SOLUTION MANUAL
PINDYCK MICROECONOMICS
, Table Of Contents
Part 1: Introduction: Markets And Prices
1. Preliminaries
2. The Basics Of Supply And Demand
Part 2: Producers, Consumers, And Competitive
Markets
3. Consumer Behavior
4. Individual And Market Demand
5. Uncertainty And Consumer Behavior
6. Production
7. The Cost Of Production
8. Profit Maximization And Competitive Supply
9. The Analysis Of Competitive Markets
Part 3: Market Structure And Competitive Strategy
10. Market Power: Monopoly And Monopsony
11. Pricing With Market Power
12. Monopolistic Competition And Oligopoly
13. Game Theory And Competitive Strategy
14. Markets For Factor Inputs
15. Investment, Time, And Capital Markets
Part 4: Information, Market Failure, And The Role Of
Government
16. General Equilibrium And Economic Efficiency
17. Markets With Asymmetric Information
18. Externalities And Public Goods
19. Behavioral Economics
,Chapter 1
Preliminaries
Teaching Notes
Chapter 1 Covers Basic Concepts Students First Saw In Their Introductory Course But Could Bear Some
Repeating. Since Most Students Will Not Have Read This Chapter Before The First Class, It Is A Good
Time To Get Them Talking About Some Of The Concepts Presented. You Might Start By Asking For A
Definition Of Economics. Make Sure To Emphasize Scarcity And Trade-Offs. Remind Students That The
Objective Of Economics Is To Explain Observed Phenomena And Predict Behavior Of Consumers And
Firms As Economic Conditions Change. Ask About The Differences (And Similarities) Between
Microeconomics And Macroeconomics And The Difference Between Positive And Normative Analysis.
Review The Concept Of A Market And The Role Prices Play In Allocating Resources. Discussions Of
Economic Theories And Models May Be A Bit Abstract At This Point In The Course, But You Can Lay
The Groundwork For A Deeper Discussion That Might Take Place When You Cover Consumer Behavior
In Chapter 3.
Section 1.3 Considers Real And Nominal Prices. Given The Reliance On Dollar Prices In The Economy,
Students Must Understand The Difference Between Real And Nominal Prices And How To Compute Real
Prices. Most Students Know About The Consumer Price Index, So You Might Also Mention Other Price
Indexes Such As The Producer Price Index And The Personal Consumption Expenditures (Pce) Price
Index, Which Is The Fed’s Preferred Inflation Measure.1 It Is Very Useful To Go Over Some Numerical
Examples Using Goods That Are In The News And/Or That Students Often Purchase Such As Gasoline,
Food, Textbooks, And A College Education.2
In General, The First Class Is A Good Time To Pique Student Interest In The Course. It Is Also A Good
Time To Tell Students That They Need To Work Hard To Learn How To Do Economic Analysis, And
That Memorization Alone Will Not Get Them Through The Course. Students Must Learn To Think Like
Economists, So Encourage Them To Work Lots Of Problems. Also Encourage Them To Draw Graphs
Neatly And Large Enough To Make Them Easy To Interpret. It Always Amazes Me To See The Tiny,
Poorly Drawn Graphs Some Students Produce. It Is No Wonder Their Answers Are Often Incorrect. You
Might Even Suggest They Bring A Small Ruler And Colored Pencils To Class As They Can Draw Good
Diagrams.
Questions For Review
1. It Is Often Said That A Good Theory Is One That Can Be Refuted By An Empirical,
Data-Oriented Study. Explain Why A Theory That Cannot Be Evaluated Empirically Is
Not A Good Theory.
A Theory Is Useful Only If It Succeeds In Explaining And Predicting The Phenomena It Was
Intended To Explain. If A Theory Cannot Be Evaluated Or Tested By Comparing Its Predictions To
Known Facts And Data, Then We Have No Idea Whether The Theory Is Valid. If We Cannot
Validate The Theory, We Cannot Have Any Confidence In Its Predictions, And It Is Of Little Use.
Copyright © 2013 Pearson Education. Inc. Publishing as Prentice Hall.
, 1
The Cpi And Ppi Are Reported By The Bureau Of Labor Statistics (Www.Bls.Gov). The Pce Price Index Is
Compiled By The Bureau Of Economic Analysis In The Commerce Department (Www.Bea.Gov).
2
The College Board Collects Data On College Tuition (Www.Collegeboard.Com).
Copyright © 2013 Pearson Education. Inc. Publishing as Prentice Hall.
