曼昆微观经济学习题.doc

1. Describe some of the trade-offs faced by each ofthe following:a. a family deciding whether to buy a new carb. a member of Congress deciding how muchto spend on national parksc. a company president deciding whether toopen a new factoryd. a professor deciding how much to preparefor classe. a recent college graduate deciding whetherto go to graduate school2. You are trying to decide whether to take avacation. Most of the costs of the vacation (airfare,hotel, and forgone wages) are measured indollars, but the benefits of the vacation are psychological.How can you compare the benefitsto the costs?3. You were planning to spend Saturday workingat your part-time job, but a friend asks you togo skiing. What is the true cost of going skiing?Now suppose you had been planning to spendthe day studying at the library. What is the costof going skiing in this case? Explain.4. You win $100 in a basketball pool. You havea choice between spending the money now orputting it away for a year in a bank accountthat pays 5 percent interest. What is the opportunitycost of spending the $100 now?5. The company that you manage has invested$5 million in developing a new product, but thedevelopment is not quite finished. At a recentmeeting, your salespeople report that the introductionof competing products has reducedthe expected sales of your new product to$3 million. If it would cost $1 million to finishdevelopment and make the product, shouldyou go ahead and do so? What is the most thatyou should pay to complete development?6. The Social Security system provides income forpeople over age 65. If a recipient of SocialSecurity decides to work and earn someincome, the amount he or she receives in SocialSecurity benefits is typically reduced.a. How does the provision of Social Securityaffect peoples incentive to save whileworking?b. How does the reduction in benefits associatedwith higher earnings affect peoplesincentive to work past age 65?7. A 1996 bill reforming the federal governmentsantipoverty programs limited many welfarerecipients to only two years of benefits.a. How does this change affect the incentivesfor working?b. How might this change represent a trade-offbetween equality and efficiency?8. Your roommate is a better cook than you are,but you can clean more quickly than yourroommate can. If your roommate did all thecooking and you did all the cleaning, wouldyour chores take you more or less time than ifyou divided each task evenly? Give a similarexample of how specialization and trade canmake two countries both better off.9. Explain whether each of the following governmentactivities is motivated by a concern aboutequality or a concern about efficiency. In thecase of efficiency, discuss the type of marketfailure involved.a. regulating cable TV pricesb. providing some poor people with vouchersthat can be used to buy foodc. prohibiting smoking in public placesd. breaking up Standard Oil (which onceowned 90 percent of all oil refineries) intoseveral smaller companiese. imposing higher personal income tax rateson people with higher incomesf. instituting laws against driving whileintoxicated10. Discuss each of the following statements fromthe standpoints of equality and efficiency.a. “Everyone in society should be guaranteedthe best healthcare possible.”b. “When workers are laid off, they should beable to collect unemployment benefits untilthey find a new job.”11. In what ways is your standard of living differentfrom that of your parents or grandparentswhen they were your age? Why have thesechanges occurred?12. Suppose Americans decide to save more oftheir incomes. If banks lend this extra saving tobusinesses, which use the funds to build newfactories, how might this lead to faster growthin productivity? Who do you suppose benefitsfrom the higher productivity? Is society gettinga free lunch?13. In 2010, President Barack Obama and Congressenacted a healthcare reform bill in the UnitedStates. Two goals of the bill were to providemore Americans with health insurance (via subsidiesfor lower-income households financedby taxes on higher-income households) andto reduce the cost of healthcare (via variousreforms in how healthcare is provided).a. How do these goals relate to equality andefficiency?b. How might healthcare reform increase productivityin the United States?c. How might healthcare reform decrease productivityin the United States?14. During the Revolutionary War, the Americancolonies could not raise enough tax revenueto fully fund the war effort; to make up thisdifference, the colonies decided to print moremoney. Printing money to cover expendituresis sometimes referred to as an “inflation tax.”Who do you think is being “taxed” when moremoney is printed? Why?15. Imagine that you are a policymaker trying todecide whether to reduce the rate of inflation.To make an intelligent decision, what wouldyou need to know about inflation, unemployment,and the trade-off between them?16. A policymaker is deciding how to finance theconstruction of a new airport. He can eitherpay for it by increasing citizens taxes or byprinting more money. What are some of theshort-run and long-run consequences of eachoption?1. Draw a circular-flow diagram. Identify theparts of the model that correspond to the flowof goods and services and the flow of dollarsfor each of the following activities.a. Selena pays a storekeeper $1 for a quart ofmilk.b. Stuart earns $4.50 per hour working at a fastfoodrestaurant.c. Shanna spends $30 to get a haircut.d. Sally earns $10,000 from her 10 percentownershipof Acme Industrial.2. Imagine a society that produces military goodsand consumer goods, which well call “guns”and “butter.”a. Draw a production