Solution-Manual-for-Microeconomics-20th-Edition-by-McConnell.doc

Full file at https://testbanku.eu/

Solution Manual for Microeconomics 20th Edition by McConnell Complete downloadable file at: https://testbanku.eu/Solution-Manual-for-Micr https://testbanku.eu/Solution-Manua l-for-Microeconomics-20th-Editio oeconomics-20th-Edition-by-McConnell n-by-McConnell !SC"SS!#$ %"ES&!#$S

1. What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greater opportunity cost: Allocating a suare block in the heart of !ew "ork "ork #ity for a surface parking lot or allocating a suare block at the edge of a typical suburb for such a lot? $%plain. '#( opportunity cost is what was sacrificed sacrificed to do or acuire something something else. &he )nswer: An opportunity condition of scarcity creates opportunity opportunity cost. 'f there was no scarcity( scarcity( there would be no need to sacrifice one thing to acuire another. another. &he opportunity cost would be much higher in !ew "ork #ity as the alternati)e uses for that suare block are much more )aluable than for a typical suburban city block.

*. #ite three e%amples of recent decisions that you made in which you( at least implicitly( implicitly( weighed marginal cost and marginal benefit. '#( )nswer: +tudent answers will )ary( but may include the decision to come to class( to skip breakfast to get a few e%tra minutes of sleep( to attend college( or to make a purchase. ,arginal benefits of attending attending class may include the acuisition acuisition of knowledge( participation in discussion( and better preparation for an upcoming e%amination. ,arginal costs may include lost opportunities for sleep( meals( or studying for other classes. 'n e)aluating the discussion discussion of marginal marginal benefits and marginal marginal costs( be careful to watch for sunk costs offered as a rationale for marginal decisions.

-. What is meant by the term utility and how does the idea relate to purposeful beha)ior? '#( )nswer: 0tility refers to the pleasure( happiness( or satisfaction gained from engaging in an acti)ity eating a meal( attending attending a ball game( etc.2. 't is an important component component of purposeful beha)ior because people will allocate their scarce time( energy( energy( and money in an attempt to gain the most utility possible. possible.

3. What are the key elements of the scientific method and how does this method relate to economic principles and laws? '#2 )nswer: &he key elements include the gathering of data obser)ation2( the formulation of possible e%planations hypothesis2( hypothesis2( testing the hypothesis( determining the )alidity of the hypothesis( and repeated testing of hypotheses that ha)e appeared to be )alid in prior tests. &he scientific method is the techniue used by economists to determine economic laws or principles. &hese laws or principles are formulated to e%plain and/or predict beha)ior of indi)iduals or institutions. institutions.

141 #opyright 5 *617 ,c8raw4Hill $ducation. All rights reser)ed. !o reproduction or distribution without the prior written consent of ,c8raw4Hill $ducation.


7. +tate a2 a positi)e economic statement of your choice( and then b2 a normati)e economic statement relating to your first statement. '#* )ary. $%ample: a2 &he unemployment unemployment rate is 3.9 percent )nswer: +tudent answers will )ary. b2 the unemployme unemployment nt rate is too high. high. 'n general general we treat what is statemen statements ts as positi)e( what should be as normati)e( but keep an eye out for statements like at full employment employment an increase in the productio production n of pi;;as should come at the cost of less robots. +ome students may incorrectly identify the statement as normati)e because of the term should.

<. How does the slope of a budget line illustrate opportunity opportunity cost and trade4offs? How does a budget line illustrate illustrate scarcity and the effect effect of limited incomes? '#+ always sloped downward. downward. &his downward slope slope shows an )nswer: =udget lines are always in)erse relationship between the two goods( meaning that as you increase one( the other must decrease. &his decrease is what you are gi)ing up( or opportunity opportunity cost( of the the good you are getting more of. =udget lines illustrate scarcity in that they show you are limited by your income. +ince they slope downward( they show you cannot keep getting more and more of both goods. &here is always a trade4off. trade4off. &he area beyond the budget budget line represents combinations combinations of the goods that are beyond your income.

