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explain under what circumstances an individual's labor supply curve would be vertical.

An article in the Wall Street Journal gave the following explanation of how products were
traditionally priced at Parker-Hannifin Corporation: For as long as anyone at the 89-year-old
company could recall, Parker used the same simple formula to determine prices of its 800,000
parts-from heat-resistant seals for jet en

A columnist writing in the Wall Street Journal argues that because "hourly wages in real terms"
rose, the "price of time" also rose. What is the "price of time"? Is the columnist correct that when
real hourly wages rise, the price of time increases? Briefly explain.

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What is price discrimination? Under what circumstances can a firm successfully practice price
discrimination?

Ed Scahill has acquired a monopoly on the production of baseballs (don't ask how) and faces the
demand and cost situation shown in the following table. a. Fill in the remaining values in the
table. b. If Ed wants to maximize profit, what price should he charge, and how many baseballs
should he sell? How much profit (

Why are there superstar basketball players but no superstar plumbers?

Suppose California has many apple trees, and the price of apples there is low. Nevada has few
apple trees, and the price of apples there is high. Abner buys low-priced California apples and
ships them to Nevada, where he resells them at a high price. Is Abner exploiting Nevada
consumers by doing this? Is Abner likely t

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Most cities own the water system that provides water to homes and businesses. Some cities
charge a flat monthly fee, while other cities charge by the gallon. Which method of pricing is
more likely to result in economic efficiency in the water market? Be sure to refer to the
definition of economic efficiency in your ans

What is perfect price discrimination? Is it likely to ever occur? Is perfect price discrimination
economically efficient? Briefly explain.

In most universities, economics professors receive larger salaries than English professors.
Suppose that the government requires that from now on, all universities must pay economics
professors the same salaries as English professors. Use demand and supply graphs to analyze the
effect of this requirement.

In 2015, the Rock and Roll Hall of Fame and Museum charged adults $25.85 for admission.
Seniors (65 years and older) and military personnel were charged $20.50, and children between 9
and 12 years old were charged $16.25. Use the admission fees to rank these groups based on
their elasticity's of demand from highest to

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Walt Disney World charges residents of Florida lower prices for theme park tickets than it
charges non-Florida residents. For example, in 2015, an adult Florida resident was charged
$201.29 for a three-day ticket. The price of the same package for a non-Florida resident was
$275.00. a. What is Disney assuming about Fl

An article in the Wall Street Journal discussed why the hotel workers' union in New York City
was against a proposal for more hotels to be built in Midtown Manhattan: "The union is
concerned that rapid hotel development shrinks room prices and profit margins, driving down the
wages of its members." Is the union's reaso

Sam Goldwyn, a movie producer during Hollywood's Golden Age in the 1930s and 1940s, once
remarked about one of his stars: "We're overpaying him, but he's worth it." a. In what sense did
Goldwyn mean that he was overpaying this star? b. If he was overpaying the star, why would the
star have still been worth it?

A woman who owned a music store in New York City was quoted in an article in the Wall Street
Journal as "bemoaning the comparative salaries of tubists and stockbrokers. 'People should be
paid in terms of what they contribute to people's well being.'" a. Briefly explain on what basis
people are actually paid. b. Is th

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Use the information in Solved Problem 15.3 to answer the following questions. a. What will
Comcast do if the tax is $36.00 per month instead of $25.00? (Hint: Will its decision be different
in the long run than in the short run?) b. Suppose that the flat per-month tax is replaced with a
tax on the firm of $25.00 per

Is it possible to practice price discrimination across time? Briefly explain.

In the year 541, an outbreak of bubonic plague hit the Byzantine Empire. Because the plague was
spread by flea-infested rats that often lived on ships, ports were hit particularly hard. In some
ports, more than 40 percent of the population died. The emperor, Justinian, was concerned that
the wages of sailors were risin

The following comments were made by two employers regarding a proposed increase in the
federal minimum wage: Dillon Edwards, founder of Parlor Coffee: "[The increase] should
definitely be [to] more than [$8.75 an hour].... It needs to be at least in double digits." Beth
Fahey, owner of Creative Cakes: "If you raise t

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What is the purpose of the antitrust laws? Who is in charge of enforcing these laws?

A state law in California makes it illegal for businesses to charge men and women different
prices for dry cleaning, laundry, tailoring, or hair grooming. The state legislator who introduced
the law did so after a dry cleaner charged her more to have her shirts dry cleaned than to have her
husband's shirts dry cleaned.

