Chapter 1.1-1.5, Chapter 3.1-3.4, 7.1-7.5, Chapter 11.1-11.7 Econ 105 Cypress College
From the list below, select the variable that will cause the demand curve to shift:
Consumer income
A monopolistically competitive firm doesn't produce where P = MC like a perfectly competitive firm because Part 2
P exceeds MR for a monopolistically competitive firm, and it's MR that must equal MC for profit maximization
What are implicit costs? Part 2 An implicit cost is Part 3
a nonmonetary opportunity cost.
The difference between a change in supply and a change in the quantity supplied is that the latter is
produced 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.
What does McCraw mean by "when their innovations dwindle"? Innovations dwindle when a firm
produces fewer new products.
How did De Beers' strategy affect the demand curve for new diamonds? Part 6 The demand for new diamonds has
remained unchanged
President Obama and his advisers have failed to correctly forecast the effects of the 2011 changes to the loan programs because they
underestimated the number of students who would take advantage of the programs.
Any cost that changes as output changes represents a firm's A. fixed cost.
variable
Microeconomics is the study of
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
Scarcity implies that every society and every individual face trade-offs because scarcity means that. (1.2)
human wants are greater than what available resources can produce
Life expectancy in the United States declined between 1916 and 1918. This decline likely caused the U.S. production possibilities frontier to shift inward because it signified a resource base made smaller by a less effective workforce .
inward workforce
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.
Which of the following is most likely to be a fixed cost for a farmer?
insurance premiums on property
Indicate which of the following would cause a movement from point A to C. (Check all that apply.)
A decrease in worker productivity. in the prices of substitutes in production.
A columnist in the Wall Street Journal offers the following opinion of Starbucks: "Starbucks is in some ways the victim of its success, having attracted increasingly aggressive competitors into what is now a fairly crowded market." Source: James Freeman, "Tragedy of the Starbucks Commons," Wall Street Journal, January 19, 2019. Do all firms that are currently earning an economic profit eventually become "victims of their own success"? Which of the following statements is true?
A firm can only hope to earn a profit in the long run if it is able to continually find new ways to differentiate its product.
Economists assume that people are rational in the sense that
they use all available information as they take actions intended to achieve their goals.
Economists use models (1.3 Economic Models)
to answer questions and analyze issues.
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.
Briefly explain whether you agree that when a firm stops innovating, it is likely to die
Firms can successfully compete only by introducing new goods and services or better ways of producing existing goods and services.
In a competitive market, firms can dictate what the equilibrium price of a good or a service will be.
False
while market economies answer these questions through decisions made by
Households and Firms
Which of the following areas of economics studies issues such as ways to reduce teenage smoking?
Microeconomics
Economists refer to the necessity of holding all variables other than price constant in constructing a demand curve as the
ceteris paribus condition.
Why does a local McDonald's face a downward-sloping demand curve for its Quarter Pounder? Part 2 In monopolistically competitive markets, Part 3
changing the price affects the quantity sold because firms sell differentiated products.
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.
"When there is a shortage of a good
consumers compete against one another by bidding the price upward.
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.
If patents reduce competition, why does the federal government grant them? Part 2 The federal government grants patents Part 3
to encourage firms to spend money on research to create new products.
Economic data is used
to test models.
Which costs are affected by the level of output produced?
variable costs
Refer to the table below. When do diminishing returns in the production of pizzas start?
when the third worker is hired
Sally's marginal revenue from lowering the price of tomatoes from $3.00 to $1.75 is Lowering the price from $3.00 to $1.75 results in an output effect of XX and Price Effect is
0.5 175,000 -125,000
The monopolistically competitive firm sells _________ product and faces _________ demand curve.
a differentiated; a downward-sloping
In the figure, consider the marginal revenue of the eighth unit sold. When the firm cuts the price from $6.00 to $5.60 to sell the eighth unit, the area in the graph denoting the output effect is given by In dollars, this effect is
C $5.6 B 2.8 2.8
Which of the following countries operates under a single-payer health insurance system?
Canada
In which of the following ways is the market for health care in the United States similar to the markets for other goods and services? (Check all that apply.) (7.1 The Improving Health of People in the United States)
Consumers of health care make the decisions about how much they wish to consume. Health care sellers are primarily private firms.
of going to the department's office on Monday morning are greater than the expected marginal
Costs
Any attempt to determine whether or not this is a good system must focus on its
Costs and Benefits
When an employer offers a wellness program to its employees, the health insurance premiums the employer pays on behalf of the employees are likely to
Decrease
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.
Which of the following is a correct statement about a mixed economy?
In a mixed economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.
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.
JAB, a German company that now owns both Peet's and Intelligentsia, has been focusing on sales of cold-brewed coffee, which it sells in supermarkets and convenience stores. According to an article in the Wall Street Journal, "Making and distributing cold-brewed coffee, in particular, is challenging and expensive because it requires a lot of coffee beans to extract the flavor." Source: Zeke Turner and Julie Jargon, "The Secretive Company That Pours America's Coffee," Wall Street Journal, March 7, 2018. If cold-brew coffee is more costly for JAB to produce than is conventional ground coffee or hot coffee sold in coffeehouses (JAB sells those types of coffee as well), why would JAB focus on it?
JAB is following a strategy of differentiating its product from those offered by competing firms
The effect of higher income taxes on the total amount of consumer spending. This is a
Macroeconomics
The incentive of employees to improve or maintain their health once they obtain health insurance may be XXX impacted.
Negatively
Does it apply in the long run?
No
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.
Because public goods must be both nonrival and nonexcludable , health care does not qualify as a public good under the usual definition.
Nonrival nonexcludable does not
What is the price paid by consumers of medical services?
P3
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
When does productive efficiency occur?
Productive efficiency occurs when a good or service is produced at the lowest possible cost.
The efficient quantity of medical services is
Q1 because this is the quantity if consumers paid the full price of medical services.
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
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.
From the list below, select the variable that will cause the supply curve to shift:
The cost of raw materials
Refer to the graph. For a certain output range (or quantity of pizzas produced per day), marginal cost is greater than average cost. What is this output range? When marginal cost is less than average total cost, average total cost must be
The output range greater than about 525 pizzas per day Decreasing
If the columnist is correct, why did the sponsors of the act in Congress write the act the way that they did?
The sponsors of the legislation may have hoped that firms would raise the wages of low-income workers, which would make it unnecessary for these workers to apply for government benefits
Which one is best suited to find the quantity supplied at a price of $4.50? (3.2)
The supply curve
Suppose you see a 2017 Honda Civic hatchback advertised in the campus newspaper for $7,250. If you knew the car was reliable, you would be willing to pay $10,000 for it. If you knew the car was unreliable, you would be willing to pay $4,500 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.
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.
If you own the only hardware store in a small town, do you have a monopoly? Part 2
Yes. You would have a monopoly if your profits are not competed away in the long run.
Which of the following is the correct definition of demand curve?
a curve that shows the relationship between the price of a product and the quantity of the product demanded
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
Productive efficiency means that
a good or service is produced at the lowest possible cost.
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
If a firm is productively and allocatively efficient, it earns XXX ; if it is not, it XXX .
a profit suffers a loss
A firm operating in a market economy has a strong incentive to be productively efficient and allocatively efficient because the former enables it to
minimize production costs
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.
With a downward-sloping demand curve, marginal revenue is below price
because the firm must lower its price to sell additional units.
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.
If a shortage exists in a market, we know that the actual price is
below the equilibrium price, and the quantity demanded is greater than the quantity supplied.
The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs is called the
production function
Compared with those of other high-income countries, health care outcomes in the United States are
better on some indicators, inferior on others.
