Problems

  1. In each of the following situations, identify which of the twelve principles is at work.
    • Question

      You choose to shop at the local discount store rather than paying a higher price for the same merchandise at the local department store.

      Prob 1 1a. You choose to shop at the local discount store rather than paying a higher price for the same merchandise at the local department store.
    • Question

      On your spring break trip, your budget is limited to $35 a day.

      Prob 1 1b. On your spring break trip, your budget is limited to $35 a day.
    • Question

      The student union provides a website on which departing students can sell items such as used books, appliances, and furniture rather than give them away to their roommates as they formerly did.

      Prob 1 1c. The student union provides a website on which departing students can sell items such as used books, appliances, and furniture rather than give them away to their roommates as they formerly did.
    • Question

      After a hurricane did extensive damage to homes on the island of St. Crispin, homeowners wanted to purchase many more building materials and hire many more workers than were available on the island. As a result, prices for goods and services rose dramatically across the board.

      Prob 1 1d. After a hurricane did extensive damage to homes on the island of St. Crispin, homeowners wanted to purchase many more building materials and hire many more workers than were available on the island. As a result, prices for goods and services rose dramatically across the board.
    • Question

      You buy a used textbook from your roommate. Your roommate uses the money to buy songs from iTunes.

      Prob 1 1e. You buy a used textbook from your roommate. Your roommate uses the money to buy songs from iTunes.
    • Question

      You decide how many cups of coffee to have when studying the night before an exam by considering how much more work you can do by having another cup versus how jittery it will make you feel.

      Prob 1 1f. You decide how many cups of coffee to have when studying the night before an exam by considering how much more work you can do by having another cup versus how jittery it will make you feel.
    • Question

      There is limited lab space available to do the project required in Chemistry 101. The lab supervisor assigns lab time to each student based on when that student is able to come.

      Prob 1 1g. There is limited lab space available to do the project required in Chemistry 101. The lab supervisor assigns lab time to each student based on when that student is able to come.
    • Question

      You realize that you can graduate a semester early by forgoing a semester of study abroad.

      Prob 1 1h. You realize that you can graduate a semester early by forgoing a semester of study abroad.
    • Question

      At the student union, there is a bulletin board on which people advertise used items for sale, such as bicycles. Once you have adjusted for differences in quality, all the bikes sell for about the same price.

      Prob 1 1i. At the student union, there is a bulletin board on which people advertise used items for sale, such as bicycles. Once you have adjusted for differences in quality, all the bikes sell for about the same price.
    • Question

      You are better at performing lab experiments, and your lab partner is better at writing lab reports. So the two of you agree that you will do all the experiments and she will write up all the reports.

      Prob 1 1j. You are better at performing lab experiments, and your lab partner is better at writing lab reports. So the two of you agree that you will do all the experiments and she will write up all the reports.
    • Question

      State governments mandate that it is illegal to drive without passing a driving exam.

      Prob 1 1k. State governments mandate that it is illegal to drive without passing a driving exam.
    • Question

      Your parents’ after-tax income has increased because of a tax cut passed by Congress. They therefore increase your allowance, which you spend on a spring break vacation.

      Prob 1 1l. Your parents’ after-tax income has increased because of a tax cut passed by Congress. They therefore increase your allowance, which you spend on a spring break vacation.
  2. Describe some of the opportunity costs when you decide to do the following.
    • Question

      Attend college instead of taking a job

      Prob 1 2a. Attend college instead of taking a job
    • Question

      Watch a movie instead of studying for an exam

      Prob 1 2b. Watch a movie instead of studying for an exam
    • Question

      Ride the bus instead of driving your car

      Prob 1 2c. Ride the bus instead of driving your car
  3. Liza needs to buy a textbook for the next economics class. The price at the college bookstore is $65. One online site offers it for $55 and another site, for $57. All prices include sales tax. The accompanying table indicates the typical shipping and handling charges for the textbook ordered online.
    Shipping method Delivery time Charge
    Standard shipping 3–7 days $3.99
    Second-day air 2 business days 8.98
    Next-day air 1 business day 13.98
    • Question

      What is the opportunity cost of buying online instead of at the bookstore? Note that if you buy the book online, you must wait to get it.

      Prob 1 3a. What is the opportunity cost of buying online instead of at the bookstore? Note that if you buy the book online, you must wait to get it.
    • Question

      Show the relevant choices for this student. What determines which of these options the student will choose?

      Prob 1 3b. Show the relevant choices for this student. What determines which of these options the student will choose?
  4. Use the concept of opportunity cost to explain the following.
    • Question

      More people choose to get graduate degrees when the job market is poor.

      Prob 1 4a. More people choose to get graduate degrees when the job market is poor.
    • Question

      More people choose to do their own home repairs when the economy is slow and hourly wages are down.

      Prob 1 4b. More people choose to do their own home repairs when the economy is slow and hourly wages are down.
    • Question

      There are more parks in suburban than in urban areas.

