MacMillian Questions Chapter 10, 12, and 14

SUPPOSE THE GOVERNMENT WANTS TO ELIMINATE INEFFICIENCY IN THIS MARKET BY IMPOSING A PER-PACK TAX ON CIGARETTES. What is the amount of the per-pack tax that would result in the socially optimal level of consumption in this market?

$3.00

Arguments for patents (2)

1. Positive externality 2. Prevents Free riders

e aspects of things that are illegal for mergers

1. increasing prices 2. Decreasing innovation/services 3. geographic discrimination

the government should provide a per unit subsidy of $__ to achieve the socially optimal outcome. This subsidy would cost the government $__ million in total each month

250, 6500

Answer

3000

Mr. Parker sells 10 bottles of wine per week at 50 per bottle. He can sell 11 per week if he lowers the price to 45 per bottle. The output effect of the sale of an additional bottle would be __, whereas the discount effect of the sale of an additional bottle would be__.

45, 50

Answer

80

(Figure: Bass Pro Shops Curves) As an economist for Bass Pro Shops, a large retail company that specializes in outdoor activities, you analyze sales data for kayaks. The graph shows the firm demand curve and marginal revenue curve for weekly kayak sales for each Bass Pro location. Bass Pro acquires each kayak from the manufacturer for $600. Bass Pro's optimal pricing strategy is to charge $_____ per kayak for a weekly profit of $_____.

900, 1200

Which of these illustrates statistical discrimination

A company, considering two applicants with the same level of education choosing one over because of his ethnicity.

Natural vs Regular Monopoly

A monopoly is a market structure in which a single firm dominates the entire market and has the power to set prices. In contrast, a natural monopoly is a market structure in which a single firm can produce the entire output for the market at a lower cost than if there were multiple firms operating in the market

Which of these does not help explain the gender wage gap?

Differences in overall suitability for work

compensating differentials

Differences in wages that result from differences in working conditions. Risky jobs usually pay higher wages; highly desirable jobs usually pay lower wages.

Compensating Differential Examples or not - Jobs requiring doctoral degrees that pay more than those requiring bachelor's degrees - High-rise construction jobs pay more than any other construction job - Union workers get paid more than non-union workers - Nurses that work in the day make more than nurses at night.

Is a compensating differential: - Nurses that work in the day make more than nurses at night. - High-rise construction jobs pay more than any other construction job Non compensating - Jobs requiring doctoral degrees that pay more than those requiring bachelor's degrees - Union workers get paid more than non-union workers

Each of the given scenarios involves an externality. Classify each scenario based on whether or not it is likely that private bargaining could be used to achieve a socially optimal outcome in each case. Likely Not likely 1. opening an apple store in a mall causes overall sales in the mall to increase by 10% 2. the production of steel results in pollution that affects millions of residents in the surrounding area. 3. Lashawn's neighbor mows his lawn during the night.

Likely 1. opening an apple store in a mall causes overall sales in the mall to increase by 10% 3. lashawn's neighbor mows his lawn during the night. Not likely 2. the production of steel results in pollution that affects millions of residents in the surrounding area.

Limited Competitors vs price differentiation

Limtied competitors just means lower amount s of people producing something and is controlled by one person. Price differentition has to do with choices of optiosn for multiple stores under one industry.

Consider the concept of compensating differentials. Classify each of the given jobs as to whether it is likely to result in a higher wage or a lower wage relative to other jobs that require similar skills and experience. Higher Wage or Lower Wage - Jobs that are seen as risky - jobs offering non-monetary benefits - jobs requiring frequent business trips - jobs with flexible hours - jobs in locations that are undesirable - remote jobs in which employes at work at home

Lower Wage - jobs with flexible hours - remote jobs in which employes at work at home - jobs offering non-monetary benefits Higher Wage: - jobs in locations that are undesirable - Jobs that are seen as risky - jobs requiring frequent business trips

Profit Maximizing price and output happen when

Marginal Revenue equals marginal cost

Monopolitistic vs perfect competition

Monopolistic has options whereas perfect does not

Clothing Company Coca Cola A local utility company Apple A wheat farm Monopoly, Oligopoly, Monopolistic Competition, Perfect Competition

Monopoly A local utility company Oligopoly Coca Cola Apple Monopolistic Competition Clothing Company Perfect Competition A wheat farm

U.S Steel is what type of market structure

Oligopoly

How does output for a seller who has market power compare to output for a seller who does not have market power, assuming both follow the Rational Rule for Sellers

Output is higher for the seller without market power than the one with market power.

individual firms are price takers what type of market structure? and firms can easily enter or exit the industry.

