. During​ 2018, the Met had also increased the price of attendance. ​Source: Miriam Kreinin​ Sinclair, "Met Museum​ Attendance, Revenue up a Year After Imposing​ Fee," crainsnewyork.com, January​ 4, 2019. a. Can we conclude from this information that the demand curve for visiting the Met is upward​ sloping?

​No, it is much more likely that during 2018 there was an increase in demand for visits to the Met.

A column by Greg David in ​Crain's New York Business discussed the effect of rising costs on prices charged by New York City restaurants. David argued that higher costs would result in higher prices​ and, "at some​ point, higher prices should reduce​ demand." ​Source: Greg​ David, "New York Area Restaurants Are Hiking​ Prices," crainsnewyork.com, May​ 2, 2018. Is he correct that if the price of a product​ increases, the demand for the product is​ reduced?

​No: an increase in the price of a product will cause a decrease in the quantity demanded of that​ product, not a decrease in demand.

An article in the New York Times​ observed, "American doctors often rail against the​ country's medical malpractice​ system, which they say forces them to order unnecessary tests and procedures to protect themselves if a patient sues​ them." ​Source: Margot​ Sanger-Katz, "A Fear of Lawsuits Really Does Seem to Result in Extra Medical​ Tests," New York Times​, July​ 23, 2018. Part 2 Is there another economic explanation—apart from fear of lawsuits—for why doctors may end up ordering unnecessary tests and other medical​ procedures?

​Yes, since doctors themselves largely conduct the tests and perform the​ procedures, they benefit by enhancing the revenue of their practices.

The article also explained that New York City experienced an increase in the number of tourists during 2018 and that during the​ year, the Met offered several exhibitions that received good reviews. Does this additional information help you answer the question in part ​(a​)?

​Yes, this additional information reinforces the increase in demand for visits to the Met in part​ (a).

Which of the following is the way in which the largest number of people obtain health insurance in the United​ States?

​employer-provided insurance plans


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