© 201 8 Pearson Education, Inc. Solution Manual for Microeconomics, 13th edition Michael Parkin Preface iii Part 1 Introduction Chapter 1 What is Economics? 1 Appendix Graphs in Economics 9 Chapter 2 The Economic Problem 21 Part 2 How Markets Work Chapter 3 Demand and Supply 39 Chapter 4 Elasticity 53 Chapter 5 Efficiency and Equity 65 Chapter 6 Government Actions in Markets 79 Chapter 7 Global Markets in Action 93 Part 3 Households’ Choices Chapter 8 Utility and Demand 107 Chapter 9 Possibilities, Preferences, and Choices 121 Part 4 Firms and Markets Chapter 10 Organizing Production 137 Chapter 1 1 Output and Costs 151 Chapter 1 2 Perfect Competition 165 Chapter 1 3 Monopoly 179 Chapter 1 4 Monopolistic Competition 197 Chapter 1 5 Oligopoly 209 Part 5 Market Failure and Government Chapter 1 6 Public Cho ices, Public Goods , and Healthcare 223 Chapter 1 7 Externalities 237 Part 6 Factor Markets, Inequality, and Uncertainty Chapter 1 8 Markets for Factors of Production 249 Chapter 1 9 Economic Inequality 261 Chapter 20 Uncertainty and Information 275 Table of Contents VI C H A P T E R 1 © 201 8 Pearson Education, Inc . A n s w e r s t o t h e R e v i e w Q u i z Page 2 1. List some examples of the scarcity that you face . Examples of scarcity common to students include not enough income to afford both tuition and a nice car , not enough learning c apacity to study for both an economics exam and a che mistry exam in one night , and not enough time to allow extensive studying and extensive socializ ing. 2. Find examples of scarcity in today‘s headlines. A headline in The Baltimore Sun on June 20, 2017 was ―Davis Says Special Deployment Helped Stall Violence .‖ The story presented Police Commissioner Kevin Davis stating that a week -long deployment of uniformed police officers on the streets of Baltimore helped reduce shootings in the city. But the story poi nted out the role of scarcity when Commissioner Davis said that ―the deployment was not sustainable over the long term‖ due to its cost. 3. Find an example of the distinction between microeconomics and macroeconomics in today‘s headlines. Microeconomics : On June 20, 2017 a headline in East Bay Times was ―Reality vs Fantasy: FTC to Block FanDuel -DraftKings Merger .‖ This story covers a microeconomic topic because it discusses how two on-
line fantasy sports sites, which were trying to merge, now faced oppositi on by the Federal Trade Commission (FTC) which announced it would challenge the merger. Macroeconomics : On June 20, 2017, a headline in The Wall Street Journal was ―Ryan Talks Up Likelihood of Tax Overhaul .‖ This story covers a macroeconomic topic because it concerns taxes that affect every business and individual in the entire economy. Page 7 1. Describe the broad facts about what , how, and for whom goods and services are produced. 1 WHAT IS ECONOMICS? C h a p t e r 2 C H A P T E R 1 © 201 8 Pearson Education, Inc . What gets produced is significantly different today than in the past. Today the U.S. economy produces more services, such as medical operations, teaching, and hair styling, than goods, such as pizza, automobiles, and computers. How goods and services are pr oduced is by businesses determining how the factors of production, land, labor, capital and entrepreneu rship, are combined to make the goods and services we consume. Land includes all natural resources, both renewable natural resources such as wood, and nonrenewable natural resources such as natural gas. Labor’s quality depends on people’s human capital. In the U.S. economy, human capital obtained through schooling has increased over the years with far more people completing high school and attending college than in past years. Finally, for whom are goods and services to be produ ced depends on the way income is distributed to U.S. citizens. This distribution is not equal; the 20 percent of people with the lowest income earn about 5 percent of the nation’s total income while the 20 percent of people with the highest incomes earn ab out 50 percent of total income. On the average, men earn more than women, whites more than non-whites, and college graduates more than high school graduates. 2. Use headlines from the recent news to illustrate the potential for conflict between self -intere st and the social interest. One example of an issue concerns the use of a school board’s credit card to make personal purchases. A June 20, 2017 headline from Star Tribune was ―Shakopee Board Approves Superintendent’s Resignation Will Pay Him $50,000 .‖ This story discusses the superintendent’s use of a school board credit card to buy items such as a television and trip to Nashville. The superintendent wa s following his self -