During the nineteenth century, the U.S. Congress encouraged railroad companies to build
transcontinental railways across the Great Plains by giving them land grants. At that time, the
federal government owned most of the land on the Great Plains. The land grants consisted of the
land on which the railway was built and

Instacart is an Internet startup that offers home delivery of groceries. It buys the groceries in
regular brick-andmortar supermarkets, marks up the prices it pays, and then charges consumers
the higher prices in exchange for making home deliveries. According to an article in the Wall
Street Journal, Instacart marks up

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Prior to the early twentieth century, a worker who was injured on the job could collect damages
only by suing his employer. To sue successfully, the worker-or his family, if the worker had been
killed-had to show that the injury was due to the employer's negligence, that the worker did not
know the job was hazardous, a

In addition to discounting the price of computers purchased by students and faculty, Apple sells
certain computer models only to schools and universities. According to a discussion on the Mac
Rumors blog: Apple has quietly launched a lower cost $999 iMac for educational institutions this
morning. The new low-end model

Give an example of a firm using a two-part tariff as part of its pricing strategy.

One leading explanation for odd pricing is that it allows firms to trick buyers into thinking they
are paying less than they really are. If this explanation is correct, in what types of markets and
among what groups of consumers would you be most likely to find odd pricing? Should the
government ban this practice and f

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Writing on the Baseball Prospectus Web site, Dan Fox argued: "What a player is really worth
depends a great deal on the teams that are interested in signing him." Do you agree? Shouldn't a
baseball player with a particular level of ability be worth the same to every team? Briefly
explain.
Baseball writer Rany Jazayerli assessed then Kansas City Royals outfielder Jose Guillen as
follows: "Guillen has negative value the way his contract stands." How could a baseball player's
contract cause him to have negative value to a baseball team?

Joe Morgan is a sportscaster and former baseball player. After he stated that he thought the
salaries of Major League Baseball players were justif ied, a baseball fan wrote the following to
Rob Neyer, a sports columnist: Mr. Neyer, What are your feelings about Joe Morgan's comment
that players are justified in being

Explain why market power leads to a deadweight loss. Is the total deadweight loss from market
power for the economy large or small?

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Some people-usually business travelers-have a very strong desire to fly to a particular city on a
particular day, and airlines charge these travelers higher ticket prices than they charge other
people, such as families who are planning vacations months in advance. Some people really like
Big Macs, and other people only

What is yield management? Give an example of a firm using yield management to increase
profits.

Is using cost-plus pricing consistent with a firm maximizing profit? How does the elasticity of
demand affect the percentage price markup that firms use?

Does a product always have to sell for the same price everywhere? Briefly explain.

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Online newspapers can earn revenue from subscriptions and from advertisements. The more
readers who access the paper's site, the higher the advertising revenue the paper earns. To
increase revenue, in 2011 the New York Times began offering online subscriptions for $180 per
year. Anyone purchasing the subscription has u

A student argues: "If a monopolist finds a way of producing a good at lower cost, he will not
lower his price. Because he is a monopolist, he will keep the price and the quantity the same and
just increase his profit." Do you agree? Use a graph to illustrate your answer.

Look again at the section "The Department of Justice and FTC Merger Guidelines," which
begins on page 518. Evaluate the following situations. a. A market initially has 20 firms, each
with a 5 percent market share. Of the firms, 4 propose to merge, leaving a total of 17 firms in the
industry. Are the Department of Just

Daniel Hamermesh is an economist at the University of Texas who has done a great deal of
research on labor markets. According to an article in Forbes, Hamermesh writes that "below-
average-looking men earn 17% less than those considered good-looking, while below-average-
looking females earn 12% less than their attractiv

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Why would it be economically efficient to require a natural monopoly to charge a price equal to
marginal cost? Why do most regulatory agencies require natural monopolies to charge a price
equal to average cost instead?

Review the concept of externalities from Chapter 5, page 148. If a market is a monopoly, will a
negative externality in production always lead to production beyond the level of economic
efficiency? Use a graph to illustrate your answer. Externalities and Economic Efficiency When
you consume a Big Mac, only you benefi

What are the five most important variables that cause the market demand curve for labor to shift?

What are the three most important variables that cause the market supply curve of labor to shift?