>. What are economic resources? What categories do economists use to classify them? Why are resources also called factors of production? Why are they called inputs? '#, )nswer: $conomic resources are the natural( human( and manufactured inputs used to produce goods and ser)ices. $conomic resources fall into four main categories: labor( land land nat natur ural al reso resour urce ces2 s2(( real real capi capita tall mac machi hine nes( s( fact factor orie ies( s( buil buildi ding ngs( s( etc. etc.(2 (2 and and entrepreneurs. $conomic resources resources are also called factors of production production because they are used used to produce goods and ser)ices. ser)ices. &hey are called called inputs because because they they go in to a produce goods production process like ingredients go into a bowl to make a cake2( with the resulting goods and ser)ices also being referred to as output .

9. Why is money not considered to be a capital resource in economics? Why is entrepreneurial ability considered a category of economic resource( distinct from labor? What are the maor functions of the entrepreneur? '#,

14* #opyright 5 *617 ,c8raw4Hill $ducation. All rights reser)ed. !o reproduction or distribution without the prior written consent of ,c8raw4Hill $ducation.


)nswer: ,oney is not considered a capital resource because money is not producti)e @ it pro)ides access to resources but itself does not directly contribute to the production of goods and ser)ices. Additionally( Additionally( the uantity of money in circulation does not determine an economys producti)e capacity( while the amount of capital and other resources does. Boubling the amount of money in circulation does not change the economys physical capacity capacity to produce produce goods goods and ser)ices. ser)ices. ,oney ,oney is( howe)er( howe)er( referred referred as a financial resource and financial capital capital ( reflecting its ability to acuire real economic resources.

$ntrepreneurial ability and labor are both human resources( but they perform different functions functions in the producti) producti)ee process. process. $ntrepren $ntrepreneuria euriall ability ability does not directly directly produce produce goods and ser)ices it organi;es the resources resources that do. Cabor refers to the human inputs inputs that directly engage in production. $ntrepreneurs are risk4takers: risk4takers: &hey coordinate the acti)ities acti)ities of the other three inputs for profitDor loss( which is why they are called risk4takers. $ntrepreneurs sometimes manage companies that they own( but a manager who is not an owner is not necessarily an entrepreneur but may be performing some of the entrepreneurial functions for the company company.. $ntrepren $ntrepreneurs eurs are also inno)ators inno)ators(( or perhaps in)entors( in)entors( and profits help to moti)ate such acti)ities.

E. +pecify and e%plain the typical shapes of marginal4benefit and marginal4cost marginal4cost cur)es. How are these cur)es used to determine the optimal allocation of resources to a particular product? 'f current output is such that marginal cost e%ceeds marginal benefit( should more or fewer resources be allocated to this product? $%plain. '# )nswer: &he marginal benefit cur)e is downward sloping( ,= falls as more of a product is consumed because additional units of a good yield less satisfaction than pre)ious units. &he marginal cost cur)e is upward sloping( ,# increases as more of a product is produced since additional units reuire the use of increasingly unsuitable resource. &he optimal optimal amount amount of a particular particular product product occurs occurs where ,= euals ,#. 'f ,# e%ceeds ,=( fewer resources should be allocated to this use( as the additional cost is more than the additional benefit.

16. +uppose that( on the basis of a nations production possibilities possibilities cur)e( an economy must sacrifice 16(666 pi;;as domestically to get the 1 additional industrial robot it desires but that it can get the robot from another country in e%change for E(666 pi;;as. elate this information to the following statement: &hrough international speciali;ation speciali;ation and trade( a nation can reduce its opportunity cost of obtaining goods and thus Gmo)e outside its production possibilities cur)e. '# )nswer: &he message of the production possibilities cur)e is that an indi)idual nation is limited to the combinations of output indicated by its production possibilities cur)e. 'nternational speciali;ation means directing domestic resources to output which a nation is highly efficient efficient at producing. 'nternational trade in)ol)es in)ol)es the e%change of these goods for goods produced abroad. abroad. +peciali;ation and trade trade ha)e the same effect as ha)ing more and better resources or disco)ering disco)ering impro)ed production techniues. techniues. &he output gains from greater international speciali;ation and trade are the eui)alent of economic growth.