There are about 400 wineries in California's Napa Valley. Suppose the owner of one of the wineries—Jerry's Wine Emporium—raises the price of his wine by $5.00 per bottle. Part 2 If the industry is perfectly competitive, the reaction of consumers would be to
buy wine from another winery.
How are economic resources allocated in a market economy?
by the decisions of households and firms interacting in markets
This scenario
can't account for the outcome of the price and the quantity of organic milk both falling because an increase in demand and supply will both push the quantity of organic milk higher.
The new equilibrium quantity will be
either point C or point D.
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
How were De Beers' profits affected? De Beers
has remained profitable
In the diagram, point A provides the _____, point B the _____, and point C the _____.
equilibrium price; market equilibrium; equilibrium quantity
Scarcity is central to the study of economics because it implies that
every choice involves an opportunity cost.
Allocative efficiency means that
every good or service is produced up to the point where marginal benefit is equal to marginal cost.
Which of the following are sometimes called accounting costs?
explicit costs
What are the most important differences between perfectly competitive markets and monopolistically competitive markets? Part 2 Unlike in perfectly competitive markets, in monopolistically competitive markets,(13.1)
firms face downward-sloping demand curves, and the products competitors sell are differentiated.
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.
The law of diminishing returns applies
in the short run
Teachers often wish that students came to class prepared having read the upcoming material. A teacher could design the grading system to motivate students to come to class prepared by XXX the grade weight assigned to being prepared.
increasing
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.
A monopolistically competitive firm in a long-run equilibrium produces where
its demand curve is tangent to its average total cost curve.
The more cell phones in use, the more valuable they become to consumers. This is an example of
network externalities.
This is
not an equitable way to distribute the tickets because some students who really want them may be unable to go and get them
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.
Refer to the graph. From the origin up until point A, From point A up until point B,
output increases at an increasing rate. output increases at a decreasing rate.
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
n 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.
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 Part 2
rationing will be required under ACA unless government has total control of the system.
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.)
slow rate of growth of labor productivity in health care. This is the correct answer. B. Distorted economic incentives for consumers and suppliers of health care. Your answer is correct. C. The development of advanced medical technology and new prescription drugs. This is the correct answer. D. An aging U.S. population.
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.
Economists believe that an activity should be continued up to the point where
the marginal benefit from the activity is equal to the marginal cost.
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.
When it comes to assessing how this system affects the financial interests of doctors and the well being of consumers, it may be that the former gain more simply because
there are far fewer of them, hence each stands to gain much from supply restrictions.
while the latter ensures it of
ample revenues
Refer to the table below. What is the marginal cost of producing the 200th pizza?
$3.25
The success of Apple's iPod leads more firms to begin producing digital music players.
A change in supply
If Daniel sells 350 hamburgers at a price of $4.00, and his average cost of producing 350 hamburgers is $3.50, what is his profit? Part 2 Profit = $
175
All public franchises are not natural monopolies, and all natural monopolies are not public franchises.
Are Not Are Not
In the six months following Hurricane Katrina, production of oil in the Gulf of Mexico declined by 25 percent
A change in supply
Which of the following statements about a hypothesis is correct?
A hypothesis is a statement that could in principle turn out to be incorrect
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
According to the figure, health care is a normal good for
All countries
In a market system, what determines how goods and services will be produced?
Firms determine how goods and services will be produced.
Centrally planned economies allocate resources based on decisions by
Government
What is the difference between the short run and the long run? (11.2)
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 statements about positive analysis is correct?
Positive analysis is concerned with what is.
The effect of higher cigarette taxes on the quantity of cigarettes sold. This is a
Microeconomics
The reasons for low rates of profit in the airline industry. This is a
Microeconomics
Which of the following statements about microeconomics and macroeconomics is correct?
Microeconomics involves the study of how households and firms make choices.
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
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
Dr. Strangelove's theory is that the price of mushrooms is determined by the activity of subatomic particles that exist in another universe parallel to ours. When the subatomic particles are emitted in profusion, the price of mushrooms is high. When subatomic particle emissions are low, the price of mushrooms also is low. Is it possible to test this theory?
No
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.
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 1916, the Ford Motor Company produced 500,000 Model T Fords at a price of $440. The company made a profit of $60,000,000 that year. Henry Ford told a newspaper reporter that he intended to reduce the price of the Model T to $360, and he expected to be able to sell 800,000 cars at that price. Ford said, "Less profit on each car, but more cars, more employment of labor, and in the end we get all the total profit we ought to make." Part 2 a. Did Ford expect the total revenue he received from selling Model Ts to rise or fall following the price cut?
Rise because he assumed demand was elastic.
What is the difference between technology and technological change? (11.1) Part 2
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.
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). Your answer is correct.
Suppose economists develop an economic model and find that "it works great in theory, but it fails in practice." Which of the following should the economists do next?
They should revise the model in light of its failure to explain or predict real world events.
Suppose that the quantity demanded per day for a product is 80 when the price is $35. The following table shows costs for a firm with a monopoly in this market. Part 2 Quantity (Per Day) Total Cost 40 $1,200 50 1,250 70 2,100 80 3,600 Part 3 Briefly explain whether this firm has a natural monopoly in this market.
This firm does not have a natural monopoly because it produces at higher average total cost than two or more firms would.
One way for a firm to become a monopoly is by controlling a key resource.
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.
Which of the following best describes scarcity?
Unlimited wants exceed the limited resources available
In a market system, how does society decide who will receive the goods and services produced?
Who receives the goods and services produced depends largely on how income is distributed.
Total revenue for 3 lessons is
XXX
Leonard Fleck, a philosophy professor at Michigan State University, has written, "When it comes to health care in America, we have limited resources for unlimited health care needs. We want everything contemporary medical technology can offer that will improve the length or quality of our lives as we age. But as presently healthy taxpayers, we want costs controlled." Source: Leonard Fleck, Just Caring: Health Care Rationing and Democratic Deliberation. New York: Oxford University Press, 2009. Part 2 Is it necessary for all economic systems to limit services such as health care?
Yes
According to Forbes magazine, in 2019, Jeff Bezos was the world's richest person, with wealth of $136 billion. Source: Noah Kirsch, "Jeff Bezos, World's Richest Person, Announces Divorce After 25 Years of Marriage," forbes.com, January 9, 2019. Part 2 Does Jeff Bezos face scarcity?
Yes, because even though billionaires' financial resources enable them to afford a much greater array of goods and services than those less wealthy, their financial resources are not infinite.
Can this change in opportunity cost account for the decline in college football attendance? Briefly explain.
Yes, because these changes increase the opportunity cost of watching football games in person.
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.
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 the price of baskets of traditional wings.
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 wings.
Which of the following is the correct definition of demand schedule?
a table that shows the relationship between the price of a product and the quantity of the product demanded
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
What is the law of diminishing returns? Part 2 The law of diminishing returns states that
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. (11.3)
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 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
Alberto Chong of Georgia State University and several colleagues conducted an experiment to test the efficiency of government postal services around the world. They mailed letters to nonexistent businesses in 159 countries and kept track of how many of the letters were returned. Was this test most relevant to evaluating the productive efficiency or the allocative efficiency of these postal services? Source: Alberto Chong, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer, "Letter Grading Government Efficiency," Journal of the European Economic Association, Vol. 12, No. 2, April 2014, pp. 277-299. Part 2 This test that Albert Chong and his colleagues carried out was most relevant for evaluating the
allocative efficiency of these postal services because the test was designed to measure how often and how quickly the letters sent were returned.