PINDYCK MICROECONOMICS
, Table Of Contents
Part 1: Introduction: Markets And Prices
1. Preliminaries
2. The Basics Of Supply And Demand
Part 2: Producers, Consumers, And Competitive
Markets
3. Consumer Behavior
4. Individual And Market Demand
5. Uncertainty And Consumer Behavior
6. Production
7. The Cost Of Production
8. Profit Maximization And Competitive Supply
9. The Analysis Of Competitive Markets
Part 3: Market Structure And Competitive Strategy
10. Market Power: Monopoly And Monopsony
11. Pricing With Market Power
12. Monopolistic Competition And Oligopoly
13. Game Theory And Competitive Strategy
14. Markets For Factor Inputs
15. Investment, Time, And Capital Markets
Part 4: Information, Market Failure, And The Role Of
Government
16. General Equilibrium And Economic Efficiency
17. Markets With Asymmetric Information
18. Externalities And Public Goods
19. Behavioral Economics
,Chapter 1
Preliminaries
Teaching Notes
Chapter 1 Covers Basic Concepts Students First Saw In Their Introductory Course But Could Bear Some
Repeating. Since Most Students Will Not Have Read This Chapter Before The First Class, It Is A Good
Time To Get Them Talking About Some Of The Concepts Presented. You Might Start By Asking For A
Definition Of Economics. Make Sure To Emphasize Scarcity And Trade-Offs. Remind Students That The
Objective Of Economics Is To Explain Observed Phenomena And Predict Behavior Of Consumers And
Firms As Economic Conditions Change. Ask About The Differences (And Similarities) Between
Microeconomics And Macroeconomics And The Difference Between Positive And Normative Analysis.
Review The Concept Of A Market And The Role Prices Play In Allocating Resources. Discussions Of
Economic Theories And Models May Be A Bit Abstract At This Point In The Course, But You Can Lay
The Groundwork For A Deeper Discussion That Might Take Place When You Cover Consumer Behavior
In Chapter 3.
Section 1.3 Considers Real And Nominal Prices. Given The Reliance On Dollar Prices In The Economy,
Students Must Understand The Difference Between Real And Nominal Prices And How To Compute Real
Prices. Most Students Know About The Consumer Price Index, So You Might Also Mention Other Price
Indexes Such As The Producer Price Index And The Personal Consumption Expenditures (Pce) Price
Index, Which Is The Fed’s Preferred Inflation Measure.1 It Is Very Useful To Go Over Some Numerical
Examples Using Goods That Are In The News And/Or That Students Often Purchase Such As Gasoline,
Food, Textbooks, And A College Education.2
In General, The First Class Is A Good Time To Pique Student Interest In The Course. It Is Also A Good
Time To Tell Students That They Need To Work Hard To Learn How To Do Economic Analysis, And
That Memorization Alone Will Not Get Them Through The Course. Students Must Learn To Think Like
Economists, So Encourage Them To Work Lots Of Problems. Also Encourage Them To Draw Graphs
Neatly And Large Enough To Make Them Easy To Interpret. It Always Amazes Me To See The Tiny,
Poorly Drawn Graphs Some Students Produce. It Is No Wonder Their Answers Are Often Incorrect. You
Might Even Suggest They Bring A Small Ruler And Colored Pencils To Class As They Can Draw Good
Diagrams.
Questions For Review
1. It Is Often Said That A Good Theory Is One That Can Be Refuted By An Empirical,
Data-Oriented Study. Explain Why A Theory That Cannot Be Evaluated Empirically Is
Not A Good Theory.
A Theory Is Useful Only If It Succeeds In Explaining And Predicting The Phenomena It Was
Intended To Explain. If A Theory Cannot Be Evaluated Or Tested By Comparing Its Predictions To
Known Facts And Data, Then We Have No Idea Whether The Theory Is Valid. If We Cannot
Validate The Theory, We Cannot Have Any Confidence In Its Predictions, And It Is Of Little Use.
Copyright © 2013 Pearson Education. Inc. Publishing as Prentice Hall.
, 1
The Cpi And Ppi Are Reported By The Bureau Of Labor Statistics (Www.Bls.Gov). The Pce Price Index Is
Compiled By The Bureau Of Economic Analysis In The Commerce Department (Www.Bea.Gov).
2
The College Board Collects Data On College Tuition (Www.Collegeboard.Com).
Copyright © 2013 Pearson Education. Inc. Publishing as Prentice Hall.
