INSTRUCTOR’S SOLUTIONS MANUAL
PRINCIPLES OF MICROECONOMICS
14TH EDITION
CHAPTER NO. 01: THE SCOPE AND METHOD OF ECONOMICS
SOLUTIONS TO PROBLEMS
1.1 Answers will vary, but should include the notion that each activity provides benefits in the form of
satisfaction or additional income, but also takes time away from the pursuit of other activities
(opportunity cost). Time spent on each activity is limited because the additional benefit of devoting
an extra unit of time to any one activity falls as more time is devoted to the activity. Hence, as more
and more time is spent on one activity, it will become increasingly attractive to devote the next unit
of time to some other activity.
1.2 The average cost is $1.50 ($41.). The marginal cost is $0.
1.3 Opportunity costs of attending college include the income you forego by attending college instead
of working, leisure time you give up by attending classes and studying, other activities and items
that could have been enjoyed with the money spent to attend college, and experience that could
have been gained by working instead of attending college. Opportunity costs of not attending
college include the education and knowledge received by attending college, the potential to obtain
a better or more fulfilling job by having a college education, potentially greater future income and
a higher standard of living, and foregone opportunities more readily available to those with a
college education.
1.4 (a) From the standpoint of the women’s shelter, Monique is free. From Monique’s standpoint, she
gives up other uses of her time as well as wages that could be earned elsewhere.
(b) The $12 million could have been invested in other profit-making ventures or projects, or it
could have been put in the bank or loaned to someone else with interest.
(c) The other goods and services or investments that Taylor could buy with $500.
(d) The other uses of time or the foregone wages he could have earned had Hector decided to work
during the summer.
(e) The tuition spent on the doctoral program which could have been spent on other things, forgone
wages had Molly chosen to enter the job market instead of continuing with her education, study
time, and so on.
(f) The cost of paint and supplies, as well as the time Monica is giving up that could be used for
other activities.
(g) Tiffany gives up the chance at a better grade, and depending on her grade, she may even need
to pay to retake the class. This could possibly even affect her admission to a better grad school
or obtaining a higher-paying job. She has traded off an investment in human capital (staying in
to study) for present consumption (staying out too late).
1.5 Jeff Bezos does face scarcity because resources are limited. A person’s net worth does not change
the fact that everyone faces scarcity. Consider one of our most important resources—time. There
are only 24 hours in a day, and everyone, including Bezos, must live their lives under this constraint,
making decisions about how to spend this time.
1.6 Answers will vary depending on the occupations chosen.
,2.1 Answers will vary.
2.2 (a) This is an example of a microeconomic concern since it addresses a potential change in
operations for a particular industry.
(b) This is an example of a macroeconomic concern since it addresses a potential change in
marginal tax rates that would impact the entire nation.
(c) This is an example of a microeconomic concern since it addresses wages for a specific firm in
a specific industry.
(d) This is an example of a macroeconomic concern since it addresses a change in unemployment
benefits, which impacts the whole economy.
3.1 Answers will vary.
3.2 (a) positive
(b) positive
(c) normative
(d) positive
(e) normative
3.3 (a) Each state should allow the market to provide what people want. Since smoking marijuana is
not mandatory, only those who want to partake will do so. Tax revenues that arise from the
purchase of recreational marijuana are paid voluntarily.
(b) Some argue that using marijuana is associated with reduced productivity that has a cost to the
community at large. In addition, marijuana is considered by some to be addictive and can lead
to the use of harder drugs. These concerns bear on the efficiency argument to the extent that
there are costs from marijuana use that are not reflected in the price of marijuana. These costs
could potentially affect the community at large (e.g., the social cost of addiction) or the
individual (to the extent that marijuana use creates an unwanted addiction).
(c) Legalized marijuana has a number of fairness issues around it. First, a lot of people believe
marijuana is not harmful and can provide desired benefits, and they want to receive these
benefits. But many consider marijuana use to be bad and disagree with its legalization. A big
fairness issue is that people who use marijuana may become addicted to it and possibly addicted
to even harder drugs. Like many other issues of its kind there are positives and negatives from
the fairness side. Equity arguments are always the subject of disagreement.
(d) Tax revenue would likely fall in those states that had legalized marijuana use prior to its
legalization in all 50 states. For those states that just legalized marijuana use, tax revenues
would likely rise.
