INSTRUCTOR'S SOLUTIONS MANUAL
ECONOMICS TODAY
21ST EDITION
CHAPTER NO. 01: THE NATURE OF ECONOMICS
ANSWERS TO QUESTIONS FOR CRITICAL ANALYSIS
POLICY EXAMPLE: BUSINESSES MIGRATE BETWEEN STATES IN RESPONSE TO TAXING
INCENTIVES (P. 6)
For Critical Thinking
Why do you suppose that economists have found that other forms of state tax burdens on
small businesspeople, such as property and gross-receipts taxes, also influence small-
business migration decisions?
Any state tax burdens (income, property, or gross-receipts taxes) will create higher costs
for small businesses and give them an incentive to migrate to a state with lower taxes,
and therefore, lower costs.
Real Application
If you decide to move your small business to a lower-tax state, you’ll obviously benefit
from paying lower state taxes. What costs might you incur that you should consider in
making your calculations?
The costs of moving your business to another state would be the costs of moving
(searching for a new house and new storefront, the costs of hiring movers and packing
belongings), as well as the costs of starting your business in a new location (advertising,
establishing a new clientele base, finding new suppliers).
DIVERSITY TRENDS: ECONOMIC MODELS CONFRONT THE ISSUE OF DIFFERENCES IN
OUTCOMES RELATIVE TO UNDERLYING OPPORTUNITIES OF DIVERSE GROUPS (P. 7)
For Critical Thinking
Why do you suppose that more economists are developing empirical measures of different
groups’ opportunities?
With the increasing role that data plays in every sector of the economy today, the amount
of data available and the quality of that data have also increased. This allows for
economists to more accurately test current models and develop new ones that are more
consistent with real world data. By developing empirical measures of different groups’
opportunities, economists will be able to test models’ predictions to explain divergences
in economic outcomes that different groups experience.
AI: THE FUTURE IS NOW: PEOPLE’S CLAIMS AND ACTIONS DIFFER REGARDING
LETTING AI MANAGE THEIR PERSONAL FINANCES (P. 9)
For Critical Thinking
How might the fact that people typically have to pay a price to utilize AI-based personal-
finance services help to explain why fewer people actually have opted to use them?
How people think can be different from how they actually act. While one out of every
three individuals is willing to utilize AI applications to assist in personal finance, when it
comes to actually choosing and costs have to be considered, fewer individuals are willing
to take action. The higher the price people have to pay for AI-based personal-finance
services, the fewer services they will be willing and able to purchase. Therefore, the fact
that people have to pay to use these services will result in a lower the number of people
who actually use them.
Real Application
,Clearly, AI financial applications will improve and will become better and cheaper. Will
all of you necessarily opt in to the use of such applications for your investment decision-
making? (Hint: Might you worry, for example, about privacy problems?)
As AI financial applications improve and become cheaper, more people will be willing
and able to use these applications. There may, however, remain some who are worried
about security and privacy and may not trust the applications enough to divulge sensitive
financial information. Therefore, we can see that the decision on adoption may not just
solely depend on price.
◼ Economics in Your Life
WHY IS THE AVERAGE ACTUAL U.S. FAMILY SIZE SMALLER THAN PEOPLE CLAIM IN
SURVEYS TO BE “IDEAL”? (P. 12)
Critical Thinking Questions
What is at least one element other than the expense of raising a child that likely
influences a decision about how many children to bear and raise? (Hint: Why are some
prospective parents better financially equipped to cover childrearing expenses than
others?)
One element that is likely to influence a decision about how many children to bear
and raise is the income (and expected future income) of the household. The higher
the income, the more prepared are parents to cover childrearing expenses. Because
income generally increases with age (as people gain more experience), age may be
another factor that influences the decision about how many children to bear and
raise.
Would you guess that if survey questions about “ideal” numbers of children included
information about child-raising expenses, the survey results might be different? Explain
your reasoning. (See Figure 1-1.)
Yes. Seeing the actual costs of raising children will force survey takers to consider
the costs before specifying their “ideal” number of children.
Real Application
Assume that you take part in a survey about your ideal family size. What are the issues
that concern you most that will determine your answer?
