microeconomics critical thinking questions

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Chapter 3. Applications of Demand and Supply

CRITICAL THINKING QUESTIONS

• Use the four-step process to analyze the impact of video-streaming on the equilibrium price and quantity of DVDs.
• Use the four-step process to analyze the impact of a reduction in tariffs on imports of a new technological product on the equilibrium price and quantity of a product that contains an older technology.
• Most government policy decisions have winners and losers. What are the effects of raising the minimum wage? It is more complex than simply, producers lose and workers gain? Who are the winners and who are the losers, and what exactly do they win and lose? To what extent does the policy change achieve its goals?
• Agricultural price supports result in governments holding large inventories of agricultural products. Why do you think the government cannot simply give the products away to those in need?
• Can you propose a policy that would induce the market to supply more rental housing units?
• What term would an economist use to describe what happens when a shopper gets a “good deal” on a product?
• Explain why voluntary transactions improve social welfare.
• Why would a free market never operate at a quantity greater than the equilibrium quantity? Hint: What would be required for a transaction to occur at that quantity?

UH Microeconomics 2019 Copyright © by Terianne Brown; Cynthia Foreman; Thomas Scheiding; and Openstax is licensed under a Creative Commons Attribution 4.0 International License , except where otherwise noted.

Principles of Microeconomics

2nd Edition

David Shapiro, Steven Greenlaw, Timothy Taylor

ISBN: 9781947172340

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9.8: Critical Thinking Questions

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ALCOA does not have the monopoly power it once had. How do you suppose their barriers to entry were weakened?

Why are generic pharmaceuticals significantly cheaper than name brand ones?

For many years, the Justice Department has tried to break up large firms like IBM, Microsoft, and most recently Google, on the grounds that their large market share made them essentially monopolies. In a global market, where U.S. firms compete with firms from other countries, would this policy make the same sense as it might in a purely domestic context?

Intellectual property laws are intended to promote innovation, but some economists, such as Milton Friedman, have argued that such laws are not desirable. In the United States, there is no intellectual property protection for food recipes or for fashion designs. Considering the state of these two industries, and bearing in mind the discussion of the inefficiency of monopolies, can you think of any reasons why intellectual property laws might hinder innovation in some cases?

Imagine that you are managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price, and you have calculated that you can make a nice profit charging 10% less than the monopolist. Before you go ahead and challenge the monopolist, what possibility should you consider for how the monopolist might react?

If a monopoly firm is earning profits, how much would you expect these profits to be diminished by entry in the long run?

Critical Thinking Questions

Suppose you have a team of two workers: one is a baker and one is a chef. Explain why the kitchen can produce more meals in a given period of time if each worker specializes in what they do best than if each worker tries to do everything from appetizer to dessert.

Why would division of labor without trade not work?

Can you think of any examples of free goods, that is, goods or services that are not scarce?

A balanced federal budget and a balance of trade are secondary goals of macroeconomics, while growth in the standard of living (for example) is a primary goal. Why do you think that is so?

Macroeconomics is an aggregate of what happens at the microeconomic level. Would it be possible for what happens at the macro level to differ from how economic agents would react to some stimulus at the micro level? Hint: Think about the behavior of crowds.

Why is it unfair or meaningless to criticize a theory as “unrealistic?”

Suppose, as an economist, you are asked to analyze an issue unlike anything you have ever done before. Also, suppose you do not have a specific model for analyzing that issue. What should you do? Hint: What would a carpenter do in a similar situation?

Why do you think that most modern countries’ economies are a mix of command and market types?

Can you think of ways that globalization has helped you economically? Can you think of ways that it has not?

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Access for free at https://openstax.org/books/principles-macroeconomics-2e/pages/1-introduction

• Authors: Steven A. Greenlaw, David Shapiro
• Publisher/website: OpenStax
• Book title: Principles of Macroeconomics 2e
• Publication date: Oct 11, 2017
• Location: Houston, Texas
• Book URL: https://openstax.org/books/principles-macroeconomics-2e/pages/1-introduction
• Section URL: https://openstax.org/books/principles-macroeconomics-2e/pages/1-critical-thinking-questions

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33 Critical Thinking Questions

Critical thinking questions.

13. Think back to a purchase that you made recently. How would you describe your thinking before you made that purchase?

14. The rules of politics are not always the same as the rules of economics. In discussions of setting budgets for government agencies, there is a strategy called “closing the Washington Monument.” When an agency faces the unwelcome prospect of a budget cut, it may decide to close a high-visibility attraction enjoyed by many people (like the Washington Monument). Explain in terms of diminishing marginal utility why the Washington Monument strategy is so misleading. Hint : If you are really trying to make the best of a budget cut, should you cut the items in your budget with the highest marginal utility or the lowest marginal utility? Does the Washington Monument strategy cut the items with the highest marginal utility or the lowest marginal utility?

15. Income effects depend on the income elasticity of demand for each good that you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be true of the income elasticity of the other good you buy?

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Microeconomics Copyright © by Laura Prince and OpenStax is licensed under a Creative Commons Attribution 4.0 International License , except where otherwise noted.

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