Perfect Competition

A specific things (niche item) that is being sold is always

Perfect competition

How can a company's hiring manager attract workers who are motivated to advance in their field?

Provide training.

Answer

Quantity demanded grows as price drops, but the entire quantity experiences the change in price.

What changes in a labor market graph if the workers of a company form a union?

The labor market supply curve shifts to the left.

Superstar effect vs compensating differentials.

The superstar effect is a phenomenon where a small number of top-performing individuals in a field earn a disproportionately large share of the rewards. This effect is often observed in creative industries such as music, sports, and entertainment, where a few highly talented individuals can generate a significant amount of revenue for their employers 12. On the other hand, compensating differentials refer to the additional amount of income that a worker must be offered to accept an undesirable job, relative to other jobs that worker could perform.

When is the solution depicted in steps E and F feasible? (you can select more than one) a. When it is possible to account for externalities using the power of markets b. when altering price can change incentives of buyers and sellers c. when private bargaining is prohibitive d. when using the power of markets and incentives is not feasible.

a. When it is possible to account for externalities using the power of markets b. when altering price can change incentives of buyers and sellers c. when private bargaining is prohibitive

The Nobel Prize‑winning economist Oliver Hart once said, "If we know the marginal social cost [of pollution] emissions, a tax is better, but if we know the optimal quantity, cap and trade is better." Given this statement and the knowledge of ways governments can intervene in markets, evaluate the following statement: Any outcome that can be achieved by taxing can also be accomplished by establishing a quota. This is because a. if we know the marginal social cost, we can set the tax so that price is equal to the optimal price. As a result the optimal quantity will be achieved. If we know the optimal quantity we can set a quota and the market will find the optimal price b. knowing the marginal social cost allows companies to know how much to increase their prices and make more profits. This is better for the economy as a whole because then companies can create more jobs. Cap and trade restricts quantity, which low

a. if we know the marginal social cost, we can set the tax so that price is equal to the optimal price. As a result the optimal quantity will be achieved. If we know the optimal quantity we can set a quota and the market will find the optimal price

Pedro is more likely to join a union if he is looking for employment in a field. a. in which few employers have monopsony power. b. in which few employers tend to pay efficiency wages. c. in which there are many employers and many employment options. d. in which pay for performance is common.

a. in which few employers have monopsony power

Signaling

an action taken by an informed party to reveal private information to an uninformed party

implicit bias

attitudes or stereotypes that affect our understanding, actions, and decisions in an unconscious manner

How could the wind farm developer have utilized insights from the Coase Theorem to avoid its legal troubles and ultimately wasting millions of dollars on wind turbines it never got to operate? Select all situations that would apply. a. the developer could have paid people living near the wind farm a stipend for putting up with the noise and the restricted views. b. The developer could have petitioned the local and state governments to fund the wind farm. c. the developer could have invested in improved infrastructure for power generation to lower residents' electricity costs as well as to promote the use of wind farms. d. the developer could have asked the government to set a quota on electricity generation for the wind farm so there would be down time from the noise.

b. The developer could have petitioned the local and state governments to fund the wind farm. d. the developer could have asked the government to set a quota on electricity generation for the wind farm so there would be down time from the noise.

How might Pedro benefit from joining a labor union? Select all that apply. a. he could be guaranteed promotions and certain vacation days during his first five years of employment. b. he and his fellow union workers might have improved communication with management c. he and his fellow union workers would be exempt from special skills and safety training and therefore would be more productive d. he could receive higher wages as compared to non union workers in the same job field.

b. he and his fellow union workers might have improved communication with management d. he could receive higher wages as compared to non union workers in the same job field.

greener companies will most likely a. not get to purchase many permits because the less efficient companies will need to purchase more in order to keep their output at the initial level. b. purchase more permits because it allows them to expand output by a far greater amount than a "dirty" company, thus they are worth more to a green company. c. use the minimum amount of permits they need but refuse to trade the remaining permits to other companies to punish them for not cleaning up their act. d. use as few permits as possible and sell their remaining permits to the "dirty" companies that need more permits to produce the same amount of output.

b. purchase more permits because it allows them to expand output by a far greater amount than a "dirty" company, thus they are worth more to a green company.