The phrase "health care outcome" refers to
any indicator of socialetal health
An article on Allbirds athletic shoes, which are made with merino wool uppers, made the following three points: a. The shoes "are a favorite of striving venture capitalists and celebrities." b. The shoes "are a staple in the offices of seemingly every technology startup." c. It quoted one of the founders as stating that the goal of the firm was to sell shoes "focused on delivering everyday comfort." Source: Rob Copeland, "Trendy Sneaker Startup Allbirds Laces Up $1.4 Billion Valuation," Wall Street Journal, October 11, 2018. If you were working for Allbirds and a manager asked you to forecast the future demand for its shoes, why might (a) and (b) concern you? Why might you be happy to hear the co founder make the statement quoted in (c)? As a forecaster working for Allbirds, you should be concerned about point (a) and (b) because
both limit the size of the market. On the other hand, increased everyday comfort brought from the shoes may increase the demand for the shoe, causing an increase in sales.
Which of the following is most likely to a variable cost for a business firm?
cost of shipping products
If the industry is monopolistically competitive, the reaction of consumers
could be to remain loyal to Jerry's and pay the higher price.
What is "natural" about a natural monopoly? Part 2 A natural monopoly
develops automatically due to economies of scale.
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.
a percentage of GDP, health care spending in the United States has been
growing rapidly
Airlines are likely to have particularly ▼ high fixed costs relative to their variable costs compared with an Old Navy clothing store or a Panera Bread restaurant.
high
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
horizontal
Consider an organization dedicated to helping low-income people. The members of the organization are discussing alternative methods of aiding the poor, when a proponent of one particular method asserts: "If even one poor person is helped with this method, then all our time and money would have been worth it." If you were a member of the organization, what reply best represents clear economic thinking? This attitude
ignores the fact that the cost of helping that one person has an opportunity cost of what those funds could have been used for to help other people.
What is a production function? A firm's production function is best described as Part 2
illustrating the relationship between inputs and the maximum amounts of output that the firm can produce with these inputs.
Late in the semester, a friend tells you, "I was going to drop my psychology course so I could concentrate on my other courses, but I had already put so much time into the course I decided not to drop it." Is your friend's reasoning correct or incorrect? Part 2 Your friend's reasoning is
incorrect
en and Jerry are managers at the company, and they have this discussion: Ben: We should produce 4,000 lamps per month because that will minimize our average costs. Jerry: But shouldn't we maximize profits rather than minimize costs? To maximize profits, don't we need to take demand into account? Ben: Don't worry. By minimizing average costs, we will be maximizing profits. Demand will determine how high the price we can charge will be, but it won't affect our profit-maximizing quantity. Part 4 Evaluate the discussion between the two managers. Part 5 Ben's assertion that the firm should produce the quantity of lamps where average costs are minimized is Part 6
incorrect because profits are instead maximized at the quantity where marginal cost equals marginal revenue, which may be different since marginal revenue depends on consumer demand.
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.
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.
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 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
A business analyst gives the following advice to managers of firms: "If you continue to swim in a sea of sameness, you are going to drown." Source: Steve Dennis, "Macy's and JC Penney Earnings Offer Evidence of the Stall at the Mall; Here's How They Can Get on Track," forbes.com, February 28, 2019. Briefly explain what he means. Firms that fail to continually differentiate their products from the products of competitors will be unable to earn an economic profit in the (13.3)
long run
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.
Ten years from now, JAB's economic profit from selling cold-brewed coffee would be XXX It is today
lower than
The GPA you earn in a particular semester is your ________ GPA, and your cumulative GPA for all completed semesters is your ________ GPA.
marginal; average
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.
Efficiency means that goods are distributed in a way that
maximizes benefits to society
n 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.
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.
What is the law of demand? The law of demand is the
rule that, holding everything else constant, when the price of a good falls, the quantity demanded will increase, and when the price of a good rises, the quantity demanded will decrease.
In a graph (not shown) of the banana market in the United States, the imposition of a tariff on banana imports would Part 4
shift supply leftward, increasing equilibrium price and decreasing equilibrium quantity.
What effect does the entry of new firms have on the demand curve of an existing firm in a monopolistically competitive market? The entry of new firms cause the demand curve of an existing firm in a monopolistically competitive market to
shift to the left and become more elastic.
What does the short-run production function hold constant? A short-run production function holds constant
the amount of capital.
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.
What are the four most important ways a firm becomes a monopoly? 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
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
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 average, it pulls the average up.
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.
With a downward-sloping demand curve, average revenue is equal to price Part 2
actually, average revenue is always equal to price, whether demand is downward sloping or not.
What is the actual cost and also the opportunity cost of distributing the tickets this way?
All of the Above
Which of the following statements is correct?
An innovation is the practical application of an invention.
by a tariff on imported steel.
Hurt
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 hurricane damages a firm's facilities.
"Looked at from the standpoint of incremental revenue (huge) minus these incremental expenses (modest), the Postal Service could very easily have come to the conclusion that, even at $2 a package, the Amazon contract was likely to be highly profitable." Sources: Eli Rosenberg, "Trump Said Amazon Cost The the USPS 'Billions.' But the Post Office Has a Different Explanation." Washington Post, May 11, 2018. What does the writer mean by "incremental revenue" and "incremental cost"? Why would he focus on incremental revenue and incremental cost rather than on total revenue and total cost? "Incremental" means the same thing as
"marginal." If the marginal revenue exceeds the marginal cost, the USPS's profit will increase. If the marginal cost exceeds the marginal revenue, the USPS's profit will decrease.
In 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.
Match the terms below on the left with the definitions to their right. Do this by inserting into each term's response box the number associated with its correct definition. 1. Health insurance 2. Fee-for-service 3. Single-payer health care system 4. Socialized medicine
1. A A contract under which a buyer makes payments in exchange for the provider's agreeing to pay some or all of the buyer's medical bills. 2. A type of health insurance plan under which doctors and hospitals receive a payment for each service they provide. 3. A health care system where one entity, usually the government, provides national health insurance to all residents. 4. A health care system in which the government owns most hospitals and employs most doctors.
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. 1. Canada 2. Japan 3. the United Kingdom 4. the United States
1. Has a single-payer health care system where the government provides national health insurance to all residents. 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. 3. The government owns most hospitals and employs most doctors, so the health care system is referred to as socialized medicine. 4. Most people have private health insurance through employers, with the government also providing insurance to the poor, aged, and military veterans.
Match the terms below on the left with the definitions to their right. Do this by inserting into each term's response box the number associated with its correct definition. 1. Moral Hazard 2. Principal-Agent Problem 3. Adverse selection 4. Asymmetric information
1. Refers to actions people take after they have entered into a transaction that make the other party to the transaction worse off. 2. Results from agents pursuing their own interests rather than the interests of the principals who hired them. 3. Is the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. 4. Occurs when one party to an economic transaction has less information than the other party.
Stephen runs a pet salon. He is currently grooming 120 dogs per week. If instead of grooming 120 dogs, he grooms 121 dogs, he will add $65.54 to his costs and $68.38 to his revenues. What will be the effect on his profits of grooming 121 dogs instead of 120 dogs?
2.84
The table below shows the quantity of workers and total output for a local pizza restaurant. Answer the following questions based on this table: Quantity of Workers Total Output 0 0 1 3 2 — 3 17 4 22 5 26 6 24 a. When the owner hires 4 workers, the average product of labor is 5.55.5 pizzas. (Enter your response rounded to two decimal places.) Part 2 b. The marginal product of the fifth worker is 44 pizzas. (Enter your response as a whole number.) Part 3 c. If the marginal product of the second worker is 6, then the total number of pizzas produced when 2 workers are hired is 99 pizzas. (Enter your response as a whole number.) Part 4 d. Assuming the marginal product of the second worker is 6, the law of diminishing marginal returns set in with the
5.5 4 9 fourth worker
Suppose Angelica opens a small store near campus, selling beef brisket sandwiches. Use the graph to the right, which shows the demand and cost for Angelica's beef brisket sandwiches, to answer the questions that follow.