      Prob 1 4c. There are more parks in suburban than in urban areas.
    • Question

      Convenience stores, which have higher prices than supermarkets, cater to busy people.

      Prob 1 4d. Convenience stores, which have higher prices than supermarkets, cater to busy people.
    • Question

      Fewer students enroll in classes that meet before 10:00 A.M.

      Prob 1 4e. Fewer students enroll in classes that meet before 10:00 A.M.
  5. In the following examples, state how you would use the principle of marginal analysis to make a decision.
    • Question

      Deciding how many days to wait before doing your laundry

      Prob 1 5a. Deciding how many days to wait before doing your laundry
    • Question

      Deciding how much library research to do before writing your term paper

      Prob 1 5b. Deciding how much library research to do before writing your term paper
    • Question

      Deciding how many bags of chips to eat

      Prob 1 5c. Deciding how many bags of chips to eat
    • Question

      Deciding how many lectures of a class to skip

      Prob 1 5d. Deciding how many lectures of a class to skip
  6. Question

    This morning you made the following individual choices: you bought a bagel and coffee at the local café, you drove to school in your car during rush hour, and you typed your roommate’s term paper because you are a fast typist—in return for which she will do your laundry for a month. For each of these actions, describe how your individual choices interacted with the individual choices made by others. Were other people left better off or worse off by your choices in each case?

    Prob 1 6. This morning you made the following individual choices: you bought a bagel and coffee at the local café, you drove to school in your car during rush hour, and you typed your roommate’s term paper because you are a fast typist—in return for which she will do your laundry for a month. For each of these actions, describe how your individual choices interacted with the individual choices made by others. Were other people left better off or worse off by your choices in each case?
  7. The Hatfield family lives on the east side of the Hatatoochie River, and the McCoy family lives on the west side. Each family’s diet consists of fried chicken and corn-on-the-cob, and each is self-sufficient, raising their own chickens and growing their own corn. Explain the conditions under which each of the following would be true.
    • Question

      The two families are made better off when the Hatfields specialize in raising chickens, the McCoys specialize in growing corn, and the two families trade.

      Prob 1 7a. The two families are made better off when the Hatfields specialize in raising chickens, the McCoys specialize in growing corn, and the two families trade.
    • Question

      The two families are made better off when the McCoys specialize in raising chickens, the Hatfields specialize in growing corn, and the two families trade.

      Prob 1 7b. The two families are made better off when the McCoys specialize in raising chickens, the Hatfields specialize in growing corn, and the two families trade.
  8. Which of the following situations describes an equilibrium? Which does not? If the situation does not describe an equilibrium, what would an equilibrium look like?
    • Question

      Many people regularly commute from the suburbs to downtown Pleasantville. Due to traffic congestion, the trip takes 30 minutes when you travel by highway but only 15 minutes when you go by side streets.

      Prob 1 8a. Many people regularly commute from the suburbs to downtown Pleasantville. Due to traffic congestion, the trip takes 30 minutes when you travel by highway but only 15 minutes when you go by side streets.
    • Question

      At the intersection of Main and Broadway are two gas stations. One station charges $3.00 per gallon for regular gas and the other charges $2.85 per gallon. Customers can get service immediately at the first station but must wait in a long line at the second.

      Prob 1 8b. At the intersection of Main and Broadway are two gas stations. One station charges $3.00 per gallon for regular gas and the other charges $2.85 per gallon. Customers can get service immediately at the first station but must wait in a long line at the second.
    • Question

      Every student enrolled in Economics 101 must also attend a weekly tutorial. This year there are two sections offered: section A and section B, which meet at the same time in adjoining classrooms and are taught by equally competent instructors. Section A is overcrowded, with people sitting on the floor and often unable to see the chalkboard. Section B has many empty seats.

      Prob 1 8c. Every student enrolled in Economics 101 must also attend a weekly tutorial. This year there are two sections offered: section A and section B, which meet at the same time in adjoining classrooms and are taught by equally competent instructors. Section A is overcrowded, with people sitting on the floor and often unable to see the chalkboard. Section B has many empty seats.
  9. In each of the following cases, explain whether you think the situation is efficient or not. If it is not efficient, why not? What actions would make the situation efficient?
    • Question

      Electricity is included in the rent at your dorm. Some residents in your dorm leave lights, computers, and appliances on when they are not in their rooms.

      Prob 1 9a. Electricity is included in the rent at your dorm. Some residents in your dorm leave lights, computers, and appliances on when they are not in their rooms.
    • Question

      Although they cost the same amount to prepare, the cafeteria in your dorm consistently provides too many dishes that diners don’t like, such as tofu casserole, and too few dishes that diners do like, such as roast turkey with dressing.

      Prob 1 9b. Although they cost the same amount to prepare, the cafeteria in your dorm consistently provides too many dishes that diners don’t like, such as tofu casserole, and too few dishes that diners do like, such as roast turkey with dressing.
    • Question

      The enrollment for a particular course exceeds the spaces available. Some students who need to take this course to complete their major are unable to get a space even though others who are taking it as an elective do get a space.