A familiar example of a negative externality is loud music in a busy park on a weekend. In principle, it should be possible to solve this externality by permitting park visitors to negotiate rights to play music in particular locations or at specific times. The most likely reason these negotiations do not occur is that: a. most people are unfamiliar with the coase theorem b. the bargaining costs of identifying and establishing communications between all affected parties would be high. c. music is an experience, not a good. d. some park goers do not view loud music as a negative externality.

b. the bargaining costs of identifying and establishing communications between all affected parties would be high.

Companies that engage in workplace discrimination are likely to a. discriminates based exclusively on implicit bias. b. have higher profits when they compete against other firms that do not discriminate c. have lower profits when they compete against other firms that do not discriminate d. have managers that are bigots

c. have lower profits when they compete against other firms that do not discriminate

Jostin is ill and goes to the doctor. The doctor diagnoses him with a bacterial infection and prescribes an antibiotic. Jostin's visit to the doctor:_______ a. produces a negative externality if he was supposed to be home studying for his classes. b. produces a negative externality if the doctor was hoping to leave early that day and a positive externality if the doctor was hoping to boost her income. c. produces a positive externality if it prevents other people from getting sick and a negative externality if the bacterial infection becomes resistant to antibiotics. d. produces a positive externality if his medical insurance pays for the visit and a negative externality if Jostin has to pay out of pocket

c. produces a positive externality if it prevents other people from getting sick and a negative externality if the bacterial infection becomes resistant to antibiotics.

the full set of costs and benefits, including the impact on society, is referred to by economists as a. the social norm b. cap and trade c. the marginal social costs and marginal social benefits d. the positive and negative externalities

c. the marginal social costs and marginal social benefits

if a monopolist produces a quantity that generates MC < MR, then profit:

can be increased by increasing output

Government intervention when it comes to market power has to do so to ensure

competition

A. Joe decides to build a chicken coop in his suburban backyard. He has several hens and one rooster. The rooster wakes up his neighbor each morning at 5:00 am. Joe's chicken coop :_______. a. creates a negative externality if his chickens do not lay eggs. b. creates a positive externality if Joe sells his chickens' eggs at the local farmers' market. c. creates a positive externality if the neighbor wants to sleep longer but accepts free eggs in exchange for the inconvenience. d. creates a negative externality if the neighbor wants to sleep longer and a positive externality if the neighbor is happy to be awakened early each day.

d. creates a negative externality if the neighbor wants to sleep longer and a positive externality if the neighbor is happy to be awakened early each day.

An urban farmer decides to build a bee hive to help pollinate the rooftop gardens in his neighborhood. The beehive: a. generates a negative externality if the bees are killed by a colony of wasps. b. generates a positive externality if the farmer creates a successful online business that sells products made from the bees' honey c. generates a negative externality if the farmer spends nearly all his time tending the bees and rarely leaves his home. d. generates a positive externality if the rooftop gardens benefit from the pollination and a negative externality if the neighbors get stung by bees

d. generates a positive externality if the rooftop gardens benefit from the pollination and a negative externality if the neighbors get stung by bees

Marginal revenue is the output effect minus the __ effect for a given quantity

discount

Monopolies do not produce

efficient outcomes

a. an audiobook is an example of a club good because it is(excludable/nonexcludable) and (rival/nonrival) in consumption b. in some states, it is illegal to pick certain kinds of wildflowers by the side of the road. This is because wildflowers are a (common resource/club good). Without these laws, wildflowers are both (rival/nonrival) in consumption and (excludable/nonexcludable). In passing these laws, the states are hoping to avoid a tragedy of the commons.

excludable, nonrival common resource, rival, nonexcludable

A seat on the subway is (excludable/nonexcludable) and (rival/nonrival)

excludable, rival

an even more popular national park, which charges an entrance fee, is (excludable/nonexcludable) and (rival/nonrival)

excludable, rival

Discrimination (helps/harms) a company because companies that discriminate pay (lower,higher) wages.

harms, higher

when is it hard to monitor worker productivity, empyoers often pay a:

higher wage

The output in a market with market power is:

inefficient, since the marginal benefit to society of extra output exceeds the marginal cost

Statistical discrimination

is a phenomenon where economic decision-makers use observable characteristics of individuals, such as physical traits that are used to categorize gender or race, as a proxy for otherwise unobservable characteristics that are outcome relevant.