55 4.5 (P-ATC)XQ= (4.5-5.5)X55=-55 Exit industry
Many universities and corporations offer a health wellness program that helps their employees improve or maintain their health and get paid (a relatively small amount) for doing so. The programs vary, but typically consist of employees completing a health assessment, receiving a healthy living program, and monitoring their monthly health activities. Part 2 Corporations and universities are willing to pay employees to take care of themselves because a healthier workforce
A and B only. A. translates into lower costs, in part by reducing illness-related absenteeism and premature retirements. B. performs more efficiently, thereby improving overall productivity in the workplace.
Identify whether each of the following statements describes a change in supply or a change in the quantity supplied. To take advantage of high prices for snow shovels during a very snowy winter, Alexander Shovels, Inc., decides to increase output.
A change in quality supply
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.) Part 5
A rise in the number of buyers. Your answer is correct. A decline in vegetarianism.
According to an article in the Wall Street Journal in early 2019, "United States Steel Corp. said it plans to add 1.6 million tons of steelmaking capacity next year by resuming the construction of a new furnace in Alabama as tariffs on foreign metal raise profits on domestic steel." Source: Bob Tita, "U.S. Steel to Expand Under Tariffs," Wall Street Journal, February 11, 2019. Part 2 a. How does a tariff on imported steel make a U.S. steel company more profitable?
A tariff on imported steel will raise the prices of those imports, making it likely that some U.S. consumers of steel will shift from buying imported steel to buying domestically-produced steel.
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? (Check all that apply.)
A. The government plays a large role in the market for health care. This is the correct answer. B. Consumers of health care typically pay less than full price.
Which of the following statements is true about the health of people in the United States during the past 150 years?
All of the Above Life expectancy has more than doubled. Infant mortality has decreased. The average person has become taller.
What is the difference between the average cost of production (ATC) and marginal cost of production (MC)? Part 2 (11.4)
ATC = TCQ; MC =ΔTCΔQ.
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 XXX is that it undermines the ability of insurance to provide the benefit of sharing risk.
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 XXX causing the cars offered for sale to be predominantly XXX in quality
Adverse Selection/poor
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?
Adverse selection because the husband's secret alcoholism comes out after the wedding. Moral hazard because a spouse lets their appearance go after marriage.
What do economists mean when they use the Latin expression ceteris paribus? (3.1)
All else equal.
Which of the following statements is true?
All individuals face a scarcity of time and need to make choices how to allocate it.
The Apply the Concept feature explains that there are both positive and normative aspects to the debate over whether the federal government should enact tariffs on imports from China. What economic statistics would be most useful in evaluating the positive elements in this debate? Assuming that these statistics are available or could be gathered, are they likely to resolve the normative issues in this debate? Which of the following economic statistics would be useful in evaluating the positive elements in this debate?
All of the Above
An externality Part 2
All of the Above refers to a benefit or cost of an economic activity that affects someone who is not directly associated with it. interferes with the economic efficiency of a market equilibrium. may require government intervention.
Which of the following would cause a shift in the demand curve... from point A to point B?
All of the Above An increase in the price of a substitute good. B. An increase in income (normal good). C. A decrease in income (inferior good).
Which of the following is one of the difficulties in making cross-country comparisons in health care outcomes? (7.3)
All of the Above Countries do not always collect health care related data in the same way. Countries may have different lifestyle choices that affect health care outcomes apart from the effectiveness of the countries' health care system. Countries do not deliver health care services in the same way.
Which of the following is a provision of the Affordable Care Act?
All of the Above Each state will have an Affordable Insurance Exchange. Insurance companies are required to participate in a high-risk pool that will insure individuals with pre-existing medical conditions. Every firm with more than 200 employees is required to offer health insurance to its employees.
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?
All of the Above Excessive paperwork, duplication, and waste. Low rates of productivity in the health care sector. The introduction of higher cost drugs and medical equipment. Malpractice lawsuits, including the costs of unnecessary tests and procedures.
In 2019, an article on forbes.com discussed one of the new Reserve Roastery coffeehouses that Starbucks has introduced: A "23,000-square-foot three-story emporium, where specialty coffee, pizza and pastries to be served in-house had all been roasted or baked on site and a cocktail bar on the top floor served coffee-infused alcohol." The article described the new coffeehouses as Starbucks's attempt to meet competition from Blue Bottle Coffee and other upscale coffeehouses. The new Reserve Roastery coffeehouses are larger and more costly to operate than are conventional Starbucks coffeehouses. We've seen that Blue Bottle Coffee and other third wave coffee houses also have higher costs than conventional second wave coffeehouses. Source: Andria Cheng, "How Starbucks Plans to Roast Its Coffeehouse Competition," forbes.com, January 25, 2019. Are the strategies used by Starbucks, Blue Bottle, and other chains likely to give them the ability to earn an economic profit in the long run? If not, why do they bother pursuing these strategies? Which of the following statements is true?
All of the Above Firms hope that they can earn short-run profits by periodically introducing new products or new ways of selling their existing products. B. As long as a firm can stay a step ahead of competitors, it can continue to earn an economic profit, even though those profits would eventually disappear if it were to stop innovating. C. A firm can't earn an economic profit in the long run using strategies that can be easily copied.
increases in a country's income can improve health by
All of the Above Improving sanitary conditions accelerating medical research improving food distribution
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?
All of the Above This change would result in a reduction in employers' spending on health insurance policies for employees. This change would result in a reduction in health insurance premiums. This change would result in an increase in employees' out-of-pocket spending on health care.
In attempting to compare health care outcomes across countries, a problem encountered is
All of the Above a lack of data consistency. distinguishing health care effectiveness from lifestyle choices. getting an accurate measurement of health care delivery. properly assessing consumer preferences.
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
All of the Above accentuates the adverse selection problem for insurers. may impose big losses on insurers. makes insurance premiums excessively high.
Which of the following is one of the major reasons for the improvement in U.S. health in the last two centuries?
All of the Above advances in medical equipment and prescription drugs better sanitation improvements in the distribution of food
Health insurance companies deal with asymmetric information problems by Part 2
All of the Above agreeing to pay only a percentage of any claim conducting their own medical examinations limiting the coverage of pre-existing conditions.
By shifting the costs of Medicare to beneficiaries, the growth of Medicare spending may be restrained since
All of the Above beneficiaries will be more prudent when it comes to choosing which health care services to acquire. consumers will demand fewer health care services than they would if a third party pays most of the bill. health care consumers will become more knowledable about the effectiveness and value of health care services.
Some objections raised by economists to Fogel's analysis of the drivers behind increases in spending on health care cite its
All of the Above lack of attention to short-run financing considerations. de-emphasis of cost factors, particularly those related to technological change. failure to adequately assess the role of distorted price signals for buyers of health care
When economists speak of a shortage, they mean a situation in which
All of the Above the market price is below the equilibrium price. the quantity demanded exceeds quantity supplied. some consumers are unable to make a purchase at
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?
All of the Above are True 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. 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. 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.
Government policymakers use economic principles to make decisions, such as (1.5)
All of the above
Would people in the United States helped by the steel tariffs necessarily support the tariffs? Would people who were hurt by the tariffs necessarily oppose the tariffs? Which of the following statements is true?
