Microeconomics 105 Cypress College Chapter 2, Chapter 6, Chapter 8, Chapter 12

The more substitutes available for a​ product, the greater the price elasticity of demand.

True

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

the wage rate.

Edward Scahill produces table lamps in the perfectly competitive desk lamp market. The equilibrium price of lamps is ​$50. Part 2 a. Fill in the blanks in the table for total revenue and marginal​ revenue, as represented by ​(i and ii​). ​(Enter your responses as​ integers.) ​(i​) Total revenue is

$150 $50 7 No because price is greater than minimum AVC.

When quantity demanded is completely unresponsive to​ price, what is the value of price elasticity of​ demand?

0

Refer to the graph. What is the opportunity cost of moving from point B to point​ C?

20 Sedans

Farmer Parker will maximize profits by producing 66 bushels of wheat ​(enter a whole​ number). Part 3 Suppose that the marginal cost of wheat increases by​ $0.50 for every bushel of wheat produced. For​ example, the marginal cost of producing the eighth bushel of wheat is now ​$6.50. Will this increase in marginal cost change the​ profit-maximizing level of production for Farmer​ Parker? No. Part 4 How much profit will Farmer Parker make​ now? ​$6.00 ​(round your answer to the nearest​ penny).

6 bushels No $6

After Tea​ Forté cut the price of its tea​ samplers, Amazon included the product as one of its Cyber Monday​ deals, featuring it in​ e-mail advertisements. Does this additional information affect your answer to part​ (a)?

A. Yes. With this additional​ information, we know that the price elasticity of demand must be smaller in absolute value​ (that is, closer to​ zero) than the value calculated in part​ (a).

According to an article on​ cnbc.com, in October​ 2018, S&P cut its rating on General​ Electric's bonds from A to​ BBB+. ​Source: Fred​ Imbert, "S&P Downgrades General​ Electric's Credit Rating a Day after CEO Is​ Fired," cnbc.com, October​ 2, 2018. Part 2 What is​ S&P's top bond​ rating?

AAA

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

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

Suppose that you are the economic adviser to a presidential candidate who is trying to decide whether she should support a proposal that Congress impose such regulations on the prices of pharmaceuticals and medical devices. You need to prepare a report discussing the relevant factors the candidate should consider. Use the concepts of opportunity cost and​ trade-offs to discuss some of the main issues you would include in your report. The presidential candidate should consider

All of the Above

Which of the following stock indexes experienced a sharp decline in late​ 2007, reflecting the severity of the recession which began late that​ year?

All of the Above

Why are independent courts important for a​ well-functioning economy? Independence is necessary for​ courts:

All of the Above to make their decisions free of influence from other parts of the government. to make their decisions free of influence from people with powerful political connections. to make their decisions free of intimidation by criminal gangs. to make their decisions based on the law.

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

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

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

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

According to an article in the Wall Street Journal​, ​"In the four weeks through Sept.​ 1, the total number of orange juice gallons sold fell by​ 5.1% from the same period last​ year, as prices increased by​ 2.6%." ​Source: Julie​ Wernau, "More Bad News for the Orange Juice​ Market," Wall Street Journal​, October​ 15, 2018. a. Assuming that the demand for orange juice​ didn't shift during this​ period, the price elasticity of demand for orange juice is enter your response here. ​(Enter your response as a negative number rounded to two decimal​ places.)

Assuming that the demand for orange juice​ didn't shift during this​ period, the price elasticity of demand for orange juice is negative −1.96. ​(Enter your response as a negative number rounded to two decimal​ places.)

Which of the following best explains why firms​ don't maximize revenue rather than profit?

At the point where revenue is​ maximized, the difference between total revenue and total cost may not be maximized.

What is the relationship between a perfectly competitive​ firm's marginal cost curve and its supply​ curve?

A​ firm's marginal cost curve is equal to its supply curve for prices above average variable cost.

Suppose that a firm in which you have invested is losing a lot of money. Would you rather own the​ firm's stock or the​ firm's bonds? Part 2

Bonds

Which of the following is true of the management structure of corporations in the United​ States?

Both A and B . Members of management who are inside directors serve on the board of directors. Large corporations are legally owned by shareholders who do usually not directly manage the firm

The cost of XXX a book is a price you pay to buy the​ book, but the cost of XXX a book would include the time spent reading the book.

Buying Consuming

Which of the following statements is​ true?

By protecting private property​ rights, governments make it more likely that investments will be made in businesses that provide jobs and income for workers.

A columnist for Forbes argues​ that: "Even if China is always better than Spain at producing​ textiles, if the best thing that Spain could be doing is textiles then​ that's what Spain should be​ doing." ​Source: Tim​ Worstall, "Inditex's Zara and the Power of Comparative​ Advantage," forbes.com, July​ 7, 2015. What does the columnist mean by writing that China​ "is always better than​ Spain" in producing textiles​ (which include​ clothing, sheets, and similar​ products)?

China can produce textiles at a lower cost in terms of resources than Spain can.

What is the basis for​ trade?

Comparative advantage.

The graph shows a demand curve for subway passes assuming the​ MTA's strategy succeeds and a second demand curve assuming that the strategy fails. In the​ figure, the price elasticity of demand for demand curve Upper D 1D1 is relatively more inelastic.

D1

What challenges did Lyft face in becoming​ profitable? ​(Check all that apply​.)

Dealing with increased government regulatory requirements. Your answer is correct. Convincing investors of the continued growth opportunities for​ ride-hailing apps Keeping its prices competitive relative to the prices of its rivals.

What do economists mean by​ scarcity? (2.1)

Economists mean that unlimited wants exceed limited resources.

According to an article on​ espn.com, when the Atlanta Falcons football team moved into a new​ stadium, the team changed its strategy of pricing​ concessions: "The Falcons lowered prices on food and beverage by 50 percent and fans spent 16 percent​ more." ​Source: Jamison​ Hensley, "Ravens Try to Win Back Fans with Lower Concession​ Prices," espn.com, May​ 15, 2018. Holding everything else constant and given the 16 percent increase in revenue as a result of the 50 percent decrease in​ prices, the demand for food and beverage in the new stadium is price

Elastic

What is an​ entrepreneur?

Entrepreneurs operate businesses that produce goods and services.

In the​ 1950s, the economist Bela Balassa compared 28 manufacturing industries in the United States and Britain. In every one of the 28​ industries, Balassa found that the United States had an absolute advantage In these​ circumstances, would there have been any gain to the United States from importing any of these products from​ Britain? Explain.

Even with an absolute​ advantage, the United States would have benefited from importing those products for which Britain had a comparative advantage.

What impact would each of the following events be likely to have on the price of​ Google's stock? Part 2 A competitor launches a search engine that is just as good as​ Google's. The price of​ Google's stock would be expected to XXX The corporate income tax is abolished. The price of​ Google's stock would be expected to rise. Part 4 ​Google's board of directors becomes dominated by close friends and relatives of its top management. The price of​ Google's stock would be expected to fall. Part 5 The price of wireless Internet connections unexpectedly​ drops, so more and more people use the Internet. The price of​ Google's stock would be expected to rise. Part 6 Google announces a huge profit of​ $1 billion, but everybody anticipated that Google would earn a huge profit of​ $1 billion. The price of​ Google's stock would be expected to stay the same.

Fall Rise Fall Rise Stay the Same

If you and your neighbor both grow oranges and grapefruits and you are better than your neighbor at picking both oranges and​ grapefruits, there can be no advantage to you in specializing in growing only one type of fruit and trading with your neighbor for the other.

False

The demand curve for a luxury is less elastic than the demand curve for a necessity.

False

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

False

The more time that​ passes, the more inelastic the demand for a product becomes.

False

When demand curves​ intersect, the curve with the larger slope in absolute value​ (the steeper demand​ curve) is more elastic.

False

A free market is a market with​ ________ government restrictions on how a good or service can be produced or sold and with​ ________ government restrictions on how a factor of production can be employed.

Few/Few

Writing in the New York Times​, Michael Lewis argued that ​"...a market economy is premised on a system of incentives designed to encourage an ignoble human​ trait: self-interest." ​Source: Michael​ Lewis, "In Defense of the​ Boom." New York​ Times, October​ 27, 2002. Part 2 What incentives does a market system provide to encourage​ self-interest?

Financial Reward

What are the two main categories of participants in​ markets?

Firms and households

Who has the comparative advantage in producing wine and who has the comparative advantage in producing​ cheese?

France has a comparative advantage producing wine and Germany has a comparative advantage producing cheese.

The likely result of this​ rating's cut will be

GE will have to pay a higher interest rate when it sells bonds.

