Reference no: EM13797568
Part 1:
1. What are the three questions all economies must answer?
2. All factors of production can be placed into four categories. List the four categories and give a brief description of each?
3. Explain why sunk costs are not included in a decision.
Part 2:
1. Use the production possibilities curve below to answer the following questions.
a. Complete a corresponding production possibilities table for Thompsonia
| Production Possibilities Table |
| Point |
Tanks Produced |
Trucks Produced |
| A |
|
|
| B |
|
|
| C |
|
|
| D |
|
|
| E |
|
|
| F |
|
|
b. Determine the opportunity cost for each decision.
I. Increasing production of tanks from 2 to 3.
II. Increasing production of tanks from 3 to 4.
III. Increasing the production of tanks from 4 to 5.
IV. Increasing the production of trucks from 0 to 1.
V. Increasing the production of trucks from 1 to 2.
VI. Increasing the production of trucks from 1 to 5.
c. can this economy produce 4 trucks and 4 tanks at the same time? Explain your answer.
d. What would your analysis of this economy be if Thompsonia only produced 3 tanks and 2 trucks?
e. Does this economy exhibit the law of increasing marginal opportunity cost? How do you know by looking at the graph?
2. Use the combined production possibilities curve below to answer the following questions.
a. What is the maximum amount of watches Switzerland can produce?
b. What is the maximum amount of watches Colombia can produce if they also decide to produce 400 bananas?
c. What is Switzerland's opportunity cost of producing watches?
d. What is Switzerland's opportunity cost of producing bananas?
e. What is Colombia's opportunity cost of producing watches?
f. What is Colombia's opportunity cost of producing bananas?
g. Who has the comparative advantage in producing watches? How do you know?
h. Who has the comparative advantage in producing bananas? How do you know?
i. Point D on the graph is clearly outside both countries production possibilities curve. Explain how both countries can reach point D?
j. Complete the table below.
| Combined PPC |
| Point |
Watches Produced |
Bananas Produced |
| A |
|
|
| B |
|
|
| C |
|
|
| D |
|
|
Part 3:
4a. How do businesses and households interact in the goods market?
4b. How do businesses and households interact in the factor market?
3. What are the three sectors of the U.S. Economy?
12. Complete the circular flow diagram below by correctly labeling each part of the economy.
Part 4:
5. What are the shift factors of demand?
6. What are the shift factors of supply?
3. Use the graph below to answer the following questions.
a. What is the equilibrium price in the market above?
b. What is the equilibrium quantity in the market above?
c. Will there be a shortage or a surplus at a price of $8.00. By how much?
d. Will there be a shortage or a surplus at a price of $2.00. By how much?
4. For each of the following situations, identify what shift factor is being described. Then, graphically illustrate the appropriate shirts in supply, demand, or both, and identify the effects on price and quantity by creating graphs below
a. U.S incomes decrease by 10% due to the current recession. Market for gasoline Shift Factor:
b. Congress decides to decrease income taxes on all individuals. Shift Factor:
c. A new housing development is constructed in your neighborhood, bringing 1000 new residents. Market for local grocery store products.
5. Use the graph below to graphically illustrate the imposition of a minimum wage. Identify any shortages or surpluses associated with the minimum wage.
8. Suppose an excise tax is levied on Blackberry phones. Use the graph below to answer the following questions.
a. What is the size of the tax imposed on Blackberry's?
b. Who physically pays the tax to the government?
c. What is the price of Blackberry's before and after the tax?
d. How much do producer's receive for each blackberry sold after the tax?
e. What is the amount of the tax burden to consumers?
f. What is the amount of the tax burden to producers?
g. What is the deadweight loss associated with the tax?
h. What is the tax revenue generated by the tax?
Part 6:
Using the concept of tax burden, explain how a tax increase to the rich (business owners/corporations) will affect everyone, not just the rich and businesses who are paying the tax.
