# Statistics and Microeconomics math

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1. We often hear you can lie with statistics. This is one way of saying statistics can be easily miscommunicated.  Find one example of how statistics are miscommunicated and explain why there was a miscommunication and what you would do to correct this problem.

2. Using probability: How can you use probability to improve your chances of winning at a casino. Provide specific examples using concepts learned in this module.

3. Outliers: We know many types of data fall into a normal distribution with most of the observations falling toward the middle. However, sometimes data are outliers or data that are very different—larger or smaller—from the rest of the members of the sample. Think of an example in the real world of an outlier and discuss its effect.

4. Errors in testing: Think of one example of a Type I and Type II error in everyday life and comment on the ramifications of those errors.

5. Association: We know association does not imply causation, but what does this mean in your own words. Provide and discuss an example of two variables that are associated but not by a cause and effect relationship.

6. How does Adam Smith's concept of the invisible hand explain why markets move toward equilibrium? Do market participants need to know about the invisible hand for it to function? Explain your answer.

7. Use the demand curve graph found at the following link to answer the questions that follow.

Demand Curve

·

·  How would point A be represented as an ordered (x,y) pair?

·  What does this D1 curve show?

·  Does this D1 curve show a positive or negative correlation between price and quantity?

·  Compute the slope of D1 between points A and C.

·  What is the slope of D1 between points C and E? Why would you not have to calculate this answer?

·  What is it called if we move from curve D1 to curve D2?

·  How do you know that the slope of D2 is the same as the slope of D1?

8.  Use the demand curve graph found in the following link to answer the questions (same graph as used in previous question):

Demand Curve

·

·  Using the midpoint method, calculate the the elasticity of demand between points A and C, C and E. and B and D.

·  As quantity demanded moves from point A to point E does the elasticity of demand become unitary at some point? Why or why not?

9.  What is the difference between a positive statement and a normative statement? Determine whether each of the following statements is positive or normative.

·

·  The minimum wage creates unemployment among young and unskilled workers.

·  The minimum wage ought to be abolished.

·  If the price of a product in a market decreases, other things equal, quantity demanded will increase.

·  A little bit of inflation is worse for society than a little bit of unemployment.

·  There is a tradeoff between inflation and unemployment in the short run.

·  If consumer income increases, other things equal, the demand for automobiles will increase.

·  The U.S. income distribution is not equitable.

·  U.S. workers deserve more liberal unemployment benefits.

·  If interest rates increase, investment will decrease.

·  If welfare benefits were reduced, the country would be better off.

10.  Gary and Diane must prepare a presentation. As part of their presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It would take Gary 10 hours to do the required calculation and 10 hours to prepare the slides. It would take Diane 12 hours to do the calculations and 20 hours to prepare the slides.

·

·  How much time would it take the two to complete the project if they divide the calculations equally and the slides equally?

·  How much time would it take the two to complete the project if they use comparative advantage and specialize in calculating or preparing slides?

·  If Diane and Gary have the same opportunity cost of \$5 per hour, is there a better solution than for each to specialize in calculating or preparing slides?

11.  Thoroughly describe the characteristics of each of the following market types. Give an example of a firm in each market type and explain how it meets the criteria for that market type.

·

·  Perfect competition

·  Monopoly

·  Oligopoly

·  Monopolistic competition

12. Use the graph found at the link below to answer the questions that follow. Your answer for each question should be a letter.

·

·  The elastic section of the graph is represented by section ___.

·  The inelastic section of the graph is represented by section ___.

·  The unit elastic section of the graph is represented by section ___.

·  The portion of the graph in which a decrease in price would cause total revenue to fall would be ___.

·  The portion of the graph in which a decrease in price would cause total revenue to rise would be ___.

·  The portion of the graph in which a decrease in price would not cause a change in total revenue would be ___.

·  The section of the graph in which total revenue would be at a maximum would be ___.

·  The section of the graph in which elasticity is greater than 1 is ___

·  The section of the graph in which elasticity is equal to 1 is ___.

·  The section of the graph in which elasticity is less than 1 is ___.

13. Use the graph found at the link below to answer the questions that follow.

a.  What is the effect of a \$300 price ceiling on this market? Would this be a binding price ceiling?

b.  What is the effect of a \$700 price floor on this market? Would this be a binding price floor?

c.  Why would policymakers choose to impose a price ceiling or price floor on a market?