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Frank Gunter owns an apple orchard. He employs 87 apple pickers and pays them each $8 per
hour to pick apples, which he sells for $1.60 per box. If Frank is maximizing profit, what is the
marginal revenue product of the last worker he hired? What is that worker's marginal product?

BMW sells cars in China at a price two to three times higher than in the United States. Some
people have purchased BMWs in the United States and exported them for resale in China. An
article in the Wall Street Journal quoted a spokesperson for BMW as stating, "Vehicles exported
to other countries undermine our pricing

Suppose that a perfectly competitive industry becomes a monopoly. Describe the effects of this
change on consumer surplus, producer surplus, and deadweight loss.

When homebuilders construct a new housing development, they usually sell to a single cable
television company the rights to lay cable. As a result, anyone buying a home in that
development is not able to choose between competing cable companies. Some cities have begun
to ban such exclusive agreements. Williams Township

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What is the law of one price? What is arbitrage?

Economist Richard Thaler of the University of Chicago notes that most economists consider
arbitrage to be one way "that markets can do their magic." Briefly explain the role arbitrage can
play in helping markets to work.
Between them, Zillow and Trulia have a very large share of the market for online real estate
listings. Real estate brokers who want to advertise their services next to online listings of houses
for sale have few other choices. Zillow and Trulia have considered merging. The two firms argue
that real estate agents have m

Does a monopolist have a supply curve? Briefly explain.

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An article in the New York Times reports that some firms request job applicants to report their
SAT scores, even when the job applicant is middle-aged and took the test decades before. The
article notes: SATs and other academic artifacts remain relevant in part because they are easy-if
imperfect-metrics for hiring man

According to Alan Krueger, an economist at Princeton University, the share of concert ticket
revenue received by the top 1 percent of all acts rose from 26 percent in 1982 to 56 percent in
2003. Does this information indicate that the top acts in 2003 must have been much better
performers relative to other acts than wa

In what sense do employers who discriminate pay an economic penalty? Is this penalty enough
to eliminate discrimination? Briefly explain.

Writer Mathew Yglesias disagrees with critics who claim that Amazon has a monopoly in the e-
book market: "Amazon doesn't have any kind of monopoly.... One important hint ... can be found
in its quarterly financial reports. That's where you find out about a company's profits." a. What
conditions would be necessary for

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Over time, the gap between the wages of workers with college degrees and the wages of workers
without college degrees has been increasing. Shouldn't this gap have increased the incentive for
workers to earn college degrees, thereby increasing the supply of college-educated workers and
reducing the size of the gap?

If the labor demand curve shifts to the left and the labor supply curve remains unchanged, what
will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your
answer with a graph.

Draw a graph like Figure 15.6 on page 518 that shows a merger lowering costs. On your graph,
show producer surplus and consumer surplus before a merger and consumer surplus and
producer surplus after a merger.

Suppose that the city has given Jorge a monopoly selling baseball caps at the local minor league
stadium. Use the following graph to answer the questions. a. What quantity will Jorge produce,
and what price will he charge? b. How much profit will Jorge earn? c. Review the definition of
allocatively efficiency. If Jo

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During the 1970s, many women changed their minds about whether they would leave the labor
force after marrying and having children or whether they would be in the labor force most of
their adult lives. In 1968, the National Longitudinal Survey asked a representative sample of
women aged 14 to 24 whether they expected t

After a federal court judge had found Apple guilty of conspiring with book publishers to raise e-
book prices, the Department of Justice recommended that the judge order Apple not to sign
agency pricing model contracts with publishers for five years. The publishers objected to the
recommendation, arguing that following

Would you expect a publishing company to use a strict cost-plus pricing system for all its books?
How might you find some indication about whether a publishing company actually is using cost-
plus pricing for all its books?

In 2012, some electronics firms began offering Ultra HD, often called 4K, televisions. These
televisions offer a crisper picture than conventional HD televisions. Initially, these televisions
had prices as high as $20,000. One electronics industry analyst was quoted in a news story as
saying, "By the end of 2013, price

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Consider the natural monopoly shown in Figure 15.7. Assume that the government regulatory
agency sets the regulated price, PR, at the level of average total cost at which the demand curve
intersects the ATC curve. If the firm knows that it will always be able to charge a price equal to
its average total cost, does it h

The following table shows the market shares during the first three months of 2015 for companies
in the U.S. personal computer (PC) market, which includes desk-based PCs and mobile PCs,
such as mini-notebooks, but not tablet computers, such as iPads: Company Market Share
Hewlett-Packard............................

