1. The theory of comparative advantage is generally used to demonstrate the benefits of international trade. Could the argument also be used to show that it might be worthwhile for firms to contract out specific activities even when they are equally or more cost effective in money terms than external contractors in providing the same activities or functions?
2. Some people, believing that the consumption of alcohol is both 'individually and socially undesirable', claim that governments should put taxes on liquor so that people will consume less alcohol and spend more money on other goods. Indicate how an understanding of demand and of price elasticity of demand is useful in analyzing this argument.
3. Why do economists believe short-run marginal cost curves have positive slopes?
Why does this belief lead to the notion that short-run supply curves have positive slopes?
4. (a) If the government imposes a lump-sun tax of $10,000 per year - that is, a tax that is fixed for one year - how will this tax affect the shape of the firm's short-run average total cost and marginal cost curves? Assess the view that a profit maximizing monopolist should respond to this tax imposition by increasing price.
(b) Evaluate the following statement:
"A monopolist produced 1 million units last year. If a $10 per unit tax is imposed, the profits of the monopolist will decrease by $10 million."
5. Critically evaluate each of the following statements as advice on how to maximize profits or minimize losses:
(a) "The reason why we charge a lower price at higher output levels is because we are able to spread our fixed costs over a larger production run."
(c) "Monopolists always try to maximize the difference between price and average costs."
6. Airlines practice price discrimination by charging leisure travelers and business travellers different prices.
(a) What conditions are required for successful third-degree price discrimination? Why do airlines adopt this pricing policy?
(b) In airline pricing what group of customers tends to pay the higher price - business travelers or leisure travelers? Why? Explain.
(c) Why do airlines impose restrictions like advance purchase requirements, weekend stay requirements and time-of day restrictions in the provision of discount fares? Explain.
(d) Why are some heavily discounted airfares only available for sale on the Internet?
(e) What factors, other than price discrimination, might be responsible for the charging of different airfares to a given destination?© BrainMass Inc. brainmass.com October 16, 2018, 5:22 pm ad1c9bdddf
The theory of comparative advantage is examined.
Theories of comparative advantage
2. How would each of the following theories of comparative advantage explain the fact that the United States exports computers?
a. Productivity differences
b. Factor abundance
c. Human Skills
d. Product life cycle
13. Suppose the world price of kiwi fruit is $20 per case and the U.S. equilibrium price with no international trade is $35 per case. If the U.S. government had previously banned the import of kiwi fruit but then imposed a tariff of $5 per case and allowed kiwi imports, what would happen to the equilibrium price and quantity of kiwi fruit consumed in the United States?View Full Posting Details