Teaching Assistance Manual b b
Economics
AContemporaryIntroduction
b b
TENTH EDITION b
William A. McEachernb b
University of Connecticut
b b
Australiab•bBrazilb•bJapanb•bKoreab•bMexicob•bSingaporeb•bSpainb•bUnitedbKingdomb•bUnitedbStates
©b2014bCengagebLearning.bAllbRightsbReserved.bMaybnotbbebscanned,bcopiedborbduplicate
d,b orbpostedbtobabpublicallybaccessiblebwebsite,binbwholeborbinbpart.
, b
©b2014,b2012,b2009bSouth-Western,bCengagebLearning ISBN-13:b978-1-111-29627-8
ISBN-10:b1-111-29627-8
ALLbRIGHTSbRESERVED.bNobpartbofbthisbworkbcoveredbbybth
ebcopyrightbhereinbmaybbebreproduced,btransmitted,bstored,bor South-WesternbCengagebLearning
busedbinbanybform borbbybanybmeansbgraphic,belectronic,borbme 5191bNatorpbBoulevard
chanical,bincludingbbutbnotblimitedbtobphotocopying,brecording, Mason,bOHb45040bUS
bscanning,bdigitizing,btaping,bWebbdistribution,binformationbnet A
works,borbinformationbstoragebandbretrievalbsystems,bexceptba
sbpermittedbunderbSectionb107borb108bofbtheb1976bUnitedbStat CengagebLearningbisbableadingbproviderbofbcustomizedblea
esbCopyrightbAct,bwithoutbthebpriorbwrittenbpermissionbofbthebp rningbsolutionsbwithbofficeblocationsbaroundbthebglobe,binclu
ublisherbexceptbasbmaybbebpermittedbbybtheblicensebtermsbbel dingbSingapore,bthebUnitedbKingdom,bAustralia,bMexico,bB
ow. razil,bandbJapan.bLocatebyourblocalbofficebat:binternational
.cengage.com/region.
CengagebLearningbproductsbarebrepresentedbinbCana
Forbproductbinformationbandbtechnologybassistance,bcontactbusbat dabbybNelsonbEducation,bLtd.
CengagebLearningbAcademicbResourcebCenter
,b1-800-423-0563. Forbyourbcoursebandblearningbsolutions,bvisit
www.cengage.com.
Forbpermissionbtobusebmaterialbfrombthisbtextborbproduct,bsubmi
tballbrequestsbonlinebatbwww.cengage.com/permissions.
Purchasebanybofbourbproductsbatbyourblocalbcollegebst
Furtherbpermissionsbquestionsbcanbbebemailedbto
oreborbatbourbpreferredbonlinebstorebwww.CengageBr
.
ain.com.
NOTE:bUNDERbNObCIRCUMSTANCESbMAYbTHISbMATERIALbORbANYbPORTIONbTHEREOFbBEbSOLD,bLICENSED,bAUCTIONE
D,bORbOTHERWISEbREDISTRIBUTEDbEXCEPTbASbMAYbBEbPERMITTEDbBYbTHEbLICENSEbTERMSbHEREIN.
READbIMPORTANTbLICENSEbINFORMATION
DearbProfessorborbOtherbSupplementbRecipient:
CengagebLearningbhasbprovidedbyoubwithbthisbproductb(theb“Suppl form.bWebaskbthatbyoubtakebreasonablebstepsbtobprotectbthebSuppl
ement”)b forb yourb reviewb and,b tob theb extentb thatb youb adoptbtheb ementbfrombunauthorizedbuse,breproduction,borbdistribution.bYourbu
associatedbtextbookbforbusebinbconnectionbwithbyourbcourseb(theb“ sebofbthebSupplementbindicatesbyourbacceptancebofbthebconditions
Course”),byoubandbyourbstudentsbwhobpurchasebthebtextbookbmayb bsetbforthbinbthisbAgreement.bIfbyoubdobnotbacceptbthesebconditions
usebthebSupplementbasbdescribedbbelow.bCengagebLearningbhasb ,byoubmustbreturnbthebSupplementbunusedbwithinb30bdaysbofbrecei
establishedbthesebuseblimitationsbinbresponsebtobconcernsbraisedbb pt.