Use the following graphs to answer the questions. a. What is the equilibrium quantity of trash
collectors hired, and what is the equilibrium wage? b. What is the equilibrium quantity of
receptionists hired, and what is the equilibrium wage? c. Briefly discuss why trash collectors
might earn a higher weekly wage than

When asked what was most valuable about the big data Disney was collecting from its
MagicBands program, the executive in charge of the program stated, "The biggest value comes
from being able to segment customers into better, smarter segments so you know what is going
on and can act on those segments." Briefly explain

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An article in the Wall Street Journal on the use of driverless trucks at Rio Tinto's Australian
mines observes, "The new equipment cut many driving jobs.... But the reductions will be partly
offset by new types of work. The company now needs more network technicians ... a hybrid of
electrical and mechanical engineering

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?

Prices for many goods are higher in the city of Shenzhen on the mainland of China than in the
city of Hong Kong. An article in the Economist notes that "individuals can arbitrage these
differences through what effectively amounts to smuggling." a. Explain what the article means
when it notes that individuals can "arbi

Use the following Lorenz curve graph to answer the questions. a. Did the distribution of income
become more equal in 2016 than it was in 2015, or did it become less equal? Briefly explain. b.
If area A = 2,150, area B = 250, and area C = 2,600, calculate the Gini coefficient for 2015 and
the Gini coefficient for 2016

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Economic historians Roger Ransom and Richard Sutch have estimated that African-American
farmers in the U.S. South worked about 30 percent fewer hours per year after the Civil War than
they had as slaves before the Civil War. If after the Civil War, African-American farmers had
continued to work these additional hours,

An article in the Economist on the work of the late Nobel Laureate James Buchanan made the
following observation: "It was important ... to understand the ways that government could fail
systematically." a. What does government failure mean in this context? How does public choice
theory help us to understand how govern

An article in the Wall Street Journal notes that many economists believe that GDP data for India
are unreliable because "the average firm employs just a handful of people and the overwhelming
majority of the adult population works off the books and far from major cities." a. What does the
article mean by working "off

Sean Astin, who played the hobbit Sam in The Lord of the Rings movies, wrote the following
about an earlier film he had appeared in: "Now I was in a movie I didn't respect, making obscene
amounts of money (five times what a teacher makes, and teachers do infinitely more important
work)." Are salaries determined by the

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Why do economists often use a lower poverty threshold for low-income countries than for high-
income countries such as the United States? Is there a difference between relative poverty and
absolute poverty? Briefly explain.

The following table lists hypothetical values. a. Fill in column (4) by calculating real GDP using
the GDP deflator with a base year of 2014 from column (3). Fill in column (7) by calculating real
GDP using the GDP deflator with a base year of 2016 from column (6). b. Fill in column (5) by
calculating the annual perc

a. Find the values for the most recent quarter for Gross Domestic Product (GDP) and Gross
National Product (GNP). b. Given these values, explain whether foreign production by U.S.
firms exceeded U.S. production by foreign firms. Go to the Web site of the Federal Reserve
Bank of St. Louis (FRED) (research.stlouisfed.o

Evaluate the following statement: "Policies to redistribute income are desperately needed in the
United States. Without such policies, the roughly 15 percent of the population that is currently
poor has no hope of ever climbing above the poverty line."

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An article in the New York Times on President Obama's unsuccessful attempt to eliminate tax
benefits for college savings accounts notes, "In theory, tax reform is supposed to be built around
cutting back preferences like these, in order to pay for some combination of lower tax rates and
tax preferences aimed at people

In a column in the Washington Post, Robert J. Samuelson wrote: "As for what's caused greater
inequality, we're also in the dark. The Reagan and Bush tax cuts are weak explanations, because
gains have occurred in pretax incomes.... Up to a point, inequality is inevitable and desirable." a.
What are pretax incomes? b.

Michael Burda of Humboldt University in Germany and Daniel Hamermesh of the University of
Texas examined how workers in the United States who lost their jobs spent their time. They
discovered that during the period when the workers were unemployed, the decline in the number
of hours of paid work these workers did was a

Suppose the government decides to tax sales of pizzas. Use the following graph to answer the
questions. a. How much of a per unit tax did the government impose on pizzas? b. Before the tax,
what price do consumers pay for pizza? How does the price consumers pay change after the tax?
c. Before the tax, what price do
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In Chapter 4, we discussed the federal government's agricultural programs. In arguing that the
costs of these programs exceed their benefits, economist Vincent H. Smith stated, "The 10% to
15% of farm families that receive more than 85% of all farm subsidies-amounting to millions of
dollars a year in a few cases-have a

Briefly discuss the effect of price elasticity of supply and demand on tax incidence.