3.4 Answers will vary.
3.5 (a) This statement confuses correlation and causation. There is most likely a correlation between
people who eat quinoa and also exercise daily, since both are healthy actions, but the act of
eating quinoa is not the cause of people exercising on a daily basis.
(b) This statement is an example of the post hoc fallacy. Just because Cassandra watched the game
with her ferret and the Cubs won, this does not mean that watching the game with Bobo caused
the Cubs to win.
, (c) This statement is an example of the fallacy of composition, which is the erroneous belief that
what is true for a part is necessarily true for the whole. Requiring all salespeople to attend a
motivational training workshop would waste resources on those employees who do not need
motivation, and would not be a good use of time for those employees.
CHAPTER 1 APPENDIX
1A.1. The slopes are as follows: line 1: 5; line 2: –5; line 3: 1; line 4: –1; line 5: slope is 1 as X goes from
0 to 20, and –1 as X goes from 20 to 40; line 6: –250.
1A.2 There is a positive relationship between income and consumption.
1A.3. Answers will vary.
(a) Negative slope. As price rises, quantity of apples purchased falls.
(b) Positive (and declining) slope. As income rises, taxes rise; but the rise in taxes is less at higher
incomes than at lower incomes.
(c) Negative (and declining) slope. As mortgage rates fall, home sales increase, but the increase in
home sales is more at lower mortgage rates than at higher mortgage rates.
, (d) Negative, then positive slope. As young children get older, they run faster, but as adults get
older (beyond a certain age), they run slower.
(e) Positive slope. Greater sunshine leads to greater corn yield.
(f) Positive, then negative slope. Up to a point, more fertilizer increases corn yield, but beyond a
certain point, adding more fertilizer actually decreases the yield.
1A.4 (a) The relationship between the price of turkeys and the quantity of turkeys sold by Godfrey’s
Free-Range Gobblers is a positive relationship because as the price increases, the quantity sold
increases.
(b) The slope of the line is equal to 0.4.
(c) At point A, the tangent line runs through the points (p = 34, q = 20) and (p = 24, q = 45). The
slope is therefore (34 – 24) / (20 – 45) = 10 / –25 = –0.4.
At point B, the tangent line runs through the points (p = 12, q = 90) and (p = 5, q = 140). The
slope is therefore (12 – 5) / (90 – 140) = 7 / –50 = –0.14.
PRINCIPLES OF MICROECONOMICS
14TH EDITION
CHAPTER NO. 01: THE SCOPE AND METHOD OF ECONOMICS
SOLUTIONS TO PROBLEMS
1.1 Answers will vary, but should include the notion that each activity provides benefits in the form of
satisfaction or additional income, but also takes time away from the pursuit of other activities
(opportunity cost). Time spent on each activity is limited because the additional benefit of devoting
an extra unit of time to any one activity falls as more time is devoted to the activity. Hence, as more
and more time is spent on one activity, it will become increasingly attractive to devote the next unit
of time to some other activity.
1.2 The average cost is $1.50 ($41.). The marginal cost is $0.
1.3 Opportunity costs of attending college include the income you forego by attending college instead
of working, leisure time you give up by attending classes and studying, other activities and items
that could have been enjoyed with the money spent to attend college, and experience that could
have been gained by working instead of attending college. Opportunity costs of not attending
college include the education and knowledge received by attending college, the potential to obtain
a better or more fulfilling job by having a college education, potentially greater future income and
a higher standard of living, and foregone opportunities more readily available to those with a
college education.
1.4 (a) From the standpoint of the women’s shelter, Monique is free. From Monique’s standpoint, she
gives up other uses of her time as well as wages that could be earned elsewhere.
(b) The $12 million could have been invested in other profit-making ventures or projects, or it
could have been put in the bank or loaned to someone else with interest.
(c) The other goods and services or investments that Taylor could buy with $500.
(d) The other uses of time or the foregone wages he could have earned had Hector decided to work
during the summer.
(e) The tuition spent on the doctoral program which could have been spent on other things, forgone
wages had Molly chosen to enter the job market instead of continuing with her education, study
time, and so on.
(f) The cost of paint and supplies, as well as the time Monica is giving up that could be used for
other activities.
(g) Tiffany gives up the chance at a better grade, and depending on her grade, she may even need
to pay to retake the class. This could possibly even affect her admission to a better grad school
or obtaining a higher-paying job. She has traded off an investment in human capital (staying in
to study) for present consumption (staying out too late).