possibilities frontier forguns and butter. Using the concept of opportunitycost, explain why it most likely has abowed-out shape.b. Show a point that is impossible for the economyto achieve. Show a point that is feasiblebut inefficient.c. Imagine that the society has two politicalparties, called the Hawks (who want astrong military) and the Doves (who want asmaller military). Show a point on your productionpossibilities frontier that the Hawksmight choose and a point the Doves mightchoose.d. Imagine that an aggressive neighboringcountry reduces the size of its military. As aresult, both the Hawks and the Doves reducetheir desired production of guns by the sameamount. Which party would get the bigger“peace dividend,” measured by the increasein butter production? Explain.3. The first principle of economics discussed inChapter 1 is that people face trade-offs. Usea production possibilities frontier to illustratesocietys trade-off between two “goods”aclean environment and the quantity of industrialoutput. What do you suppose determinesthe shape and position of the frontier? Showwhat happens to the frontier if engineersdevelop a new way of producing electricitythat emits fewer pollutants.4. An economy consists of three workers: Larry,Moe, and Curly. Each works ten hours a dayand can produce two services: mowing lawnsand washing cars. In an hour, Larry can eithermow one lawn or wash one car; Moe can eithermow one lawn or wash two cars; and Curlycan either mow two lawns or wash one car.a. Calculate how much of each service is producedunder the following circumstances,which we label A, B, C, and D: All three spend all their time mowinglawns. (A) All three spend all their time washingcars. (B) All three spend half their time on eachactivity. (C) Larry spends half his time on each activity,while Moe only washes cars and Curlyonly mows lawns. (D)b. Graph the production possibilities frontierfor this economy. Using your answers topart (a), identify points A, B, C, and D onyour graph.c. Explain why the production possibilitiesfrontier has the shape it does.d. Are any of the allocations calculated in part(a) inefficient? Explain.5. Classify the following topics as relating tomicroeconomics or macroeconomics.a. a familys decision about how much incometo saveb. the effect of government regulations on autoemissionsc. the impact of higher national saving on economicgrowthd. a firms decision about how many workersto hiree. the relationship between the inflation rateand changes in the quantity of money6. Classify each of the following statements aspositive or normative. Explain.a. Society faces a short-run trade-off betweeninflation and unemployment.b. A reduction in the rate of money growth willreduce the rate of inflation.c. The Federal Reserve should reduce the rateof money growth.d. Society ought to require welfare recipients tolook for jobs.e. Lower tax rates encourage more work andmore saving.7. If you were president, would you be moreinterested in your economic advisers positiveviews or their normative views? Why?1. Maria can read 20 pages of economics in anhour. She can also read 50 pages of sociology inan hour. She spends 5 hours per day studying.a. Draw Marias production possibilities frontierfor reading economics and sociology.b. What is Marias opportunity cost of reading100 pages of sociology?2. American and Japanese workers can each produce4 cars a year. An American worker canproduce 10 tons of grain a year, whereas aJapanese worker can produce 5 tons of grain ayear. To keep things simple, assume that eachcountry has 100 million workers.a. For this situation, construct a table analogousto the table in Figure 1.b. Graph the production possibilities frontier ofthe American and Japanese economies.c. For the United States, what is the opportunitycost of a car? Of grain? For Japan, what is theopportunity cost of a car? Of grain? Put thisinformation in a table analogous to Table 1.d. Which country has an absolute advantage inproducing cars? In producing grain?e. Which country has a comparative advantagein producing cars? In producing grain?f. Without trade, half of each countrys workersproduce cars and half produce grain. Whatquantities of cars and grain does each countryproduce?g. Starting from a position without trade, givean example in which trade makes each countrybetter off.3. Pat and Kris are roommates. They spend mostof their time studying (of course), but they leavesome time for their favorite activities: makingpizza and brewing root beer. Pat takes 4 hoursto brew a gallon of root beer and 2 hours tomake a pizza. Kris takes 6 hours to brew a gallonof root beer and 4 hours to make a pizza.a. What is each roommates opportunity costof making a pizza? Who has the absoluteadvantage in making pizza? Who has thecomparative advantage in making pizza?b. If Pat and Kris trade foods with each other,who will trade away pizza in exchange forroot beer?c. The price of pizza can be expressed in termsof gallons of root beer. What is the highestprice at which pizza can be traded thatwould make both roommates better off?What is the lowest price? Explain.4. Suppose that there are 10 million workers inCanada and that each of these workers can produceeither 2 cars or 30 bushels of wheat in a year.a. What is the opportunity cost of producing acar in Canada? What is the opportunity costof producing a bushel of wheat in Canada?Explain the relationship between the opportunitycosts of the two goods.b. Draw Canadas production possibilities frontier.If Canada chooses to consume 10 millioncars, how much wheat can it consume withouttrade? Label this point on the productionpossibilities frontier.c. Now suppose that the United