In equilibrium, what determines the price of capital? What determines the price of natural
resources? What is an economic rent?

Suppose the information in the following table is for a simple economy that produces only four
goods and services: shoes, hamburgers, shirts, and cotton. Assume that all the cotton is used in
the production of shirts. a. Use the information in the table to calculate real GDP for 2016 and
2017, assuming that the base y

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According to an article in the Economist, "China's GDP grew by 7% in the second quarter, which
was higher than had been expected." Is it likely that the article is referring to the change in
nominal GDP or the change in real GDP? Briefly explain.

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. Eventually,
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 the tire

An article in the Economist on the revisions to Nigeria's GDP commented, "The GDP revision is
not mere trickery. It provides a truer picture of Nigeria's size by giving due weight to the bits of
the economy, such as telecoms, banking and the Nollywood film industry, that have been
growing fast in recent years." a. Wha

In a competitive labor market, imposing a minimum wage should reduce the equilibrium level of
employment. Will this result still hold if the labor market is a monopsony? Briefly explain.

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What is gross domestic income? Which component of gross domestic income is the largest?

Many companies that pay workers an hourly wage require some minimum level of acceptable
output. Suppose a company that has been using this system decides to switch to a piece-rate
system under which workers are compensated on the basis of how much output they produce. Is
it likely that workers under a piece-rate system
Use the following graph of the market for cigarettes to answer the questions. a. If the government
imposes a 10-cent-per-pack tax on cigarettes, will the price consumers pay rise more if the
demand curve is D1 or if the demand curve is D2? Briefly explain. b. If the government imposes
a 10-cent-per-pack tax on cigare

The late Nobel Laureate James Buchanan, who was one of the key figures in developing the
public choice model, wrote, "The relevant difference between markets and politics does not lie in
the kinds of values/interests that persons pursue, but in the conditions under which they pursue
their various interests." Do you agr

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Many political observers have noted that Republican presidential candidates tend to emphasize
their conservative positions on policy issues while running for their party's nomination, and
Democratic presidential candidates tend to emphasize their liberal positions on policy issues
while running for their party's nomina

Why in microeconomics do we measure production in terms of quantity, but in macroeconomics


we measure production in terms of market value?

Suppose Turkey has many of its citizens temporarily working in other countries, and many of its
firms have facilities in other countries. Furthermore, relatively few citizens of foreign countries
are working in Turkey, and relatively few foreign firms have facilities in Turkey. In these
circumstances, which would you e

Almost all states levy sales taxes on retail products, but about half of them exempt purchases of
food. In addition, virtually all services are exempt from state sales taxes. Evaluate these tax rate
differences, using the goals and principles of taxation discussed on pages 605-607.

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The total amount of oil in the earth is not increasing. Does this mean that in the market for oil,
the supply curve is perfectly inelastic? Briefly explain.

The federal government imposes a tax on sales of cigarettes. The following data are from a
Gallup poll: Percentage Who Smoke, by Annual Household Income Income Percentage Who
Smoke Less than $12,000.................................34% $12,000-$35,999.....................................28
$36,000-$59,999.......

Describe the main factors economists believe cause inequality of income.

Business historian John Steele Gordon noted in a Wall Street Journal column that the first federal
corporate income tax was enacted in 1909, before passage of the Sixteenth Amendment made a
federal income tax constitutional. According to Gordon, Congress enacted the corporate income
tax because of "the political pressu
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An article in the Wall Street Journal states that a "change in ... inventories subtracted 0.57
percentage point from" what would have been the increase in GDP. For this result to occur, must
there have been an increase or a decrease in inventories? Briefly explain.

a. Find the values for the most recent quarter for these three variables: (1) Gross Private
Domestic Investment (GPDI); (2) Private Nonresidential Fixed Investment (PNFI); and (3)
Private Residential Fixed Investment (PRFI). b. Use these values to calculate the difference
between private domestic investment and reside

According to the 2004 Economic Report of the President, "Another crucial principle [of tax
incidence] is that only people can pay taxes. Businesses and other artificial entities cannot pay
taxes." Do you agree that businesses cannot pay taxes? Don't businesses pay the federal
corporate income tax? Briefly explain.