Are there any​ disadvantages?

General incorporation laws reduce the​ owners' responsibility for the​ firm's debts.

Is Amazon likely to have the same effect on revenue from increasing the prices of groceries that it has from increasing the price of its Amazon Prime​ service? Does it matter for your answer that many consumers view Whole Foods as an upscale grocery store that carries some products that supermarkets like​ Kroger, Albertson's, or Publix do not​ carry?

If consumers do not see other grocery stores as being good substitutes for Whole​ Foods, it is possible that the demand for groceries purchased at those stores is price inelastic and raising prices may increase total revenue.

Is the following statement correct or​ incorrect? ​"According to the model of perfectly competitive markets​, the demand for wheat should be a horizontal line. But this​ can't be​ true: When the price of wheat​ rises, the quantity of wheat demanded​ falls, and when the price of wheat​ falls, the quantity of wheat demanded rises.​ Therefore, the demand for wheat is not a horizontal​ line."

Incorrect. The commentator is confusing the market demand for wheat with the demand line facing the representative firm.

As you move up a linear demand​ curve, the price elasticity of demand in absolute value

Increases

What does increasing marginal opportunity costs?

Increasing the production of a good requires larger and larger decreases in the production of another good

It is not possible to determine with certainty what the return will be on money invested in the stock market. Part 3 b. Would it be a good idea to invest in the stock market money that you will need in two years as a down payment on a​ car? Briefly explain.

Is not No, because the value of stocks can fluctuate substantially over short periods of time.

An article on cnbc.com quoted a financial advisor discussing Lyft as an investment as​ saying: "We've seen throughout history that great​ services, great products​ don't necessarily make great​ businesses." ​Source: Lorie​ Konish, "Here's What You Need to Know Before You Invest in​ Lyft's IPO,"​ cnbc.com, March​ 4, 2019. Part 2 a. In what sense might Lyft be considered a great service or a great​ product? ​(Check all that apply​.)

Lyft might be considered a great service or a great product if it can continue to expand its market further. Lyft might be considered a great service or a great product if expectations of future profitability are high.

Frank Gunter owns an apple orchard. He employs 42 apple pickers and pays them ​$9 per hour to pick​ apples, which he sells for ​$4.50 per box. If Frank is maximizing​ profits, what is the marginal revenue product of the last worker he​ hired? What is that​ worker's marginal product​? marginal revenue product of the last worker=​$enter your response here per hour. ​(Enter your response as an​ integer.)

Marginal Revenue Product=7 per hour Marginal Product 7/1.75=4

Suppose that shortly after graduating from college you decide to start your own business. Assuming you are starting a small business and realize that you need someone with particular expertise or business skills​, which category of firm are you most likely to​ start? Part 2 A.

Partnership

In​ 2019, an article in the Wall Street Journal noted that the​ Nestlé company was facing​ "fierce competition" in the markets for its​ Nescafé coffee and KitKat chocolate bars. ​Source: Saabira​ Chaudhuri, "Nestlé's Revival Plan Starts to Pay​ Off," Wall Street Journal​, February​ 14, 2019. Does this​ "fierce competition" mean that the demand curves for​ Nescafé coffee and KitKat chocolate bars are​ horizontal?

No.​ "Fierce competition" does not imply a horizontal demand curve because horizontal demand curves are found only in perfectly competitive markets.

Under what circumstances would​ S&P, or the other bond rating​ agencies, be likely to cut the rating on a​ firm's bonds?

None of the above.

What do we mean by the separation of ownership from control in large​ corporations?

Shareholders own the​ corporation, but it is controlled by managers.

A columnist in the New York Times observed that​ "the entire point of investing in stocks is that you get greater​ long-term expected returns in exchange for tolerating bigger ups and​ downs." ​Source: Neil​ Irwin, "What Should You Do about a Falling Stock​ Market? Nothing," New York Times​, January​ 3, 2019. Part 2 a. Why did the columnist refer to​ long-term expected​ returns?

Stock prices are difficult to predict and returns are based on predictions about expected future profitability.

What does the columnist mean by​ "a clear road to​ profitability"?

The ability of a business that is presently losing money to eventually earn a profit.

A decrease in the price of a​ firm's bonds would tell managers which of the​ following?

The cost of external funds has increased.

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

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

Why do entrepreneurs play a key role in a market​ system?

They bring together factors of production.

What is the​ circular-flow diagram and what does it​ illustrate? (2.3)

The​ circular-flow diagram shows how households and firms are linked through product and factor markets.

Why​ isn't elasticity just measured by the slope of the demand​ curve?

The slope can change dramatically, depending on the units chosen for quantity and price.

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

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

State whether the following statement is true or​ false: ​"The total value of the shares of Microsoft stock traded on the NASDAQ last week was​ $895 billion, so the firm actually received much more revenue from stock sales than from selling​ software."

The statement is false because Microsoft does not receive the money investors paid for the stock.

The price elasticity of demand for a particular brand of raisin bran​ is, in absolute​ value,

larger than the price elasticity of demand for all breakfast cereals.

Of the three ways to enter the park—in a​ private, noncommercial​ vehicle; on a​ motorcycle; and by​ foot, bike, or ski—which way would you expect to have the largest price elasticity of​ demand, and which would you expect to have the smallest price elasticity of​ demand?

The​ private, noncommercial vehicle has the largest price elasticity of demand and visitors 16 and older entering by​ foot, bike,​ ski, etc. have the smallest price elasticity of demand.

In a typical​ year, only ​XXX of mutual fund managers were able to earn their investors a higher return than a small investor could earn by investing in an index mutual fund that buys only the stocks in the​ S&P 500.

Third

During the 1928 presidential election​ campaign, Herbert​ Hoover, the Republican​ candidate, argued that the United States should only import those products that could not be produced here. Do you believe that this would be a good​ policy? Explain.

This is not a good policy because it does not necessarily result in countries producing those goods for which they have a comparative advantage.

Firms often rely on market experiments to calculate the price elasticity of demand for a new product.

True

Which of the following are perfectly competitive ​markets? Part 2

Tomato Yes, Many, Identical, High Retail bookselling No, Many, Differentiated, High Manufacturing computers, No, Few, Differentiated, Low Office Building construction, No, Few, Differentiated, Low

Direct finance is borrowing XXX while indirect finance is borrowing XXX (8.2)

Via financial markets from financial intermediares

Why do single firms in perfectly competitive markets face horizontal demand​ curves?

With many firms selling an identical​ product, single firms have no effect on market price.

Consider a firm in each of the following three​ situations, and explain whether the firm will produce in the short run or shut down in the short run.

produce​ 1,000 units of output and break even with a price of​ $10.00.

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

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

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

a change in the wage

If demand is perfectly​ elastic, then what is the effect of an increase in​ price?

a decrease in quantity demanded to zero

What is a price​ taker? A price taker is

a firm that is unable to affect the market price.

If the price of a​ firm's bonds​ decreases, this indicates

a higher cost of new external funds.

A bond represents XXX, while a share of stock represents XXX.

a loan to the company part ownership of the company

A buyer or seller that is unable to affect the market price is called

a price taker.

In situation​ 2, the firm should

produce​ 1,000 units of output at a loss since the price is less than the average total cost.

Of all firms in the United​ States,

about 20 percent are corporations that account for the majority of all​ firms' profits.

What is the role of an​ entrepreneur?

all of the above to bring together the factors of production—​labor, ​capital, and natural resources to take risks to operate a business that produces a good or service

If a market system functions​ well, which of the following is necessary for the enforcement of contracts and property​ rights?

an independent court system powerful political connections action by government to prevent the exercise of certain property rights All of the above.

Which determinant is the most​ important?

availability of close substitutes

What are the key determinants of the price elasticity of demand for a​ product? Part 2 The key determinants of the price elasticity of demand for a product​ are:

availability of close​ substitutes, passage of​ time, necessities versus​ luxuries, definition of the​ market, and share of the good in the​ consumer's budget.

What is the difference between a​ firm's shutdown point in the short run and its exit point in the long​ run? In the short​ run, a​ firm's shutdown point is the minimum point on the (12.4)

average variable cost​ curve, while in the long​ run, a​ firm's exit point is the minimum point on the average total cost curve.

What term do economists use to refer to the conflict between the interests of shareholders and the interests of top​ management?

a​ principal-agent problem

What role do they play in the working of a market​ system? Private property​ rights:

both a and b. encourage a significant number of people to be willing to risk funds by investing them in business. encourage firms to spend money on research and development.