14.  The government decides that eating ice cream is a socially desirable activity and passes a law giving consumers 50 cents for each ice cream cone they eat. What is likely to happen in the marketplace once this policy is in effect? What are consumers likely to do? How are suppliers likely to respond?

15.  Answer each of the following questions on supply and producer surplus.What is producer surplus, and how is it measured? What is the relationship between the cost to sellers and the supply curve? Other things equal, what happens to producer surplus when the price of a good rises?

16.  Explain Arthur Laffer’s theory of tax rates relative to tax revenue. What is the effect of a tax on the deadweight loss? Why is it sometimes difficult to predict what will happen when a tax rate is decreased or increased?

17.  Describe both quotas and tariffs. How do they impact domestic prices and deadweight loss? How does an import quota differ from an equivalent tariff? What is best for a nation as a whole: a tariff, a quota, or free trade? Explain your answer.

18.   Although most economists agree that free trade is beneficial for a country, there are numerous arguments against free trade. Describe five of the arguments against free trade.

19.  Describe the Coase theorem, which suggests that efficient solutions to externalities can be arrived at through bargaining. Explain how this happens. Under what circumstances does bargaining fail to produce a solution?

20.  Why do wild salmon populations face the threat of extinction while pet goldfish populations are in no such danger?

21.  Define and explain the terms income tax and consumption tax. What would be the benefits of taxing consumption and not income?

22.  List the federal government's three most important sources of tax revenue. How do these differ from your state government's three most important sources of tax revenue and those of local government? Why do you think that these different government entities use different tax bases?

23.  Examine the table at the following link, which shows what four consumers willing to pay for a haircut:

Consumer Willingness to Pay Table

The next link includes a table that shows what four businesses charge for a haircut:

Each business can produce no more than one haircut.

·

·  In the most efficient world, which companies should cut hair and which customers should get a haircut? (Note: It might be less than 4.)

·  How large is the maximum possible total surplus and what is the least possible surplus?

24.  At its current level of production, a profit-maximizing firm in a competitive market receives \$12.50 for each unit it produces and faces an average total cost of \$10. At the market price of \$12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1000 units. What is the firm's current profit? What is likely to occur in this market, and why?

25.  Under what conditions should a firm shut down production in the short run? Under what conditions should a firm shut down in the long run? Explain the difference between the short and long run conditions.

26.  Define and explain the relationship between total revenue, average revenue, and marginal revenue for a monopolist. What is monopoly profit? Should a monopolist produce quantities of product greater than that which would maximize profits?

27. In what ways can a government create a monopoly? Why might a government do this?

28.  Explain the output effect and the price effect for an oligopoly. How does each influence the oligopolist's production decision?

29. What is a natural monopoly? How does a natural monopoly lead to lower costs than would exist if there were more than one firm in an industry that is a natural monopoly?

30. Entry of firms in a monopolistically competitive industry is characterized by two "external" effects. What are these effects and how do they affect a monopolistically competitive firm. How are consumers and incumbent firms influenced by these externalities?

31.  Does a monopolistic competitor produce more or less output as compared to an efficient level of production? Explain. What are the benefits and drawbacks of this? Should the government intervene to alter this?

32.  In order to determine whether his time is being spent optimally, over the past year a commercial fisherman has recorded the information shown in table at the following link; he has recorded the hours he has spent per day fishing and the quantity of fish caught. What is the marginal product of fish per hour spent?

Fisherman's Table

The fisherman has a fixed cost of \$200 per day and variable costs of \$150 per hour (wages and fuel).

Fill in the information missing in the following table.

Table to Complete

The fish sell for for \$100 a ton. How many hours fishing per day he work in order to earn a maximum profit on his day's activity? And how much is that profit? Please show all of your calculations.

33. Labor is the only input used by a perfectly competitive firm. It hires workers for \$50 a day. The firm's production function is as shown in the following Table. (The table will open in a new window.) Each unit of output sells for \$10.

·

·  Complete the table to show the marginal product of labor and the value of the marginal product of labor.

·  How many days of labor should the firm hire? Explain.

