SOLUTION MANUAL FOR l8 l8
Issues in Economics Today 10th Edition by Robert Guell
l8 l8 l8 l8 l8 l8 l8 l8
Chapter 1-47 l8
Chapter 1 l8
End of Chapter Questions
l8 l8 l8
Quiz Yourself
l8
1. Scarcity implies that the allocation decision chosen by society can
l8 l8 l8 l8 l8 l8 l8 l8 l8
a) not make more of any one good. l8 l8 l8 l8 l8 l8
b) always make more of any good. l8 l8 l8 l8 l8
c) typically make more of one good but at the expense of making less of l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l
another. 8
d) always make more of all goods simultaneously. Expl l8 l8 l8 l8 l8 l8 l8
anation: Scarcity implies that choices involve trade-offs.
l8 l8 l8 l8 l8 l8
AACSB: Reflective Thinking Accessi l8 l8 l8
bility: Keyboard Navigation Blooms:
l8 l8 l8 l8
Understand
Difficulty: 02 Medium Grade l8 l8 l8
able: automatic Learning Obj
l8 l8 l8
ective: 01-01 l8
Topic: Economics and Opportunity Cost
l8 l8 l8 l8
2. A production possibilities frontier is a simple model of
l8 l8 l8 l8 l8 l8 l8 l8
a) allocating scarce inputs to the production of alternative outputs. l8 l8 l8 l8 l8 l8 l8 l8
a) price and production/consumption in a market.l8 l8 l8 l8 l8
b) the cost of producing goods. l8 l8 l8 l8
c) the number of inputs required to produce varying levels of output. Explanatio
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l 8
n: The production possibilities frontier shows the quantity of two goods that can be pro
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
duced. It implies that scarcity requires that choices be made as to how to use resources.
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
AACSB: Reflective Thinking Accessi l8 l8 l8
bility: Keyboard Navigation Blooms:
l8 l8 l8 l8
Understand
Difficulty: 02 Medium Grade l8 l8 l8
able: automatic Learning Obj
l8 l8 l8
ective: 01-01 l8
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
l8 l8 l8 l8 l8 l8 l8 l8
Page 1 l8
©l8MCGRAWl8HILLl8LLC.l8ALLl8RIGHTSl8RESERVED.l8NOl8REPRODUCTIONl8ORl8DISTRIBUTIONl8WITHOUTl8THEl8PRI
ORl 8 WRITTENl8CONSENTl8OFl8MCGRAWl8HILLl8LLC.
,3. The underlying reason that there are unattainable points on a production possibilities
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l
frontier is that there
8 l8 l8 l8
a. is government. l8
b. are always choices that must be made. l8 l8 l8 l8 l8 l8
c. are scarce resources within a fixed level of technology.
l8 l8 l8 l8 l8 l8 l8 l8
d. is unemployment of resources. l8 l8 l8
Explanation: The points outside the production possibilities frontier are unattainable. This
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
means that currently available resources and technology are insufficient to produce amou
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
nts greater than those illustrated on the frontier. On a graph, everything beyond the fronti
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
er is unattainable.
l8 l8
AACSB: Reflective Thinking Accessi l8 l8 l8
bility: Keyboard Navigation Blooms: R
l8 l8 l8 l8
emember
Difficulty: 01 Easy Gradeabl l8 l8 l8
e: automatic Learning Objecti
l8 l8 l8
ve: 01-01 l8
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
l8 l8 l8 l8 l8 l8 l8 l8
4. The underlying reason production possibilities frontiers are likely to be bowed out
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
(rather than linear) is becausel8 l8 l8 l8
a. choices have consequences. l8 l8
b. there are always opportunity costs. l8 l8 l8 l8
c. some resources and people can be better used producing one good rather
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
than another. l8
d. there is always some level of unemployment. l8 l8 l8 l8 l8 l8
Explanation: If the production possibilities frontier is not a line but is bowed out away fr
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
om the origin, then opportunity cost is increasing. The reason for this is that as we add m
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
ore resources to the production of, for example, pizza, we are using fewer resources to pr
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
oduce soda. Compounding that problem, at each stage as we take the resources away fro
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
m soda and put them into pizza, we are moving workers who are worse at pizza producti
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
on and better at soda production than those moved in the previous stage. This means that
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
the increase in pizza production is diminishing and the loss in soda production is increasin
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
g. An economist would call this an example of increasing opportunity cost. If the product
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
ion possibilities frontier is a straight line that is not bowed out away from the origin, then
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
opportunity cost is constant.
