Solution Manual For
Understanding Economics: A Contemporary Perspective
Author: Mark Lovewell
9th Canadian Edition
,Chapter 1
Teaching Tips
An Example From Behavioural Economics
Behavioural Economics Is Mentioned In A Text Footnote. Instructors May Wish To Give An
Illustration Of The Types Of Irrational Behaviour Highlighted In This Emerging Field Of Study.
One OfThe Best-Known Is The Endowment Effect. This Refers To The Fact That People Value
An Item They Own More Highly Than The Exact Same Item When They Do Not Own It. In
Other Words, The Mere FactOf Ownership Raises One’s Utility From An Item, Which Is A Sign
Of Irrationality.
Distinguishing Among Resources
The Definitions Of Natural, Capital And Human Resources Seem Straightforward But Can
Be Challenging In Practice. The Fuzziest Boundaries Are Between Natural And Capital
Resources AndBetween Labour And Entrepreneurship.
Natural And Capital Resources Natural Resources Are Defined As Gifts Of Nature While
Capital Resources Are The Processed Materials, Equipment, And Buildings Used In Production.
In Some Real-World Cases The Distinction Between These Two Definitions Is Not Immediately
Clear. Consider The Case Of Livestock Farming. The Animals Used In This Industry Might Be
Viewed As Natural Resources, Given That These Animals Are Part Of Nature. However, Given
The Intensive Tending They Require − Not Least In Terms Of Daily Food Required To Prepare
Them For Market − They Are A Capital Resource. In Other Words, Animal Husbandry Is A
Form Of Production Processing.
Labour And Entrepreneurship The Distinction Between These Two Types Of Human
Resources Is Hardest For Entrepreneurs Themselves When Trying To Categorize The Time
They Put Into A Business.These Individuals Tend To Expend Large Amount Of Time In
Human Effort (I.E. Labour) As Well As Engaging In Initiative And Risk-Taking. In Practice,
Apportioning The Business’s Net Revenues Into Wages From Labour And Profit From Risk-
Taking Is Extremely Hard.
Extensions Of The Production Possibilities Model
The Production Possibilities Model Can Be Extended In Two Main Ways.
Constant-Cost Production Possibilities The Text’s Treatment Focuses On An Economy Subject
To The Law Of Increasing Costs, Which Causes The Production Possibilities Curve To Bow Out
From The Origin. It Is Also Possible To Sketch Out The Case Where Resources Are Perfectly
Transferable Between Production Of The Two Items And Constant Costs Apply. As Shown In
Practice Problem 2 AtThe End Of Chapter Section 1.2 And Problem 11 At The End Of The
,Chapter, The Production Possibilities Curve In This Case Is A Downward-Sloping Straight Line.
, Asymmetric Growth The Text’s Treatment Of Economic Growth Stresses The Case Where An
Economy’s Ability To Produce Each Item On The Graph’s Axes Increases By The Same
Extent. It Is Possible This Assumption Is Not Met. As Shown In Problem 10 At The End Of
The Chapter, It May BeThat There Is An Increase In The Economy’s Ability To Produce Only
One Of The Items On The Axes. InThis Case The Economy’s Production Possibilities Curve
Rotates Around Either The Intercept On The Horizontal Or Vertical Axis, Rather Than Shifting
Out In A Parallel Fashion.
Answers To Thinking About Economics Questions
TAE I, Section 1.1: At One Time, Communist Countries, Such As China, Tried To Persuade
Their Citizens To Reduce Their Selfish Material Wants. However, Such Attempts To Change
Mass BehaviourWere Not Successful, And Have Now Largely Ended In These Countries.
TAE II, Section 1.2: Charitable Organizations Use Such Strategies As Public
Acknowledgement OfDonors. For Example, Charitable Performance Companies Often List
The Names Of Donors In Their Show Programs.
TAE III, Section 1.2: The Information Revolution Seems To Have Had Some Impact On
Rates Of Economic Growth In Industrialized Countries. For Example, Between 1995 And
The 2008 Credit Meltdown, Growth Rates In Countries Such As Canada And The United
States Were Higher Than InThe Immediately Preceding Period. Many Economists Suggested
That The Increased Use Of Computer-Based Technology Was One Important Reason For
This Improved Growth Performance.
Answers To Chapter Problems
1.1 Practice Problems
1.
a) The Smoker Is Not Behaving Rationally Because Of A Physical Addiction That Has
Led ThemTo Continue Engaging In An Action They Wish To Stop.
b) By Providing Themselves With Small Rewards For Abstaining From Smoking, And
PenalizingThemselves When They Do Smoke, The Smoker Is Much More Likely To Be
Able To Quit.
2.
a) The Two Variables Are (I) The Economic Welfare Of The Country’s Citizens, And
(Ii) The Quantity Of The Country’s Resources. The Quantity Of The Country’s
Resources Is The Independent Variable (Since It Is The Cause) And The Economic
Welfare Of The Country’sCitizens Is The Dependent Variable (Since It Is The
Effect).
b) The Relationship Is Direct Because A Movement In The Independent Variable’s Value
LeadsTo A Movement Of The Dependent Variable’s Value In The Same Direction.
