Chapter 3 Questions

1-) (Tax Rates) Suppose taxes are related to income level as follows:

                   Income                  Tax

                   $1,000                  $200

                   $2,000                  $350

                   $3,000                  $450

a. What percent of income is paid in taxes at each level?

b. Is the tax rate progressive, proportional, or regressive?

2-) What are the major functions of the government? Briefly discuss.

3-) What are the advantages and disadvantages of forming a corporation?

4-) What are the major sources of the federal government revenue?

5-) What are the major sources of the state revenue?

6-) Please read the article below and answer the question below.

The Electronic Cottage

The Industrial Revolution shifted production from rural cottages to urban factories. But the   Information Revolution spawned by the microchip and the Internet has decentralized the acquisition, analysis, and transmission of information. These days, someone who claims to work at a home office is not necessarily referring to corporate headquarters but to a spare bedroom. According to a recent survey, the number of telecommuters has more than doubled in the last decade. Nearly half the white-collar employees at AT&T work at home at least part of the time.

Worsening traffic, higher gas prices, wider access to broadband, and even the threat of terrorism are pushing the trend. The average commute is 23 miles, and eliminating that can save about $1,000 a year in gas and can avoid putting more than 6,000 pounds of carbon dioxide into the atmosphere.

From home, people can write a document with coworkers scattered throughout the world, then discuss the project online in real time or have a videoconference (McDonald’s saves millions in travel costs by videoconferencing). Software allows housands of employees to share electronic files. When Accenture moved headquarters from Boston to a suburb, the company replaced 120 tons of paper records with an online database accessible anytime from anywhere in the world.

To support those who work at home, an entire industry has sprung up, with magazines, newsletters, Web sites, and national conferences. In fact, an office need not even be in a specific place. Some people now work in virtual offices, which have no permanent locations. With cell phones and BlackBerries, people can conduct business on the road—literally, “deals on wheels.” Accountants at Ernst & Young spend most of their time in the field. When returning to company headquarters, they call a few hours ahead to reserve an office. Web-based software such as ThinkFree and Zoho Virtual Office keep files and software on a remote server so people on the road can access their files. These road warriors don’t even need a laptop, just a dumb terminal that accesses the Internet—the sort of access you might find at Starbucks or the public library.

Chip technology is decentralizing production, shifting work from a central office either back to the household or to no place in particular.

More generally, the Internet has reduced the transaction costs, whether it’s a market report authored jointly by researchers from around the world or a new computer system assembled from parts ordered over the Internet. Easier communication has even increased contact among distant research scholars. For example, economists living in distant cities were four times more likely to collaborate on research during the 1990s than during the 1970s.

QUESTION: How has the development of personal computer hardware and software reversed some of the trends brought on by the Industrial Revolution? Briefly discuss.

Chapter 4 questions:

3- ) Suppose that there are freezing temperatures in Florida. At the same time the press reports that drinking orange juice significantly reduces the risk of stomach cancer. Predict the effect on equilibrium price and quantity.

4- )  Can you give you an example of inferior good? What goods do you buy less when you make more income?

5- ) What are the differences between a quantity demanded and demand in general?

6- ) Do you think a supply/demand model is too simple to explain the real word? Briefly express your own ideas.

7-) What is the relationship between technology and supply in general? Briefly explain.

?? We know tastes and preferences play an important role in “demand”. Can you think of any possible future “popular product”? (Free Response Question)

9-) In what markets, expectations are very important? Can you think of an example? (Free Response Question)

10-) Which one do you think more important in effecting price? Producers or Buyers? or Both? Briefly discuss. (Free Response Question)