l8 l8 l8 l8
AACSB: Knowledge Application Acc l8 l8 l8
essibility: Keyboard Navigation Bloom l8 l8 l8
s: Remember
l8
Difficulty: 01 Easy Gradeabl l8 l8 l8
e: automatic Learning Objecti
l8 l8 l8
ve: 01-02 l8
Topic: Attributes of the Production Possibilities Frontier
l8 l8 l8 l8 l8 l8
Page 2 l8
©l8MCGRAWl8HILLl8LLC.l8ALLl8RIGHTSl8RESERVED.l8NOl8REPRODUCTIONl8ORl8DISTRIBUTIONl8WITHOUTl8THEl8PRI
ORl 8 WRITTENl8CONSENTl8OFl8MCGRAWl8HILLl8LLC.
,5. Suppose you were modeling the impact of the introduction of computer automation
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
into manufacturing on a production possibilities frontier (PPF) with two manufactured
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
goods on their respective axes. It would be more likely that the result would be
l8 l8 l8 . l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
a) generalized growth with the PPF moving both up and to the right. l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
b) specialized growth with the PPF moving both up and to the right. l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
c) generalized growth with the PPF just moving up and not to the right. l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
d) specialized growth with the PPF just moving up and not to the right. Explanati l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
on: Computer automation is a general improvement in technology so it would improve
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
all manufacturing. As a result, it would result in generalized growth and move the PPF
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
both up and to the right.
l8 l8 l8 l8 l8
AACSB: Knowledge Application Acc l8 l8 l8
essibility: Keyboard Navigation Bloom l8 l8 l8
s: Remember
l8
Difficulty: 01 Easy Gradeabl l8 l8 l8
e: automatic Learning Objecti
l8 l8 l8
ve: 01- l8
03 Topic: Economic Growth
l8 l8 l8
6. The optimization assumption suggests that people make
l8 l8 l8 l8 l8 l8
a. irrational decisions. l8
b. unpredictable decisions. l8
c. decisions to make themselves as well off as possible. l8 l8 l8 l8 l8 l8 l8 l8
d. decisions without thinking very hard. l8 l8 l8 l8
Explanation: The optimization assumption suggests that the person in question is trying t
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
o maximize some objective. Consumers are assumed to be making decisions that maxi
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
mize their happiness subject to a scarce amount of money.
l8 l8 l8 l8 l8 l8 l8 l8 l8
AACSB: Reflective Thinking Accessi l8 l8 l8
bility: Keyboard Navigation Blooms: R
l8 l8 l8 l8
emember
Difficulty: 01 Easy Gradeabl l8 l8 l8
e: automatic Learning Objecti
l8 l8 l8
ve: 01-01
l8
Topic: Thinking Economically l8 l8
7. Imagine an economist ordering donuts one-by- l8 l8 l8 l8 l8
one. When deciding how many donuts to order they would pick that number where the en
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
joyment of the l8 l8 l8
equals the enjoyment they could get from using the money on another good.
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
a. first donut l8
b. last/marginal donut l8
c. average/typical donut l8
d. total number of donuts l8 l8 l8
Explanation: The enjoyment of the last slice is the marginal benefit of that slice. If this enjoy
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
ment is more than the enjoyment from some alternative, more will be consumed.
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
AACSB: Reflective Thinking l8 l8
Page 3 l8
©l8MCGRAWl8HILLl8LLC.l8ALLl8RIGHTSl8RESERVED.l8NOl8REPRODUCTIONl8ORl8DISTRIBUTIONl8WITHOUTl8THEl8PRI
ORl 8 WRITTENl8CONSENTl8OFl8MCGRAWl8HILLl8LLC.