      Prob 1 9c. The enrollment for a particular course exceeds the spaces available. Some students who need to take this course to complete their major are unable to get a space even though others who are taking it as an elective do get a space.
  10. Discuss the efficiency and equity implications of each of the following policies. How would you go about balancing the concerns of equity and efficiency in these areas?
    • Question

      The government pays the full tuition for every college student to study whatever subject he or she wishes.

      Prob 1 10a. The government pays the full tuition for every college student to study whatever subject he or she wishes.
    • Question

      When people lose their jobs, the government provides unemployment benefits until they find new ones.

      Prob 1 10b. When people lose their jobs, the government provides unemployment benefits until they find new ones.
  11. Governments often adopt certain policies in order to promote desired behavior among their citizens. For each of the following policies, determine what the incentive is and what behavior the government wishes to promote. In each case, why do you think that the government might wish to change people’s behavior, rather than allow their actions to be solely determined by individual choice?
    • Question

      A tax of $5 per pack is imposed on cigarettes.

      Prob 1 11a. A tax of $5 per pack is imposed on cigarettes.
    • Question

      The government pays parents $100 when their child is vaccinated for measles.

      Prob 1 11b. The government pays parents $100 when their child is vaccinated for measles.
    • Question

      The government pays college students to tutor children from low-income families.

      Prob 1 11c. The government pays college students to tutor children from low-income families.
    • Question

      The government imposes a tax on the amount of air pollution that a company discharges.

      Prob 1 11d. The government imposes a tax on the amount of air pollution that a company discharges.
  12. In each of the following situations, explain how government intervention could improve society’s welfare by changing people’s incentives. In what sense is the market going wrong?
    • Question

      Pollution from auto emissions has reached unhealthy levels.

      Prob 1 12a. Pollution from auto emissions has reached unhealthy levels.
    • Question

      Everyone in Woodville would be better off if streetlights were installed in the town. But no individual resident is willing to pay for installation of a streetlight in front of his or her house because it is impossible to recoup the cost by charging other residents for the benefit they receive from it.

      Prob 1 12b. Everyone in Woodville would be better off if streetlights were installed in the town. But no individual resident is willing to pay for installation of a streetlight in front of his or her house because it is impossible to recoup the cost by charging other residents for the benefit they receive from it.
  13. Question

    On August 2, 2010, Tim Geithner, the Treasury secretary, published an article defending the administration’s policies. In it he said, “The recession that began in late 2007 was extraordinarily severe. But the actions we took at its height to stimulate the economy helped arrest the free fall, preventing an even deeper collapse and putting the economy on the road to recovery.” Which two of the three principles of economy-wide interaction are at work in this statement?

    Prob 1 13. On August 2, 2010, Tim Geithner, the Treasury secretary, published an article defending the administration’s policies. In it he said, “The recession that began in late 2007 was extraordinarily severe. But the actions we took at its height to stimulate the economy helped arrest the free fall, preventing an even deeper collapse and putting the economy on the road to recovery.” Which two of the three principles of economy-wide interaction are at work in this statement?
  14. Question

    In August 2007, a sharp downturn in the U.S. housing market reduced the income of many who worked in the home construction industry. A Wall Street Journal news article reported that Walmart’s wire-transfer business was likely to suffer because many construction workers are Hispanics who regularly send part of their wages back to relatives in their home countries via Walmart. With this information, use one of the principles of economy-wide interaction to trace a chain of links that explains how reduced spending for U.S. home purchases is likely to affect the performance of the Mexican economy.

    Prob 1 14. In August 2007, a sharp downturn in the U.S. housing market reduced the income of many who worked in the home construction industry. A Wall Street Journal news article reported that Walmart’s wire-transfer business was likely to suffer because many construction workers are Hispanics who regularly send part of their wages back to relatives in their home countries via Walmart. With this information, use one of the principles of economy-wide interaction to trace a chain of links that explains how reduced spending for U.S. home purchases is likely to affect the performance of the Mexican economy.
  15. Question

    In 2005, Hurricane Katrina caused massive destruction to the U.S. Gulf Coast. Tens of thousands of people lost their homes and possessions. Even those who weren’t directly affected by the destruction were hurt because businesses failed or contracted and jobs dried up. Using one of the principles of economy-wide interaction, explain how government intervention can help in this situation.

    Prob 1 15. In 2005, Hurricane Katrina caused massive destruction to the U.S. Gulf Coast. Tens of thousands of people lost their homes and possessions. Even those who weren’t directly affected by the destruction were hurt because businesses failed or contracted and jobs dried up. Using one of the principles of economy-wide interaction, explain how government intervention can help in this situation.
  16. Question

    During the Great Depression, food was left to rot in the fields or fields that had once been actively cultivated were left fallow. Use one of the principles of economy-wide interaction to explain how this could have occurred.

    Prob 1 16. During the Great Depression, food was left to rot in the fields or fields that had once been actively cultivated were left fallow. Use one of the principles of economy-wide interaction to explain how this could have occurred.
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