States offers tobuy 10 million cars from Canada in exchangefor 20 bushels of wheat per car. If Canadacontinues to consume 10 million cars, howmuch wheat does this deal allow Canada toconsume? Label this point on your diagram.Should Canada accept the deal?5. England and Scotland both produce scones andsweaters. Suppose that an English worker canproduce 50 scones per hour or 1 sweater perhour. Suppose that a Scottish worker can produce40 scones per hour or 2 sweaters per hour.a. Which country has the absolute advantage inthe production of each good? Which countryhas the comparative advantage?b. If England and Scotland decide to trade,which commodity will Scotland trade toEngland? Explain.c. If a Scottish worker could produce only 1sweater per hour, would Scotland still gainfrom trade? Would England still gain fromtrade? Explain.6. The following table describes the production possibilitiesof two cities in the country of Baseballia:Pairs of Red Socks Pairs of White Socksper Worker per Hour per Worker per HourBoston 3 3Chicago 2 1a. Without trade, what is the price of whitesocks (in terms of red socks) in Boston? Whatis the price in Chicago?b. Which city has an absolute advantage in theproduction of each color sock? Which city hasa comparative advantage in the production ofeach color sock?c. If the cities trade with each other, which colorsock will each export?d. What is the range of prices at which trade canoccur?7. Suppose that in a year an American workercan produce 100 shirts or 20 computers, whilea Chinese worker can produce 100 shirts or10 computers.a. Graph the production possibilities curve forthe two countries. Suppose that without tradethe workers in each country spend half theirtime producing each good. Identify this pointin your graph.b. If these countries were open to trade, whichcountry would export shirts? Give a specificnumerical example and show it on yourgraph. Which country would benefit fromtrade? Explain.c. Explain at what price of computers (in termsof shirts) the two countries might trade.d. Suppose that China catches up withAmerican productivity so that a Chineseworker can produce 100 shirts or 20 computers.What pattern of trade would youpredict now? How does this advancein Chinese productivity affect the economicwell-being of the citizens of the twocountries?8. An average worker in Brazil can produce anounce of soybeans in 20 minutes and an ounceof coffee in 60 minutes, while an average workerin Peru can produce an ounce of soybeans in50 minutes and an ounce of coffee in 75 minutes.a. Who has the absolute advantage in coffee?Explain.b. Who has the comparative advantage in coffee?Explain.c. If the two countries specialize and tradewith each other, who will import coffee?Explain.d. Assume that the two countries trade and thatthe country importing coffee trades 2 ouncesof soybeans for 1 ounce of coffee. Explain whyboth countries will benefit from this trade.9. Are the following statements true or false?Explain in each case.a. “Two countries can achieve gains from tradeeven if one of the countries has an absoluteadvantage in the production of all goods.”b. “Certain very talented people have a comparativeadvantage in everything they do.”c. “If a certain trade is good for one person, itcant be good for the other one.”d. “If a certain trade is good for one person, it isalways good for the other one.”e. “If trade is good for a country, it must begood for everyone in the country.”10. The United States exports corn and aircraft to therest of the world, and it imports oil and clothingfrom the rest of the world. Do you think this patternof trade is consistent with the principle ofcomparative advantage? Why or why not?11. Bill and Hillary produce food and clothing. Inan hour, Bill can produce 1 unit of food or 1 unitof clothing, while Hillary can produce 2 unitsof food or 3 units of clothing. They each work10 hours a day.a. Who has an absolute advantage in producingfood? Who has an absolute advantage in producingclothing? Explain.b. Who has a comparative advantage in producingfood? Who has a comparative advantagein producing clothing? Explain.c. Draw the production possibilities frontierfor the household (that is, Bill and Hillarytogether) assuming that each spends thesame number of hours each day as the otherproducing food and clothing.d. Hillary suggests, instead, that she specializein making clothing. That is, she will do all theclothing production for the family; however, ifall her time is devoted to clothing and they stillwant more, then Bill can help with clothingproduction. What does the household productionpossibilities frontier look like now?e. Bill suggests that Hillary specialize in producingfood. That is, Hillary will do all the foodproduction for the family; however, if all hertime is devoted to food and they still wantmore, then Bill can help with food production.What does the household production possibilitiesfrontier look like under Bills proposal?f. Comparing your answers to parts c, d, and e,which allocation of time makes the mostsense? Relate your answer to the theory ofcomparative advantage.1. Explain each of the following statements usingsupply-and-demand diagrams.a. “When a cold snap hits Florida, the price oforange juice rises in supermarkets throughoutthe country.”b. “When the weather turns warm in NewEngland every summer, the price of hotelrooms in Caribbean resorts plummets.”c. “When a war breaks out in the Middle East,the price of gasoline rises, and the price of aused Cadillac falls.”2. “An increase in the demand for notebooksraisesthe quantity of notebooks demanded butnot the quantity supplied.” Is this statementtrue or false? Explain.3. Consider the mark