, Accessibility: Keyboard Navigation Bl l8 l8 l8
ooms: Understand l8
Difficulty: 02 Medium Gradea l8 l8 l8
ble: automatic Learning Obje
l8 l 8 l8
ctive: 01- l8
04 Topic: Thinking Economica
l8 l8 l8
lly
8. Of course, all individual students are better off if they earn better grades. If you were
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l
to conclude that all students would be better off if everyone received an A, you would
8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
a. have fallen victim to the fallacy of scarcity. l8 l8 l8 l8 l8 l8 l8
b. be right. l8
c. have fallen victim to the fallacy of composition. l8 l8 l8 l8 l8 l8 l8
d. be mistaking correlation with causation. l8 l8 l8 l8
Explanation: The fallacy of composition is the mistake in logic that suggests that the total
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
economic impact of something is always and simply equal to the sum of the individual p
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
arts.
AACSB: Reflective Thinking Accessi l8 l8 l8
bility: Keyboard Navigation Blooms:
l8 l8 l8 l8
Understand
Difficulty: 02 Medium Gradea l8 l8 l8
ble: automatic Learning Obje
l8 l 8 l8
ctive: 01- l8
04 Topic: Thinking Economica
l8 l8 l8
lly
9. Imagine you were to conclude, after carefully examining data and using proper eval
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
uation techniques, that a tax credit for attending college benefits low income earners mor
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
e than a tax deduction (of equal total cost to the government) would. You would have eng
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
aged in l8 analysis to reach that conclusion.
l8 l8 l8 l8 l8
a. negative
b. positive
c. normative
d. creative
Explanation: Economists, and social scientists in general, distinguish views of ―the way th
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
ings are‖ from ―the way things should be,‖ calling the former positive analysis and the latt
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
er normative analysis. Positive analysis is a form of analysis that seeks to understand the
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
way things are and why they are that way. Normative analysis is a form of analysis that s
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
eeks to understand the way things should be.
l8 l8 l8 l8 l8 l8 l8
AACSB: Reflective Thinking Accessi l8 l8 l8
bility: Keyboard Navigation Blooms:
l8 l8 l8 l8
Understand
Difficulty: 02 Medium Gradea l8 l8 l8
ble: automatic Learning Obje
l8 l 8 l8
ctive: 01- l8
04 Topic: Thinking Economica
l8 l8 l8
Page 4 l8
©l8MCGRAWl8HILLl8LLC.l8ALLl8RIGHTSl8RESERVED.l8NOl8REPRODUCTIONl8ORl8DISTRIBUTIONl8WITHOUTl8THEl8PRI
ORl 8 WRITTENl8CONSENTl8OFl8MCGRAWl8HILLl8LLC.
Issues in Economics Today 10th Edition by Robert Guell
l8 l8 l8 l8 l8 l8 l8 l8
Chapter 1-47 l8
Chapter 1 l8
End of Chapter Questions
l8 l8 l8
Quiz Yourself
l8
1. Scarcity implies that the allocation decision chosen by society can
l8 l8 l8 l8 l8 l8 l8 l8 l8
a) not make more of any one good. l8 l8 l8 l8 l8 l8
b) always make more of any good. l8 l8 l8 l8 l8
c) typically make more of one good but at the expense of making less of l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l
another. 8
d) always make more of all goods simultaneously. Expl l8 l8 l8 l8 l8 l8 l8
anation: Scarcity implies that choices involve trade-offs.
l8 l8 l8 l8 l8 l8
AACSB: Reflective Thinking Accessi l8 l8 l8
bility: Keyboard Navigation Blooms:
l8 l8 l8 l8
Understand
Difficulty: 02 Medium Grade l8 l8 l8
able: automatic Learning Obj
l8 l8 l8
ective: 01-01 l8
Topic: Economics and Opportunity Cost
l8 l8 l8 l8
2. A production possibilities frontier is a simple model of
l8 l8 l8 l8 l8 l8 l8 l8
a) allocating scarce inputs to the production of alternative outputs. l8 l8 l8 l8 l8 l8 l8 l8
a) price and production/consumption in a market.l8 l8 l8 l8 l8
b) the cost of producing goods. l8 l8 l8 l8
c) the number of inputs required to produce varying levels of output. Explanatio
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l 8
n: The production possibilities frontier shows the quantity of two goods that can be pro
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
duced. It implies that scarcity requires that choices be made as to how to use resources.