14#opyright 5 *617 ,c8raw4Hill $ducation. All rights reser)ed. !o reproduction or distribution without the prior written consent of ,c8raw4Hill $ducation.


11. ')S& # +tudies indicate that married men on a)erage earn more m ore income than unmarried men of the same age and education le)el. Why must we be cautious in concluding that marriage is the cause and higher income is the effect? necessarily mean that there is causation. causation. &he relationship )nswer: #orrelation does not necessarily could be purely coincidental or dependent on some other factor not included in the analysis. 't is also possible that higher income is the )ariable that causes causes marriage.

E1!E %"ES&!#$S

1. ,atch each term with the correct definition. '#( economics opportunity cost marginal analysis utility a. &he ne%t4best thing that must be foregone in order to product one more unit of a gi)en product. b. &he pleasure( happiness( happiness( or satisfaction obtained obtained from consuming a good or ser)ice. c. &he social science concerned with how indi)iduals( institutions( and society make optimal best2 choices under conditions of scarcity. d. ,aking choices based on comparing marginal benefits with marginal costs. )nswer: a. opportunity cost b. utility c. economics d. marginal analysis

*. 'ndicate whether each of the following statements applies to microeconomics or macroeconomics: '#* a. &he unemployment rate in the 0nited +tates was 9.1 percent in August *61*. b. A 0.+. software firm discharged discharged 17 workers last month month and transferred the work work to 'ndia. c. An une%pected free;e in central Florida reduced the citrus crop and caused the price of oranges to rise. d. 0.+. output( adusted for inflation( decreased by *.3 percent in *66E. e. Cast week Wells Fargo =ank lowered its interest rate on business loans by one4half of 1 percentage point. f. &he consumer price inde% rose by -.9 percent from August *611 to August *61*. )nswer: a. macro b. micro c. micro d. macro e. micro f. macro



-. +uppose that you initially ha)e 166 to spend on books or mo)ie tickets. &he books start off costing *7 each and the mo)ie tickets start off costing 16 each. For each of the following situations( would the attainable set of combinations that you can afford increase or decrease? '#+ a. "our "our budget increases from 166 to 176 while the prices stay the same. b. "our "our budget remains 166( 166( the price of books remains *7( but the price of mo)ie mo)ie tickets rises to *6. c. "our "our budget remains 166( the price of mo)ie tickets remains 16( but the price of a book falls to 17. )nswer: a. increase because a larger budget allows you to purchase not only the combinations that you could afford before but also new combinations that you could not afford before for e%ample( you can now afford to purchase 3 books and 7 mo)ie tickets2 b. decrease because certain combinations are no longer affordable for e%ample( you can no longer purchase 16 mo)ie tickets with your 166 budget2 c. increase because the lower price allows you to purchase combinations that you could not afford before for e%ample( you can now purchase < books and 1 mo)ie ticket2I.

3. +uppose that you are gi)en a 166 budget at work that can be spent only on two items: staplers and pens. 'f staplers cost 16 each and pens cost *.76 each( then the opportunity cost of purchasing one stapler stapler is: '#+ a. 16 pens. b. 7 pens. c. ;ero pens. d. 3 pens. "ou must forego purchasing 3 pens if you are to free up enough money )nswer: + pens. "ou 3 % *.76 J 162 to purchase a stapler.

7. For each of the following situations in)ol)ing marginal marginal cost ,#2 and marginal benefit ,=2( indicate whether it would be best to produce more( fewer( or the current number of units. '#+ a. -(666 units at which ,# J 16 and ,= J 1-. b. 11 units at which ,# J 3 and ,= J -. c. 3-(*>> units at which ,# J EE and ,= J EE. d. 9* units at which ,# K ,=. e. 7 units at which ,= K ,#. )nswer: a. more because ,= L ,# 44 the benefit of consuming one more unit e%ceed the opportunity costs scarce resources used elsewhere2 of producing that additional unit. b. fewer because ,# L ,= 44 the opportunity costs scarce resources used elsewhere2 of producing one more unit unit e%ceed the benefit of consuming consuming that additional additional unit. c. current amount because ,= J ,# 44 there is no net gain in using scarce resources in producing and consuming consuming one more unit. d. more because ,= L ,# 44 see the explanation for a2 for part  e. fewer because ,= K ,# 44 see the explanation b2 explanation for part  147 #opyright 5 *617 ,c8raw4Hill $ducation. All rights reser)ed. !o reproduction or distribution without the prior written consent of ,c8raw4Hill $ducation.