Use the tax tables below to answer the following questions:
|
Tax Structure A
|
|
Income
|
Marginal
Tax Rate
|
|
0. $8,350
|
10%
|
|
$8,351 - $33,950
|
15%
|
|
$33,951 - $82,250
|
25%
|
|
$82,251 - $171,550
|
28%
|
|
$171,551 - 5372,950
|
33%
|
|
$372,950+
|
35%
|
|
Tax Structure B
|
|
Income
|
Marginal
Tax Rate
|
|
0 - $8,350
|
20%
|
|
$8,351 - $33,950
|
20%
|
|
$33,951 - $82,250
|
20%
|
|
$82,251 - $171,550
|
20%
|
|
$171,551 - $372,950
|
20%
|
|
$372,950 +
|
20%
|
|
Tax Structure C
|
|
Income
|
Marginal
Tax Rate
|
|
0. $8,350
|
35%
|
|
$8,351 - $33,950
|
33%
|
|
$33,951 - $82,250
|
28%
|
|
$82,251 - $171,550
|
25%
|
|
$171,551 - $372,950
|
15%
|
|
$372,950 +
|
10%
|
2. Complete each sentence by filling in the blank with the appropriate term (progressive, regressive, or flat).
a. Tax structure A is a __________________ tax rate.
b. Tax structure B is a __________________ tax rate.
c. Tax structure C is a __________________ tax rate.
3. Calculate how much income tax you would have to pay for the following amounts using tax structure A.
a. Income tax on $400,000 is ________________________
b. Income tax on $35,000 is _________________________
6. Suppose the government imposes an excise tax on the production of cigarettes of $10.00 per carton. Calculate the tax burden to both consumers and producers given the following elasticities.
a. Elasticity of demand = 1.5 Elasticity of supply = 0.5
Consumers tax burden = ____________ Producers tax burden = ____________
b. Elasticity of demand = 1.5 Elasticity of supply = 2.5
Consumers tax burden = ____________ Producers tax burden = ____________
Part 7:
1. Suppose a 10% change in the price of gasoline decreases the quantity of gasoline demanded by .5%. Calculate the elasticity of demand and determine whether the demand is elastic, inelastic, or unit elastic.
2. Suppose a rise in movie ticket prices from $8.00 to $10.00 reduces the quantity of tickets sold from 1000 to 600. Calculate the demand elasticity for movie tickets and determine whether the demand elasticity is elastic, inelastic, or unit elastic.
3. In 2010, an excise tax on the production of cigarettes increased the price of a pack of cigarettes from $4.00 to $5.00. This decreased the quantity of cigarettes demanded by 5%. Calculate the elasticity of demand and determine whether the demand is elastic, inelastic, or unit elastic.
7. Suppose incomes increase by 10%. As a result of the price increase, the quantity of BMW's increase by 25%. Calculate the income elasticity and determine whether the good is a normal good, an inferior good, or a luxury good.
Part 8:
Briefly explain the principle of diminishing marginal utility.
|
|
Total Utility
|
Marginal Utility
|
Marginal Utility
Per Dollar
|
|
Quantity
|
Slice of
Pizza
|
Double
Cheeseburger
|
Slice of
Pizza
|
Double
Cheeseburger
|
Slice of
Pizza
|
Double
Cheeseburger
|
|
0
|
0
|
0
|
-
|
-
|
-
|
-
|
|
1
|
20
|
36
|
|
|
|
|
|
2
|
38
|
66
|
|
|
|
|
|
3
|
54
|
87
|
|
|
|
|
|
4
|
68
|
105
|
|
|
|
|
|
5
|
78
|
105
|
|
|
|
|
|
6
|
84
|
102
|
|
|
|
|
|
7
|
84
|
93
|
|
|
|
|
|
8
|
80
|
78
|
|
|
|
|
1. Complete the table above.
2. Suppose Slices of Pizza costs $2 and a double cheeseburger costs #3. If you had a budget of $12, according to the table above, how much of each good would you purchase in order to maximize your utility?
3. What is the maximum utility you can get with your $12 if all you can is pizza and cheeseburgers?
4. Now, suppose double cheeseburgers go on sale for $2. What is the new utility maximizing combination given a $12 budget?
11. A Big Mac meal costs $3.00 giving you an additional 5 units of utility; a meal at the Four Season's Hotel costs $27.00 giving you an additional 50 units of utility. Based only on the information you have, using the theory of rational choice you would most likely:
A) choose to eat the Big Mac meal.