1.5 Jeff Bezos does face scarcity because resources are limited. A person’s net worth does not change
the fact that everyone faces scarcity. Consider one of our most important resources—time. There
are only 24 hours in a day, and everyone, including Bezos, must live their lives under this constraint,
making decisions about how to spend this time.
1.6 Answers will vary depending on the occupations chosen.
,2.1 Answers will vary.
2.2 (a) This is an example of a microeconomic concern since it addresses a potential change in
operations for a particular industry.
(b) This is an example of a macroeconomic concern since it addresses a potential change in
marginal tax rates that would impact the entire nation.
(c) This is an example of a microeconomic concern since it addresses wages for a specific firm in
a specific industry.
(d) This is an example of a macroeconomic concern since it addresses a change in unemployment
benefits, which impacts the whole economy.
3.1 Answers will vary.
3.2 (a) positive
(b) positive
(c) normative
(d) positive
(e) normative
3.3 (a) Each state should allow the market to provide what people want. Since smoking marijuana is
not mandatory, only those who want to partake will do so. Tax revenues that arise from the
purchase of recreational marijuana are paid voluntarily.
(b) Some argue that using marijuana is associated with reduced productivity that has a cost to the
community at large. In addition, marijuana is considered by some to be addictive and can lead
to the use of harder drugs. These concerns bear on the efficiency argument to the extent that
there are costs from marijuana use that are not reflected in the price of marijuana. These costs
could potentially affect the community at large (e.g., the social cost of addiction) or the
individual (to the extent that marijuana use creates an unwanted addiction).
(c) Legalized marijuana has a number of fairness issues around it. First, a lot of people believe
marijuana is not harmful and can provide desired benefits, and they want to receive these
benefits. But many consider marijuana use to be bad and disagree with its legalization. A big
fairness issue is that people who use marijuana may become addicted to it and possibly addicted
to even harder drugs. Like many other issues of its kind there are positives and negatives from
the fairness side. Equity arguments are always the subject of disagreement.
(d) Tax revenue would likely fall in those states that had legalized marijuana use prior to its
legalization in all 50 states. For those states that just legalized marijuana use, tax revenues
would likely rise.
3.4 Answers will vary.
3.5 (a) This statement confuses correlation and causation. There is most likely a correlation between
people who eat quinoa and also exercise daily, since both are healthy actions, but the act of
eating quinoa is not the cause of people exercising on a daily basis.
(b) This statement is an example of the post hoc fallacy. Just because Cassandra watched the game
with her ferret and the Cubs won, this does not mean that watching the game with Bobo caused
the Cubs to win.
, (c) This statement is an example of the fallacy of composition, which is the erroneous belief that
what is true for a part is necessarily true for the whole. Requiring all salespeople to attend a
motivational training workshop would waste resources on those employees who do not need
motivation, and would not be a good use of time for those employees.
CHAPTER 1 APPENDIX
1A.1. The slopes are as follows: line 1: 5; line 2: –5; line 3: 1; line 4: –1; line 5: slope is 1 as X goes from
0 to 20, and –1 as X goes from 20 to 40; line 6: –250.
1A.2 There is a positive relationship between income and consumption.
1A.3. Answers will vary.
(a) Negative slope. As price rises, quantity of apples purchased falls.
(b) Positive (and declining) slope. As income rises, taxes rise; but the rise in taxes is less at higher
incomes than at lower incomes.
(c) Negative (and declining) slope. As mortgage rates fall, home sales increase, but the increase in
home sales is more at lower mortgage rates than at higher mortgage rates.
, (d) Negative, then positive slope. As young children get older, they run faster, but as adults get
older (beyond a certain age), they run slower.
(e) Positive slope. Greater sunshine leads to greater corn yield.
(f) Positive, then negative slope. Up to a point, more fertilizer increases corn yield, but beyond a
certain point, adding more fertilizer actually decreases the yield.
1A.4 (a) The relationship between the price of turkeys and the quantity of turkeys sold by Godfrey’s
Free-Range Gobblers is a positive relationship because as the price increases, the quantity sold
increases.
(b) The slope of the line is equal to 0.4.
(c) At point A, the tangent line runs through the points (p = 34, q = 20) and (p = 24, q = 45). The
slope is therefore (34 – 24) / (20 – 45) = 10 / –25 = –0.4.
At point B, the tangent line runs through the points (p = 12, q = 90) and (p = 5, q = 140). The
slope is therefore (12 – 5) / (90 – 140) = 7 / –50 = –0.14.