interest because he may not have repaid the purchases had they not been uncovered. The school board chair said ―In light of the current issues facing the school district, the school board feel (sic) that a change in leadership is warranted.‖ The chair believes that the social interest is served by having a new superintendent without the issue of misuse of a credit card hanging over his or her head. Page 10 1. Explain the idea of a tradeoff and think of three tradeoffs that you have made today . A tradeoff reflects the point that when someone gets one thing, something else must be given up. What is given up is the opportunity cost of whatever is obtained. Three examples of tradeoffs that are common to students include : a) When a student sleeps in rather than going to his or her early morning economics class, the student trades off additional sleep for study time. The opportunity cost of the decision is a lower grade on the exam. b) When a student running late for class parks his or her car ill egally, the student trades off saving time for the risk of a ticket. The potential opportunity cost of the decision is the goods and services that cannot be purchased if the student receives an expensive parking ticket. c) A student trades off higher income by spending time during the day working at a part-time job for less time spent at leisure time and
line fantasy sports sites, which were trying to merge, now faced oppositi on by the Federal Trade Commission (FTC) which announced it would challenge the merger. Macroeconomics : On June 20, 2017, a headline in The Wall Street Journal was ―Ryan Talks Up Likelihood of Tax Overhaul .‖ This story covers a macroeconomic topic because it concerns taxes that affect every business and individual in the entire economy. Page 7 1. Describe the broad facts about what , how, and for whom goods and services are produced. 1 WHAT IS ECONOMICS? C h a p t e r 2 C H A P T E R 1 © 201 8 Pearson Education, Inc . What gets produced is significantly different today than in the past. Today the U.S. economy produces more services, such as medical operations, teaching, and hair styling, than goods, such as pizza, automobiles, and computers. How goods and services are pr oduced is by businesses determining how the factors of production, land, labor, capital and entrepreneu rship, are combined to make the goods and services we consume. Land includes all natural resources, both renewable natural resources such as wood, and nonrenewable natural resources such as natural gas. Labor’s quality depends on people’s human capital. In the U.S. economy, human capital obtained through schooling has increased over the years with far more people completing high school and attending college than in past years. Finally, for whom are goods and services to be produ ced depends on the way income is distributed to U.S. citizens. This distribution is not equal; the 20 percent of people with the lowest income earn about 5 percent of the nation’s total income while the 20 percent of people with the highest incomes earn ab out 50 percent of total income. On the average, men earn more than women, whites more than non-whites, and college graduates more than high school graduates. 2. Use headlines from the recent news to illustrate the potential for conflict between self -intere st and the social interest. One example of an issue concerns the use of a school board’s credit card to make personal purchases. A June 20, 2017 headline from Star Tribune was ―Shakopee Board Approves Superintendent’s Resignation Will Pay Him $50,000 .‖ This story discusses the superintendent’s use of a school board credit card to buy items such as a television and trip to Nashville. The superintendent wa s following his self -
interest because he may not have repaid the purchases had they not been uncovered. The school board chair said ―In light of the current issues facing the school district, the school board feel (sic) that a change in leadership is warranted.‖ The chair believes that the social interest is served by having a new superintendent without the issue of misuse of a credit card hanging over his or her head. Page 10 1. Explain the idea of a tradeoff and think of three tradeoffs that you have made today . A tradeoff reflects the point that when someone gets one thing, something else must be given up. What is given up is the opportunity cost of whatever is obtained. Three examples of tradeoffs that are common to students include : a) When a student sleeps in rather than going to his or her early morning economics class, the student trades off additional sleep for study time. The opportunity cost of the decision is a lower grade on the exam. b) When a student running late for class parks his or her car ill egally, the student trades off saving time for the risk of a ticket. The potential opportunity cost of the decision is the goods and services that cannot be purchased if the student receives an expensive parking ticket. c) A student trades off higher income by spending time during the day working at a part-time job for less time spent at leisure time and