Briefly explain whether you agree with the following argument: The median voter theorem will
be an accurate predictor of the outcomes of elections when a majority of voters have preferences
very similar to those of the median voter. When the majority of voters have preferences very
different from those of the median v

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Why does the size of a country's GDP matter? How does it affect the quality of life of the
country's people?

Use the information in Table 18.2 on page 602 to calculate the total federal income tax paid, the
marginal tax rate, and the average tax rate for people with the following incomes. (For
simplicity, assume that these people have no exemptions or deductions from their incomes.) a.
$25,000 b. $125,000 c. $300,000

A typical U.S. worker today works fewer than 40 hours per week, while in 1890, he or she
worked 60 hours per week. Does this difference in the length of work weeks matter in comparing
the economic well-being of U.S. workers today with that of 1890? Or can we use the difference
between real GDP per capita today and in 1

What are the differences between national income, personal income, and disposable personal
income?

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President Barack Obama proposed legislation that Congress failed to enact that would have
included the so-called "Buffett Rule," named after billionaire Warren Buffett, who noted that he
was paying a lower tax rate than his secretary. The Buffett Rule would set a new tax rate for
those earning incomes of more than $1 m
Through the 2014 season, Nick Saban's record as the head football coach at the University of
Alabama was 86 wins and 17 losses. His $7 million salary is the highest received by any college
football coach. One sports writer described Saban as the most underpaid college football coach.
In what sense might Saban be underp

Suppose the government eliminates the income tax and replaces it with a consumption tax. With
a consumption tax, individuals pay a tax on only the part of their income they spend rather than
save. Think about the effect of this change on the market for automobiles. Can you necessarily
tell what will happen to the price

Suppose that a simple economy produces only four goods: shoes, hamburgers, shirts, and cotton.
Assume that all the cotton is used in the production of shirts. Use the information in the
following table to calculate nominal GDP for 2017.

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Define poverty line and poverty rate. How has the poverty rate changed in the United States
since 1960?

The following table shows data from the Organization for Economic Co-operation and
Development (OECD) on the average number of hours employed people worked per week and
on real GDP per capita for seven countries. The average German worker worked 8 fewer hours
but earned $9,000 less per year than did the average worker

If piece-rate or commission systems of compensating workers have important advantages for


firms, why don't more firms use them?

Briefly discuss each of the five goals and principles governments consider when deciding which
taxes to use.

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What are the two ways that the productivity of a firm's employees may increase when a firm
moves from straight-time pay to commission or piece-rate pay?

An article in the Wall Street Journal about attempts by Congress to rewrite the tax code to make
it more efficient noted that there were many provisions in the code intended to reduce the taxes
paid by industries in districts of the members of Congress supporting the provisions. In total,
these provisions result in tax

Suppose the amount the federal government collects in personal income taxes increases, while
the level of GDP remains the same. What will happen to the values of national income, personal
income, and disposable personal income?
When the contact lens firm discussed in the Making the Connection implemented a new
compensation plan, who benefited from the change? Is it likely that there were any losers from
the change? Briefly explain.

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Many people have predicted, using a model like the one in panel (b) of Figure 17.12 below, that
the price of natural resources should rise consistently over time in comparison with the prices of
other goods because the demand curve for natural resources is continually shifting to the right,
while the supply curve must

An article in the Wall Street Journal explained that the 10 wealthiest four-year colleges in the
United States accounted for one-third of the total cash and investments held by all four-year
colleges. The 40 wealthiest colleges accounted for two-thirds of all the cash and investments. A
blog entry for an economics cour

Describe the trend in global poverty rates.

A column in the New York Times observes that the "growing trend of 'assortative mating' is a
major cause of income inequality." a. What is assortative mating? b. How can assortative mating
contribute to income inequality? c. If assortative mating is a major cause of income inequality,
what are the likely consequence

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Draw a Lorenz curve showing the distribution of income for the five people in the following
table. Name Annual Earnings Lena..........................................$70,000
David..........................................60,000 Steve...........................................50,000
Jerome......................

Which type of tax raises the most revenue for the federal government? What is the largest source
of revenue for state and local governments?