What is personnel​ economics? Part 2 Personnel economics is (16.5)

both a and b. the application of economic analysis to human resource issues such as the link between differences among jobs and differences in the way workers are paid. the application of economic analysis to human resource issues such as pensions.

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

both the salespeople and the company

What are the implications of this idea for the shape of the production possibilities​ frontier?

bowed outward

The best explanation for this result is that

bus trips are a necessity for those without cars.

How is the price elasticity of demand​ measured?

by dividing the percentage change in the quantity demanded of a product by the percentage change in the​ product's price

How is the market supply curve derived from the supply curves of individual​ firms? The market supply curve is derived

by horizontally adding the individual​ firms' supply curves.

The substitution effect of a wage increase

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

In what ways does a free market economy differ from a centrally planned​ economy? Unlike a free market​ economy,

centrally planned economies have extensive government controls.

The figure compares the compensation that a shoe salesperson receives if she is on a straight salary of ​$70 per day or if she receives a commission of​ $5 for each pair of shoes sold. Part 2 Which compensation structure is preferred by the​ salesperson? Part 3 Suppose the salesperson sells more than 14 pairs of shoes per day and only cares about compensation. Suppose the shoe store​ owner's goal is to sell as many pairs of shoes as possible. Part 6 For the store​ owner, the commission is the preferred form of compensation.

commision commision

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

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

Determine whether the demand for the following product is likely to be elastic. or inelastic Part 2 Demand for frozen cheese pizza is likely to be

elastic

Determine whether the demand for the following product is likely to be elasticLOADING... or inelasticLOADING.... Part 2 Demand for cola is likely to be

elastic

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25​ percent, demand for Red Bull is​ _______ in this range.

elastic

In​ 2019, an opinion columnist in the Wall Street Journal​ observed, "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​ 10, 2019. The entry of these competitors into the coffee house market made the demand for Starbucks coffee more price

elastic

Explain why it is true that for a firm in a perfectly competitive market that P​ = MR​ = AR. In a perfectly competitive​ market, P​ = MR​ = AR because (12.2)

firms can sell as much output as they want at the market price.

The production possibilities frontier will shift outward

if technological advances occur

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

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

What is the outcome of enforcing contracts and property rights in a market​ system?

increased economic activity

If you borrow money from a bank to buy a new​ car, you are using XXX finance

indirect

The increase in total revenue that results from selling one more unit of output is

marginal revenue

In​ 2018, a judge allowed a lawsuit alleging that Kona Brewing​ Company, which sells Kona​ beer, had misleadingly marketed Kona as if it were brewed in​ Hawaii, when it is actually brewed in​ Oregon, Washington,​ Tennessee, and New Hampshire. ​Source: Ross​ Todd, "Trouble​ Brewing: 'Kona'​ Beer-Maker Faces Certified Class of Consumers over Mainland​ Brewing," law.com, October​ 9, 2018. If the market for beer were perfectly​ competitive, the location of breweries would

not matter to consumers since the product would be homogeneous.

An increase in a​ firm's stock price most likely indicates which of the​ following?

optimism about the​ firm's profit prospects

An article discussing the reasons that the Connecticut state legislature passed a general incorporation law in 1873 observes that prior to the passage of the​ law, investors were afraid that large businesses​ "were not a safe bet for their​ money." ​Source: Anne​ Rajotte, "Connecticut's General Incorporation Law Was the First of Its​ Kind," ctstatelibrary.org, June​ 10, 2014. The author argues that​ investors' fear was because prior to the the passage of the​ law,

owners of all businesses established in Connecticut had unlimited liability.

The shares of stock issued as a result of​ Lyft's Initial Public Offering​ (IPO) were sold in a XXX market

primary

Absolute advantage is the ability of an​ individual, a​ firm, or a country to

produce more of a good or service than competitors using the same amount of resources.

Sales​ personnel, whether selling​ life-insurance, automobiles, or​ pharmaceuticals, typically get paid on commission instead of a straight hourly wage. The​ principal-agent problem between the owner of the business and its sales force is Part 2

reduced when workers are paid on commission because it gives them an incentive to work harder.

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

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

Limited liability means that

shareholders in a corporation cannot lose more than their investment in the firm.

This idea is an important intellectual contribution because

the interaction of firms and consumers in markets produces outcomes that are economically efficient and that promote the economic growth that results in rising living standards.

In this​ case,

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

Explain why it is true that for a firm in a perfectly competitive​ market, the​ profit-maximizing condition MR​ = MC is equivalent to the condition P​ = MC. Part 2 When maximizing​ profits, MR​ = MC is equivalent to P​ = MC because

the marginal revenue curve for a perfectly competitive firm is the same as its demand curve.

What is the formula for the price elasticity of​ demand? (Chapter 6.1)

the percentage change in quantity demanded divided by the percentage change in price.

According to an article in the Wall Street Journal in September​ 2018, "Apple's iPhone unit sales for the​ nine-month period ended in June were largely flat with the same period the year before at a bit less than 170 million​ devices, yet iPhone revenue jumped​ 15% in that​ time, to​ $129.5 billion." ​Source: Dan​ Gallagher, "Apple's New iPhones Will Need to​ Collect," Wall Street Journal​, September​ 10, 2018. a. How is it possible for Apple to have increased the revenue it earned from iPhone sales if the quantity of iPhones it sold​ didn't increase? If​ Apple's total revenue from iPhone sales increased when the quantity​ didn't increase,

the price of the iPhone must have increased.

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

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

The government grants limited liability to the owners of corporations

to limit shareholder risk and thus encourage investment in corporations.

You​ shouldn't necessarily do what you are better than anyone else at doing

unless your advantage in that activity is greater than advantages you possess in other activities.

Consider the market for Post raisin bran cereal. The demand for this product would become more elastic if it

were a larger share in the consumer's budget

Consider the market for Amazon DVDs. The demand for this product would become more elastic if it

were more of a luxury

The article also​ states, "As the biggest​ player, P&G tends to drive industrywide pricing​ moves." What does the article mean by​ "industrywide pricing​ moves"? Would competitors raising their prices make the demand for Pampers more elastic or less​ elastic?

​"Industrywide pricing​ moves" are price changes that are made by most firms in an industry at about the same time.​ Competitors' raising their prices will make the demand for Pampers and Bounty less elastic than if the competitors​ don't raise their prices.

Suppose that the​ MTA's strategy​ doesn't succeed. What then must be true about the price elasticity of demand for subway​ passes? Is demand price elastic or price​ inelastic?

​Elastic, because a price increase lowers revenue.

In​ 2019, the Metropolitan Transportation Authority​ (MTA) in New York City raised the price of a monthly subway pass from​ $121 to​ $127. According to an article in the New York Times​: ​"Transit leaders say they need billions of dollars to tackle huge budget deficits and to pay for critical​ repairs." ​Source: Emma G.​ Fitzsimmons, "Subway Fares Are Rising Again. But That​ Won't Solve the​ M.T.A.'s Crisis," New York Times​, February​ 27, 2019. In order for the​ MTA's strategy for covering its rising costs to be​ successful, what must be true about the price elasticity of demand for subway​ passes? Is demand price elastic or price​ inelastic?

​Inelastic, because a price increase raises revenue.

An article in the Wall Street Journal used the headline​ "Procter &​ Gamble, in a Strategy​ Shift, Moves to Raise​ Prices" and the​ sub-headline "Company would seek to push through large price increases on Pampers diapers and Bounty paper​ towels." ​Source: Sharon​ Terlep, "Procter​ & Gamble, in a Strategy​ Shift, Moves to Raise​ Prices," Wall Street Journal​, July​ 31, 2018. a. The article notes that Pampers and Bounty are two of Procter​ & Gamble's​ (P&G's) most popular brands. Is that fact relevant to​ P&G's decision to raise​ prices?

​P&G apparently believes that the demand curves for these goods are price inelastic because raising the prices of goods that have price inelastic demand will increase the​ firm's total revenue.

With respect to​ consumption, individuals and countries

​can, through​ trade, consume beyond their production possibilities frontiers.

We can show economic​ inefficiency:

with points inside the production possibilities frontier.

We can show economic​ efficiency:

with points on the production possibilities frontier.

What is a free​ market?

A free market is one where the government does not control the production of goods and services.

The U.S. Energy Information Administration estimates that the price elasticity of demand for gasoline in the United States is −0.02 in the short run. ​Source: Michael​ Morris, "Gasoline Prices Tend to Have Little Effect on Demand for Car​ Travel," eia.gov, revised December​ 17, 2014. a. If the estimate is​ accurate, a 5050​% increase in the price of gasoline would be required to reduce the quantity of gasoline demanded by 1 percent. ​(Enter your response as a whole​ number.)

