Solution Manual for Intermediate Microeconomics and Its Application 11th Edition by Nicholson

SOLUTION MANUAL FOR INTERMEDIATE I NTERMEDIATE MICROECONOMICS AND ITS APPLICATION 11TH EDITION BY NICHOLSON

Complete downloadable !le at" #ttp$"%%te$tban&'(e'%Sol't!on)Man'al)o*) Inte*med!ate)M!+*oe+onom!+$)and)It$)Appl!+at!on) 11t#)Ed!t!on)b,)N!+#ol$on This chapter provides a methodological introduction to the book by showing why why econo economi mist stss use simpl simplif ifie ied d mo mode dels ls.. The The chapte chapterr begins begins with with a few definitions of economics and then turns to a discussion of economic models. Development of Marshall's analysis of supply and demand is the principle example of such a model here, and this provides a review for students of what they learned in introductory economics. The notion of how shifts in supply or demand curves affect equilibrium prices is highlighted and is repeated in the chapters appendix in a somewhat more formal way. The chapter also reminds students students of the production production possibilit possibility y frontier frontier concept concept and sho shows ws how it illustrates opportunity costs. The chapter concludes with a discussion of how economi economicc mod models els might might be verifie verified. d. ! brief descripti description on of the distinct distinction ion between between positive positive and normat normative ive analysis analysis is is also presente presented. d.

B( Le+t'*e and D!$+'$$!on S'--e$t!on$ "e have found that a useful way to start the course is with one #or perhaps two$ lectures on the historical development of microeconomics together with some current examples. %or example, many students find economic applications to the natural world fascinating and some of the economics behind !pplication &.& , might be examined. The simple model of the world oil market in !pplication &!. is also a good good way to introd introduce uce model modelss with with real world numbers numbers in them. them. !pplication &.() Econom Economic ic Confus Confusion ion provides normative distinction and to tell a few economic economic *okes *okes #several #several +nternet sites offer offer such *okes if your supply is running low$.

C( .lo$$a*, Ent*!e$ !n t#e C#apte*  Diminishing

eturns

 -conomics  -quilibrium

rice  Microeconomics  Models  /pportunity 0ost  ositive 1ormative Distinction  roduction ossibility %rontier

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8

0hapter &) -conomic Models

 2upply3Demand

Model  Testing !ssumptions  redictions  Testing redictions

APPENDI/ TO CHAPTER 1

Mat#emat!+$ Mat#emat!+$ U$ed !n M!+*oe+onom!+$ A( S'mma*, This appendix provides a review of basic algebra with a specific focus on the graphical tools that students will encounter later in the text. The coverage of linear and quadratic equations here is quite standard and should be familiar to students. Two concepts that will be new to some students are graphing contour lines and simultaneous equations. The discussion of contour lines seeks to introduce students to the indifference curve concept through the contour map analogy. !lthough students may not have graphed such a family of curves for a many3v many3variab ariable le functio function n before, before, this this introdu introductio ction n seems seems to provid providee goo good d preparation for the the economic economic applications applications that follow follow.. The analys analysis is of simul simultan taneo eous us equat equatio ions ns presen presente ted d in the the appen appendix dix is intended to illustrate how the solution to two linear equations in two unknowns is reflected graphically by the intersection of the two lines. !lthough students may be familiar with solving simultaneous equations through substitution or subtraction, this graphical approach may not be so well known. 4ecause such graphic graphic solutio solutions ns lead directly directly to the econo economic mic concep conceptt of supply3d supply3deman emand d equilibrium, however, + believe it is useful to introduce this method of solution to students. 2howing how a shift in one of the equations changes the solutions for both variables variables is particularly instructive instructive in that regard. +n that regard, regar d, some material at the end of the appendix makes the distinction between endogenous and exogenous variables 5 a distinction that many students stumble over. The appendix also contains a few illustrations of calculus3type results. Depending on student preparation, instructors might wish to pick up on this and use a few calculus ideas in later chapters. 4ut this is not a calculus3based calculus3ba sed text, so there is no need to do this.