Adam operates a pin factory. Suppose Adam faces the situation shown in the following table and
the cost of renting a machine is $550 per week. a. Fill in the blank cells in the table and
determine the profit-maximizing number of machines for Adam to rent. Briefly explain why
renting this number of machines is profit m

Briefly explain whether each of the following transactions represents the purchase of a final
good. a. The purchase of flour by a bakery b. The purchase of an aircraft carrier by the federal
government c. The purchase of French wine by a U.S. consumer d. The purchase of a new
airliner by American Airlines

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What is the relationship between market failure and government failure?

Which of the following are likely to increase measured GDP, and which are likely to reduce it?
a. The fraction of women working outside the home increases. b. There is a sharp increase in the
crime rate. c. Higher tax rates cause some people to hide more of the income they earn.

Governments often have multiple objectives in imposing a tax. In each part of this question, use
a demand and supply graph to illustrate your answer. a. If the government wants to minimize the
excess burden from excise taxes, should these taxes be imposed on goods that have price-elastic
demand or goods that have pric

According to Dan Sichel, an economist at Wellesley College, the amount of time a singer spends
working on a record album in a recording studio is "quite analogous to a factory investing in a
new machine." Do you agree? Briefly explain.

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In 2012, Congress and President Barack Obama passed legislation raising tax rates on families
earning $450,000 or more. Did this change in the law make the U.S. tax system more progressive
or less progressive? Be sure to provide definitions of progressive tax and regressive tax in your
answer.

Why is GDP an imperfect measure of economic wellbeing? What types of production does GDP
not measure? If GDP included these types of production, would it still be an imperfect measure
of economic well-being?

What is the GDP deflator, and how is it calculated?

In 1879, economist Henry George published Progress and Poverty, which became one of the
best-selling books of the nineteenth century. In this book, George argued that all existing taxes
should be replaced with a single tax on land. Tax incidence refers to the actual division of the
burden of a tax between buyers and se

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An article in the New York Times about former Secretary of State Hillary Clinton's campaign for
president noted that she proposed to "increase taxes on the wealthiest Americans to combat a
widening gap between rich and poor." a. Currently, does the effect of federal taxes make the
distribution of income more or less e

What is the difference between the voting paradox and the Arrow impossibility theorem?

Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/
fred2/). a. Find the values for the most recent two years for Real Exports of Goods and Services
(EXPGSCA) and Real Imports of Goods and Services (IMPGSCA). b. Compute the value of net
exports for each of the two most recent

Discuss the extent of income inequality in the United States. Has inequality in the distribution of
income in the United States increased or decreased over time? Briefly explain.

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Why does inflation make nominal GDP a poor measure of the increase in total production from
one year to the next? How does the U.S. Bureau of Economic Analysis deal with this drawback?

An article in the New York Times describes the much greater use of cash, as opposed to checks
and credit cards, in buying and selling in China. The article describes someone bringing several
bags of cash containing the equivalent of $130,000 into a car dealership to buy a new BMW.
Another article notes, "Many economist

What is rent seeking, and how is it related to regulatory capture?

Briefly discuss the accuracy of the following statement: "Corporate profits are much too high:
Most corporations make profits equal to 50 percent of the price of the products they sell."

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An article in the Economist on the Irish economy argues, "Irish progress, both economic and
fiscal, is typically measured using GDP.... But for an economy where foreign firms are so
dominant, GNP ... is more relevant." Briefly explain the writer's reasoning.

Will the preferences shown in the following table lead to a voting paradox? Briefly explain.

According to the 2004 Economic Report of the President, "The actual incidence of a tax may
have little to do with the legal specification of its incidence." Briefly explain what this statement
means and discuss whether you agree with it.

In an article in the Wall Street Journal, Edward Lazear of Stanford University was quoted as
saying, "There is some good news.... Most of the inequality reflects an increase in returns to
'investing in skills.'" Why would it be good news if it were true that most of the income
inequality in the United States reflected

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Many state governments use lotteries to raise revenue. If we think of a lottery as a type of tax, is
a lottery likely to be progressive or regressive? What data would you need to determine whether
the effect of a lottery is progressive or regressive?

Currently, the Social Security and Medicare programs are funded by payroll taxes rather than by
the federal personal income tax. In 2015, the payroll tax for Social Security was 12.4 percent on
wage, salary, and self-employment income up to $118,500. (Half of the tax is collected from
employers and half from employees.

