a) Which of the following topics is the MOST likely to be studied in microeconomics?
[选择]
Will economic growth come back to pre-pandemic levels?
Did stimulus checks decrease unemployment?
What happens when central banks decrease interest rates?
Why do Boeing and Airbus dominate the civil aircraft manufacturing market?

b) Microeconomists are often interested in elasticities. From a business perspective, elasticities can help businesses to decide how to price their goods. From a policy perspective, elasticities help microeconomists measure the impact of a tax on consumers and producers. For example, to calculate the proportion of the tax borne by consumers, one can use the ratio of the absolute value of the elasticity of supply and the sum of the absolute value of the supply and the demand elasticities (
Es
and
Ed
). That is:

Cshare=
|Ed|

|Es|+|Ed|

Suppose the elasticity of demand is -1.25 and the elasticity of supply is 1.25. What share of the tax is borne by consumers?
[选择]
50%
25%
20%
80%

Question

a) Which of the following topics is the MOST likely to be studied in microeconomics? 
[选择]
Will economic growth come back to pre-pandemic levels?
Did stimulus checks decrease unemployment?
What happens when central banks decrease interest rates?
Why do Boeing and Airbus dominate the civil aircraft manufacturing market?

b) Microeconomists are often interested in elasticities. From a business perspective, elasticities can help businesses to decide how to price their goods. From a policy perspective, elasticities help microeconomists measure the impact of a tax on consumers and producers. For example, to calculate the proportion of the tax borne by consumers, one can use the ratio of the absolute value of the elasticity of supply and the sum of the absolute value of the supply and the demand elasticities (
Es
 and 
Ed
). That is:

Cshare=
|Ed|

|Es|+|Ed|

Suppose the elasticity of demand is -1.25 and the elasticity of supply is 1.25. What share of the tax is borne by consumers? 
[选择]
50%
25%
20%
80%

BlackTom AI · Accepted Answer

We will break down the question into its two parts and analyze the provided answer choices for each.

Part a) Which of the following topics is the MOST likely to be studied in microeconomics?
- Option: Will economic growth come back to pre-pandemic levels?
  - This topic is primarily macroeconomic: it concerns overall economic performance, growth rates, and output on a national or global scale rather than individual markets or agents.
- Option: Did stimulus checks decrease unemployment?
  - This is also macroeconomic in scope, focusing on government policy consequences for the entire economy rather than the behavior of specific markets or firms.
- Option: What happens when central banks decrease interest rates?
  - This describes monetary policy transmission and effects on the economy as a whole, a classic macro topic, not micro-level market analysis.
- Option: Why do Boeing and Airbus dominate the civil aircraft manufacturing market?
  - This centers on a specific industry’s market structure, firm behavior, market power, competition, and how firms interact within a particular market. These are central concerns of microeconomics, which studies individual markets and decision-making by firms and consumers.

Why the other options are not as suitable for microeconomics:
- They explore aggregate outcomes, policy-wide effects, or macro mechanisms rather than the behavior of individual markets, firms, or consumers within a specific context. The Boeing/Airbus question, by contrast, directly engages with market structure, competition, entry barriers, and strategic pricing—key microeconomic topics.

Part b) Elasticities and tax incidence: given Ed = -1.25 and Es = 1.25, what is the consumer tax burden? The formula provided is Cshare = |Ed| / (|Es| + |Ed|).
- Compute: |Ed| = 1.25, |Es| = 1.25, so the denominator is 1.25 + 1.25 = 2.5. Therefore Cshare = 1.25 / 2.5 = 0.5, i.e., 50%.
- Option: 50%
  - This matches the calculation above, so it is correct.
- Other potential options (if considered) would require misapplying the ratio or using incorrect signs or totals. For instance:
  - A 25% share would imply an asymmetry in elasticities that does not reflect the symmetric magnitudes given (both are 1.25 in absolute value).
  - 80% would require a much larger share than the elasticities allow under the standard formula, indicating a misinterpretation of the incidence rule.
  - 20% would similarly misstate the result and ignore the proportional split determined by the relative elasticities.

In summary, for Part a, the microeconomic topic is the analysis of Boeing and Airbus’ dominance in the civil aircraft market due to market structure and firm competition, while the other options reflect macro or policy-level questions. For Part b, the calculation using the given elasticities yields a 50% burden on consumers, consistent with the formula provided.

ECON3200001.1251 Midterm Exam I

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