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Consumer preferences for various commodities did not change during the analysis. In some situations, however, preferences do change as consumption occurs.
What is the difference between ordinal utility and cardinal utility? Explain why the assumption of cardinal utility is not needed in order to rank consumer choices.
What happens to the marginal rate of substitution as you move along a convex indifference curve? A linear indifference curve?
In 1998, Americans smoked 470 billion cigarettes. The average retail price was $2 per pack. Statistical studies have shown that the price elasticity of demand is -0.4, and the price elasticity of supp
Now, suppose the U.s. government wants to buy enough wheat to raise the price to $350 per bushel With this drop in export demand, how much wheat would the government have to buy? How much would this c
If both the agency and the board are right about demand and supply, what is the free-market price? What is the change in city population if the agency sets a maximum average monthly rent of $100 and a
Suppose that rather than the declining demand assumed in Example 2.7, a decrease in the cost of copper production causes the supply curve to shift to the right by 40 percent. How will the price of cop
Where P is the price of the product and Ps is the price of a substitute good. The price of the substitute good is $2.00. a. Suppose P = $1.00. What is the price elasticity of demand? What is the cross
Use supply and demand curve shifts to illustrate the effect of the following events on the market for apples. Make clear the direction of the change in both price and quantity sold
Suppose the government regulates the prices of beef and chicken and sets them below their market clearing levels. Explain why shortages of these goods will develop and what factors will determine the
If a 3-percent increase in the price of corn flakes causes a 6-percent decline in the quantity demanded, what is the elasticity of demand?
At the time this book went to print, the minimum wage was $5.85. To find the current value of the CPI, go to Click on Consumer Price Index-All Urban Consumers (Current Series) and select U.S. All item
Fast-food chains like McDonald"s, Burger King, and Wendy"s operate all over the United States. Therefore, the market for fast food is a national market.
Suppose that the Japanese yen rises against the U.S. dollar-that is, it will take more dollars to buy a given amount of Japanese yen. Explain why this increase simultaneously increases the real price
Suppose real GDP is $10,000 billion and the basic expenditure multiplier is two. If two tax changes are made at the same time:
Find the equilibrium level of GDP. Next, find the multipliers for government purchases and for fixed taxes. If full employment comes at Y 5 1,800, what are some policies that would move GDP to that le
Explain how your answers to Test Yourself Question 5 would differ if each of the assumptions changed. Specifically, what sorts of changes in the assumptions would weaken the effects of monetary policy
The money supply (M) is the sum of bank deposits (D) plus currency in the hands of the public (call that C). Suppose the required reserve ratio is 20 percent and the Fed provides $50 billion in bank r
Since the recent recession of 2007-2009, there has been increasing disillusionment with the free market system. Critically analyse the view that the free market system is the best and only realistic a
It is often said that a good theory is one that can be refuted by an empirical, data-oriented study. Explain why a theory that cannot be evaluated empirically is not a good theory.
In a certain economy, the multiplier for government purchases is 2 and the multiplier for changes in fixed taxes is 1.5. The government then proposes to raise both spending and taxes by $100 billion.&
The federal budget for national defense increased substantially to pay for the Iraq and Afghanistan wars. How would GDP in the United States have been affected if this higher defense spending led to
Use an aggregate supply-and-demand diagram to show that multiplier effects are smaller when the aggregate supply curve is steeper. Which case gives rise to more inflation—the steep aggregate sup
Suppose a worker receives a wage of $20 per hour. Compute the real wage (money wage deflated by the price index) corresponding to each of the following possible price levels: 85, 95, 100, 110, 120.
Explain the basic logic behind the multiplier in words. Why does it require b, the marginal propensity to consume, to be between 0 and 1?