All of the above.
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?
All of the above. They anticipate having small or negligible medical bills. They perceive little risk of becoming sick. They anticipate little benefit from purchasing health insurance.
The government can block the entry to a market through
All off the Above granting a patent. granting a copyright. granting a public franchise.
When does allocative efficiency occur?
Allocative efficiency occurs when production is in accordance with consumer preferences.
Which of the following statements about an economic variable is correct?
An economic variable is something measurable that can have different values
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.
Suppose that the table shows the quantity supplied of UGG boots at five different prices in 2020 and in 2021. Part 2 Refer to the table and note the change in the supply of UGG boots from 2020 to 2021. Which of the following could explain the change in supply observed in 2021? (Check all that apply.)
An increase in the expected future price. decrease in worker productivity.
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.
Give two examples of products sold in perfectly competitive markets and two examples of products sold in monopolistically competitive markets. Part 5
Apples and oranges are sold in perfectly competitive markets and Starbucks coffee and Gap clothing are sold in monopolistically competitive markets.
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.
Indicate which of the following statements represent positive analysis and which represent normative analysis.
A 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents positive analysis. Part 3 b. The federal government should spend more on AIDS research. This represents normative analysis. Part 4 c. Rising paper prices will increase textbook prices. This represents positive analysis. Part 5 d. The price of coffee at Starbucks is too high. This represents normative analysis.
Which area represents the deadweight loss resulting from consumers not paying the full price of medical services?
B
"Bandit barriers are a great deterrent. We've talked to guys who rob banks, and as soon as they see a bandit barrier, they go find another bank." Sources: U.S. Department of Justice, Federal Bureau of Investigation, "Bank Crime Statistics 2017"; and Richard Cowen, "FBI: Banks Are to Blame for Rise in Robberies," NorthJersey.com, March 10, 2009. Despite this finding, many banks have been reluctant to install these barriers. Wouldn't banks have a strong incentive to install bandit barriers to deter robberies? Why, then, do so many banks not do so? Part 2
Banks have no economic incentive to install the barriers.
Why are models based on assumptions?
Because models have to be simplified to be useful.
Suppose that your local police department recovers 100 tickets to a big NASCAR race in a drug raid. It decides to distribute these to residents and announces that tickets will be given away at 10 A.M. Monday morning at City Hall. Suppose that your college decides to give away 1,000 tickets to the football game against your school's biggest rival. The athletic department elects to distribute the tickets by giving them away to the first 1,000 students who show up at the department's office at 10 a.m. the following Monday. Part 2 a. The groups of people that are most likely to get the tickets will be those for whom the expected marginal
Benefits
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:
Both A and B Health care should be supplied by the government because it generates positive externalities. Health care should not be supplied by the government because the private market preserves incentives to improve health care with innovation and medical technology.
In a market system, how does society decide what goods and services will be produced?
Consumers, firms, and the government determine what goods and services will be produced by the choices they make.
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.
If teachers put too little weight in the grading scale on a certain part of the course, like readings outside the textbook, students might respond by XXX that part of the course.
De-emphasizing
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.
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.
According to an article on barrons.com, earnings increased for Starbucks in early 2019 partly because of lower costs due to "streamlined operations." Source: David Marino-Nachison, "Starbucks Stock Is Up, but So Are Expectations, Analyst Says," barrons.com, April 8, 2019. Explain the effect of this cost decline on the price of a Starbucks cappuccino, on the quantity of cappuccinos a representative Starbucks coffeehouse sells, and on the profit of this Starbucks coffeehouse. Assume that the demand for Starbucks cappuccinos is unchanged. When Starbucks streamlines its operations, its MC curve shifts downward and its ATC curve shifts downward. The lower cost causes Starbucks to increase the quantity of cappuccinos that it sells and to decrease the price of cappuccinos. Starbucks's profit increases.
Downward Downward lower increase decrease increase
Explain the effect of installing Just Walk Out technology in a convenience store that had previously used a conventional checkout process with cash registers and cashiers. Assume that the technology causes a decline in both the fixed cost and the marginal cost of selling a quart of milk. Assume for simplicity that quarts of milk are the only product the store sells. When a convenience store installs Just Walk Out technology, its MC curve shifts ▼ upwarddownward and its ATC curve shifts ▼ downwardupward. The ▼ lowerhigher cost causes the store to ▼ decreaseincrease the quantity of milk that it sells and to ▼ decreaseincrease the price of milk. The store's profit ▼ decreasesincreases.
Downward downward lower increases decreases increases
Is Jill Johnson correct when she says the following: "I am currently producing 20,000 pizzas per month at a total cost of $30,000. If I produce 20,001 pizzas, my total cost will rise to $30,001. Therefore, my marginal cost of producing pizzas must be increasing."
E. Though Jill's average total cost of production is decreasing, her marginal cost of producing pizzas could be increasing or decreasing.
Consider the following statement: "The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes mistakes." What is the most correct response to this statement?
Economics assumes that consumers and firms are rational, not that they always make the right decisions.
Which of the following statements about economics as a social science is correct?
Economics studies the actions of individuals.
"We find evidence that Economics LOADING... is a good choice of major for those aspiring to become a CEO [chief executive officer]. When adjusting for size of the pool of graduates, those with undergraduate degrees in Economics are shown to have had a greater likelihood of becoming an S&P 500 CEO than any other major." A list of famous economics majors published by Marietta College includes business leaders Warren Buffet, Donald Trump, Ted Turner, and Sam Walton, as well as former presidents George H.W. Bush, Gerald Ford, and Ronald Reagan. Sources: Patricia M. Flynn and Michael A. Quinn, "Economics: A Good Choice of Major for Future CEOs," Social Science Research Network, November 28, 2006; and Famous Economics Majors, Marietta College, Marietta Ohio, May 15, 2012. Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in government? Part 2
Economics teaches us how to look at the tradeoffs involved in every decision.
Which of the following statements is correct? (1.6 A Preview of Important Economic Terms)
Economists use the terms firm, company, and business interchangeably.
When a positive technological change occurs,
Either A or B more output can be produced from the same inputs. the same output can be produced with fewer inputs.
How does the entry of new coffeehouses affect the profits of existing coffeehouses?
Entry will decrease the profits of existing coffeehouses by shifting each of their individual demand curves to the left and making the demand curves more elastic.
The graph depicts the demand (and marginal revenue) for a monopolistically competitive firm's perfume along with the average total cost and marginal cost of producing perfume in the short run. Part 2 As the market for perfume moves toward a long-run equilibrium, firms will ▼ enterexit the industry.
Exit Right Less
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 expanded the economy's productive capacity, the former by increasing the nation's effective workforce.
Expanded Effective workforce
An increase in the price of cappuccino will increase the quantity of cappuccinos demanded.
False
Economists assume that the only reason people take the actions they do is in response to economic incentives
False
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.
Why would the columnist argue that the act was more likely to hurt than help low-income families?
Firms that might otherwise have hired a low-wage worker may now be reluctant to do so because the firms could be liable for paying the tax.
An opinion columnist in the Washington Post argues that the Stop Bad Employers by Zeroing Out Subsidies Act is "virtually guaranteed to hurt the very low-income working families its sponsors want to help." Source: Catherine Rampell, "Tax Bezos. Help Workers. But Not Like This." Washington Post, September 6, 2018. Part 2 a. What was the main provision of this act?
Firms whose employees received assistance from government benefits, including Medicaid and the Supplemental Nutrition Assistance Program (SNAP), would be required to pay a tax equal to cost of the assistance.
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.