The desire to have children (for both you and your partner), the costs of bearing and
raising children, the benefits of bearing and raising children, the time needed to raise
children (finding schools, attending appointments, participating in sports), the
support available to help raise children (grandparents, friends, relatives, day-care
facilities)
◼ Issues & Applications
FOR THE U.S. GOVERNMENT, ONE OF TWO EV CHARGING-SYSTEM STANDARDS IS AN
OPTION, BUT THE OTHER IS OBLIGATORY (PP. 13–14)
Critical Thinking Questions
,How might an EV charging-station network have developed in the absence of any
government involvement? Explain briefly.
As the number of EV vehicles increased, the demand for EV charging stations would
rise and so would the price people would be willing to pay to charge their EVs.
Therefore, the price system would be used to allocate production to EV charging
stations to match the demand, with more stations being constructed in areas that most
desire them. The type of connectors used at these charging stations will also depend
on market forces. It is likely that privately owned charging stations would provide
charging for different types of connectors. However, charging stations paid for by an
automaker may end up supporting only the type of connectors that their cars use (as
it can increase incentives to purchase that automaker’s cars).
How might an EV charging-station network have been constructed under governmental
command and control? Discuss your reasoning.
The government would determine what kind of charging-station, how many
charging-stations, and the locations of those charging stations. The type, number, and
location determined by the government, however, might not match what is desired
by the market as they may not have the data on consumers’ needs in every location,
nor would they have the resources to analyze it even if they do.
Real Application
Assume that you’ve decided to purchase a new car. Does your physical location have any
bearing on whether you would consider the purchase of an EV? (Hint: Will your answer
differ depending on whether you live in a small rural town in the mountain states
compared with a large city in the South?)
Yes. With an EV, you can always get a charger installed at home, but any travel
away from home would require access to charging stations. If you live in a small
rural town with few charging stations, you may be less willing to purchase an EV.
On the other hand, if you live in a large city with many charging stations, you may
be more willing to purchase an EV. In addition to the number and locations of
charging stations, the price of gasoline would also be a consideration in purchasing
an EV.
Answers to End-of-Chapter Questions
1-1. Define economics. Explain briefly how the economic way of thinking—in terms of
rational, self-interested people responding to incentives—relates to each of the
following situations.
a. A student deciding whether to purchase a textbook for a particular class
b. Government officials seeking more funding for mass transit through higher
taxes
c. A municipality taxing hotel guests to obtain funding for a new sports stadium
Economics is the study of how individuals allocate limited resources to satisfy unlimited
wants.
, a. Among the factors that a rational, self-interested student will take into account
are income, the price of the textbook, an anticipation of how much the individual
is likely to study the textbook, and how much studying the book is likely to affect
the individual’s grade.
b. A rational, self-interested government official will, for example, recognize that
higher taxes will raise more funds for mass transit while making more voters, who
have limited resources, willing to elect other officials.
c. A municipality’s rational, self-interested government will, for instance, take into
account that higher hotel taxes will produce more funds if as many visitors
continue staying at hotels, but that the higher taxes will also discourage some
visitors from spending nights at hotels.
1-2. Some people claim that the “economic way of thinking” does not apply to issues
such as health care. Explain how economics does apply to this issue by developing
a “model” of an individual’s choices.
This issue involves choice and, therefore, can be approached using the economic way of
thinking. In the case of health care, an individual typically has an unlimited desire for
good health. The individual has a limited budget and limited time, however. The
individual must allocate her budget across other desirable goods, such as housing and
food, and must allocate her time across waiting in a physician’s office, work, leisure, and
sleep. Hence, choices must be made in light of limited resources.
1-3. Does the phrase “unlimited wants and limited resources” apply to both a low-
income household and a middle-income household? Can the same phrase be applied
to a very high-income household?
Because wants are unlimited, the phrase applies to very high-income households as well
as low- and middle-income households. Consider, for instance, a household with a low
income and unlimited wants at the beginning of the year. The household’s wants will still
remain unlimited if it becomes a high-income household later in the year.
