Problems
19 . Would you usually expect of or supply to be higher in the or in the ? Why? 20 . Under which circumstances does the tax burden fall entirely on consumers? 21 . What is the formula for the of ? 22 . What is the formula for the ? 23 . What is the formula for the ? 24 . What is the formula for with respect to interest rates?
Critical Thinking Questions
25 . Transatlantic air travel in business class has an estimated of of 0.40, while transatlantic air travel in economy class has an estimated of 0.62. Why do you think this is the case? 26 . What is the relationship between and position on the ? For example, as you move up the to higher prices and lower quantities, what happens to the measured ? How would you explain that? 27 . Can you think of an industry (or product) with near of supply in the short term? That is, what is an industry that could increase Qs almost without limit in response to an increase in the ? 28 . Would you expect supply to play a more significant role in determining the of a basic necessity like food or a luxury like perfume? Explain. Hint: Think about how the will differ between necessities and luxuries. 29 . A city has built a bridge over a river and it decides to charge a toll to everyone who crosses. For one year, the city charges a variety of different tolls and records information on how many drivers cross the bridge. The city thus gathers information about of demand. If the city wishes to raise as much revenue as possible from the tolls, where will the city decide to charge a toll: in the inelastic portion of the demand curve, the elastic portion of the demand curve, or the unit elastic portion? Explain. 30 . In a market where the supply curve is perfectly inelastic, how does an excise tax affect the price paid by consumers and the quantity bought and sold? 31 . Economists define normal goods as having a positive income elasticity. We can divide normal goods into two types: Those whose income elasticity is less than one and those whose income elasticity is greater than one. Think about products that would fall into each category. Can you come up with a name for each category? 32 . Suppose you could buy shoes one at a time, rather than in pairs. What do you predict the cross-price elasticity for left shoes and right shoes would be?
Problems
33 . The equation for a is P = 48 – 3Q. What is the in moving from a quantity of 5 to a quantity of 6? 34 . The equation for a is P = 2/Q. What is the of as falls from 5 to 4? What is the of as the falls from 9 to 8? Would you expect these answers to be the same? 35 . The equation for a supply curve is 4P = Q. What is the of supply as rises from 3 to 4? What is the of supply as the price rises from 7 to 8? Would you expect these answers to be the same? 36 . The equation for a supply curve is P = 3Q – 8. What is the elasticity in moving from a price of 4 to a price of 7? 37 . The supply of paintings by Leonardo Da Vinci, who painted the Mona Lisa and The Last Supper and died in 1519, is highly inelastic. Sketch a supply and demand diagram, paying attention to the appropriate elasticities, to illustrate that demand for these paintings will determine the price. 38 . Say that a certain stadium for professional football has 70,000 seats. What is the shape of the supply curve for tickets to football games at that stadium? Explain. 39 . When someone’s kidneys fail, the person needs to have medical treatment with a dialysis machine (unless or until they receive a kidney transplant) or they will die. Sketch a supply and demand diagram, paying attention to the appropriate elasticities, to illustrate that the supply of such dialysis machines will primarily determine the price. 40 . Assume that the supply of low-skilled workers is fairly elastic, but the employers’ demand for such workers is fairly inelastic. If the policy goal is to expand employment for low-skilled workers, is it better to focus on policy tools to shift the supply of unskilled labor or on tools to shift the demand for unskilled labor? What if the policy goal is to raise wages for this group? Explain your answers with supply and demand diagrams.
FIGURE 6.1The Great At times, such as when many people having trouble making ends meet, it is easy to tell how the economy is doing. This photograph shows people lined up during the Great , waiting for relief checks. At other times, when some are doing well and others are not, it is more difficult to ascertain how the economy of a country is doing. (Credit: modification of “Waiting for relief checks. Calipatria, California” by Dorothea Lange/Library of Congress Prints and Photographs Division Washington, D.C. 20540 USA, Public Domain)
In this chapter, you will learn about:
- Measuring the Size of the Economy: Gross Domestic Product
- Adjusting Nominal Values to Real Values
- Tracking over Time
- Comparing GDP among Countries
- How Well GDP Measures the Well-Being of Society
BRING IT HOME How is the Economy Doing? How Does One Tell? The 1990s were boom years for the U.S. economy. Beginning in the late 2000s, from 2007 to 2014, economic performance in the U.S. was poor. The economy experienced another period of strong growth between 2014 and 2019, before COVID-19 rocked the world economy in March and April of 2020. What causes the economy to expand or contract? Why do businesses fail when they are making all the right decisions? Why do workers lose their jobs when they are hardworking and productive? Are bad economic times a failure of the system? Are they a
Text from Principles of Macroeconomics 3e, OpenStax, licensed CC BY-NC-SA 4.0. Access for free at openstax.org.
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