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
AACSB: Reflective Thinking Accessi l8 l8 l8
bility: Keyboard Navigation Blooms:
l8 l8 l8 l8
Understand
Difficulty: 02 Medium Grade l8 l8 l8
able: automatic Learning Obj
l8 l8 l8
ective: 01-01 l8
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
l8 l8 l8 l8 l8 l8 l8 l8
Page 1 l8
©l8MCGRAWl8HILLl8LLC.l8ALLl8RIGHTSl8RESERVED.l8NOl8REPRODUCTIONl8ORl8DISTRIBUTIONl8WITHOUTl8THEl8PRI
ORl 8 WRITTENl8CONSENTl8OFl8MCGRAWl8HILLl8LLC.
,3. The underlying reason that there are unattainable points on a production possibilities
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l
frontier is that there
8 l8 l8 l8
a. is government. l8
b. are always choices that must be made. l8 l8 l8 l8 l8 l8
c. are scarce resources within a fixed level of technology.
l8 l8 l8 l8 l8 l8 l8 l8
d. is unemployment of resources. l8 l8 l8
Explanation: The points outside the production possibilities frontier are unattainable. This
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
means that currently available resources and technology are insufficient to produce amou
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
nts greater than those illustrated on the frontier. On a graph, everything beyond the fronti
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
er is unattainable.
l8 l8
AACSB: Reflective Thinking Accessi l8 l8 l8
bility: Keyboard Navigation Blooms: R
l8 l8 l8 l8
emember
Difficulty: 01 Easy Gradeabl l8 l8 l8
e: automatic Learning Objecti
l8 l8 l8
ve: 01-01 l8
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
l8 l8 l8 l8 l8 l8 l8 l8
4. The underlying reason production possibilities frontiers are likely to be bowed out
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
(rather than linear) is becausel8 l8 l8 l8
a. choices have consequences. l8 l8
b. there are always opportunity costs. l8 l8 l8 l8
c. some resources and people can be better used producing one good rather
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
than another. l8
d. there is always some level of unemployment. l8 l8 l8 l8 l8 l8
Explanation: If the production possibilities frontier is not a line but is bowed out away fr
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
om the origin, then opportunity cost is increasing. The reason for this is that as we add m
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
ore resources to the production of, for example, pizza, we are using fewer resources to pr
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
oduce soda. Compounding that problem, at each stage as we take the resources away fro
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
m soda and put them into pizza, we are moving workers who are worse at pizza producti
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
on and better at soda production than those moved in the previous stage. This means that
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
the increase in pizza production is diminishing and the loss in soda production is increasin
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
g. An economist would call this an example of increasing opportunity cost. If the product
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
ion possibilities frontier is a straight line that is not bowed out away from the origin, then
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
opportunity cost is constant.
l8 l8 l8 l8
AACSB: Knowledge Application Acc l8 l8 l8
essibility: Keyboard Navigation Bloom l8 l8 l8
s: Remember
l8
Difficulty: 01 Easy Gradeabl l8 l8 l8
e: automatic Learning Objecti
l8 l8 l8
ve: 01-02 l8
Topic: Attributes of the Production Possibilities Frontier
l8 l8 l8 l8 l8 l8
Page 2 l8
©l8MCGRAWl8HILLl8LLC.l8ALLl8RIGHTSl8RESERVED.l8NOl8REPRODUCTIONl8ORl8DISTRIBUTIONl8WITHOUTl8THEl8PRI
ORl 8 WRITTENl8CONSENTl8OFl8MCGRAWl8HILLl8LLC.
,5. Suppose you were modeling the impact of the introduction of computer automation
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
into manufacturing on a production possibilities frontier (PPF) with two manufactured
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
goods on their respective axes. It would be more likely that the result would be
l8 l8 l8 . l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
a) generalized growth with the PPF moving both up and to the right. l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
b) specialized growth with the PPF moving both up and to the right. l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
c) generalized growth with the PPF just moving up and not to the right. l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
d) specialized growth with the PPF just moving up and not to the right. Explanati l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
on: Computer automation is a general improvement in technology so it would improve
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
all manufacturing. As a result, it would result in generalized growth and move the PPF
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
both up and to the right.