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 fixed cost. Part 2 b. Which of the following is an example of this type of cost?
Fixed Rent for a store or Wearhouse
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 The payment she makes to buy pizza dough is a variable cost. Part 4 The wages she pays her workers is a variable cost. Part 5 The lease payment she makes to her landlord who owns the building where her store is located is a fixed cost. Part 6 The $300-per-month payment she makes to her local newspaper for running her weekly advertisements is a fixed cost.
Fixed Variable Variable fixed fixed
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.
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. This XXX an example of positive technological change. A training program makes a firm's workers more productive. Part 5 This XXX an example of positive technological change. An exercise program makes a firm's workers more healthy and productive. Part 7 This is an example of positive technological change. Part 8 d. A firm cuts its workforce and is able to maintain its initial level of output. Part 9 This is an example of positive technological change. Part 10 e. A 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 is not an example of positive technological change.
Is Not IS Is IS IS Not
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 provides a means of spreading the risk of bad outcomes. It is a transfer program.
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? Part 3
Jill is incorrectly ignoring the opportunity cost of using the building she owns.
Is Jill Johnson correct when she says the following: "I am currently producing 10,000 pizzas per month at a total cost of $50,000. If I produce 10,001 pizzas, my total cost will rise to $50,050. 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.
In its advertising, the mattress company Sealy has claimed that "after years of simulated use, we maintained support 4 times better than other leading brands." Source: www.sealy.com. If Sealy succeeds in convincing consumers that its claim is correct, its demand curve would become
Less Elastic
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.
These decisions would restrain the growth of Medicare spending by denying payments for technologies with XXX benefit-to-cost ratios.
Low
Annie Lowery, a business reporter, wrote the book Give People Money: How a Universal Basic Income Would End Poverty, Revolutionize Work, and Remake the World, which advocates that the federal government adopt a universal basic income (UBI) under which every person in the country would receive a monthly check of $500 to $1,000. She argues that "in a society as rich as ours...everyone deserves a guarantee of financial security." Source: Annie Lowery, "Trump Should Just Give People Money," New York Times, July 7, 2018. Is Lowery correct that it is the role of the federal government to guarantee that people have financial security?
Lowery is making a normative judgment regarding the policy. Normative analysis concerns what one person believes ought to be. You can agree or disagree with her opinion depending on your own views of the issue. There is no way to demonstrate that Lowery's opinion is correct.
The reasons for the economies of East Asian countries growing faster than the economies of sub-Saharan African countries. This is a
Macroeconomics
Which of the following areas of economics studies issues such as whether government intervention is capable of reducing the severity of recessions?
Macroeconomics
The level of total investment by firms in new machinery and equipment helps to determine how rapidly the economy grows. This is a XXX issue. However, to understand how much new machinery and equipment firms decide to purchase, one must analyze the incentives individual firms face, which is a issue.
Macroeconomics Microeconomics
Which of the following statements about microeconomics and macroeconomics is correct?
Macroeconomics is the study of the economy as a whole.
Which of the following is not a step that economists use in developing a useful economic model?
Make a value judgement about the merits of the hypothesis.
Which of the following is not among its major provisions?
Makes all health care professionals employees of the federal government.
A primary difference between macroeconomics and microeconomics is (1.4 Micro and Macro)
Microeconomics examines individual markets while macroeconomics examines the economy as a whole.
Which of the following accurately describe changes over time in the health of the average person in the United States (Check all that apply.)
Mortality rates have decreased. Your answer is correct. Life expectancy at birth has increased. Your answer is correct. The likelihood of death in the first months of life has fallen. This is the correct answer. Obesity has increased.
If McDonald's raises the price it charges for Quarter Pounders above the prices charged by other fast-food restaurants, won't it lose all its customers?
No
Is it possible for marginal revenue for a firm operating in a perfectly competitive industry to be negative?
No
Is the amount of time that separates the short run from the long run the same for every firm?
No
Productive efficiency occurs when a good or service (such as the distribution of tickets) is produced at the lowest possible cost. Is this an efficient way to distribute the tickets?
No
Would a firm selling in a monopolistically competitive market ever produce where marginal revenue is negative? Part 3
No because marginal cost cannot be negative.
Is zero economic profit inevitable in the long run for a monopolistically competitive firm?
No, a firm could try to continue making a profit in the long run by reducing production costs and improving its products
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 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 specialization and then decreases due to the law of diminishing returns
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.
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.
According to the textbook, the data on the relationship between health care spending per person and income per person shows that health care
Normal Good
What type of economic analysis is concerned with the way things ought to be?
Normative Analysis
Which of the following statements about normative analysis is correct?
Normative analysis is concerned with what ought to be.
Today, which of the following countries has a centrally planned economy?
North Korea
For 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.
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
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
Only A and C are correct. 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.
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
Which of the following are examples of activities that generate externalities in the market for health care? (Check all that apply.)
People receiving vaccinations against infectious diseases. Individuals engaging in injurious or reckless lifestyle choices.
According to a personal technology column in the Wall Street Journal, as smartphones have increased in size, several firms, including PopSockets, have begun making grips that make it less likely that you will drop your phone: "There are two parts: an adhesive base that sticks to my phone, and the accordion-style top that expands so I can wrap my fingers around it, then pops back down when I?m done." Source: David Pierce, "A $10 Accessory Proves Smartphones Are Too Big," Wall Street Journal, February 17, 2019. a. Are PopSockets and similar products substitutes for or complements to smartphones?
Phone grips and smartphones are complements because people who buy a smartphone may also buy a phone grip to help reduce the likelihood of dropping the phone.
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.
Who might gain and who might lose if Congress ended the USPS's monopoly on deliveries to residential mailboxes and made the USPS a private firm, entirely free from government regulation? In the table below, indicate whether each of the following groups would likely gain or lose if the USPS lost its monopoly on mail deliveries to residential mailboxes. Gain or Lose? Private firms allowed to access residential mailboxes ▼ Lose Impossible to know Gain Individuals who receive services provided under the universal service obligation ▼ Lose Impossible to know Gain Mail customers living in remote or rural areas ▼ Gain Lose Impossible to know The United States Postal Service ▼ Impossible to know Gain Lose Publishers of newspapers and magazines
Private= Gain Individuals= Lose Mail=Lose The US= Impossible to know Publishers=Lose
You observe that when the price of Sketchers lace−up sneakers increases the demand for Diet Coke remains the same.
Sketchers lace−up sneakers and Diet Coke are considered to be unrelated goods.
Years ago, an apple producer argued that the United States should enact a tariff, or a tax, on imports of bananas. His reasoning was that: "the enormous imports of cheap bananas into the United States tend to curtail the domestic consumption of fresh fruits produced in the United States." Source: Quoted in Douglas A. Irwin, Peddling Protectionism: Smoot-Hawley and the Great Depression, Princeton, NJ: Princeton University Press, 2011, p. 22. Part 2 This producer apparently assumed apples and bananas to be
Substitutes
A student remarks: "If firms in a monopolistically competitive industry are earning economic profits, new firms will enter the industry. Eventually, the representative firm will find its demand curve has shifted to the left, until it is just tangent to its average cost curve and it is earning zero profit. Because firms are earning zero profit at that point, some firms will leave the industry, and the representative firm will find its demand curve will shift to the right. In long-run equilibrium, price will be above average total cost by just enough so that each firm is just breaking even." Is the analysis correct or incorrect?
The analysis is incorrect. Firms will not leave the industry when earning zero economic profit. When the firm's demand curve is tangent to its average cost curve it is still earning zero economic profit.
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. Your answer is correct.
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.
