978-1259663048 Chapter 5 Solutions Manual Part 2

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Issues to Ponder

1. a. Airways have value because they produce revenue and there are only a limited

b. Television networks have incentives to produce high definition television only to

2. a. The graph on the left shows the primary market for tickets, assuming that all

b. The graph on the right represents the scalped ticket market, assuming that only

5,000 of the 10,000 ticket holders and only 50,000 of the 100,000 of those who

c. If scalping becomes legalized, more people would be willing to sell their tickets

Price

Quantity

Demand

$130

10,000 110,000

Price

Quantity

Demand

$2,000

5,000 50,000

$130

S0 S1

$1,000

$200

10,000

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3. a. A weakly enforced anti-scalping law would add an

additional cost to those selling scalped tickets and

push up the resale cost of tickets to include the

expected cost of being caught, which would be fairly

b. A strongly enforced anti-scalping law (against suppliers) would push up prices far

4. a. Boards often exist not only to benefit the consumer, but also to benefit existing

b. Possible changes include eliminating the board of certification, limiting its

c. A political difficulty with implementing these changes is that a relatively small

group of those currently certified will be hurt and will lobby hard for the status

5. a. The Oregon Health Plan includes a prioritized list of medical services that

determine whether a service is covered. The list is based on comparative benefit

to those covered as determined by the Health Care Board. Those services that this

b. Economists should not oppose the Oregon Plan because it involves rationing. The

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c. In the market, the interaction of demand and supply determines the equilibrium

price and quantity that is bought and sold. Those who are able to pay the

6. a. Frequent-flyer programs allow companies to lower their effective prices without

lowering their reported prices. Companies also use them to get business travelers

b. Other examples include points that hotels give to travelers, loyalty cards, and

c. Firms likely do not monitor these programs because it would be too costly to do

7. a. An import quota will increase the price of

imported sugar. The accompanying graph

shows how a higher imported sugar price

b. The government could have imposed a tariff on imported sugar. This would also

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c. A minimum required import level of 1.25 million will limit the ability of the

8. a. As shown in the accompanying graph, the

controlled price (PC) is below equilibrium. At this

b. Since at the existing quantity supplied, QS,

demanders would be willing to pay Pb, there is a

c. Eliminating rent controls would most likely allow the market price of apartments

to increase and eliminate side payments. The quantity supplied will rise until it

d. The political appeal of rent control is that it benefits those who currently rent

9. a. The government subsidy of mohair provided an enormous incentive for those who

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b. This program was likely kept in existence because not many people knew about it

c. A law that requires that suppliers receive $3.60 more than the market price is the

10. Excess supply in U.S. agricultural markets is caused by the government’s policy

11. It would likely increase the number since it reduces the cost of having a car that

12. The demand for rolling machines went up enormously because loose tobacco

13. a. Japan prescribes many more drugs than the U.S. because Japanese doctors have a

b. It would lead to many more drugs being produced, even if they were not really

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c. Drug reps would likely provide free samples and other gifts to doctors and have

14. a. They would likely fall. In fact, they fell by 13 percent.

b. They also would likely fall. In fact, they fell by 22 percent.

c. The graphs below show the effect of increasing co-payments. The graph on the

left has a co-payment of $15. Consumers demand Q1 and the shaded region

shows the medical claim costs. In the accompanying graph on the right,

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