Besanko & Braeutigam – Microeconomics, 5th
Edition Solutions Manual.
Page 1 3/21/2026
, Chapter 1: Analyzing Economic Problems
Review Questions
1. Difference between microeconomics and macroeconomics
● Microeconomics: Studies the economic behavior of individual decision makers
(consumers, firms, workers).
● Macroeconomics: Examines the performance of the national economy—aggregate
income, employment, inflation, interest rates, business cycles.
2. Economics as the science of constrained choice
● Resources (labor, capital, materials) are scarce, but human wants are unlimited.
● Economics studies how these constraints influence choices about producing goods
and services.
3. Constrained optimization
● Helps decision makers select the best alternative given limitations.
● Objective function: The variable to maximize/minimize (e.g., profit).
● Constraints: Limits that define feasible choices.
4. Equilibrium in a competitive wheat market
● Above equilibrium price: Excess supply → price falls.
● Below equilibrium price: Excess demand → price rises.
● Equilibrium: Price where quantity demanded equals quantity supplied.
5. Endogenous vs. exogenous variables
● Exogenous: Determined outside the model, taken as given.
● Endogenous: Determined within the model.
● A model with only exogenous variables has no predictive power.
6. Comparative statics analysis
● Examines how changes in exogenous variables affect endogenous variables.
● Example: Low rainfall (exogenous) → corn price rises (endogenous).
7. Positive vs. normative analysis
● Positive: Explains/predicts economic outcomes (What is happening).
● Normative: Prescriptive, focuses on what should happen.
● Example:
○ Positive: “Will Internet auctions affect dealership profits?”
○ Normative: “Should the government tax Internet sales?”
Page 2 3/21/2026
, Problems
1.1 Usefulness of equilibrium concept
● Even if markets never fully reach equilibrium, the concept predicts how
prices/quantities change in response to shifts in exogenous variables.
1.2 U.S. corn market – exogenous shocks
● High exports to Taiwan/Japan: Demand shifts right → price ↑
● Low crop due to dry weather: Supply shifts left → price ↑
● Reduced production abroad (El Niño): U.S. demand shifts right → price ↑
1.3 World oil market, 2008
● Boom in China: Demand shifts right → price ↑
● Global recession: Demand shifts left → price ↓
● Increased Iraq production: Supply shifts right → price ↓
1.4 Minimizing costs of cellular service production
● Production function: ( Q = E \cdot L )
● Objective function: Minimize ( TC = P_E \cdot E + P_L \cdot L )
● Constraint: ( E \cdot L = Q ) (target output)
● Endogenous variables: ( E, L )
● Exogenous variables: ( Q, P_E, P_L )
1.5 Aluminum market
● Increase in U.S. income → demand shifts right
● Decrease in electricity price → supply shifts right
● Equilibrium quantity: ↑
● Equilibrium price: Ambiguous (depends on magnitude of shifts)
1.6 Ethanol market, 2008
● Gasoline price ↑ → demand for ethanol shifts right → price ↑
● Corn price ↑ → supply shifts left → price ↑
● Equilibrium price: ↑
● Equilibrium quantity: Ambiguous
1.7 U.S. gasoline and foreign price
● Price of gasoline abroad ↑ → U.S. supply ↓ → equilibrium price ↑
1.8 Computer monitors
Page 3 3/21/2026
, P 200 250 300 350 400
Qd 500 450 400 350 300
Qs 300 350 400 450 500
●
Equilibrium price: 300 (Qd = Qs = 400)
1.9 Computer memory chips
| P | 50 | 100 | 150 | 200 | 250 |
|---|----|-----|-----|-----|
| Qd| 400 | 300 | 200 | 100 | 0 |
| Qs| 100 | 150 | 200 | 250 | 300 |
● Equilibrium price: 150, Equilibrium quantity: 200
1.10 Sunglasses
| P | 80 | 90 | 100 | 110 | 120 |
|----|-----|-----|-----|-----|
| Qd | 680 | 640 | 600 | 560 | 520 |
| Qs | 580 | 640 | 700 | 760 | 820 |
● Equilibrium price: 90 (Qd = Qs = 640)
1.11 Sunglasses, summer demand increase
● Demand: ( Qd = 1200 - 4P )
| P | 80 | 90 | 100 | 110 | 120 |
|----|-----|-----|-----|-----|
| Qd | 880 | 840 | 800 | 760 | 720 |
| Qs | 580 | 640 | 700 | 760 | 820 |
● Equilibrium price: ↑ compared to 1.10
1.12 Wool market (with exogenous income I)
● Supply: ( Q_s = P )
● Demand: ( Q_d = 10 - P + I )
● Exogenous variable: I
● Endogenous variables: P, Q
● Equilibrium price and quantity: Solve ( Q_d = Q_s ), e.g., for ( I = 20 ), ( 10 - P +
20 = P ) → P = 15, Q = 15
Page 4 3/21/2026
Edition Solutions Manual.