ybauthors,bprofessors,bandbotherbusersbregardingbthebpedagogicalb
problemsbstemmingbfrombunlimitedbdistributionbofbSupplements. Allbrightsb(includingbwithoutblimitation,bcopyrights,bpatents,bandbtrad
ebsecrets)binbthebSupplementbarebandbwillbremainbthebsolebandbex
CengagebLearningbherebybgrantsbyoubabnontransferableblicensebto clusivebpropertybofbCengagebLearningband/orbitsblicensors.bThebSu
busebthebSupplementbinbconnectionbwithbthebCourse,bsubjectbtobth pplementbisbfurnishedbbybCengagebLearningbonbanb“asbis”bbasisbwi
ebfollowingbconditions.bThebSupplementbisbforbyourbpersonal,bnonc thoutbanybwarranties,bexpressborbimplied.bThisbAgreementbwillbbeb
ommercialbusebonlybandbmaybnotbbebreproduced,bpostedbelectroni governedbbybandbconstruedbpursuantbtobtheblawsbofbthebStatebofb
callyborbdistributed,bexceptbthatbportionsbofbthebSupplementbmaybb NewbYork,bwithoutbregardbtobsuchbState’sbconflictbofblawbrules.
ebprovidedbtobyourbstudentsbINbPRINTbFORMbONLYbinbconnection
bwithbyourbinstructionbofbthebCourse,bsoblongbasbsuchbstudentsbare Thankbyoubforbyourbassistancebinbhelpingbtobsafeguardbthebintegrit
badvisedbthatbtheybmaybnotbcopyborbdistributebanybportionbofbthebS yb ofbthebcontentbcontainedbinbthisbSupplement.bWebtrustbyoubfindbt
upplementbtobanybthirdbparty.bYoubmaybnotbsell,blicense,b auction,b hebSupplementbabusefulbteachingbtool.
orb otherwiseb redistributeb theb Supplementb inb any
PrintedbinbthebUnitedbStatesbofbAmericab
1b2b3b4b5b6b7b11b10
©b2014bCengagebLearning.bAllbRightsbReserved.bMaybnotbbebscanned,bcopiedborbduplicate
d,b orbpostedbtobabpublicallybaccessiblebwebsite,binbwholeborbinbpart.
,CONTENTS
Introduction .......................................................................................................................................1
1 ThebArtbandbSciencebofbEconomicbAnalysis ......................................................................................3
2 EconomicbToolsbandbEconomicbSystems .......................................................................................... 6b
3 EconomicbDecisionbMakers ..............................................................................................................9
4 Demand,bSupply,bandbMarkets ........................................................................................................12
5 ElasticitybofbDemandbandbSupply ....................................................................................................15
6 ConsumerbChoicebandbDemand .......................................................................................................18
7 ProductionbandbCostbinbthebFirm......................................................................................................21
8 PerfectbCompetition ........................................................................................................................24
9 Monopoly ........................................................................................................................................27
10 MonopolisticbCompetitionbandbOligopoly.......................................................................................30
11 ResourcebMarkets............................................................................................................................33
12 LaborbMarketsbandbLaborbUnions ...................................................................................................36
13 Capital,bInterest,bEntrepreneurship,bandbCorporatebFinance............................................................ 40
14 TransactionbCosts,bImperfectbInformation,bandbBehavioralbEconomics .......................................... 43
15 EconomicbRegulationbandbAntitrustbPolicy .....................................................................................46
16 PublicbGoodsbandbPublicbChoice .....................................................................................................49
17 ExternalitiesbandbthebEnvironment ..................................................................................................52
18 IncomebDistributionbandbPoverty ....................................................................................................55
19 IntroductionbtobMacroeconomics.....................................................................................................58
20 TrackingbthebU.S.bEconomy ............................................................................................................ 61
21 UnemploymentbandbInflation ..........................................................................................................64
22 ProductivitybandbGrowth .................................................................................................................67
23 AggregatebExpenditurebandb Aggregateb Demand ......................................................................... 70
iii
©b2014bCengagebLearning.bAllbRightsbReserved.bMaybnotbbebscanned,bcopiedborbduplicate
d,b orbpostedbtobabpublicallybaccessiblebwebsite,binbwholeborbinbpart.