A monopoly firm produces an output that is __ than the efficient level

less

Katherine owns one hospital. Katherine has (considerable/limited ability) to negotiate for a higher wage because the hospital is likely to (have monopsony power/pay efficiency wages)

limited, have monopsony

Profit maximizing is only determined when there is a

marginal cost also involved

If a firm faces a downward-sloping demand curve: p>

marginal revenue

in a monopoly price does not equal

marginal revenue

in a graph wen ever the firs tpart of the graph between marignal revenue and demand curve intersect and goes progeessively down that means it is

monopolistic

Without international trade, General Electric and Whirlpool would have __ market power, and American consumers would face __ prices

more, higher

a popular national forest known for having dozens of access points for its well-used hiking trails located along public roads and highways is (excludable/non-excludable) and (rival/nonrival)

nonexcludable, rival

the socially efficient quantity of cigarettes occurs when?

occurs when the marginal social benefits equal the marginal social costs.

When you see demand and marginal revenue curve not intersecting at the top left it is

perfect competition

Susan decides to walk to work instead of driving. walking to work creates a (positive/negative) externality. (Too many/few) cigarettes are produced relative to the socially efficient quantity.

positive, too few

Discrimination that exists as a result of an individual having a dislike towards members of a particular group is __. This type of discrimination is also referred to as taste-based discrimination

prejudice

marginal level is always less than

price

A policy maker argues that congestion on the roads can be solved by private ownership of the roads. He argues that if the roads were privately owned, then the externality of congestion would be fully internalized and solved by the market. Discuss this by first explaining the externality problem that leads to congestion, and then explain whether the private market would deliver the efficient level of roads. the externality is caused by drivers considering the (private/social) benefit of using the road, but not the (social/private) cost more and more drivers pull onto the road, not recognizing the (cost/benefit) other drivers experience as a result. Private roads, or publicly operated toll roads, can reduce congestion because now the right to use the road is (excludable/nonexcludable). On the other hand, turning the public good into a club good poses other problem. Now the external (benefits/costs) will not be full

private, social cost excludable benefits, positive

a minimum wage that is about the equilibrium wage that would otherwise result will do what to the quantity of labor demanded? do what to the quantity of labor supplied? and do what to employment?

reduce the quantity of labor demanded by firms, increase the quantity of labor supplied by workers, and cause reductions in employment (i.e. increased unemployment).

Using observations about the average characteristics of a group to make inferences about an individual member of the group is known as:

statistical discrimination.

Rock climbing is a dangerous sport, with an average of 30 rock climbers dying each year. The earnings of rock climbers vary greatly. While most earn less than 10,000 per year, the best earn as much as 300,000 through sponsorships. The difference in earnings between the highest and lowest paid climbers reflects.

superstar effect

During a price ceiling, the maximum price that can be charged for a good or service is set below the market equilibrium price. This causes what to quantity demanded, and does what to quantity supplied? and shortage or surplus?

the quantity demanded to increase while the quantity supplied decreases, leading to a shortage of the product 1. Therefore, the quantity supplied does not increase during a price ceiling.

When researchers estimate labor market discrimination, they control for many observable factors that are thought to impact wages (e.g., education, occupation, experience, location). Even after accounting for these factors, they find that men are typically paid more than women, concluding that any remaining differences may indicate discrimination. Of course, it is not possible to control for all differences that may affect earnings. Women may choose certain jobs to avoid the impact of discrimination in higher-paying professions. If this is the case, the methodology over or underestimates the total effect of discrimination on women. jobs that are dominated by women may pay less than similarly skilled jobs that are dominated by men. If this is the case, the methodology over or underestimates the total effect of discrimination on women.

underestimates, underestimates

when, if ever, would a monopoly in a particular industry be preferred to competition within that industry?

when it would be less costly for one firm rather than many firms to provide a good, as in a natural monopoly.

Which statement best describes a negative externality? a. our neighbor has a honey farm, and the bees pollinate your orchard. b. your neighbor has an ornamental pond that breeds mosquitoes.

your neighbor has an ornamental pond that breeds mosquitoes.

(Figure: Demand, Revenue, and Cost Curves for Thneeds) Use Figure: Demand, Revenue, and Cost Curves for Thneeds. Thneeds and Things is a monopolist in the thneed ("things we need") market. If the government wants to regulate Thneeds so that an efficient outcome is reached, it would impose a price ceiling of 40$ because

• Economic efficiency in production is achieved when the marginal benefits (demand) from production equal the marginal costs