Use the following table to answer the questions. Annual Income Tax Liability
$15,000........................................$0 30,000......................................4,500
45,000....................................11,250 60,000....................................21,000
75,000...............................

a. Find the values for the most recent quarter for these four variables: (1) Personal Consumption
Expenditures (PCEC); (2) Personal Consumption Expenditures: Durable Goods (PCDG): (3)
Personal Consumption Expenditures: Nondurable Goods (PCND); and (4) Personal
Consumption Expenditures: Services (PCESV). b. What percen

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a. Find the values for the most recent quarter for these three variables: (1) Personal Income
(PINCOME); (2) Disposable Personal Income (DPI); and (3) Personal Consumption
Expenditures (PCEC). b. Use these values to calculate the difference between personal income
and disposable personal income. What does this value r

Suppose that a country has 20 million households. Ten million are poor households that each
have labor market earnings of $20,000 per year, and 10 million are rich households that each
have labor market earnings of $80,000 per year. If the government enacted a marginal tax of 10
percent on all labor market earnings abo

An artist buys scrap metal from a local steel mill as a raw material for her metal sculptures. Last
year, she bought $5,000 worth of the scrap metal. During the year, she produced 10 metal
sculptures that she sold for $800 each to a local art store. The local art store sold all of the
sculptures to local art collectors

Which component of GDP will be affected by each of the following transactions involving Ford
Motor Company? If you believe that none of the components of GDP will be affected by a
transaction, briefly explain why. a. You purchase a new Ford Escape hybrid from a Ford dealer.
b. You purchase a 2011 Ford Escape hybrid f

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Briefly explain whether you agree with the following statements. a. "If nominal GDP is less than
real GDP, then the price level must have fallen during the year." b. "Whenever real GDP
declines, nominal GDP must also decline." c. "If a recession is so severe that the price level
declines, then we know that both real

Use the data in the following table to calculate the GDP deflator for each year (values are in
billions of dollars): Year Nominal GDP Real GDP
2010.....................$14,964.....................$14,784 2011.......................15,518.......................15,021
2012.......................16,163............

What is the difference between a marginal tax rate and an average tax rate? Which is more
important in determining the effect of a change in taxes on economic behavior?

If you were attempting to forecast the level of consumption spending by households, which
measure of total production or total income might be most helpful to you in making your
forecast? Briefly explain.

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An article in the Wall Street Journal discussed the views of Canadian Minister of Finance Joe
Oliver on the effect of falling oil prices on the Canadian economy. According to the article,
Oliver argued that "lower oil prices would have a broadly neutral impact on real ... gross
domestic product, but have a negative eff

Describe the four major components of expenditures in GDP and write the equation that
represents the relationship between GDP and the four expenditure components.

If the U.S. Bureau of Economic Analysis added up the values of every good and service sold
during the year, would the total be larger, smaller, or equal to GDP? Briefly explain.

What is a Lorenz curve? What is a Gini coefficient? If a country had a Gini coefficient of 0.48 in
1960 and 0.44 in 2016, would income inequality in the country have increased or decreased?

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NIKE, Inc., with its Canadian headquarters in Thornhill, Ontario, is one of the world's lead- ing
manufacturers of athletic shoes and sports apparel. The following activities occurred during a
recent year. The amounts are presented in millions of dollars. a. Purchased $216 in equipment;
paid by signing a $5 long-term

Is the value of a house built in 2006 and resold in 2017 included in the GDP of 2017? Briefly
explain. Would the services of the real estate agent who helped sell (or buy) the house in 2017 be
counted in GDP for 2017? Briefly explain.

According to a study, the number of jobs in which firms used bonuses, commissions, or piece
rates to tie workers' pay to their performance increased from an estimated 30 percent of all jobs
in the 1970s to 40 percent in the 1990s. Why would systems that tie workers' pay to how much
they produce have become increasingly

Assuming that inflation has occurred over time, what is the relationship between nominal GDP
and real GDP in each of the following situations? a. In the years after the base year b. In the base
year c. In the years before the base year
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A student remarks, "It doesn't make sense that intermediate goods are not counted in GDP. A
computer chip is an intermediate good, and without it, a laptop won't work. So, why don't we
count the computer chip in GDP?" Provide an answer to the student's question.

Assume that the Cheesecake Factory reported the following information for the fiscal year ended
January 2, 2014. Amounts are in thousands of dollars Required Prepare the four basic financial
statements for the fiscal year ended January 2, 2014.

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