-1%/-0.02=50%

Tea​ Forté, Inc. sells tea and tea mugs on​ Amazon.com's site. In December​ 2017, when Tea​ Forté cut the price of its​ loose-leaf tea samplers by 35​ percent, it sold 6.5 times as many samplers as before the price cut. ​Source: Laura​ Stevens, "Merchants Ride​ Amazon's Deals," Wall Street Journal​, December​ 11, 2017. a. Based just on this​ information, the price elasticity of demand for Tea​ Forté's tea samplers is negative 15.7−15.7. ​(Enter your response as a negative number rounded to one decimal​ place.)

-15.7

Suppose that France is currently producing 1 bottle of wine and 12 pounds of cheese and Germany is currently producing 3 bottles of wine and 10 pounds of cheese. ​ Then, assume instead that France and Germany specialize by producing only the good for which they have a comparative advantage and then trade 3 bottles of wine for 14 pounds of cheese.

2/

Suppose the price of wheat rises to ​$5.00 per bushel. Farmer Parker will maximize profits by producing 7 bushels of wheat ​(enter a whole​ number). Part 3 He will make a profit of ​$15.5015.50 ​(round your answer to the nearest​ penny).

7 bushels $15.50

Is the columnist arguing that Spain has an absolute advantage over China in producing​ textiles, a comparative​ advantage, or​ both?

A comparative advantage in producing textiles.

Absolute Advantages

A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.

How can a country gain from specialization and​ trade?

A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.

Comparative Advantages

A country can specialize in producing that for which it has a comparative advantage lower opportunity cost

A column on barrons.com as Lyft was preparing to launch its IPO contained the following​ advice: "The Lyft IPO is sure to create excitement as other tech unicorns prepare to follow it to market. Investors should stand back on the curb until there is a clear road to​ profitability." ​Source: Andrew​ Bary, "Investors Should Steer Clear When Lyft Goes​ Public," barrons.com​, March​ 22, 2019. Part 2 a. What is a​ "tech unicorn"?

A new firm or startup in the tech industry that has a value of more than​ $1 billion.

Imagine that the next time the Green Bay Packers play the Chicago Bears at Lambeau Field in Green​ Bay, Wisconsin, Packers star quarterback Aaron Rodgers has a temporary lack of judgment and plans to sell Packers memorabilia during the game because he realizes that he can sell five times more Packers products than anyone in the stadium sports gear store.​ Likewise, imagine that you are a creative and effective manager at work and that you tell your employees that during the next six​ months, you plan to clean the offices because you can clean five times better than the cleaning staff. Both you and Aaron are making an error in judgment by assuming that specialization should be based upon

Absolute Advantage

What problems might African farmers have because they lack secure property​ rights?

All of the Above Without secure property​ rights, farmers in Africa may be reluctant to make the investments in their farms that would raise the​ farms' productivity. Without secure property​ rights, it is harder for farmers to borrow because they cannot use their land as collateral. Without secure property​ rights, farmers are not able to obtain funds by selling some of their land.

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

All of the Above a change in population a change in alternatives available in other labor markets a change in demographics

Which of the following events would create economic​ growth, that​ is, shift the production possibilities frontier​ outward?

All of the above

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

All of the above explain how​ piece-rate systems can accommodate a variety of worker preferences.

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

All of the above. concerns about quality difficulty in measuring output worker dislike of risk

Which of the following statements is true when the difference between TR and TC is at its maximum positive​ value? Part 2

Both A and B are true. MR​ = MC Slope of TR​ = Slope of TC

How else can you calculate the price elasticity of​ demand?

Both a and b. The midpoint formula will give the same value as the price elasticity of demand when using the higher price and the higher quantity. B. The midpoint formula will give the same value whether moving from the higher price to the lower price or from the lower price to the higher price.

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

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

In a simple​ circular-flow model, there are flows of​ _________ and flows of​ _________.

Both​ (a) and​ (b) are correct. funds received from the sale of factors of​ production; spending on final goods and services factors of​ production; goods and services

An editorial in the New York Times discussed whether the federal government should enact regulations that would force firms to accept lower prices when selling pharmaceuticals and medical devices. The editorial notes that European countries that have such regulations​ "accept a​ trade-off, inherent in this​ approach, that the United States has so far​ resisted: They forgo access to certain​ innovations, like pricey new drugs and medical​ devices..." ​Source: Editorial​ Board, "How Much Will Americans Sacrifice for Good Health​ Care?" New York Times​, February​ 16, 2019. a. Why might price regulations reduce the number of new drugs and medical devices that firms offer for​ sale?

By reducing​ firms' potential profits from selling new drugs and medical​ devices, price regulation may reduce the incentive firms have to devote resources to the research and development necessary to develop these products.

When countries specialize in producing goods in which they have XXX advantage and trade for goods in which other countries have XXX advantage, the incomes of all countries increase.

Comparative/Comparative

If the demand for orange juice is inelastic​, will a decrease in the price of orange juice increase or decrease the revenue received by orange juice​ sellers? Part 2 If the price of orange juice decreases​, revenue will

Decrease

When Amazon purchased the Whole Foods grocery chain in​ 2017, it cut prices. But two years​ later, it changed its strategy and began to raise prices. ​Source: Laura​ Forman, "Why Amazon Just Raised Your Grocery​ Bill," Wall Street Journal​, February​ 13, 2019. a. In​ 2017, what did Amazon likely believe was true about the price elasticity of demand for groceries purchased at Whole​ Foods? Why might Amazon have changed that view by​ 2019? In​ 2017, Amazon believed that the demand for groceries purchased at Whole Foods was price ▼ inelasticelastic​, so it chose to cut prices to increase total revenue. By​ 2019, Amazon must have observed that the demand for purchasing groceries at Whole Foods was price ▼ elasticinelastic​, which caused Amazon to raise prices to increase total revenue.

Elastic Inelastic

In​ 2019, after Netflix increased the price of its most popular streaming plan from​ $10.99 per month to​ $12.99 per​ month, competing service Hulu cut the price of its basic plan from​ $7.99 per month to​ $5.99 per month. ​Source: Christopher Palmeri and Gerry​ Smith, "Hulu Cuts Basic Monthly Subscription to​ $6 after Netflix​ Hike," bloomberg.com, January​ 23, 2019. What was Hulu assuming about the price elasticity of demand for its basic​ plan? Why did​ Netflix's decision to raise the price of its most popular plan affect​ Hulu's pricing​ strategy? Hulu assumed that the demand for its services was price elastic. Lowering the price of its streaming service was intended to raise its total revenue. Hulu dropped its prices when Netflix raised its because Hulu considers its service as a substitute to​ Netflix's streaming services.

Elastic Raise Substitute

The city would have been more successful in discouraging soda consumption with a​ 1-cent-per-ounce tax on soda if the demand for soda were more price ▼ elastic inelastic . A​ 1-cent-per-ounce tax on soda would have generated more tax revenue for the city if the demand was more price ▼ elastic inelastic .

Elastic inelastic

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

False

A student​ argues: ​"To maximize profit.​, a firm should produce the quantity where the difference between marginal revenue.. and marginal cost is the greatest. If a firm produces more than this​ quantity, then the profit made on each additional unit will be​ falling." Is the above statement true or​ false?

False. Profit is maximized at the output level where marginal revenue equals marginal cost.

According to Adam​ Smith, which of the following is necessary for the proper functioning of the market​ system?

For markets to​ work, people must be free to pursue their​ self-interest.

Which participants are of greatest importance in determining what goods and services are​ produced? Part 4

Households.

What factors should state governments take into account when deciding how to allocate the scarce funds in their​ budgets?

How best to allocate a state​ government's limited resources is a normative issue and depends on how governors and state legislators evaluate the​ trade-offs involved.

A news article described a new prescription drug that costs up to​ "$94,000 for one​ 12-week treatment​ regimen" to treat hepatitis​ C, which is a liver disease that afflicts as many as 3 million people in the United States. It can result in severe liver damage and even death. It is potentially​ curable, but the prescription drugs available to treat it are very expensive. State government Medicaid programs provide medical insurance to poor and disabled people. In​ Louisiana, spending on Medicaid accounts for nearly half of the state​ government's budget. Rebekah Gee is the secretary of the Louisiana Department of Health. She was quoted as saying that it is unacceptable that many Medicaid patients with hepatitis C are not receiving​ treatment, "but​ it's also unacceptable for me to pay over​ $700 million and have to cut primary​ education, gut our payments to universities and decimate the health care delivery system for just one disease​ condition." ​Sources: Alison​ Kodjak, "Louisiana's New Approach to Treating Hepatitis​ C," npr.com, July​ 19, 2018. What​ trade-offs do state governments face when new prescription drugs are introduced with much higher prices than existing​ drugs?