B) choose to eat at the Four Season's Hotel.
C) would be indifferent between eating the Big Mac and eating at the Four Season's Hotel.
D) will decide that eating at the Four Season's Hotel is preferable because though the marginal utilities of both the meals are the same, the total utility is greater in the case of the meal at the Four Season's Hotel.
Part 9:
1. Explain why the principle of diminishing marginal productivity only occurs in the short-run
2. Explain the relationship between the economic concept of diminishing marginal productivity and the principle of increasing marginal costs?
3. Complete the table below and answer the corresponding questions.
|
Output
|
Fixed Cost
|
Variable
Cost
|
Total
Cost
|
Marginal
Cost
|
Average
Fixed
Cost
|
Average
Variable
Cost
|
Average
Total
Cost
|
|
0
|
|
-
|
100
|
-
|
-
|
-
|
-
|
|
1
|
|
100
|
|
|
|
|
|
|
2
|
|
|
|
80
|
|
|
|
|
3
|
|
|
|
|
|
75
|
|
|
4
|
|
|
340
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
6
|
|
260
|
|
|
|
|
|
|
7
|
|
|
387
|
|
|
|
|
|
8
|
|
|
|
43
|
|
|
|
|
9
|
|
400
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
60
|
a. Is this a short-run or a long-run cost table? How do you know?
Part 10:
7. Complete the table below.
|
Output
|
Total
Cost
of Labor
|
Total
Cost
of Capital
|
Total Cost
|
Average
Total
Cost
|
|
1
|
100
|
250
|
|
|
|
2
|
150
|
450
|
|
|
|
3
|
200
|
625
|
|
|
|
4
|
250
|
750
|
|
|
|
5
|
300
|
850
|
|
|
|
6
|
350
|
1150
|
|
|
|
7
|
400
|
1490
|
|
|
|
8
|
450
|
1950
|
|
|
|
9
|
500
|
2290
|
|
|
|
10
|
550
|
2700
|
|
|
|
11
|
600
|
3140
|
|
|
|
12
|
650
|
3850
|
|
|
8. What range of production is this firm experiencing economies of scale?
9. What is the minimum efficient level of production?
10. At what point does diseconomies of scale set in?
Part 11:
3. Why do firms in a competitive market earn zero profits in the long run?
5. Explain why a perfectly competitive firm will still earn a positive accounting profit even though they earn zero economic profit?
6. What factors are necessary for a monopoly to exist?
Problems and Exercises:
1. Complete the table below and answer the corresponding questions.
|
P = MR
|
Output
|
Total
Revenue
|
Fixed
Cost
|
Variable
Cost
|
Total
Cost
|
Marginal
Cost
|
Average
Total
Cost
|
Prof it
|
|
20
|
0
|
|
|
|
50
|
|
-
|
|
|
|
|
|
|
'8
|
|
|
|
|
|
|
2
|
|
|
|
80
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
26
|
|
|
|
5
|
|
|
7Z.
|
|
|
|
|
|
|
6
|
|
|
|
|
25
|
|
|
|
|
7
|
|
|
|
'79
|
|
|
|
|
|
8
|
|
|
164
|
|
|
|
|
|
|
9
|
|
|
|
|
56
|
|
|
a. According to the table above, is this a perfectly competitive firm or a monopolist?
b. What is the profit maximizing level of output?
c. How much profit does this firm make at the profit maximizing level of output?
d. What is causing profit to decrease beyond the profit maximizing level of output?
2. Use the graphs below to answer the following questions
a. Is the firm pictured above experiencing positive or negative profits?
b. Draw and label the profit/loss rectangle on the graph of the firm.
c. Explain the process of returning to zero economic profits works.
d. Illustrate the process you explained in part c on the graphs above
5. Use the graph below to answer the following questions.
a. How many iPods would a perfectly competitive market produce?
b. What price would the perfectly competitive market charge?
c. How much profit would the perfectly competitive market make?
d. How many iPods would a monopolistic market produce?
e. What price would a monopolistic market charge?
f. How much profit will the monopolistic market make?