, 24 AggregatebSupply ........................................................................................................................... 73
25 FiscalbPolicy ................................................................................................................................... 76
26 FederalbBudgetsbandbPublicbPolicy ................................................................................................. 79
27 MoneybandbthebFinancialbSystem .................................................................................................... 82
28 BankingbandbthebMoneybSupply ...................................................................................................... 85
29 MonetarybTheorybandbPolicy .......................................................................................................... 88
30 MacrobPolicybDebate:bActiveborbPassive? ....................................................................................... 91
31 InternationalbTrade.......................................................................................................................... 94
32 InternationalbFinance ...................................................................................................................... 97
33 EconomicbDevelopment ................................................................................................................ 100
AppendixbA:bClassroombPresentation ........................................................................................... 103
AppendixbB:bLeadingbabDiscussion ............................................................................................... 111
AppendixbC:bQuizzesbandbExams ................................................................................................. 116
AppendixbD:bSpecialbChallengesbFacingbthebForeignbGraduatebAssistant..................................... 121
iv Contents
©b2014bCengagebLearning.bAllbRightsbReserved.bMaybnotbbebscanned,bcopiedborbduplicate
d,b orbpostedbtobabpublicallybaccessiblebwebsite,binbwholeborbinbpart.
Economics
AContemporaryIntroduction
b b
TENTH EDITION b
William A. McEachernb b
University of Connecticut
b b
Australiab•bBrazilb•bJapanb•bKoreab•bMexicob•bSingaporeb•bSpainb•bUnitedbKingdomb•bUnitedbStates
©b2014bCengagebLearning.bAllbRightsbReserved.bMaybnotbbebscanned,bcopiedborbduplicate
d,b orbpostedbtobabpublicallybaccessiblebwebsite,binbwholeborbinbpart.
, b
©b2014,b2012,b2009bSouth-Western,bCengagebLearning ISBN-13:b978-1-111-29627-8
ISBN-10:b1-111-29627-8
ALLbRIGHTSbRESERVED.bNobpartbofbthisbworkbcoveredbbybth
ebcopyrightbhereinbmaybbebreproduced,btransmitted,bstored,bor South-WesternbCengagebLearning
busedbinbanybform borbbybanybmeansbgraphic,belectronic,borbme 5191bNatorpbBoulevard
chanical,bincludingbbutbnotblimitedbtobphotocopying,brecording, Mason,bOHb45040bUS
bscanning,bdigitizing,btaping,bWebbdistribution,binformationbnet A
works,borbinformationbstoragebandbretrievalbsystems,bexceptba
sbpermittedbunderbSectionb107borb108bofbtheb1976bUnitedbStat CengagebLearningbisbableadingbproviderbofbcustomizedblea
esbCopyrightbAct,bwithoutbthebpriorbwrittenbpermissionbofbthebp rningbsolutionsbwithbofficeblocationsbaroundbthebglobe,binclu
ublisherbexceptbasbmaybbebpermittedbbybtheblicensebtermsbbel dingbSingapore,bthebUnitedbKingdom,bAustralia,bMexico,bB
ow. razil,bandbJapan.bLocatebyourblocalbofficebat:binternational
.cengage.com/region.