B( Le+t'*e and D!$+'$$!on S'--e$t!on$ 2ince 2ince mu much ch of the the materi material al in this this appen appendi dix x is self self3e 3exp xplan lanato atory ry,, mo most st instructors may prefer to skip any lecture on this topic. %or those who feel a lecture is useful, we would suggest developing a specific numerical example together together with graphic and tabular handouts handouts for students. students. The presentation presentation should, focus primarily on linear equations since these are most widely used in the book and since students will be most familiar with them. 2tudents should





%ull file at https)99testbanku.eu9 https)99t estbanku.eu9

 !verage

-ffect  0ontour :ines  Dependent ;ariable  %unctional 1otation  +ndependent ;ariable  +ntercept  :inear %unction  Marginal -ffect  2imultaneous -quations  2lope  2tatistical +nference  ;ariables

SOLUTIONS SOLUTIONS TO CHAPTER 1 PROBLEMS &.&

a.

b.

>






E

P = a -

Q

&>> at P = &, Q = ?>>,

P = @ -

Q

&>>

or

so

a =@

and

Q = @>> - &>> P

%or the supply curve, the points also seem to be on a straight line)  P Q

=

& 8>>

+f P = a + bQ = a +

Q 8>>

at P = = 8, Q = >>, 8 = 5 a A &.B, or a = >.B. Cence the equation is P = >.B + c,d

Q

8>>

or Q = 8>> P - &>>

%or supply Q = 8>> P 5 5 &>> +f P = = >, Q = 5&>> = > #since negative supply is impossible$. +f P = = (, Q = &&>>

.

%or demand Q=800-100P "hen P = = >, Q = @>>. "hen P = = (, Q = 8>>. -xcess Demand at P = 0 is 800. -xcess supply at P = 6 is is 1100 – 200 = 900 &.8

a.

2upply) Q = 8>> P 5 5 &>> Demand) Q = 5&>> P A A @>> 2upply = Demand) 8>> P 5 5 &>> = 5&>> P A A @>> >> P = = >> or P = =  "hen P = = , Q = B>>.

b.

!t P = = 8, Demand = (>> and 2upply = >>. !t P = = E, Demand = E>> and 2upply = ?>>.






c.

d.

1ew demand is Q = 5&>> P A &&>>.

e.

2upply = Demand) 8>> P 5 5 &>> = 5&>> P A &&>>. >> P = = &8>> = E, Q = ?>>. P =

f.

2upply is now Q = 8>> P 5 5 E>>.

g.

2upply = Demand when Q

=

Q!

8>> P 5 5 E>> = 5&>> P A A @>> >> P = = &8>> = ", F = E>> P = h.

i.

!t P = = , Q = 8>>, Q! = B>> G this is not an equilibrium price. articipants would know this is not an equilibrium price because there would be a shortage of orange *uice.






(

&. a. -xcess Demand Demand is the following at the various prices prices

P = & E! = ?>> - &>> = (> (>> P = 8 E! = (>> - '>> = '>> P = ' E! = B>> - B>> = > P = E E! = E>> - ?>> = -'>> P = B E! = '>> - D>> = -(>> The auctioneer found the equilibrium price where E! = >. b. Cere is the informat ion the t he auctioneer gat hers from callin g quantities) quanti ties)

Q = '>> P

=

8 P! = B

Q = B>> P

=

' P! = '

Q = ?>> P

=

E P! = &

2o, the auctioneer knows that Q = B>> is an equilibrium. c. Many callout callout auctions operate this way way 5 though usually quantity supplied is a fixed amount. Many financial markets operate with HbidI and HaskedI HaskedI prices which approximate the procedure in part b.