<. $%plain how if at all2 each of the following e)ents affects the location of a countrys countrys production possibilities possibilities cur)e: '# a. &he uality of education increases. b. &he number of unemployed workers workers increases. c. A new techniue impro)es the efficiency of e%tracting copper from ore. d. A de)astating earthuake destroys numerous production facilities. )nswer: a. Assuming better education translates into better work skills( then producti)ity should rise and this would shift the cur)e outward. b. +hould not affect location location of cur)e. Mroduction mo)es inward( inward( away from the cur)e. c. &he cur)e should shift outward as more production is possible with e%isting resources d. &he cur)e should shift inward with the destruction of resources capital2.

>. What are the two maor m aor ways in which an economy can grow and push out its production possibilities cur)e? cur)e? '# a. =etter weather and nicer cars. b. Higher ta%es and lower spending. spending. c. 'ncreases in resource supplies and ad)ances in technology. technology. d. Becreases in scarcity and ad)ances in auditing. )nswer:

&he economy produces output output from resource inputs inputs like land( labor( labor( and capital. +o one maor way for an economy to grow and push out its production possibilities cur)e is for it to obtain more resources . &he second maor way is to develop new and better technologies so that the economy can produce more from any gi)en amount of resources

#3'EMS

1. Motatoes cost Nanice 1 per pound( and she has 7.66 that she could possibly spend on potatoes or other items. 'f she feels that the first pound of potatoes is worth 1.76( the second pound is worth 1.13( the third pound is worth 1.67( and all subseuent pounds are worth 6.-6( how many pounds of potatoes will she purchase? What if she only had * to spend? '#( )nswer: *4 2

14< #opyright 5 *617 ,c8raw4Hill $ducation. All rights reser)ed. !o reproduction or distribution without the prior written consent of ,c8raw4Hill $ducation.


5eedback: Nanice will purchase potatoes until the )alue of potatoes is less than the cost of potatoes or until her income has been e%hausted. For e%ample( assume Nanice has 7.66 to spend on potatoes or other items and the cost of a pound of potatoes is 1. !ow assume the first pound of potatoes is worth 1.76 to Nanice. +he will purchase this pound of potatoes since the )alue of the pound of potatoes 1.762 is greater than the cost 12. 'f the second pound is worth 1.13 and the third pound is worth a 1.67 then Nanice will purchase these as well since the )alue e%ceeds the the cost of 1. 'f all remaining pounds pounds are worth 6.-6 then Nanice will not purchase these because the )alue is less than the cost. +o( Nanice will purchase - pounds of potatoes at total cost of -.66. !ow assume Nanice only only has *.66 to spend on potatoes. +he will purchase purchase the first pound because it is worth worth 1.76 to her and it only costs a 1. +he will purchase the second pound because it is worth 1.13. +he has now spent her entire income on potatoes. +he would like to purchase the third pound because the )alue of this pound of potatoes is 1.67( but she does not ha)e the income to make this purchase. +o( Nanice will purchase * pounds of potatoes potatoes at a total cost of *.66. *.66.