1-4. In a single sentence, contrast microeconomics and macroeconomics. Next,
categorize each of the following issues as a microeconomic issue, a macroeconomic
issue, or not an economic issue.
a. The national unemployment rate
b. The decision of a worker to work overtime or not
c. A family’s choice to have a baby
d. The rate of growth of the money supply
e. The national government’s budget deficit
f. A student’s allocation of study time across two subjects
Microeconomics is the study of individual decision-making, whereas macroeconomics
examines the aggregate behavior of the entire economy.
a. macroeconomics
b. microeconomics
ECONOMICS TODAY
21ST EDITION
CHAPTER NO. 01: THE NATURE OF ECONOMICS
ANSWERS TO QUESTIONS FOR CRITICAL ANALYSIS
POLICY EXAMPLE: BUSINESSES MIGRATE BETWEEN STATES IN RESPONSE TO TAXING
INCENTIVES (P. 6)
For Critical Thinking
Why do you suppose that economists have found that other forms of state tax burdens on
small businesspeople, such as property and gross-receipts taxes, also influence small-
business migration decisions?
Any state tax burdens (income, property, or gross-receipts taxes) will create higher costs
for small businesses and give them an incentive to migrate to a state with lower taxes,
and therefore, lower costs.
Real Application
If you decide to move your small business to a lower-tax state, you’ll obviously benefit
from paying lower state taxes. What costs might you incur that you should consider in
making your calculations?
The costs of moving your business to another state would be the costs of moving
(searching for a new house and new storefront, the costs of hiring movers and packing
belongings), as well as the costs of starting your business in a new location (advertising,
establishing a new clientele base, finding new suppliers).
DIVERSITY TRENDS: ECONOMIC MODELS CONFRONT THE ISSUE OF DIFFERENCES IN
OUTCOMES RELATIVE TO UNDERLYING OPPORTUNITIES OF DIVERSE GROUPS (P. 7)
For Critical Thinking
Why do you suppose that more economists are developing empirical measures of different
groups’ opportunities?
With the increasing role that data plays in every sector of the economy today, the amount
of data available and the quality of that data have also increased. This allows for
economists to more accurately test current models and develop new ones that are more
consistent with real world data. By developing empirical measures of different groups’
opportunities, economists will be able to test models’ predictions to explain divergences
in economic outcomes that different groups experience.
AI: THE FUTURE IS NOW: PEOPLE’S CLAIMS AND ACTIONS DIFFER REGARDING
LETTING AI MANAGE THEIR PERSONAL FINANCES (P. 9)
For Critical Thinking
How might the fact that people typically have to pay a price to utilize AI-based personal-
finance services help to explain why fewer people actually have opted to use them?
How people think can be different from how they actually act. While one out of every
three individuals is willing to utilize AI applications to assist in personal finance, when it
comes to actually choosing and costs have to be considered, fewer individuals are willing
to take action. The higher the price people have to pay for AI-based personal-finance
services, the fewer services they will be willing and able to purchase. Therefore, the fact
that people have to pay to use these services will result in a lower the number of people
who actually use them.
Real Application
,Clearly, AI financial applications will improve and will become better and cheaper. Will
all of you necessarily opt in to the use of such applications for your investment decision-
making? (Hint: Might you worry, for example, about privacy problems?)
As AI financial applications improve and become cheaper, more people will be willing
and able to use these applications. There may, however, remain some who are worried
about security and privacy and may not trust the applications enough to divulge sensitive
financial information. Therefore, we can see that the decision on adoption may not just
solely depend on price.
◼ Economics in Your Life
WHY IS THE AVERAGE ACTUAL U.S. FAMILY SIZE SMALLER THAN PEOPLE CLAIM IN
SURVEYS TO BE “IDEAL”? (P. 12)
Critical Thinking Questions
What is at least one element other than the expense of raising a child that likely
influences a decision about how many children to bear and raise? (Hint: Why are some
prospective parents better financially equipped to cover childrearing expenses than
others?)
One element that is likely to influence a decision about how many children to bear
and raise is the income (and expected future income) of the household. The higher
the income, the more prepared are parents to cover childrearing expenses. Because
income generally increases with age (as people gain more experience), age may be
another factor that influences the decision about how many children to bear and
raise.
Would you guess that if survey questions about “ideal” numbers of children included
information about child-raising expenses, the survey results might be different? Explain
your reasoning. (See Figure 1-1.)
Yes. Seeing the actual costs of raising children will force survey takers to consider
the costs before specifying their “ideal” number of children.
Real Application
Assume that you take part in a survey about your ideal family size. What are the issues
that concern you most that will determine your answer?