Increases in spending on prescription drugs will require reductions in other government programs or services.

The stock and bond markets provide information to businesses through changes in prices. A decrease in the price of a​ firm's stock would tell managers which of the​ following?

Investors expect the firm to have lower profits in the future.

In a famous essay on the market​ system, the economist Leonard Read discussed how a pencil sold by the U.S. firm Eberhard Faber Pencil Company​ (now owned by Paper​ Mate) was made. He noted that logging companies in California and Oregon grew the cedar wood used in the pencil. The wood was milled into​ pencil-width slats at a factory in San​ Leandro, California. The graphite for the pencil was mined in Sri Lanka and mixed with clay purchased from a firm in Mississippi and wax from a firm in Mexico. The rubber was purchased from a firm in Indonesia. ​Source: Leonard E.​ Read, ​I, Pencil: My Family Tree as told to Leonard E. Read​, ​Irvington-on-Hudson, NY: The Foundation for Economic​ Education, Inc. December 1958. Part 2 Which of the following statements is​ true?

It was not necessary for the managers of any of firms that participated in the making of the pencils to know how the components they produced were used to make pencils.

The​ city's goals were in conflict because improving public health required having the decline in people buying soda be as large as​ possible, whereas raising revenue required having the decline in people buying soda be as small as possible. Because policymakers repealed the tax after it failed to raise the expected​ revenue, it seems likely that the policymakers were more interested in raising revenue .

Large Small Raising Revenue

If a firm decided to maximize​ revenue, would it be likely to produce a smaller or a larger quantity than if it were maximizing​ profit? The firm would produce a ▼ XXX quantity of output.

Larger

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

Less not change decrease more less

In​ general, the demand for a good will be​ _________ elastic the​ ___________ the share of the good in the average​ consumer's budget.

Less; smaller

Refer to the graph. According to the analysis of compensation in the​ textbook, which line represents the compensation of a salesperson based on​ commission?

Line 1

In the​ end, the tax raised less revenue than​ expected, and the tax was repealed. The demand for soda turned out to be XX elastic than policymakers had expected.

More

Suppose the United Kingdom and Norway both produce oil and fish​ oil, which are sold for the same prices in both countries. The following table shows combinations of both goods that each country can produce in a​ day, measured in thousands of​ barrels, using the same amounts of capital and​ labor: Who has the comparative advantage in producing​ oil?

Neither country has a comparative advantage producing oil because their opportunity costs of producing oil are equal.

The chapter mentions that in​ 1965, married women and men combined spent significantly more time on housework than they did in 2018. Does the decrease in the total number of hours of housework during that period mean that families are willing to live in messier homes today than they were in​ 1965?

No, because there are more labor saving devices so less time is required.

In​ 2018, Amazon raised the annual price to subscribe to its Amazon Prime service from​ $99 to​ $119. An article on a business website commented that​ "Amazon likely sees many ways to spend​ $2 billion in incremental revenue.​ (That's the additional​ $20 multiplied by 100 million Prime customers​ )." ​Source: Brad​ Stone, "The Curious Case of the Amazon Prime Price​ Hike," bloomberg.com, April​ 30, 2018. Is the analyst correct that Amazon will receive an additional​ $2 billion in revenue as a result of this price​ hike?

No. At a higher price of​ $119, quantity demanded for Amazon Prime services will​ decrease, so the total revenue will increase by less than​ $2 billion.

Which of the following is not scarce according to the economic​ definition?

None of the above

In recent​ years, increases in the number of visitors to National Parks such as Yellowstone and Grand Canyon have resulted in over​ $12 billion in deferred maintenance costs. In response to the overcrowding that has contributed to the cost​ overruns, the Park Service has considered limiting the number of daily visits to the parks and soliciting corporate sponsorships. Margaret​ Walls, a vice president for research at Resources for the​ Future, has offered another​ suggestion: increasing entrance fees. But she​ warns: "Figuring out an efficient and fair fee structure will not be easy. It requires detailed data on​ visitation, for​ starters, as well as analysis to shed light on price elasticities of demand for different groups of visitors at different​ locations." ​Source: Margaret A.​ Walls, "Protecting Our National​ Parks: Entrance Fees Can​ Help," Resources​, No.​ 193, Fall 2016. Why is it important for the Park Service to have estimates of price elasticities of demand before raising entrance fees to the National​ Parks?

Price elasticities of demand will reveal whether raising entrance fees will increase or decrease park revenue.

What is the relationship between​ price, average​ revenue, and marginal revenue for a firm in a perfectly competitive​ market?

Price is equal to both average revenue and marginal revenue.

According to Adam​ Smith, which of the following is the instrument the invisible hand uses to direct economic​ activity?

Prices

Identify whether each of the following transactions will take place in the factor market or in the product market. and whether households or firms are supplying the good or service or demanding the good or service. George buys a Tesla Model S. This takes place in the XXX Market The household XXX the good and the firm XXX supplies the good. This takes place in the XXX Market

Product Demand/supllies Factor Supply Demand Factor Supplies/demands Factor Supplies and Demands

According to an article in the Economist​ magazine: ​"In all rich​ countries, property rights are secure...Legally recognising land ownership has boosted​ farmers' income and productivity in Latin America and Asia...More than​ two-thirds of​ Africa's land is still under customary​ tenure, with rights to land rooted in communities and typically neither written down nor legally​ recognized." ​Source: "Title to​ Come: Property Rights Are Still Wretchedly Insecure in​ Africa," Economist​, July​ 16, 2016. Part 2 a. Which of the following statements regarding secure property rights is​ true?

Property rights provide incentives for people to maintain and increase the value of the property they own. This is the correct answer.

Refer to the​ graph, which shows two potential demand curves in the market for photocopies at a printing company. If you start at point A on D1​, what is the percentage change in quantity demanded when price falls from​ $30 to​ $20? Use the midpoint formula to calculate this percentage change.

Quantity demanded rises by 55 percent.

Firms are likely to produce more of a good or service when its price XXX and less of a good or service when its price XXX

Rises Falls

The principle of increasing marginal opportunity cost states that the more resources devoted to any​ activity, the XXX the payoff to devoting additional resources to that activity.

Smaller

The columnist notes​ that, in​ fact, Spain exports significant quantities of textiles. If his description of the situation in China and Spain is​ accurate, briefly explain how Spanish firms are able to export textiles in competition with Chinese firms.

Spain must be able to produce textiles at a lower opportunity cost than China can.

Stocks are financial securities that represent partial ownership of a firm. Three of the most widely followed stock indexes are the Dow Jones Industrial​ Average, the​ S&P 500, and the NASDAQ. Part 2 Which of the following does not describe the general movements of these three stock​ indexes?

Stock prices increased after the dot−com crash of 2000.

The principal-agent problem arises almost everywhere in the business world—but it also crops up even closer to​ home, such as the case of the college classroom. In this​ case, who is the principal and who is the​ agent? Part 2 The principal is the XXX and the agent is the XXX.

Student Professor

Using the same amount of​ resources, the United States and Canada can both produce lumberjack shirts and lumberjack​ boots, as shown in the production possibilities frontiers in the figure to the right. XXX has a comparative advantage in producing lumberjack boots. XXX has a comparative advantage in producing lumberjack shirts. Does either country have an absolute advantage in producing both​ goods?

The United States Canada Neither country has an absolute advantage in both goods because the United States can produce more boots but Canada can produce more shirts. 8/4 United States 4/8 Canada

What is comparative​ advantage?

The ability to produce a good or service at a lower opportunity cost than other producers.

What is absolute​ advantage?

The ability to produce more of a good or service than competitors using the same amount of resources. Your answer is correct.

How is the separation of ownership from control related to the​ principal-agent problem?

The agents​ (managers) may pursue their own interests rather than the interests of the principals​ (shareholders).

What happens if a country produces a combination of goods that efficiently uses all of the resources available in the​ economy?

The country is operating on its production possibilities frontier.

If a 17 percent increase in the price of Cheerios causes a 26 percent reduction in the number of boxes of cereal​ demanded, the price elasticity of demand for Cheerios is −1.531.53. ​(Enter your response rounded to two decimal​ places.)

The demand for Cheerios is elastic .

What did the financial advisor mean by a​ "great business"?

The financial advisor likely meant a business that is profitable.

Refer to the graph of the demand curve facing a firm in the perfectly competitive market for wheat. The fact that the demand curve is horizontal implies which of the​ following?