*. Mham can work as many or as few hours as she wants at the college bookstore for E per hour. =ut due to her hectic schedule( she has ust 17 hours per week that she can spend working at either the bookstore or at other potential obs. One potential ob( at a cafP( will pay her 1* per hour for up to < hours per week. +he has another ob offer at a garage that will pay her 16 an hour for up to 7 hours per week. And she has a potential ob at a daycare center that will pay her 9.76 per hour for as many hours as she can work. 'f her goal is to ma%imi;e the amount of money she can make each week( how many hours will she work at the bookstore? '#( )nswer: +. 5eedback: Mham will choose to work at the bookstore as long as the wage rate at the bookstore e%ceeds her her other opportunities. opportunities. Howe)er( Howe)er( if another ob offers a higher higher wage rate she will choose employment there. +he will work until her total time allotment for work2 is e%hausted. For e%ample( assume Mham only has 17 hours per week that she can work and the wage rate at the bookstore bookstore is E per hour. hour. +he can also spend her time time working at a cafP that will pay her 1* per hour for up to < hours per week( at a garage that will pay her 16 an hour for up to 7 hours per week( and at a daycare center that will pay her 9.76 per hour for as many hours as she can work. +he will choose to work at the cafP for the full < hours because the wage rate at the cafP is 1* per hour( which is greater than the wage rate at the bookstore of E. &his lea)es her with E hours of work time remaining. !e%t( she will choose to work at the garage for the full 7 hours because the wage rate here is 16( which again is greater than the bookstore wage rate E. After this decision she only has 3 hours of work time remaining. +he will choose to work these last 3 hours at the bookstore because the bookstore wage rate of E e%ceeds the daycare center wage rate of 9.76.

14> #opyright 5 *617 ,c8raw4Hill $ducation. All rights reser)ed. !o reproduction or distribution without the prior written consent of ,c8raw4Hill $ducation.


-. +uppose you won 17 on a lotto ticket at the local >4$le)en and decided to spend all the winnings on candy bars and bags of peanuts. #andy bars cost 6.>7 each while bags of peanuts cost 1.76 each. '#, a. #onstruct a table showing the alternati)e combinations combinations of the two products that are a)ailable. b. Mlot the data in your table table as a budget line in a graph. graph. What is the slope slope of the budget line? What is the opportunity cost of one more candy bar? Of one more bag of peanuts? Bo these opportunity costs rise( fall( or remain constant as additional units are purchased? c. Boes the budget line tell you which of the a)ailable combinations of candy bars and bags of peanuts to buy? d. +uppose that you had won -6 on your ticket( not 17. +how the -6 budget line in your diagram. Has the number of a)ailable combinations increased increased or decreased? )nswers: art a:

#onsumption alternati)es 8oods

A

=

#

B

$

F

#andy bars

6

3

9

1*

1<

*6

=ags of peanuts

16

9

<

3

*

6

art b:

=ags of Meanuts

Slope



.>7 1.7



.7



16

*6

#andy =ars



5eedback: &he slope for the budget line abo)e( with candy bars on the hori;ontal a%is( is 46.7 J 4 P cb could also be drawn with bags bags of peanuts on the /P bp cb /P bp2. !ote that the figure could hori;ontal a%is. &he slope of that budget budget line would be 4*.

&he opportunity cost of one more candy bar is Q of a bag of peanuts. &he opportunity cost of one more bag of peanuts is * candy bars. &hese opportunity costs costs are constant. &hey can be found by comparing any two of the consumption alternati)es for the two goods. art c: $o4 it only tells you what is possible. 5eedback: &he budget line does not tell you which of the a)ailable combinations of candy bars and bags of peanuts to buy. "ou will need to use your preference relationship for candy bars and bags of peanuts to determine which combination to buy. buy. &he budget line only tells you which combinations are feasible. art d: !ncreased.

= ags of M eanuts 'ncom 'n com e J H 17

*6

'nc nco o me J HH-6 6

16

*6

36

#andy =ars = ars

5eedback: &he budget line at -6 would be preferable because it would allow greater consumption of both goods.

14E #opyright 5 *617 ,c8raw4Hill $ducation. All rights reser)ed. !o reproduction or distribution without the prior written consent of ,c8raw4Hill $ducation.