Page 1 3/21/2026
, Chapter 1: Analyzing Economic Problems
Review Questions
1. Difference between microeconomics and macroeconomics
● Microeconomics: Studies the economic behavior of individual decision makers
(consumers, firms, workers).
● Macroeconomics: Examines the performance of the national economy—aggregate
income, employment, inflation, interest rates, business cycles.
2. Economics as the science of constrained choice
● Resources (labor, capital, materials) are scarce, but human wants are unlimited.
● Economics studies how these constraints influence choices about producing goods
and services.
3. Constrained optimization
● Helps decision makers select the best alternative given limitations.
● Objective function: The variable to maximize/minimize (e.g., profit).
● Constraints: Limits that define feasible choices.
4. Equilibrium in a competitive wheat market
● Above equilibrium price: Excess supply → price falls.
● Below equilibrium price: Excess demand → price rises.
● Equilibrium: Price where quantity demanded equals quantity supplied.
5. Endogenous vs. exogenous variables
● Exogenous: Determined outside the model, taken as given.
● Endogenous: Determined within the model.
● A model with only exogenous variables has no predictive power.
6. Comparative statics analysis
● Examines how changes in exogenous variables affect endogenous variables.
● Example: Low rainfall (exogenous) → corn price rises (endogenous).
7. Positive vs. normative analysis
● Positive: Explains/predicts economic outcomes (What is happening).
● Normative: Prescriptive, focuses on what should happen.
● Example:
○ Positive: “Will Internet auctions affect dealership profits?”
○ Normative: “Should the government tax Internet sales?”
Page 2 3/21/2026
, Problems
1.1 Usefulness of equilibrium concept
● Even if markets never fully reach equilibrium, the concept predicts how
prices/quantities change in response to shifts in exogenous variables.
1.2 U.S. corn market – exogenous shocks
● High exports to Taiwan/Japan: Demand shifts right → price ↑
● Low crop due to dry weather: Supply shifts left → price ↑
● Reduced production abroad (El Niño): U.S. demand shifts right → price ↑
1.3 World oil market, 2008
● Boom in China: Demand shifts right → price ↑
● Global recession: Demand shifts left → price ↓
● Increased Iraq production: Supply shifts right → price ↓
1.4 Minimizing costs of cellular service production
● Production function: ( Q = E \cdot L )
● Objective function: Minimize ( TC = P_E \cdot E + P_L \cdot L )
● Constraint: ( E \cdot L = Q ) (target output)
● Endogenous variables: ( E, L )
● Exogenous variables: ( Q, P_E, P_L )
1.5 Aluminum market
● Increase in U.S. income → demand shifts right
● Decrease in electricity price → supply shifts right
● Equilibrium quantity: ↑
● Equilibrium price: Ambiguous (depends on magnitude of shifts)
1.6 Ethanol market, 2008
● Gasoline price ↑ → demand for ethanol shifts right → price ↑
● Corn price ↑ → supply shifts left → price ↑
● Equilibrium price: ↑
● Equilibrium quantity: Ambiguous
1.7 U.S. gasoline and foreign price
● Price of gasoline abroad ↑ → U.S. supply ↓ → equilibrium price ↑
1.8 Computer monitors
Page 3 3/21/2026
, P 200 250 300 350 400
Qd 500 450 400 350 300
Qs 300 350 400 450 500
●
Equilibrium price: 300 (Qd = Qs = 400)
1.9 Computer memory chips
| P | 50 | 100 | 150 | 200 | 250 |
|---|----|-----|-----|-----|
| Qd| 400 | 300 | 200 | 100 | 0 |
| Qs| 100 | 150 | 200 | 250 | 300 |
● Equilibrium price: 150, Equilibrium quantity: 200
1.10 Sunglasses
| P | 80 | 90 | 100 | 110 | 120 |
|----|-----|-----|-----|-----|
| Qd | 680 | 640 | 600 | 560 | 520 |
| Qs | 580 | 640 | 700 | 760 | 820 |
● Equilibrium price: 90 (Qd = Qs = 640)
1.11 Sunglasses, summer demand increase
● Demand: ( Qd = 1200 - 4P )
| P | 80 | 90 | 100 | 110 | 120 |
|----|-----|-----|-----|-----|
| Qd | 880 | 840 | 800 | 760 | 720 |
| Qs | 580 | 640 | 700 | 760 | 820 |
● Equilibrium price: ↑ compared to 1.10
1.12 Wool market (with exogenous income I)
● Supply: ( Q_s = P )
● Demand: ( Q_d = 10 - P + I )
● Exogenous variable: I
● Endogenous variables: P, Q
● Equilibrium price and quantity: Solve ( Q_d = Q_s ), e.g., for ( I = 20 ), ( 10 - P +
20 = P ) → P = 15, Q = 15
Page 4 3/21/2026