The firm can sell any amount of output as long as it accepts the market price of​ $7.00.

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

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

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

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

The financial writer Andrew Tobias has described an incident when he was a student at Harvard Business​ School: Each student in the class was given large amounts of information about a particular firm and asked to determine a pricing strategy for the firm. Most of the students spent hours preparing their answers and came to class carrying many sheets of paper with their calculations. When his professor called on him in class for an​ answer, Tobias​ stated, ​"The case said the XYZ Company was in a very competitive industry . . . and the case said that the company had all the business it could​ handle." ​Source: Andrew​ Tobias, The Only Investment Guide​ You'll Ever Need​, San​ Diego: Harcourt,​ 2005, pp.​ 6-8. Part 2 Given this​ information, what price do you think Tobias argued the company should​ charge? (Tobias says the class greeted his answer with​ "thunderous applause.")

The market price.

What is the advantage of the midpoint​ me?

The midpoint formula will give the same value whether moving from the higher price to the lower price or from the lower price to the higher price.

In San​ Francisco, the minimum wage is​ $15 per hour. Restaurants that have more than 20 employees must also provide them with health​ insurance, paid sick​ leave, and paid parental leave. In​ response, some restaurants hire fewer workers and ask customers to pick up their meals from a counter and bus their own dirty dishes. As a news article put​ it: "Restaurants​ haven't developed a way to serve meals with less labor.​ They've gotten customers to do the labor they had been paying employees to​ do." One restaurant owner was quoted as saying that to hire workers to perform these​ tasks, "a​ $10 hamburger would be a​ $20 hamburger, and it​ wouldn't make sense​ anymore." ​Source: Emily​ Badger, "San Francisco Restaurants​ Can't Afford Waiters. So​ They're Putting Diners to​ Work," New York Times​, June​ 25, 2018. a. What does the restaurant owner mean by saying that a​ $20 hamburger​ "wouldn't make​ sense"? From the information​ given, what can we conclude about the marginal revenue product of the servers in these restaurants relative to the compensation—wage plus health insurance plus paid sick and parental leave—they would​ receive? The​ servers' marginal revenue product was Who gains and who loses from the city​ regulations, as described in this news​ article, that set the wages and other compensation firms in San Francisco are required to​ pay? In the following​ table, identify which groups gain and which groups lose as a result of the​ city's labor regulations. Restaurant workers who are able to keep their jobs Business owners Low-skill workers, such as dishwasgers Customoers

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

Suppose we can divide all the goods produced by an economy into two​ types: consumption goods and capital goods. Capital​ goods, such as​ machinery, equipment, and​ computers, are goods used to produce other goods. Part 2 Is it likely that the production possibilities frontier in this situation would be a straight​ line: click on the icon for an example or bowed​ out: LOADING... click on the icon for an​ example?

The production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods.

n The Wonderful Wizard of Oz and his other books about the Land of​ Oz, L. Frank Baum observed that if​ people's wants were modest​ enough, most goods would not be scarce. According to​ Baum, this was the case in​ Oz: ​"There were no poor people in the Land of​ Oz, because there was no such thing as money... Each person was given freely by his neighbors whatever he required for his​ use, which is as much as anyone may reasonably desire. Some tilled the lands and raised great crops of​ grain, which was divided equally among the whole​ population, so that all had enough. There were many tailors and dressmakers and shoemakers and the​ like, who made things that any who desired them might wear. Likewise there were jewelers who made ornaments for the​ person, which pleased and beautified the​ people, and these ornaments also were free to those who asked for them. Each man and​ woman, no matter what he or she produced for the good of the​ community, was supplied by the neighbors with food and clothing and a house and furniture and ornaments and games. If by chance the supply ever ran​ short, more was taken from the great storehouses of the​ Ruler, which were afterward filled up again when there was more of any article than people needed... You will​ know, by what I have told you​ here, that the Land of Oz was a remarkable country. I do not suppose such an arrangement would be practical with us.​ " ​Source: L. Frank​ Baum, The Emerald City of Oz​, ​Chicago: Reilly​ & Britton,​ 1910, pp.​ 30-31. Part 2 Do you agree with Baum that the economic system in Oz​ wouldn't work in the contemporary United​ States?

The system in Oz​ wouldn't work. The wants of people in the United States exceed the resources available to fulfill those wants.

Why are firms willing to accept losses in the short run but not in the long​ run?

There are sunk costs in the short run but not in the long run.

Your friend asks you to join him in the new Internet business he is setting up as a partnership. If you invest​ $10,000 in the​ business, what is the limit to your​ liability?

There is no limit to your liability.

Can these two countries gain from trading oil and fish​ oil?

These countries cannot gain from trade because neither has a comparative advantage producing either good

In a study of general incorporation laws in the United​ States, Eric Hilt of Wellesley College​ noted, "Prior to the adoption of a general​ statute, a business could only incorporate if the state passed a special law granting it a corporate​ charter." ​Source: Eric​ Hilt, ​"Corporation Law and the Shift toward Open Access in the Antebellum United​ States," Naomi R. Lamoreaux and John Joseph​ Wallis, eds., ​Organizations, Civil​ Society, and the Roots of Development​, ​Chicago: University of Chicago​ Press, 2017. Part 2 What are the advantages of general incorporation laws over the previous​ system?

They allow more firms to experience the benefits of incorporation and ultimately allow greater competition in the market.

Evaluate the following​ argument: "Adam​ Smith's analysis is based on a fundamental​ flaw: He assumes that people are motivated by​ self-interest. But this​ isn't true. ​ I'm not​ selfish, and most people I know​ aren't selfish.'

This statement is based on the misconception that following your​ self-interest and being selfish are the same thing.

For which of the following products is the price elasticity of demand​ (in absolute​ value) the​ largest?

Tide liquid detergent

What barriers did Lyft face to becoming a great​ business? ​(Check all that apply​.)

To become​ profitable, Lyft would have to significantly raise prices and perhaps lose many customers.

Given your answer to part​ (a), why did state and local governments pass such licensing requirements in the first​ place?

To ensure that workers meet minimum standards of practice and competency and are accountable for their actions.

The basis for trade is comparative​ advantage, not absolute advantage.

True

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

When MRP ​> W

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

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

Private equity​ firms, such as Blackstone and Kohlberg Kravis Roberts​ & Co., search for firms where the managers appear not to be maximizing profits. A private equity firm can buy stock in these firms and have its employees elected to the​ firms' board of directors and may even acquire control of the targeted firm and replace the top management. Do private equity firms improve corporate​ governance?

Yes, private equity firms replace poorly performing managers with​ shareholder-friendly managers.

The article also notes that the tastes of U.S. consumers have​ changed, and they are consuming less fruit juice partly because of its high sugar content. Does this information affect your answer to part ​(a​)?

Yes. With this additional​ information, we know that the price elasticity of demand must be smaller in absolute value​ (that is, closer to​ zero) than the value calculated in part​ (a).

Lithium is a mineral that is important in manufacturing batteries. As production of electric cars has​ increased, so has the demand for lithium. As a​ result, beginning in​ 2016, prices of lithium increased sharply relative to the prices of​ iron, copper, and cobalt. Many of the same firms that mine those minerals also mine lithium. In describing the problem of limited supplies of​ lithium, an article in the Wall Street Journal​ argues: ​"The solution is​ obvious: develop new mines. If lithium prices remain near current heady​ levels, the wait probably​ won't be all that​ long." ​Source: Nathaniel​ Taplin, "China​ Won't Dominate Lithium​ Forever," Wall Street Journal​, May​ 17, 2018. Briefly explain the link the author sees between higher lithium prices and an increase in lithium production. In a market​ system, an increase in demand for a good leads to​ _________ in the price of the good. This​ ________ price provides a signal to producers that the good has become​ _________ profitable. Given that lithium prices are​ ______, mining firms are likely to switch some of their labor and capital from producing​ _____________________.

an​ increase; higher;​ more; rising;​ iron, copper, and cobalt to producing lithium

A Gallup public opinion poll indicates that among people aged 18 to​ 29, more have a favorable view of socialism than of capitalism. A columnist in the Wall Street Journal​ comments: ​"Would these people actually know socialism if they saw​ it? Taxing the​ rich, Medicare-for-all, and a Green New Deal that replaces fossil fuels with renewables are certainly​ liberal, probably​ radical, possibly unwise. But​ socialist? Hardly." ​Sources: Frank​ Newport, "Democrats More Positive about Socialism Than​ Capitalism," news.gallup.com, August​ 13, 2018; and Greg​ Ip, "Venezuela's Collapse Exposes the Fake Socialism Debated in​ U.S." Wall Street Journal​, February​ 6, 2019. What definition of socialism is the columnist using if he​ doesn't consider the programs he lists to be​ socialist? Is the​ columnist's definition of socialism one that U.S. socialists like Senator Bernie Sanders and Congresswoman Alexandria​ Ocasio-Cortez would be likely to​ accept? The columnist is likely defining socialism to refer to a

centrally planned economy in which the government directly controls most production. Bernie Sanders would be unlikely to accept this definition of socialism because he is more concerned with the provision of services such as health care and not government ownership of businesses.