3. +uppose that you are on a desert island and possess e%actly *6 coconuts. "our neighbor( Friday( is a fisherman( and he is willing to trade * fish for e)ery 1 coconut that you are willing to gi)e him. Another neighbor( neighbor( Rwame( is also a fisherman( and he is willing to trade - fish for e)ery 1 coconut. '#, a. On a single figure( draw budget lines for trading with Friday and for trading with Rwame. Mut coconuts on the )ertical a%is.2 b. What is the slope of the the budget line from trading trading with Friday? c. What is the slope of the budget line from trading with Rwame? d. Which budget line features a larger set of attainable combinations of coconuts and fish? e. 'f you are going to trade coconuts for fish( would you rather trade with Friday or Rwame? )nswers: art a:

#oconuts

&rade with Friday +lope J 41/* &rade with Rwame +lope J 41/-

*6

36

<6

Fish

art b: -(/2 5eedback: &he slope of the budget line from trading with Friday euals 41/*2. &his implies that for e)ery coconut ' gi)e up( Friday must gi)e up two fish. Or( for e)ery fish that Friday gi)es up( ' must gi)e up 1/*2 a coconut.



art c: -(/* 5eedback: &he slope of the budget line from trading with Rwame euals 41/-2. &his implies that for e)ery coconut ' gi)e up( Rwame must gi)e up three fish. Or( for e)ery fish that Friday gi)es up( ' must gi)e up 1/-2 a coconut. art d: &he bud6et line from tradin6 with 7wame 5eedback: &he budget line from trading with Rwame features a larger set of attainable combinations of coconuts and fish. =ecause Rwame is willing to gi)e up m ore fish per coconut( ' can consume more of both assuming ' make a trade2. &his implies that you would prefer to trade with Rwame. art e: 7wame 5eedback: =ecause Rwame is willing to gi)e up more fish per coconut( ' can consume more of both assuming ' make a trade2. &his implies that you would prefer to trade with Rwame.

7. =elow is a production possibilities possibilities table for consumer goods automobiles2 and capital goods forklifts2: '# a. +how these data graphically. graphically. 0pon what specific assumptions is this production possibilities cur)e based? b. 'f the economy is at point #( what is the cost of one more automobile? automobile? Of one more forklift? forklift? Which characteristic of the production possibilities possibilities cur)e reflects the law of increasing opportunity costs: its shape or its length? c. 'f the economy characteri;ed by this production possibilities possibilities table and cur)e were producing automobiles and *6 fork lifts( what could you conclude about its use of its a)ailable resources? d. 's production at a point outside the production possibilities possibilities cur)e currently possible? #ould a future ad)ance in technology allow production beyond the current production possibilities cur)e? #ould international trade allow a country to consume beyond its current production possibilities cur)e?



)nswers:

below.2 &he assumptions are full full employment( fi%ed supplies supplies art a: +ee figure below.2 of resources( fi%ed technology and two goods.

automobiles

B 1*(<2 # *1(32 9 = *>(*2

-6

forklifts

art b: + automobiles and 2( forklifts4 its shape. 5eedback: #onsider the following e%ample:

Assume the economy is producing at point #. &hus( the economy is producing 3 automobiles and *1 forklifts. &he cost of producing one more automobile can be found by mo)ing to point B and calculating the number of forklifts gi)en up for the * additional automobiles. At point B the economy is producing 1* forklifts( which is a loss of E forklifts mo)ing from # to B2 for the * additional automobiles. &hus the cost of 1 more automobile euals E forklifts2 di)ided by * automobiles2( or E/*2 J 3.7 forklifts.

141* #opyright 5 *617 ,c8raw4Hill $ducation. All rights reser)ed. !o reproduction or distribution without the prior written consent of ,c8raw4Hill $ducation.


&he cost of producing one more forklift can be found in an eui)alent fashion. First( we will mo)e to point = from point #2. Here we must gi)e up * automobiles to get < forklifts. &hus( the cost of 1 more forklift euals * automobiles2 di)ided by < forklifts2( which is */<2 J 1/-2. 'n re)iew( re)iew( take the cost loss2 and di)ide by the gain. 'f we were at point B( the cost of one more forklift euals * automobiles loss2 di)ided by E forklifts gain2. &hus( the cost of 1 more forklift at point = is */E2 automobiles. 'ncreasing opportunity cost implies that we must gi)e up more of a particular good to get an additional unit of a different good. &his implies as we mo)e along the production possibilities possibilities cur)e from left to right2 ' must must gi)e up more automobiles automobiles to get an additional forklift. &hus( the +HAM$ of the schedule captures the increasing opportunity cost concept. art c: "nderutili8in6. 5eedback: &he economy is underutili;ing resources inside the MM#2. art d: $o4 9es4 9es.