Should your graph definitely show the equilibrium price of used cars increasing? Should your graph definitely show the equilibrium quantity of used cars increasing?
The equilibrium quantity will definitely increase, but the change in equilibrium price depends on the relative size of the shifts of demand and supply.
Can we be certain whether the equilibrium price and quantity of medical services will increase?
The equilibrium quantity will increase but the equilibrium price may or may not increase.
If marginal revenue slopes downward, which of the following is true?
The firm must decrease its price to sell a larger quantity.
Which of the following statements about the idea that people are rational is correct?
The idea assumes that consumers and firms use all available information as they act to achieve their goals.
riefly 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.
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
The demand for pears is highest during summer and lowest during winter. Yet pear prices are normally lower in summer than in winter. What must be happening to the supply of pears, from winter to summer, for the equilibrium price to fall?
The supply increases more than the demand increases.
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. This is the correct answer.
A market system prevents people from getting as many goods and services as they want due to which of the following?
Their income
Officials at Washington, DC's Metro subway system have debated ways to reverse a decline in ridership. Currently, the system's costs significantly exceed its revenues, resulting in an operating deficit that has to be covered by contributions from the local governments the system serves. One proposal to increase ridership is to run the same number of subway trains during off-peak hours as the system currently does during peak hours. A member of the system's board of directors raised the possibility that "the marginal cost of running the additional service exceeds the marginal revenue of the new people we're getting." Source: Faiz Siddiqui, "Metro Board Members Back Away from Recommendations to Increase Service," Washington Post, October 11, 2018. Which of the following correctly characterizes this member's statement about the likely results of increasing the number of trains run during off-peak hours?
The Metro's revenue and operating deficit will both increase.
The marginal social benefit from vaccinations is greater than the marginal private benefit to people being vaccinated.
True
Why doesn't competition among supermarkets drive the prices of vegetables they sell down to the prices of the vegetables sold in the Chinatown stands?
Vendors in Chinatown have a cost advantage.
The three economic questions that every society must answer are
What goods will be produced, how will they be produced, and who will receive the goods?
There are many wheat farms in the United States, and there are also more than 14,000 Starbucks coffeehouses. Why, then, does a Starbucks coffeehouse face a downward-sloping demand curve when a wheat farmer faces a horizontal demand curve? Part 2
Wheat is a homogeneous good, while Starbucks is able to differentiate its coffee from other coffeehouses.
Suppose you were building an economic model to forecast the number of people employed in U.S. manufacturing in 2026. Should your model take into account the possibility of changes in economic policy enacted by the president and Congress?
Yes, the model should account for economic policy because it could affect employment in manufacturing.
An article in the Wall Street Journal discussed the sidewalk vegetable stands in New York City's Chinatown. About 80 of these small vegetable stands operate along a handful of streets in that neighborhood. Most supermarkets buy vegetables from large wholesalers. In contrast, the entrepreneurs who run the stands in Chinatown buy from smaller wholesalers located in the neighborhood. These wholesalers, in turn, buy primarily from smaller family farms, some located overseas. Because these wholesalers make several deliveries per day, the owners of the stands do not have to invest in substantial storage space and the refrigerators that supermarkets use to keep vegetables fresh. The reporter compared prices for vegetables sold by these stands with vegetables sold by her supermarket: "In almost every case, Chinatown's prices were less than half what I would pay at the supermarket. Among the bargains: broccoli for 85 cents a pound, $1 each for pomegranates, oranges for a quarter." Source: Anne Kadet, "Why Fruits and Veggies Are So Crazy Cheap in Chinatown," Wall Street Journal, June 26, 2016. Is it likely that the owners of these vegetable stands are earning an economic profit? Briefly explain. The owners of these vegetable stands are likely
Yes, the owners of these vegetable stands are likely earning an economic profit because they remain in business.
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).
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.
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.
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
What is a public franchise? Part 2 A public franchise is Part 3
a firm designated by the government as the only legal provider of a good or service.
What is a monopoly? A monopoly is (15.1)
a firm that is the only seller of a good or service that does not have a close substitute.
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.
Steven Pearlstein, a columnist for the Washington Post, observed: "Arthur Okun's book...Equality and Efficiency: The Big Tradeoff, remains a classic." Source: Steven Pearlstein, "Five Myths About Capitalism," Washington Post, September 28, 2018. Why is there a trade-off between equality and efficiency? Why might an economist write an entire book on the subject? There is a trade-off between equality and efficiency because
a more equal distribution of income reduces incentives to work and invest. An economist can write an entire book on the subject because the trade-off involves complicated normative and positive issues.
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.
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.
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.
"grading infuses everything that happens in the classroom." They also argue that grading "needs to be acknowledged and managed from the first moment that an instructor begins planning a class." Source: Barbara E. Walvoord and Virginia Johnson Anderson, Effective Grading: A Tool for Learning and Assessment in College, 2nd edition, San Francisco: Jossey-Bass, 2010, p. 1. Part 2 The grading system used by a teacher can affect the incentives of students to learn the course material by
altering the payoffs to achieving success on the various components of the course
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.
In the market for health insurance, asymmetric information problems arise because Part 2
buyers of health insurance policies always know more about the state of their health than do the insurance companies.
According to an article in the Wall Street Journal, both the quantity of organic milk sold and the price per half gallon have been falling. Source: Heather Haddon and Benjamin Parkin, "Dairies Are Awash in Organic Milk as Consumers Jump to Alternatives," Wall Street Journal, January 2, 2018. Briefly explain whether the scenario can account for this outcome. The demand for organic milk has been decreasing, while the supply of organic milk has been increasing. This scenario
can account for the price and quantity of organic milk both falling if the decrease in demand is large enough relative to the increase in supply.
According to an article in the Wall Street Journal, between 1998 and 2018, the number of non stop coast-to-coast flights in the United States more than doubled at the same time that the price of a ticket declined. Source: Scott McCartney, "The Rare Case Where Airlines and Passengers Both Win," Wall Street Journal, March 28, 2018. Briefly explain whether the scenario can account for this outcome. The demand for coast-to-coast flights and the supply of flights both increased during this period. This scenario
can account for the quantity of coast-to-coast flights increasing at the same time that the price was decreasing if the increase in supply is large enough relative to the increase in demand.
This scenario
can't account for the quantity of coast-to-coast flights increasing at the same time that the price was decreasing because an increase in demand and a decrease in supply will both push the price higher.
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.
Suppose that the market for athletic shoes is initially in equilibrium at point A. Further suppose the demand for athletic shoes increases rapidly during 2020. At the same time, six more firms begin producing athletic shoes. A student remarks that, because of these events, we can't know for certain whether the price of athletic shoes will rise or fall. Part 2 The student's remarks (that, because of these events, we can't know for certain whether the price of athletic shoes will rise or fall) is
correct. When there is an increase in supply and an increase in demand, the new equilibrium quantity increases but whether the equilibrium price increases or decreases is unknown.
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
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
expensive medical equipment has been invented.
What do economists mean by the word "marginal"?
extra or additional
By "premium supports" Brooks alludes to some form of XXX to beneficiaries as they cope with the burden of higher costs.
financial assistance
Any cost that remains unchanged as output changes represents a firm's
fixed
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.
In the United States, to receive a medical license, a doctor must complete a residency program at a hospital. Hospitals are not free to expand their residency programs in a particular medical specialty without approval from a Residency Review Committee (RRC), which is made up of physicians in that specialty. A hospital that does not abide by the rulings of the RRC runs the risk of losing its accreditation from the Accreditation Council for Graduate Medical Education (ACGME). The ACGME and the RRCs argue that this system makes it possible to ensure that residency programs do not expand to the point where they are not providing residents with high-quality training. Sources: Brian Palmer, "We Need More Doctors, Stat!" Slate, June 27, 2011; Sean Nicholson, "Barriers to Entering Medical Specialties," Wharton School, September 2003. Part 2 This system may help protect consumers by ensuring that
future doctors receive high-quality training.