Using the same amount of​ resources, suppose that Nicaragua can produce twice as much wheat as Colombia.​ Nevertheless, Colombia could still have the comparative advantage in producing wheat if

it is even less efficient than Nicaragua in the production of goods other than wheat.

In a letter to his​ company's stockholders, Warren Buffett offered the following​ opinion: ​"Most investors, of​ course, have not made the study of business prospects a priority in their lives... I have good news for these​ non-professionals: The typical investor​ doesn't need this​ skill." ​Source: Warren​ Buffett, Letter to Berkshire Shareholders​, March​ 1, 2014, p. 20. Part 2 Warren Buffet is advising​ non-professional investors to

concentrate on buying shares of mutual funds that charge relatively low fees.

For which of the following types of business organizations is there a legal distinction between the personal assets of the owners of the firm and the assets of the​ firm?

corporations

The IPO is an example of XXX finance

direct

Which of the following terms refers to a flow of funds from savers to firms through financial​ markets?

direct finance

Investors use the bond ratings from​ Moody's, S&P, and Fitch to determine which bonds they will buy and the prices they are willing to pay for them. The rating services charge the firms and governments that issue​ bonds, rather than​ investors, for their services. Critics argue that the rating agencies may give higher ratings than are justified in order to continue to sell their services to bond issuing firms. Part 2 ​Moody's, S&P and Fitch​ don't sell their services directly to investors because they argue that

doing so creates a​ "free rider" problem.

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

due to the law of diminishing returns.

In​ 2019, the entrance fee into Yellowstone National Park in northwestern Wyoming was​ $35 for a​ private, noncommercial​ vehicle; $30 for a motorcycle or a​ snowmobile; and​ $15 for each visitor entering on foot or riding a bicycle. The fee provides the visitor with a​ 7-day entrance permit into Yellowstone and nearby Grand Teton National Park. ​Source: National Park​ Service, "Yellowstone National​ Park: Basic​ Information," www.nps.gov/yell/planyourvisit/basicinfo.htm. Part 2 The demand for entry into Yellowstone National Park for visitors in​ private, noncommercial vehicles is Part 3

elastic because when the price is high and the quantity demanded is​ low, demand is elastic.

When are firms likely to be price​ takers? Part 5 A firm is likely to be a price taker when

it represents a small fraction of the total market.

Evaluate the following​ argument: I would like to invest in the stock​ market, but I think that buying shares of stock in a corporation is too risky. Suppose I buy​ $10,000 of Twitter​ stock, and the company ends up going bankrupt. Because as a​ stockholder, I'm part owner of the​ company, I might be responsible for paying hundreds of thousands of dollars of the​ company's debts. This statement is

false because shareholders are not liable for the debts of a corporation.

One study found that the price elasticity of demand for soda is −​0.78, while the price elasticity of demand for​ Coca-Cola is −1.22. ​Source: Kelly D.Brownell and Thomas R.​ Frieden,"Ounces of Prevention—The Public Policy Case for Taxes on Sugared​ Beverages," New England Journal of Medicine​, April​ 30, 2009, pp. 1805−1808. Part 2 The price elasticity of​ Coca-Cola is ​(interpret the absolute value of these​ elasticitiies, i.e., ignore the minus sign​):

greater than it is for soda as a product because there are more substitutes for​ Coca-Cola than soda.

What happens when the quantity demanded is very responsive to changes in​ price? The percentage change in quantity demanded will be

greater than the percentage change in price.

Consider the market for Best Buy computers. The demand for this product would become more elastic if it

had more close substitutes

If a country has a comparative advantage in the production of a​ good, then that country

has a lower opportunity cost in the production of that good.

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

his salary is greater than the additional revenue he generates.

Which of the following are the two key groups of participants in the circular flow of​ income?

households and firms

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

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

Minnesota Senator Amy Klobuchar was a candidate for the 2020 Democratic nomination for president. In an opinion column written with Senator Mike Lee of​ Utah, she​ argued, "There is evidence that​ [occupational] licensing requirements raise the price of goods and​ services, restrict employment​ opportunities, and make it more difficult for workers to take their skills across state​ lines." She also wrote that​ "licensing requirements should address only legitimate public health and safety requirements to ease burdens on​ workers." ​Source: Amy Klobuchar and Mike​ Lee, ​"Reforming Occupational​ Licensing," klobuchar.senate.gov. Part 2 a. If Senator​ Klobuchar's suggested restrictions on occupational licensing were​ followed, it would likely XXX the rate at which small businesses are formed.

increase

According to a news story about the bus system in the Lehigh Valley in​ Pennsylvania, "Ridership fell 14 percent in 2012 after a 33 percent​ increase" in bus fares. ​Source: Dan​ Hartzell, "Rebounding from a 2012 Rate​ Hike, LANTA's Ridership Was up Last​ Year," (Allentown,​ PA) Morning Call​, March​ 13, 2014 Part 2 Given this​ information, the demand for bus trips is

inelastic

According to an article in the Economist​, when Chicago enacted a​ 1-cent-per-ounce tax on​ soda, "it was introduced to protect public health but its main purpose was to plug a​ $1.8bn hole in the​ [city's] budget." ​Source: "Chicago's Soda Tax Is​ Repealed," Economist​, October​ 13, 2017. Part 2 a. Did policymakers in Chicago believe that the demand for soda was price elastic or price​ inelastic? Given that policymakers in Chicago were expecting a substantial amount of revenue to be raised from the​ tax, they most likely believed that the demand for soda was price

inelastic

Determine whether the demand for the following product is likely to be elastic or inelastic Part 2 Demand for prescription medicine is likely to be

inelastic

Can the information in the quoted sentence tell us anything about the price elasticity of demand for​ iPhones? We can conclude that the demand for iPhones is price because revenue increased when increased.

inelastic price increased

Is the demand for agricultural products elastic or​ inelastic? Why? The demand for agricultural products is (6.2)

inelastic because such products represent a small share in the​ consumer's budget.

On the lower part of a linear demand curve below the​ midpoint, the demand is​ ________ and raising the price causes total revenue to​ _________.

inelastic; increase

Limited liability becomes more important for firms trying to raise funds from a large number of​ investors, rather than from a small number of​ investors, because

investors that make a small investment in a firm may be unwilling to risk all their personal assets if the firm fails.

Whether carried out by an individual or a​ country, production beyond the production possibilities frontier Part 2

is not physically possible.

The late Nobel​ Prize-winning economist George Stigler once​ wrote, "the most common and most important criticism of perfect competition...​ [is] that it is​ unrealistic." ​Source: George​ Stigler, "Perfect​ Competition, Historically​ Contemplated," Journal of Political Economy​, Vol.​ 55, No.​ 1, (February​ 1957), pp.​ 1-17. Despite the fact that few firms sell identical products in markets where there are no barriers to​ entry, economists believe that the model of perfect competition is important because

it is a benchmark—a market with the maximum possible competition—that economists use to evaluate actual markets that are not perfectly competitive.

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

it is difficult to measure output.

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

less than

What are the three conditions for a market to be perfectly​ competitive? Part 2 For a market to be perfectly​ competitive, there must be Part 3 (12.1)

many buyers and​ sellers, with all firms selling identical​ products, and no barriers to new firms entering the market.

Jay Shambaugh and colleagues at the Brookings Institution​ argued: In recent years it has become clear that young firms—and not necessarily small​ firms, as is commonly supposed—are the engine of employment and productivity growth in the United States. As they introduce new technologies and business​ methods, new firms contribute substantially to productivity growth. ​Source: Jay​ Shambaugh, Ryan​ Nunn, Audrey​ Breitwieser, and Patrick​ Liu, "The State of Competition and​ Dynamism: Facts about​ Concentration, Startups, and Related​ Policies," brookings.edu, June 2018. a. New firms might be more likely than older firms to introduce new technologies and business methods because new firms

may find it difficult to compete with the same types of goods and services already being produced by the​ larger, established firms.