"es( a technological ad)ance 5eedback: !o( the country cannot produce outside its MM#. "es( would shift the MM# outward allowing the country produce more with a gi)en amount of inputs. "es( "es( by speciali;ing in goods we ha)e a comparati)e ad)antage producing we can trade to gain access to goods beyond our own MM#.

<. Cook at Figure 1.-. +uppose that the cost of cheese falls( f alls( so that the marginal cost of producing pi;;a decreases. Will Will the ,# cur)e shift up or down? down? Will Will the optimal amount amount of pi;;a increase or decrease? '# )nswers: MC will shift down4 the optimal amount of pi88a will increase.

schedules we must think about input costs. 'f the cost of 5eedback: &o think about cost schedules cheese falls( then the cost of making m aking pi;;a is cheaper for all pi;;as. &his implies that the marginal cost schedule will shift down reflecting the lower input cost. For a gi)en demand schedule( the optimal amount pi;;a produced and sold will increase and the euilibrium price would fall. &he opposite story would apply if the cost of cheese were to increase.

>. eferring to the table in problem 7( suppose impro)ement occurs in the technology of producing forklifts forklifts but not in the technology technology of producing automobiles. automobiles. Braw the new production production possibilities cur)e. cur)e. !ow assume that a technological technological ad)ance occurs in producing automobiles automobiles but not in producing forklifts. Braw the new production production possibilities possibilities cur)e. !ow draw draw a production possibilities possibilities cur)e that reflects reflects technological impro)ement impro)ement in the production production of both goods. '# )nswers: See fi6ures.

141#opyright 5 *617 ,c8raw4Hill $ducation. All rights reser)ed. !o reproduction or distribution without the prior written consent of ,c8raw4Hill $ducation.


&echnolo6ical adance in producin6 forklifts and not automobiles. 5eedback: &his implies we can produce more forklifts with the gi)en resources( so the schedule will shift out along the hori;ontal a%is.

automobiles

9

-6

forklifts

&echnolo6ical adance in producin6 automobiles and not forklifts. 5eedback: &his implies we can produce more automobiles with the gi)en resources( so the schedule will shift up along the )ertical a%is.



automobiles

9

-6

forklifts



&echnolo6ical in adance in producin6 automobiles and forklifts. 5eedback: &his implies we can produce more forklifts and automobiles with the gi)en resources( so the schedule will shift up out along the )ertical and hori;ontal a%es.

automobiles

9

-6

forklifts

9. =ecause in)estment and capital goods are paid for with sa)ings( higher sa)ings rates reflect a decision to consume fewer goods for the present in order to be able to in)est in more goods for the future. On a)erage( households in #hina sa)e 36 percent of their annual income each year( whereas households in the 0nited +tates sa)e less than 7 percent. Mroduction possibilities possibilities are growing at roughly E percent annually in #hina and -.7 percent in the 0nited +tates. 0se graphical analysis of present goods )ersus future goods to e%plain the differences in growth rates. '# )nswers: See fi6ures below

141< #opyright 5 *617 ,c8raw4Hill $ducation. All rights reser)ed. !o reproduction or distribution without the prior written consent of ,c8raw4Hill $ducation.


0nited +tates

#hina Future 8oods

Future 8oods

= A Mresent 8oods

Mresent 8oods

5eedback: +ince the 0nited +tates is consuming more today rather than sa)ing( their production possibilities possibilities cur)e will will shift out slower slower less2 o)er time because they they are accumulating less capital. #hinaSs production possibilities cur)e will shift out faster more2 o)er time because they are accumulating more capital. +ee diagrams below. below.

141> #opyright 5 *617 ,c8raw4Hill $ducation. All rights reser)ed. !o reproduction or distribution without the prior written consent of ,c8raw4Hill $ducation.

Solution-Manual-for-Microeconomics-20th-Edition-by-McConnell.doc

Recommend Documents