Part 12:
1. Name all the market structure(s) which applies to each of the following statements. (Perfect Competition, Monopoly, Monopolistic Competition, Oligopoly)
a. Earns zero economic profit in the long-run.
b. A market structure in which one firm makes up the entire market.
c. A market structure where positive short-run profits causes firms to enter the market
d. Market structure where collusion is most likely Significant barriers to entry exist.
e. Product differentiation is the main source of market power
f. The market structure with the greatest incentive advertise.
g. All firms sell identical products and have identical cost curves.
h. Firms engage in strategic decision making.
i. Price = average total cost in the long run
j. Price is greater that marginal revenue
k Price equals marginal revenue
l. Firms seek to maximize profits
m. Produces where marginal revenue = marginal cost
n. Market is made up of a small number of interdependent firms.
o. Firms face a perfectly elastic demand curve.
p. Market structure which the highest HHI.
2. Explain the difference between the cartel model of oligopoly and the contestable market model of oligopoly.
3. Why do firms in a monopolistically competitive market have and incentive to increase their total costs by advertising?
4. Why do we have laws against monopolies and collusive oligopolies?
1. Complete the table above
2. A competitive labor market would hire _______workers at a wage of ______________
3. Draw a graph illustrating the competitive markets hiring decision (two side-by-side graphs)
4. A mopsonistic labor market will hire _________ workers at a wage of ______________
Labor Markets
Use the table below to answer the following questions
|
Number
of
Workers
|
Total
Product
|
Marginal
Product
|
Average
Product
|
Price
|
MRP
|
MRC
|
Total
Labor
Cost
|
MFC
|
Marginal
Profit
|
|
27
|
270
|
|
|
$3.50
|
|
|
|
|
|
|
28
|
279
|
|
|
53.50
|
|
59.00
|
|
|
|
|
29
|
287
|
|
|
$3.50
|
|
$9.25
|
|
|
|
|
30
|
294
|
|
|
$3.50
|
|
$9.50
|
|
|
|
|
31
|
300
|
|
|
$3.50
|
|
$9.75
|
|
|
|
|
32
|
305
|
|
|
53.50
|
|
510.00
|
|
|
|
|
33
|
309
|
|
|
$3.50
|
|
$10.25
|
|
|
|
|
34
|
312
|
|
|
$3.50
|
|
$10.50
|
|
|
|
|
35
|
314
|
|
|
$3.50
|
|
$10.75
|
|
|
|
5. Draw a graph illustrating the monopsonistic markets hiring decision (two side-by-side graphs)
7. Now suppose a labor union successfully negotiated a labor contract setting wages at $14. What would this do to the competitive labor market depicted in the above table?
8. Draw a corresponding graph to your answer for question 7.
9. Now suppose a labor union successfully negotiated a labor contract setting wages at $14. What would this do to the monopolistic labor market depicted in the above table?
10. Draw a corresponding graph to your answer for question 9.
11. Suppose the demand for the firm's product has increased due to a change in preferences. The increase in demand increased the price of the good to $4.50.
a. Complete the table below for the new price level.
|
Number
of
Workers
|
Total
Product
|
Marginal Product
|
Average
Product
|
Price
|
MRP
|
MRC
|
Total
Labor
Cost
|
MFC
|
Marginal
Profit
|
|
27
|
270
|
|
|
|
|
|
|
|
|
|
28
|
279
|
|
|
|
|
$9.00
|
|
|
|
|
29
|
287
|
|
|
|
|
$9.25
|
|
|
|
|
30
|
294
|
|
|
|
|
$9.50
|
|
|
|
|
31
|
300
|
|
|
|
|
$9.75
|
|
|
|
|
32
|
305
|
|
|
|
|
$10.00
|
|
|
|
|
33
|
309
|
|
|
|
|
$10.25
|
|
|
|
|
34
|
312
|
|
|
|
|
$10.50
|
|
|
|
|
35
|
314
|
|
|
|
|
$10.75
|
|
|
|
b. As a result of the new price the new competitive wage rate is _______and ________workers will be employed
c. Draw two side-by-side graphs representing the derived demand for this firm's labor demand