The desire to have children (for both you and your partner), the costs of bearing and
raising children, the benefits of bearing and raising children, the time needed to raise
children (finding schools, attending appointments, participating in sports), the
support available to help raise children (grandparents, friends, relatives, day-care
facilities)
◼ Issues & Applications
FOR THE U.S. GOVERNMENT, ONE OF TWO EV CHARGING-SYSTEM STANDARDS IS AN
OPTION, BUT THE OTHER IS OBLIGATORY (PP. 13–14)
Critical Thinking Questions
,How might an EV charging-station network have developed in the absence of any
government involvement? Explain briefly.
As the number of EV vehicles increased, the demand for EV charging stations would
rise and so would the price people would be willing to pay to charge their EVs.
Therefore, the price system would be used to allocate production to EV charging
stations to match the demand, with more stations being constructed in areas that most
desire them. The type of connectors used at these charging stations will also depend
on market forces. It is likely that privately owned charging stations would provide
charging for different types of connectors. However, charging stations paid for by an
automaker may end up supporting only the type of connectors that their cars use (as
it can increase incentives to purchase that automaker’s cars).
How might an EV charging-station network have been constructed under governmental
command and control? Discuss your reasoning.
The government would determine what kind of charging-station, how many
charging-stations, and the locations of those charging stations. The type, number, and
location determined by the government, however, might not match what is desired
by the market as they may not have the data on consumers’ needs in every location,
nor would they have the resources to analyze it even if they do.
Real Application
Assume that you’ve decided to purchase a new car. Does your physical location have any
bearing on whether you would consider the purchase of an EV? (Hint: Will your answer
differ depending on whether you live in a small rural town in the mountain states
compared with a large city in the South?)
Yes. With an EV, you can always get a charger installed at home, but any travel
away from home would require access to charging stations. If you live in a small
rural town with few charging stations, you may be less willing to purchase an EV.
On the other hand, if you live in a large city with many charging stations, you may
be more willing to purchase an EV. In addition to the number and locations of
charging stations, the price of gasoline would also be a consideration in purchasing
an EV.
Answers to End-of-Chapter Questions
1-1. Define economics. Explain briefly how the economic way of thinking—in terms of
rational, self-interested people responding to incentives—relates to each of the
following situations.
a. A student deciding whether to purchase a textbook for a particular class
b. Government officials seeking more funding for mass transit through higher
taxes
c. A municipality taxing hotel guests to obtain funding for a new sports stadium
Economics is the study of how individuals allocate limited resources to satisfy unlimited
wants.
, a. Among the factors that a rational, self-interested student will take into account
are income, the price of the textbook, an anticipation of how much the individual
is likely to study the textbook, and how much studying the book is likely to affect
the individual’s grade.
b. A rational, self-interested government official will, for example, recognize that
higher taxes will raise more funds for mass transit while making more voters, who
have limited resources, willing to elect other officials.
c. A municipality’s rational, self-interested government will, for instance, take into
account that higher hotel taxes will produce more funds if as many visitors
continue staying at hotels, but that the higher taxes will also discourage some
visitors from spending nights at hotels.
1-2. Some people claim that the “economic way of thinking” does not apply to issues
such as health care. Explain how economics does apply to this issue by developing
a “model” of an individual’s choices.
This issue involves choice and, therefore, can be approached using the economic way of
thinking. In the case of health care, an individual typically has an unlimited desire for
good health. The individual has a limited budget and limited time, however. The
individual must allocate her budget across other desirable goods, such as housing and
food, and must allocate her time across waiting in a physician’s office, work, leisure, and
sleep. Hence, choices must be made in light of limited resources.
1-3. Does the phrase “unlimited wants and limited resources” apply to both a low-
income household and a middle-income household? Can the same phrase be applied
to a very high-income household?
Because wants are unlimited, the phrase applies to very high-income households as well
as low- and middle-income households. Consider, for instance, a household with a low
income and unlimited wants at the beginning of the year. The household’s wants will still
remain unlimited if it becomes a high-income household later in the year.
1-4. In a single sentence, contrast microeconomics and macroeconomics. Next,
categorize each of the following issues as a microeconomic issue, a macroeconomic
issue, or not an economic issue.
a. The national unemployment rate
b. The decision of a worker to work overtime or not
c. A family’s choice to have a baby
d. The rate of growth of the money supply
e. The national government’s budget deficit
f. A student’s allocation of study time across two subjects
Microeconomics is the study of individual decision-making, whereas macroeconomics
examines the aggregate behavior of the entire economy.
a. macroeconomics
b. microeconomics