Understanding Economics: A Contemporary Perspective
Author: Mark Lovewell
9th Canadian Edition
,Chapter 1
Teaching Tips
An Example From Behavioural Economics
Behavioural Economics Is Mentioned In A Text Footnote. Instructors May Wish To Give An
Illustration Of The Types Of Irrational Behaviour Highlighted In This Emerging Field Of Study.
One OfThe Best-Known Is The Endowment Effect. This Refers To The Fact That People Value
An Item They Own More Highly Than The Exact Same Item When They Do Not Own It. In
Other Words, The Mere FactOf Ownership Raises One’s Utility From An Item, Which Is A Sign
Of Irrationality.
Distinguishing Among Resources
The Definitions Of Natural, Capital And Human Resources Seem Straightforward But Can
Be Challenging In Practice. The Fuzziest Boundaries Are Between Natural And Capital
Resources AndBetween Labour And Entrepreneurship.
Natural And Capital Resources Natural Resources Are Defined As Gifts Of Nature While
Capital Resources Are The Processed Materials, Equipment, And Buildings Used In Production.
In Some Real-World Cases The Distinction Between These Two Definitions Is Not Immediately
Clear. Consider The Case Of Livestock Farming. The Animals Used In This Industry Might Be
Viewed As Natural Resources, Given That These Animals Are Part Of Nature. However, Given
The Intensive Tending They Require − Not Least In Terms Of Daily Food Required To Prepare
Them For Market − They Are A Capital Resource. In Other Words, Animal Husbandry Is A
Form Of Production Processing.
Labour And Entrepreneurship The Distinction Between These Two Types Of Human
Resources Is Hardest For Entrepreneurs Themselves When Trying To Categorize The Time
They Put Into A Business.These Individuals Tend To Expend Large Amount Of Time In
Human Effort (I.E. Labour) As Well As Engaging In Initiative And Risk-Taking. In Practice,
Apportioning The Business’s Net Revenues Into Wages From Labour And Profit From Risk-
Taking Is Extremely Hard.
Extensions Of The Production Possibilities Model
The Production Possibilities Model Can Be Extended In Two Main Ways.
Constant-Cost Production Possibilities The Text’s Treatment Focuses On An Economy Subject
To The Law Of Increasing Costs, Which Causes The Production Possibilities Curve To Bow Out
From The Origin. It Is Also Possible To Sketch Out The Case Where Resources Are Perfectly
Transferable Between Production Of The Two Items And Constant Costs Apply. As Shown In
Practice Problem 2 AtThe End Of Chapter Section 1.2 And Problem 11 At The End Of The
,Chapter, The Production Possibilities Curve In This Case Is A Downward-Sloping Straight Line.
, Asymmetric Growth The Text’s Treatment Of Economic Growth Stresses The Case Where An
Economy’s Ability To Produce Each Item On The Graph’s Axes Increases By The Same
Extent. It Is Possible This Assumption Is Not Met. As Shown In Problem 10 At The End Of
The Chapter, It May BeThat There Is An Increase In The Economy’s Ability To Produce Only
One Of The Items On The Axes. InThis Case The Economy’s Production Possibilities Curve
Rotates Around Either The Intercept On The Horizontal Or Vertical Axis, Rather Than Shifting
Out In A Parallel Fashion.
Answers To Thinking About Economics Questions
TAE I, Section 1.1: At One Time, Communist Countries, Such As China, Tried To Persuade
Their Citizens To Reduce Their Selfish Material Wants. However, Such Attempts To Change
Mass BehaviourWere Not Successful, And Have Now Largely Ended In These Countries.
TAE II, Section 1.2: Charitable Organizations Use Such Strategies As Public
Acknowledgement OfDonors. For Example, Charitable Performance Companies Often List
The Names Of Donors In Their Show Programs.
TAE III, Section 1.2: The Information Revolution Seems To Have Had Some Impact On
Rates Of Economic Growth In Industrialized Countries. For Example, Between 1995 And
The 2008 Credit Meltdown, Growth Rates In Countries Such As Canada And The United
States Were Higher Than InThe Immediately Preceding Period. Many Economists Suggested
That The Increased Use Of Computer-Based Technology Was One Important Reason For
This Improved Growth Performance.
Answers To Chapter Problems
1.1 Practice Problems
1.
a) The Smoker Is Not Behaving Rationally Because Of A Physical Addiction That Has
Led ThemTo Continue Engaging In An Action They Wish To Stop.
b) By Providing Themselves With Small Rewards For Abstaining From Smoking, And
PenalizingThemselves When They Do Smoke, The Smoker Is Much More Likely To Be
Able To Quit.
2.
a) The Two Variables Are (I) The Economic Welfare Of The Country’s Citizens, And
(Ii) The Quantity Of The Country’s Resources. The Quantity Of The Country’s
Resources Is The Independent Variable (Since It Is The Cause) And The Economic
Welfare Of The Country’sCitizens Is The Dependent Variable (Since It Is The
Effect).
b) The Relationship Is Direct Because A Movement In The Independent Variable’s Value
LeadsTo A Movement Of The Dependent Variable’s Value In The Same Direction.
