How Do Interest Rates Affect Household Saving

An important decision that every person faces is how much income to consume today and how much to save for the future. We can use the theory of consumer choice to analyze how people make this decision and how the amount they save depends on the interest rate their savings will earn. Consider the decision facing Sam, a worker planning ahead for retirement. To keep things simple, let's divide Sam's life into two periods. In the first period, Sam is young and working. In the second period, he is...

Cost Curves And Their Shapes

Thirsty Thelma Lemonade Graph

Just as in previous chapters we found graphs of supply and demand useful when analyzing the behavior of markets, we will find graphs of average and marginal cost useful when analyzing the behavior of firms. Figure 13-5 graphs Thelma's costs using the data from Table 13-2. The horizontal axis measures the quantity the firm produces, and the vertical axis measures marginal and average costs. The graph shows four curves average total cost ATC , average fixed cost AFC , average variable cost AVC ,...

Case Study The Microsoft Case

Monopolist Now Just Wait Minute

The most important and controversial antitrust case in recent years has been the U.S. government's suit against the Microsoft Corporation, filed in 1998. Certainly, the case did not lack drama. It pitted one of the world's richest men Bill Gates against one of the world's most powerful regulatory agencies the U.S. Justice Department . Testifying for the government was a prominent economist MIT professor Franklin Fisher . Testifying for Microsoft was an equally prominent economist MIT professor...

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The New York Times Nov. 30, 1993 reported that the inability of OPEC to agree last week to cut production has sent the oil market into turmoil . . . leading to the lowest price for domestic crude oil since June 1990. a. Why were the members of OPEC trying to agree to cut production b. Why do you suppose OPEC was unable to agree on cutting production Why did the oil market go into turmoil as a result c. The newspaper also noted OPEC's view that producing nations outside the organization, like...

Johnny Rockabilly Has Just Finished Recording His Latest Cd. His Record Company S Marketing Department Determines That

If the author were paid 3 million instead of 2 million to write the book, how would this affect the publisher's decision regarding the price to charge Explain. f. Suppose the publisher were not profit-maximizing but were concerned with maximizing economic efficiency. What price would it charge for the book How much profit would it make at this price 2. Suppose that a natural monopolist were required by law to charge average total cost. On a diagram, label the price charged and the deadweight...

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Government spending in the United States has grown as a share of national income over time. What changes in our economy and our society might explain this trend Do you expect the trend to continue 2. In a published source or on the Internet, find out whether the U.S. federal government had a budget deficit or surplus last year. What do policymakers expect to happen over the next few years Hint The Web site of the Congressional Budget Office is www.cbo.gov. 3. The information in many of the...

Your Enterprising Uncle Opens A Sandwich Shop That Employs 7 People. The Employees Are Paid 6 Per Hour And A Sandwich

Suppose that the president proposes a new law aimed at reducing heath care costs All Americans are to be required to eat one apple daily. a. How would this apple-a-day law affect the demand and equilibrium price of apples b. How would the law affect the marginal product and the value of the marginal product of apple pickers c. How would the law affect the demand and equilibrium wage for apple pickers Henry Ford once said It is not the employer who pays wages he only handles the money. It is...

Suppose The Landlord Lets The Tenants Do Whatever They Want According To The Coase Theorem

Do you agree with the following statements Why or why not a. The benefits of Pigovian taxes as a way to reduce pollution have to be weighed against the deadweight losses that these taxes cause. b. A negative production externality calls for a Pigovian tax on producers, whereas a negative consumption externality calls for a Pigovian tax on consumers. 2. Consider the market for fire extinguishers. a. Why might fire extinguishers exhibit positive externalities in consumption b. Draw a graph of...

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If a new customer offers to pay your roommate 300 for one dose, should she make one more Explain. The licorice industry is competitive. Each firm produces 2 million strings of licorice per year. The strings have an average total cost of 0.20 each, and they sell for 0.30. a. What is the marginal cost of a string b. Is this industry in long-run equilibrium Why or why not 4. You go out to the best restaurant in town and order a lobster dinner for 40. After eating half of the lobster, you realize...

Calculate Marginal Revenue And Marginal Cost For Each Quantity. Graph Them. Hint Put The Points Between Whole Numbers.

How much should the firm produce to maximize profit b. Calculate marginal revenue and marginal cost for each quantity. Graph them. Hint Put the points between whole numbers. For example, the marginal cost between 2 and 3 should be graphed at 2 1 2. At what quantity do these curves cross How does this relate to your answer to part a c. Can you tell whether this firm is in a competitive industry If so, can you tell whether the industry is in a long-run...

In The N Ews

In competitive markets, strong demand leads to high prices and high profits, which then lead to increased entry, falling prices, and falling profits. To economists, these market forces are one reflection of the invisible hand at work. To the business managers, however, new entry and falling profits can seem like a problem of overinvestment. In Some Industries, Executives Foresee Tough Times Ahead By Bernard Wysocki, Jr. MONTEREY, CALIF. About 20 executives are huddled in a conference room with...

Market Demand Versus Individual Demand

Supplycurve For Ice Cream Company

So far we have talked about an individual's demand for a product. To analyze how markets work, we need to determine the market demand, which is the sum of all the individual demands for a particular good or service. Catherine's Demand T Nicholas's Demand Ice-Cream Cones Ice-Cream Cones Ice-Cream Cones Ice-Cream Cones a graph of the relationship between the price of a good and the quantity demanded a Latin phrase, translated as other things being equal, used as a reminder that all variables...

Suppose That Congress Imposes A Tariff On Imported Autos

The United States represents a small part of the world orange market. a. Draw a diagram depicting the equilibrium in the U.S. orange market without international trade. Identify the equilibrium price, equilibrium quantity, consumer surplus, and producer surplus. b. Suppose that the world orange price is below the U.S. price before trade, and that the U.S. orange market is now opened to trade. Identify the new equilibrium price, quantity consumed, quantity produced domestically, and quantity...

Should Tiger Woods Mow His Own Lawn

Tiger Woods spends a lot of time walking around on grass. One of the most talented golfers of all time, he can hit a drive and sink a putt in a way that most casual golfers only dream of doing. Most likely, he is talented at other activities too. For example, let's imagine that Woods can mow his lawn faster than anyone else. But just because he can mow his lawn fast, does this mean he should To answer this question, we can use the concepts of opportunity cost and comparative advantage. Let's...

Ketchup Is A Complement For Hot Dogs. If The Price Of Hot Dogs Rises What Happens To The Market For Ketchup For

Explain each of the following statements using supply- a. When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country. b. When the weather turns warm in New England every summer, the prices of hotel rooms in Caribbean resorts plummet. c. When a war breaks out in the Middle East, the price of gasoline rises, while the price of a used Cadillac falls. 2. An increase in the demand for notebooks raises the quantity of notebooks demanded, but not the...

Case Study Rent Control In The Short Run And Long

Rent Control Short Run And Long Run

One common example of a price ceiling is rent control. In some cities, the local government places a ceiling on rents that landlords may charge their tenants. The goal of this policy is to help the poor by making housing more affordable. Economists often criticize rent control, arguing that it is a highly inefficient way to help the poor raise their standard of living. One economist called rent control the best way to destroy a city, other than bombing. The adverse effects of rent control are...