l8 l8 l8 l8 l8
AACSB: Knowledge Application Acc l8 l8 l8
essibility: Keyboard Navigation Bloom l8 l8 l8
s: Remember
l8
Difficulty: 01 Easy Gradeabl l8 l8 l8
e: automatic Learning Objecti
l8 l8 l8
ve: 01- l8
03 Topic: Economic Growth
l8 l8 l8
6. The optimization assumption suggests that people make
l8 l8 l8 l8 l8 l8
a. irrational decisions. l8
b. unpredictable decisions. l8
c. decisions to make themselves as well off as possible. l8 l8 l8 l8 l8 l8 l8 l8
d. decisions without thinking very hard. l8 l8 l8 l8
Explanation: The optimization assumption suggests that the person in question is trying t
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
o maximize some objective. Consumers are assumed to be making decisions that maxi
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
mize their happiness subject to a scarce amount of money.
l8 l8 l8 l8 l8 l8 l8 l8 l8
AACSB: Reflective Thinking Accessi l8 l8 l8
bility: Keyboard Navigation Blooms: R
l8 l8 l8 l8
emember
Difficulty: 01 Easy Gradeabl l8 l8 l8
e: automatic Learning Objecti
l8 l8 l8
ve: 01-01
l8
Topic: Thinking Economically l8 l8
7. Imagine an economist ordering donuts one-by- l8 l8 l8 l8 l8
one. When deciding how many donuts to order they would pick that number where the en
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
joyment of the l8 l8 l8
equals the enjoyment they could get from using the money on another good.
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
a. first donut l8
b. last/marginal donut l8
c. average/typical donut l8
d. total number of donuts l8 l8 l8
Explanation: The enjoyment of the last slice is the marginal benefit of that slice. If this enjoy
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
ment is more than the enjoyment from some alternative, more will be consumed.
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
AACSB: Reflective Thinking l8 l8
Page 3 l8
©l8MCGRAWl8HILLl8LLC.l8ALLl8RIGHTSl8RESERVED.l8NOl8REPRODUCTIONl8ORl8DISTRIBUTIONl8WITHOUTl8THEl8PRI
ORl 8 WRITTENl8CONSENTl8OFl8MCGRAWl8HILLl8LLC.
, Accessibility: Keyboard Navigation Bl l8 l8 l8
ooms: Understand l8
Difficulty: 02 Medium Gradea l8 l8 l8
ble: automatic Learning Obje
l8 l 8 l8
ctive: 01- l8
04 Topic: Thinking Economica
l8 l8 l8
lly
8. Of course, all individual students are better off if they earn better grades. If you were
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l
to conclude that all students would be better off if everyone received an A, you would
8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
a. have fallen victim to the fallacy of scarcity. l8 l8 l8 l8 l8 l8 l8
b. be right. l8
c. have fallen victim to the fallacy of composition. l8 l8 l8 l8 l8 l8 l8
d. be mistaking correlation with causation. l8 l8 l8 l8
Explanation: The fallacy of composition is the mistake in logic that suggests that the total
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
economic impact of something is always and simply equal to the sum of the individual p
l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8 l8
arts.
AACSB: Reflective Thinking Accessi l8 l8 l8
bility: Keyboard Navigation Blooms:
l8 l8 l8 l8
Understand
Difficulty: 02 Medium Gradea l8 l8 l8
ble: automatic Learning Obje
l8 l 8 l8
ctive: 01- l8
04 Topic: Thinking Economica
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lly
9. Imagine you were to conclude, after carefully examining data and using proper eval
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uation techniques, that a tax credit for attending college benefits low income earners mor
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e than a tax deduction (of equal total cost to the government) would. You would have eng
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aged in l8 analysis to reach that conclusion.
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a. negative
b. positive
c. normative
d. creative
Explanation: Economists, and social scientists in general, distinguish views of ―the way th
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ings are‖ from ―the way things should be,‖ calling the former positive analysis and the latt
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er normative analysis. Positive analysis is a form of analysis that seeks to understand the
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way things are and why they are that way. Normative analysis is a form of analysis that s
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eeks to understand the way things should be.
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AACSB: Reflective Thinking Accessi l8 l8 l8
bility: Keyboard Navigation Blooms:
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Understand
Difficulty: 02 Medium Gradea l8 l8 l8
ble: automatic Learning Obje
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ctive: 01- l8
04 Topic: Thinking Economica
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