&.E

The comp compla lain intt is essen essenti tial ally ly correc correctt 5 in in many many econ econom omic ic mo mode dels ls price price is the the independent variable and quantity is the dependent dependent variable. Marshall Marsh all originally chose this approach because he found it easier to draw cost curves #an essential element of supply theory$ with quantity on the hori7ontal axis. +n that case, quantity can legitimately be treated as the independent variable. a. The The rest restri rict ctio ions ns on P are are necessary with linear functions to ensure that quantities do not turn negative. b. The followi following ng graph graph has P on on the vertical vertical axis. -quilibrium P is is found by - P + &> = P - 8 � 8 P = &8 � P = (, Q = E .








P 10

S

6

2

D Q 4

c.

10

The follow following ing figure graphs the the demand demand and supply supply curves curves with with P on on the hori7ontal axis. 2olution proceeds as in art b. Q 10

S

4






@

&.B

The algebraic solution proceeds as follows) a.

A 8>. Q ! = 58 P A 5 E. Q = 8 P 5 2et Q ! = Q ) 58 P A A 8> = 8 P 5 5 E 8E = E P = (. P = 2ubstituting for P gives) gives) Q ! = Q = = @.

b.

1ow Q !# = 58 P A 8E. 2et Q ! = Q ) 58 P A A 8E = 8 P 5 5 E 8@ = E P = ?. P = 2ubstituting gives) Q

Q = &>.






b. % = &>,>>> % = >,>>> % = B>,>>>

!verage ate &>K >K B>K

Marginal ate 8>K (>K &>>K

c.

&.?

a.

I

T

&>,>>>

&,>>>

&>,>>&

&,>>>.8>

>,>>>

,>>>

>,>>&

,>>>.(>

B>,>>>

8B,>>>

B>,>>&

8B,>>&

Marginal Tax Rate

.8>

.(>

&.>>






&>

&.@

a.

+f & = = >, ' = &> +f ' = >, & = = B

b.

'

&

8 E ( '

8

&>>

8E 8&

E

8

+

&

8B

=

& is a quarter of an ellipse since both ' and & are positive.

c.

The opportun opportunity ity cost cost depend dependss o on n the the leve levels ls of outpu outputt because because the slope slope of of a curve is not constant.

d.

The The opp opportu rtunity cost of ' is the change in & when when one more unit of ' is is produced. produced. -xample) ' > = , ' & = E "hen ' > = , & > = L

"hen ' & = E, & & = & & 5 & >N = .&@?

8&

.&@? units of & are are Ogiven upO to produce one more unit of ' at at ' = .






&.&> &.&>

c.

2ince prefers ' = = & , will choose ' = = & = = B.

d.

The The cos costt of of for forg gone one trad tradee is B 5

8> = B 5 8

and & . B = &.B8 units of both ' and

This This pro probl blem em prov provid ides es prac practi tice ce wit with h cont contou ourr line lines. s. a. b.

+f &

=

'� ( the & = E is the same line as H & = 8I in %igure &!.B.

8 +f ' = @ - E ( , & = ' � ( = @( - E ( = E. This has a solution of ( = &, ' = E.

c.

1one of the other points on the & = E contour line obey the linear equation. This is so because the contour line is convex and hits the straight line at only a single tangency.

d.

+f '

= &> - E ( , & = &> ( - E (

quadratic formula yields (

=

8

=E

or E ( 8 - &> ( + E = > . Psing the

#&> � &>> - (E $ 9 @ or ( = 8, >. > .B . Cence the

line intersects the contour in two places. These points of intersection are ( = 8, ' = 8, and ( = >.B, ' = @. e.

provide a higher value for & #any #any points betwee between n the the two ident identified ified in part d do$. The largest largest value for for & is is at the point ' = B, ( = B9E. +n this case & = 8B9E = (.8B.

f.

!s we we shall shall see, see, this this proble problem m is is formall formally y equi equival valent ent to a utili utility ty maxi maximi7 mi7atio ation n ( , the price problem #see 0hapter 0hapter 8$ in which which utility utility is given given by ) # ' , ( $ = ' � of good ' is is &, the price of good ( is is E, and income is either @ or &>.

Solution Manual for Intermediate Microeconomics and Its Application 11th Edition by Nicholson

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