CengagebLearningbproductsbarebrepresentedbinbCana
Forbproductbinformationbandbtechnologybassistance,bcontactbusbat dabbybNelsonbEducation,bLtd.
CengagebLearningbAcademicbResourcebCenter
,b1-800-423-0563. Forbyourbcoursebandblearningbsolutions,bvisit
www.cengage.com.
Forbpermissionbtobusebmaterialbfrombthisbtextborbproduct,bsubmi
tballbrequestsbonlinebatbwww.cengage.com/permissions.
Purchasebanybofbourbproductsbatbyourblocalbcollegebst
Furtherbpermissionsbquestionsbcanbbebemailedbto
oreborbatbourbpreferredbonlinebstorebwww.CengageBr
.
ain.com.
NOTE:bUNDERbNObCIRCUMSTANCESbMAYbTHISbMATERIALbORbANYbPORTIONbTHEREOFbBEbSOLD,bLICENSED,bAUCTIONE
D,bORbOTHERWISEbREDISTRIBUTEDbEXCEPTbASbMAYbBEbPERMITTEDbBYbTHEbLICENSEbTERMSbHEREIN.
READbIMPORTANTbLICENSEbINFORMATION
DearbProfessorborbOtherbSupplementbRecipient:
CengagebLearningbhasbprovidedbyoubwithbthisbproductb(theb“Suppl form.bWebaskbthatbyoubtakebreasonablebstepsbtobprotectbthebSuppl
ement”)b forb yourb reviewb and,b tob theb extentb thatb youb adoptbtheb ementbfrombunauthorizedbuse,breproduction,borbdistribution.bYourbu
associatedbtextbookbforbusebinbconnectionbwithbyourbcourseb(theb“ sebofbthebSupplementbindicatesbyourbacceptancebofbthebconditions
Course”),byoubandbyourbstudentsbwhobpurchasebthebtextbookbmayb bsetbforthbinbthisbAgreement.bIfbyoubdobnotbacceptbthesebconditions
usebthebSupplementbasbdescribedbbelow.bCengagebLearningbhasb ,byoubmustbreturnbthebSupplementbunusedbwithinb30bdaysbofbrecei
establishedbthesebuseblimitationsbinbresponsebtobconcernsbraisedbb pt.
ybauthors,bprofessors,bandbotherbusersbregardingbthebpedagogicalb
problemsbstemmingbfrombunlimitedbdistributionbofbSupplements. Allbrightsb(includingbwithoutblimitation,bcopyrights,bpatents,bandbtrad
ebsecrets)binbthebSupplementbarebandbwillbremainbthebsolebandbex
CengagebLearningbherebybgrantsbyoubabnontransferableblicensebto clusivebpropertybofbCengagebLearningband/orbitsblicensors.bThebSu
busebthebSupplementbinbconnectionbwithbthebCourse,bsubjectbtobth pplementbisbfurnishedbbybCengagebLearningbonbanb“asbis”bbasisbwi
ebfollowingbconditions.bThebSupplementbisbforbyourbpersonal,bnonc thoutbanybwarranties,bexpressborbimplied.bThisbAgreementbwillbbeb
ommercialbusebonlybandbmaybnotbbebreproduced,bpostedbelectroni governedbbybandbconstruedbpursuantbtobtheblawsbofbthebStatebofb
callyborbdistributed,bexceptbthatbportionsbofbthebSupplementbmaybb NewbYork,bwithoutbregardbtobsuchbState’sbconflictbofblawbrules.
ebprovidedbtobyourbstudentsbINbPRINTbFORMbONLYbinbconnection
bwithbyourbinstructionbofbthebCourse,bsoblongbasbsuchbstudentsbare Thankbyoubforbyourbassistancebinbhelpingbtobsafeguardbthebintegrit
badvisedbthatbtheybmaybnotbcopyborbdistributebanybportionbofbthebS yb ofbthebcontentbcontainedbinbthisbSupplement.bWebtrustbyoubfindbt
upplementbtobanybthirdbparty.bYoubmaybnotbsell,blicense,b auction,b hebSupplementbabusefulbteachingbtool.