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.
he main sources of health insurance in the United States include all of the following except
household co-operatives, or co-ops.
As part of his 2016 federal budget proposals, President Obama recommended significant changes to the federal student loan programs. Given your answer to the previous question, do you think President Obama was likely to have recommended changes that would increase, or changes that would decrease, the payments that borrowers would have to make? President Obama was likely to have recommended changes that would
increase the payments that borrowers would have to make so that the government would be paid back sooner.
In 2011, President Barack Obama convinced Congress to pass these changes to the federal student loan programs: (1) Payments were capped at 10 percent of a borrower's discretionary income; (2) any unpaid balances for people working for the government or in the non-profit sector were forgiven after 10 years; and (3) people working in the private sector had their loans forgiven after 20 years. Sources: Allesandra Lanza, "What Obama's 2016 Budget Proposal Means for Student Borrowers," usnews.com, February 11, 2015; and Josh Mitchell, "Student-Debt Forgiveness Plans Skyrocket, Raising Fears Over Costs, Higher Tuition," Wall Street Journal, April 22, 2014. Part 2 As a result of these changes in the federal student loan program, you would predict that the total amount students' borrowed under these programs would have
increased because the terms of repayment have been made more generous.
The figure illustrates market demand for a monopoly along with its average total cost (ATC) curve. Part 2 Is the monopoly a natural monopoly? Part 3 The firm
is a natural monopoly because it can supply the entire market at lower average total cost than can two or more firms.
while equity means that goods are distributed in a way that
is fair
The Affordable Care Act (ACA) (7.4)
is health care legislation passed by Congress and signed into law by President Barack Obama in 2010.
The Food and Drug Administration (FDA) is part of federal government's Department of Health and Human Services. Among its other functions, the FDA evaluates the safety and effectiveness of drugs and medical devices. FDA approval had to be granted before OraSure was allowed to market its home HIV test. In a centrally planned economy, the government decides how resources will be allocated. In a market economy, the decisions of households and firms interacting in markets allocate resources. Part 2 The regulation of the production and sale of drugs and medical devices in the United States is an example of how resources are allocated in a
market economy because the drug development, and the resources allocated to the development, occurs in the market.
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
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,
reduce human suffering.
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.
obel 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 XXX be of concern to policymakers.
should not
In the case of health insurance, a lemons problem exists since those more likely to want health insurance are XXX people.
sick
Refer to the table below. Which of the following costs are implicit costs?
the forgone salary and interest
A 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 surplus. When a market experiences a glut, the quantity supplied is greater than the quantity demanded at the current price. Part 3 b. 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 decline in the equilibrium price of office space in this market. This lower rental price of office space will result in greater opportunities for office tenants. Part 4 c. Briefly explain whether the glut in this market is likely to eventually disappear.
surplus greater than decline lower greater
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
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
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. The 'glamping' trend that has seen a much younger generation embrace the RV lifestyle As a result of the change in the factor above,
the demand curve for RVs shifted to the right.
Macroeconomics is the study of
the economy as a whole, including topics such as inflation, unemployment, and economic growth.
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 Concept? 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.
Which of the following rights is given to the holder of a patent?
the exclusive right to a new product for a limited period
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.
If the marginal product of labor is falling, is the marginal cost of production rising or falling? Briefly explain. Part 2 If the additional output from each new worker is falling, Part 3
the marginal cost of that output is rising because the only additional cost to producing more output is the additional wages paid to hire more workers.
The late Thomas McCraw of the Harvard Business School once wrote that "when their innovations dwindle, firms begin to die." Source: Thomas K. McCraw, Prophet of Innovation: Joseph Schumpeter and Creative Destruction, Cambridge, MA: Harvard University Press, 2007, p. 181. a. What is an innovation?
the practical application of an invention
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.
The law of demand is the assertion that
the quantity demanded of a product is inversely related to its price.
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.
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.
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.
William Germano previously served as the vice president and publishing director at the Routledge publishing company. He once gave the following description of how a publisher might deal with an unexpected increase in the cost of publishing a book: "It's often asked why the publisher can't simply raise the price [if costs increase]... It's likely that the editor [is already]... charging as much as the market will bear. ... In other words, you might be willing to pay $50.00 for a ... book on the Brooklyn Bridge, but if... production costs [increase] by 25 percent, you might think $62.50 is too much to pay, though that would be what the publisher needs to charge. And indeed the publisher may determine that $50.00 is this book's ceiling—the most you would pay before deciding to rent a movie instead." Source: William Germano, Getting It Published: A Guide to Scholars and Anyone Else Serious about Serious Books, Chicago: University of Chicago Press, 2001, pp. 110-111. Part 2 According to the graph on the right and what you have learned in this chapter, a monopolistically competitive firm responds to an increase in cost by adjusting the price
upward Demand is perfectly elastic. less than maximum profit. This is the correct answer. lower
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 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 equals Use your answer above to determine Jill's marginal cost of producing pizzas if the wage is $750 per week and the marginal product of labor is 150. The marginal cost of production is If the wage falls to $650 per week and the marginal product of labor is unchanged, then Jill's marginal cost
wXDL w/DQ/DL $5 decreases 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.
Suppose that last semester your semester GPA was 1.80 and your resulting cumulative GPA was 2.55. Part 2 Next, suppose that this semester your semester GPA will be 2.00. Part 3 If so, then your cumulative GPA
will decrease because your "marginal" GPA will be below your cumulative GPA.
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.
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.
What is the difference between zero accounting profit and zero economic profit?
zero economic profit includes a firm's implicit costs but zero accounting profit does not. Zero economic profit includes a firm's opportunity costs but zero accounting profit does not.
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.
Assuming that these statistics are available or could be gathered, are they likely to resolve the normative issues in this debate?
No, because normative issues involve value judgments that incorporate an individual's full range of experiences, beliefs, and emotions.
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
Can we use this information to be certain whether the equilibrium quantity of coconut oil increased or decreased?
No, the change in the equilibrium quantity depends on the relative shifts of demand and supply. If demand shifts more than supply, the equilibrium quantity decreases.
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.
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.
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.
According to a news article, "The health benefits of coconut oil have been challenged by the American Heart Association and other organizations in recent years and that has hurt demand." The article also noted that more plantations growing coconuts had "sprung up in the [Philippines] and elsewhere." Source: Lucy Craymer, "Trouble in Paradise: Coconut Oil Prices Are Slipping and Sliding," Wall Street Journal, January 6, 2019. a. Can we use this information to be certain whether the equilibrium price of coconut oil increased or decreased?
Yes, the equilibrium price unambiguously decreased.
College football attendance, especially student attendance, has been on the decline. In 2017, home attendance at major college football games declined for the seventh consecutive year and was the lowest since 2000. The opportunity cost of engaging in an activity is the value of the best alternative that must be given up in order to engage in that activity. Source: Dennis Dodd, "College Football Heads in Wrong Direction with Largest Attendance Drop in 34 Years," cbssports.com, February 13, 2018. Your opportunity cost of attending a game compared with the opportunity cost facing a college student 17 years ago is
higher, because more games are televised today.
15.2Where Do Monopolies Come From? Question 6, End of Chapter 2.6 3 correct Points: 0 of 1 Close Question content area Part 1 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
