SOLUTION MANUAL Microeconomics principles and policy 13th edition william j. Baumol, alan s. Blinder
PART II SOLUTIONS CHAPTER 1 WHAT IS ECONOMICS? DISCUSSION QUESTIONS 1. Think about a way you would construct a model of how your college is governed. Which officers and administrators would you include and exclude from your model if the objective were one of the following: a.To explain how decisions on financial aid are made b.To explain the quality of the faculty Relate this to the map example in the chapter. This question is designed to make students construct their own version of the map example. A good answer is one in which (i) the people who are principally involved in the decision are identified, (ii) the flow of information and persuasion between those people is outlined and (iii) extraneous detail is eliminated. The ―model‖ is likely to be quite different for part (a) and part (b). Thus decisions on financial aid may depend upon the trustees, who set overall policy and attempt to raise funds; the president, who allocates the college budget; the admissions office, which determines what portion of each class is financially needy; and the counselors in the financial aid office, who make decisions about individual cases. Information about policy flows from the top of the bureaucratic hierarchy, and information about need from the bottom. In part (b), faculty quality may be determined by the trustees, who may be responsible for setting salary levels; the president or dean, who must agree to each faculty appointment and promotion; and the faculty committees in each department and division, that search for potential appointees. Instructors who assign this question may be amazed at the image of their institution’s structure held by the students. © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
2. Relate the process of abstraction to the way you take notes in a lecture. Why do you not try to transcribe every word uttered by the lecturer? Why don’t you write down just the title of the lecture and stop there? How do you decide, roughly speaking, on the correct amount of detail? Most students are familiar with the need to abstract from detail, and take notes only about the essential points. The student will want enough detail to be able to reconstruct the instructor’s argument, but not so much detail as to obscure the main point. It is unlikely that simply writing down the title of the lecture will enable the student to recall the main arguments at a later date. The choices of how much detail, and what particular detail, are similar to the choices an economist makes in thinking about a problem, that is to say, in constructing a model. [This is a good opportunity to discuss note-taking with the students. While most understand the basic idea, few are skilled at it. Take a look at a few students’ lecture notes, and ask whether you would be comfortable learning economics from those notes.]
3. Explain why a government policy maker cannot afford to ignore economic theory. Without theory, an economist (or anyone else) can only assemble facts, but she cannot understand the relationship between those facts, in particular the cause-and-effect relationships. For example, a person who ignores theory can notice that average prices sometimes rise a short time after the country’s money supply increases, but has no way of knowing whether there is a causal relationship between those two phenomena, or whether they are just coincidences. A government policy maker who wants to change something in the country only has a few policy ―tools‖ to use, and so she must have a theory to indicate to her whether changing one of those tools is likely to have the desired result in the country.
APPENDIX—USING GRAPHS: A REVIEW TEST YOURSELF 1. Portray the following hypothetical data on a two variable diagram: Academic Year Total Enrollment Enrollment in Economics Courses 2008–2009 3,000 300 2009–2010 3,100 325 2010–2011 3,200 350 2011–2012 3,300 375 2012–2013 3,400 400 Measure the slope of the resulting line, and explain what this number means Slope is 100 interpreted as 100 new students each academic year.
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Slope is 25 interpreted as 25 new economics students each academic year.
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2. From Figure 5, calculate the slope of the curve at point M. Slope is 0. 3. Colin believes that the number of job offers he will get depends on the number of courses in which his grade is B+ or better. He concludes from observation that the following figures are typical: Number of grades of B+ 0 1 2 3 4 or better Number of job offers 1 3 4 5 6 Put these numbers into a graph like Figure 1(a). Measure and interpret the slopes between adjacent dots.
A marginal increase in the number of job offers is relatively larger with the first good grade compared to additional good grades. 4. In Figure 6, determine the values of X and Y at point K and at point E . What do you conclude about the slopes of the lines on which K and E are located? K = (2,2); E = (2,1) The slope of 1 for the line on which K is located indicates that this is the steeper of the two curves. On this curve, the variable on the vertical axis responds more significantly to a change in the variable on the horizontal axis. 5. In Figure 8, interpret the economic meaning of points A and B. What do the two points have in common? What is the difference in their economic interpretation? A => 30 hours labor and 40 yds. cloth = 20 units of output. © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
B => 40 hours labor and 28 yds. cloth = 20 units of output. Common: 20 units of output; Difference: Amount of labor and cloth charge—more labor, less cloth.
CHAPTER 2 THE ECONOMY: MYTH AND REALITY DISCUSSION QUESTIONS 1. Which is the biggest national economy on earth? Why has it remained bigger than other countries with much larger labor forces or those with higher per capita incomes? The United States is the country with the largest economy in the world. The relatively large population in the U.S. is a contributing factor but productivity of workers and accumulated wealth are significant reasons why the U.S. economy is so large. 2. What is meant by a ―factor of production‖? Have you ever sold any on a market? A factor of production, or input, is something that is used to produce a finished good known as ―output.‖ There are several possible answers, but probably most students have been employed in some capacity (babysitter, paperboy, or a campus job), so they have sold their labor in the market to produce output. 3. Why do you think per capita income in Connecticut is nearly double that in New Mexico? There are several possible answers to this question—the question is designed to get students to think about these differences before using models. One straightforward answer is that the factors of production in Connecticut produce output that is worth more than what is produced in New Mexico. This could be because labor is more productive in Connecticut because of a better educated workforce. Another answer is that the cost of living is higher in Connecticut than it is in New Mexico. 4. Roughly speaking, what fraction of U.S. labor works in factories? In service businesses? In government? Roughly 14 percent produce goods, 70 percent are service workers, and approximately 16 percent work in federal, state, and local government. 5. Most American businesses are small, but most of the output is produced by large businesses. That sounds paradoxical. How can it be true? While there are many small businesses in the U.S. economy, the value of what they produce is relatively small. For example, a local grocer cannot produce the same amount as a large national grocery store. It would take several small grocers to match the production of a large store. So, while a large retailer like Wal-Mart is considered to be one business, its production exceeds that of a smaller business. 6. What is the role of government in a mixed economy? © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.