34.  Describe the factors of production. What are the returns to these factors (their price)? Describe the marginal products of each factor and how the value of the marginal product of each factor is determined.

35.  Describe the process by which the market for capital and the market for labor reach equilibrium. What happens to each if demand for the final product were to increase? Why?

36. Do consumers play a role in perpetuating discrimination in labor markets? If so, how? If not, explain the reasoning for your answer.

37. Explain the concept of diminishing marginal utility. Since all goods are scarce, does diminishing marginal utility contradict the statement that individuals always want more of all goods?

38. Describe each of the four properties of indifference curves.

39.  Describe and explain the budget constraint. How does a consumer maximize utility under a given budget constraint? How do consumers know if they are not maximizing utility?

40. Explain what is meant by "asymmetric information." Identify and explain the two basic types of problems that arise when there is asymmetric information.

41. Explain the Condorcet Paradox, the failure of majority rule to produce transitive preferences for society. Explain Arrow’s impossibility theorem. What does this say about society's choices?

42.  When prices change, the income effect and substitution effect both contribute to the impact on quantities consumed. Explain how both affect a consumer's utility maximization.

43. Public policies often alter the costs and benefits of private actions. Why is it important for policy makers to consider both the direct and indirect effects of public policies? Select a particular public policy with which you are familiar and discuss two positive and two negative aspects of that policy. What goal do you think the policy makers were trying to achieve in effecting that policy? Do you believe it was successful? Why or why not?

44. Give an example of a monopoly and an example of perfect competition. Explain how each of your examples matches the textbook definition of that market structure.

45. Why is the concept of elasticity important? What does it tell economists? Choose an industry with which you are familiar and tell whether you would classify it as either elastic or inelastic in the short run and long run. (Keep in mind that we are talking here about supply elasticity, not demand elasticity.) Explain your answer using determinants of elasticity.

·46. What happens to the gains from trade when a tax is imposed? Choose an industry in which you work or with which you are familiar. How would a tax affect sales, supplier revenue, and consumer buying power in that industry?

·47.Give an example of a positive and a negative externality. Would a Coasean solution resolve the economic efficiency of the externalities you cite? Why or why not?

·48. In Costa Rica, only a few beaches remain that are nesting grounds for sea turtles. Some of those beaches have communities situated near them; traditionally, the local people collected the turtle eggs and sold them for their purported aphrodisiac powers. As a result, sea turtle populations became endangered. To protect the sea turtle populations, the Costa Rican government gave each family in these villages ownership of a portion of the beach to do with as the family pleases, including the harvesting and selling of sea turtle eggs. Sea turtle populations have started to increase. The economic rationale for this action has to do with the differences between public, common, and private goods. Select an example of your choosing that would display how the government could take an action (or has actually taken one) that might change how a resource would be treated in the future. Take a look at common resources (such as the turtles) and use your own example to explain the economic rationale for a positive result.

·49. Explain the statement: "Fixed costs exist only in the short run. In the long run there are no fixed costs." Why might the time frame for the "short run" differ from one industry to the next? Provide examples of two industries with different time frames for the short run. Explain why this is the case.

50.  In your text (refer to Chapter 17, Figure 4) you see a common resources game that asks "Should we drill another well or not?" Consider this game and describe what the dominant strategy is (as per your text). Consider what will happen if this becomes a repetitive game (both oil companies knowing they will share many oil fields over the next years). Will the dominant strategy survive, and—if not—what strategy could emerge as "best?"

51. Brand names can be important to the success of a firm in some industries. Consider industries that demonstrate monopoly, monopolistic competition, oligopoly, and perfect competition. What is the goal of creating a brand name for each of these market structures? What does the brand name do to the demand curve for the product? What is the role of advertising in each of the four market structures? As you answer these question, illustrate your points with original examples

·52. What are the factors that affect pay differentials? How does each factor increase or decrease relative wages?  Explain how discrimination can cause pay differentials between men and women in similar occupations. Explain how factors other than discrimination could affect relative wages.

53. Much has been made of the fact that people don't consistently act with scientific rationality. What is meant by rationality? Consider the three "systematic mistakes" discussed in your text. What are the costs of making those "systematic mistakes"? Is it possible to act "irrationally," or is rationality defined by the individual's approach to decision making?

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