orb otherwiseb redistributeb theb Supplementb inb any
PrintedbinbthebUnitedbStatesbofbAmericab
1b2b3b4b5b6b7b11b10
©b2014bCengagebLearning.bAllbRightsbReserved.bMaybnotbbebscanned,bcopiedborbduplicate
d,b orbpostedbtobabpublicallybaccessiblebwebsite,binbwholeborbinbpart.
,CONTENTS
Introduction .......................................................................................................................................1
1 ThebArtbandbSciencebofbEconomicbAnalysis ......................................................................................3
2 EconomicbToolsbandbEconomicbSystems .......................................................................................... 6b
3 EconomicbDecisionbMakers ..............................................................................................................9
4 Demand,bSupply,bandbMarkets ........................................................................................................12
5 ElasticitybofbDemandbandbSupply ....................................................................................................15
6 ConsumerbChoicebandbDemand .......................................................................................................18
7 ProductionbandbCostbinbthebFirm......................................................................................................21
8 PerfectbCompetition ........................................................................................................................24
9 Monopoly ........................................................................................................................................27
10 MonopolisticbCompetitionbandbOligopoly.......................................................................................30
11 ResourcebMarkets............................................................................................................................33
12 LaborbMarketsbandbLaborbUnions ...................................................................................................36
13 Capital,bInterest,bEntrepreneurship,bandbCorporatebFinance............................................................ 40
14 TransactionbCosts,bImperfectbInformation,bandbBehavioralbEconomics .......................................... 43
15 EconomicbRegulationbandbAntitrustbPolicy .....................................................................................46
16 PublicbGoodsbandbPublicbChoice .....................................................................................................49
17 ExternalitiesbandbthebEnvironment ..................................................................................................52
18 IncomebDistributionbandbPoverty ....................................................................................................55
19 IntroductionbtobMacroeconomics.....................................................................................................58
20 TrackingbthebU.S.bEconomy ............................................................................................................ 61
21 UnemploymentbandbInflation ..........................................................................................................64
22 ProductivitybandbGrowth .................................................................................................................67
23 AggregatebExpenditurebandb Aggregateb Demand ......................................................................... 70
iii
©b2014bCengagebLearning.bAllbRightsbReserved.bMaybnotbbebscanned,bcopiedborbduplicate
d,b orbpostedbtobabpublicallybaccessiblebwebsite,binbwholeborbinbpart.
, 24 AggregatebSupply ........................................................................................................................... 73
25 FiscalbPolicy ................................................................................................................................... 76
26 FederalbBudgetsbandbPublicbPolicy ................................................................................................. 79
27 MoneybandbthebFinancialbSystem .................................................................................................... 82
28 BankingbandbthebMoneybSupply ...................................................................................................... 85
29 MonetarybTheorybandbPolicy .......................................................................................................... 88
30 MacrobPolicybDebate:bActiveborbPassive? ....................................................................................... 91
31 InternationalbTrade.......................................................................................................................... 94
32 InternationalbFinance ...................................................................................................................... 97
33 EconomicbDevelopment ................................................................................................................ 100
AppendixbA:bClassroombPresentation ........................................................................................... 103
AppendixbB:bLeadingbabDiscussion ............................................................................................... 111
AppendixbC:bQuizzesbandbExams ................................................................................................. 116
AppendixbD:bSpecialbChallengesbFacingbthebForeignbGraduatebAssistant..................................... 121
iv Contents
©b2014bCengagebLearning.bAllbRightsbReserved.bMaybnotbbebscanned,bcopiedborbduplicate
d,b orbpostedbtobabpublicallybaccessiblebwebsite,binbwholeborbinbpart.