Daniel had been earning ​$71 per hour and working 45 hours per week. Then​ Daniel's wage changes to ​$76 per​ hour, and as a​ result, he now works 40 hours per week. What can we conclude from this information about the income effect and the substitution effect of a wage change for​ Daniel? Part 2 The substitution effect causes Daniel to devote XXX time to working the income effect causes Daniel to devote less time to working​, and the substitution effect is smaller than the income effect.

more less smaller than

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

more fewer equal to

Would you expect that the price elasticity of demand for gasoline in the long run is larger or smaller​ (in absolute​ value) than −​0.02? The price elasticity of demand for gasoline is

more price elastic in the long run than in the short run because in the long run more substitutes for gasoline may become available

State whether each of the following events will result in a movement along the market demand curve for labor in electronics factories in China or whether it will cause the market demand curve for labor to shift. If the demand curve​ shifts, indicate whether it will shift to the left or to the right in the provided graph. Part 2 A decline in the wage rate will result in a XXX the labor demand curve

movement along Shift in (line to the right) Shift in shift in

events will result in a movement along the market supply curve of agricultural labor in the United States or whether it will cause the market supply curve of labor to shift. If the supply curve​ shifts, indicate whether it will shift to the left or to the right in the provided graph. Part 2 A decline in the agricultural wage rate will result in a movement along the labor supply curve.

movement along shift in shift in

The late Nobel​ Prize-winning economist Kenneth Arrow of Stanford University once wrote that the argument that the outcomes in a market​ system, "may be very different​ from, and even opposed​ to, intentions is surely the most important intellectual contribution that economic thought has​ made." ​Source: Kenneth J.​ Arrow, "Economic​ Equilibrium," Encyclopedia of the Social Sciences​, 1968. Encyclopedia.com.​ (May 23,​ 2015). Part 2 It is possible for the outcomes in a market system to be different from what firms and consumers intended them to be because

neither firms nor consumers are directly interested in increasing economic efficiency or the standard of living of the average person.

Some economists have been puzzled that although entrepreneurs take on the risk of losing time and money by starting new​ businesses, on average their incomes are lower than those of people with similar characteristics who go to work at large firms. William Baumol believes part of the explanation for this puzzle may be that entrepreneurs are like people who buy lottery tickets. On​ average, people who​ don't buy lottery tickets are left with more money than people who buy tickets because lotteries take in more money than they give out. Baumol argues that​ "the masses of purchasers who grab up the​ [lottery] tickets are not irrational if they receive an adequate payment in another​ currency: psychic​ rewards." ​Source: William J.​ Baumol, The Microtheory of Innovative​ Entrepreneurship, Princeton,​ NJ: Princeton University​ Press, 2011. Part 2 The term​ "psychic rewards" refers to

nonmonetary forms of remuneration that are psychologically uplifting.

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

output is difficult to measure and attribute to individual workers.

According to an article in the Wall Street Journal​, ​"Lululemon Athletica Inc. became a​ multibillion-dollar brand by convincing women to pay​ $100 for yoga pants. Though the market is now flooded with cheaper​ alternatives, the apparel​ maker's new CEO says it has no plans to lower its​ prices." ​Source: Khadeeja​ Safdar, "Lululemon​ Chief: 'No​ Need' to Discount​ $100 Yoga​ Pants," Wall Street Journal​, April​ 23, 2019. a. Does​ Lululemon's CEO believe that the demand for the​ firm's yoga pants is price elastic or price​ inelastic? The CEO apparently believes that the demand for the​ firm's yoga pants is

price inelastic because he​ doesn't believe that the cheaper yoga pants being offered by competitors will be considered close substitutes by​ Luluemon's customers.

A production possibilities​ frontier:

shows the maximum attainable combinations of two goods that may be produced with available resources.

In situation​ 3, the firm should

shut down since the price is less than the average variable cost.

The three major types of firms in the United States are called (8.1)

sole​ proprietorships, partnerships, and corporations.

Lawrence Summers served as secretary of the treasury in the Clinton administration and as director of National Economic Council in the Obama administration. He has been quoted as giving the following moral defense of the economic approach. ​"There is nothing morally unattractive about​ saying: We need to analyze which way of spending money on health care will produce more benefit and which​ less, and using our money as efficiently as we can. I​ don't think there is anything immoral about seeking to achieve environmental benefits at the lowest possible​ costs." ​Source: David​ Wessel, "Precepts from Professor​ Summers," Wall Street Journal​, October​ 17, 2002. Part 2 It would be more moral to reduce​ pollution, Part 3

taking the cost into account because money spent on pollution reduction is not available for other worthy activities.

Assuming these economists are correct about the importance of new firms in introducing​ productivity-enhancing innovations, the declining trend in the formation of new businesses implies that

the U.S. economy will become less dynamic and less able to sustain high rates of economic growth.

What is the midpoint method for calculating price elasticity of​ demand? Part 2 The midpoint method for calculating price elasticity of demand​ is: Part 3

the change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the average of the initial and final prices.

As the wage​ increases,

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

In colonial​ America, the population was spread thinly over a large​ area, and transportation costs were very high because it was difficult to ship products by road for more than short distances. As a​ result, most of the free population lived on small farms where they not only grew their own food but also usually made their own clothes and very rarely bought or sold anything for money. Part 2 Why were the incomes of these farmers likely to rise as transportation costs​ fell? As transportation costs​ fell,

the farmers gained access to new markets and customers. Using comparative​ advantage, the farmers​ specialized, producing those goods for which they had lower opportunity cost. As they traded for other​ goods, their incomes and living standards increased.

Psychic rewards that an entrepreneur might receive include ​(check all that ​apply)​:

the pride of​ self-accomplishment. Your answer is correct. being​ one's own boss. Your answer is correct. status within the community.

What are private property​ rights? Private property rights​ are:

the rights individuals and firms have to the exclusive use of​ tangible, physical property and intellectual property.

Is it possible for a country to have a comparative advantage in producing a good without also having an absolute​ advantage? A country without an absolute advantage in producing a good

will have a comparative advantage if it has a lower opportunity cost of producing that good

In discussing dividing up household​ chores, Emily​ Oster, an economist at the University of​ Chicago, advises​ that: ​"No, you​ shouldn't always unload the dishwasher because​ you're better at​ it." ​Source: Emily​ Oster, "The Wrong Person Is Probably Doing the Dishes in Your​ Home," Slate​, November​ 21, 2012. Even if you are better at unloading the dishwasher than your​ spouse, you​ shouldn't always be the one to unload it because

you may be even better at some other household task and must consider the opportunity cost.

In an academic journal article analyzing the effects of the​ Berkeley, California, soda tax on​ consumption, Jennifer Falbe of the University of​ California, Berkeley's School of Public Health and colleagues discussed​ "price elasticity of demand estimates for SSBs​ [sugar-sweetened ​beverages]—the percent change in demand for SSBs resulting from a​ 1% increase in​ price." ​Source: Jennifer​ Falbe, et​ al., "Impact of the Berkeley Excise Tax on​ Sugar-Sweetened Beverage​ Consumption," American Journal of Public Health​, Vol.​ 106, No.​ 10, October​ 2016, pp.​ 1865-1871. Briefly explain whether you agree with this definition of price elasticity of demand.

​Disagree: the price elasticity of demand measures the responsiveness of the quantity demanded of a good to changes in its price.

A study of the consumption of beverages in Chile found that for soda​ "a price increase of​ 10% is associated with a reduction in consumption of​ 13.7%." ​Source: Carlos M.​ Guerrero-Lopez, Mishel​ Unar-Munguía, and M. Arantxa​ Colchero, "Price Elasticity of the Demand for Soft​ Drinks, Other​ Sugar-Sweetened Beverages and Energy Dense Food in​ Chile," BMC Public Health​, Vol.​ 17, February​ 2017, p. 180. Given this​ information, the price elasticity of demand for soda in Chile is negative −1.37. ​(Enter your response rounded to two decimal places. Use a negative sign if you are entering a negative​ number.) Part 2 Is demand price elastic or price​ inelastic? Briefly explain.

​Elastic, because the percentage change in quantity demanded is greater than the percentage change in price.

In the United​ States, ________ account for the majority of revenue earned and​ ________ account for the majority of business organizations.

​corporations; sole proprietorships

The payments by a corporation to its shareholders are called​ ________, and the interest payments on a bond are called​ ________

​dividends; coupon payments

What does he expect will happen to​ Lululemon's revenue if the firm cuts the price of its yoga​ pants? Since the CEO believes that the demand for the​ firm's yoga pants is price

​inelastic, cutting the price of its yoga pants would result in a decrease in the​ firm's total revenue.