MankiwMI_IM_t_0324319088 m 12/29/05 m 11:19mPM m Page m1
Instructor's Manual with Solutions Manual
m m m m
Principlesof Microeconomicsm m
FOURTH EDITION
m
N. Gregory Mankiw
m m
Harvard University
m
Prepared by m
Linda Ghent
m
Eastern Illinois University
m m
, Instructor’smManual
PrinciplesmofmMicroeconomics,m4thmEdition
N.mGregory mMankiwmPrepa
red mby mLindamS.mGhent
VP/EditorialmDirector: Sr.mProduction mProject mManager: Assistant mEditor:
Jack mW.mCalhoun Emily mS.mGross Erin mBerger
Editor-in-Chief: ManagermofmTechnology,mEditorial
AncillarymCoordinator:
Alex mvon mRosenberg :
Erin mM.mDonohoe
Vicky mTrue
Publisher:
StevemMomper TechnologymProject mEditor: Art mDirector:
DanamCowden MichellemKunkler
Sr.mAcquisitionsmEditor:
MikemWorls Production mArtist:
WebmCoordinator: Patti mHudepohl
Developmentalm Editor:
JanemTufts Karen mSchaffer Internalmand mCovermDesigner:
Stratton mDesign
Contributing m Editors: Sr.mManufacturing mCoordinator:
Sarah mK.mDorgermJenni SandeemMilewski CovermIllustration:
fer mE.mBaker TatemGallery,mLondon/ArtmResource,mNY
Production mHouse:
Sr.mMarketing mManager: OffCenter mConceptmHouse InternalmIllustrator:
Brian mJoyner WilliammLow/CobaltmIllustration mServices
Printer: m Dar
Assoc.mMarketing mCommunication by mPrintingmA
smManager: tlanta,mGA
Sarah mGreber
COPYRIGHTm©m2007 ALL mRIGHTSmRESERVED.mNompartm Formpermissionmtomusemmaterial mfrommt
Thomson mSouth- of hismtextmormproduct,msubmitmamrequestm
Western,mampartmof mThemThomson mCor thismworkmcovered mbymthemcopyrightm online matmhttp://www.thomsonrights.co
poration.mThomson,mthemStarmlogo,man hereon mmaymbemreproducedmormusedm m.
dmSouth- in manymform mormbymanymmeans—
Western maremtrademarksmused mherein graphic,melectronic,mormmechanical,mi Formmore minformation maboutmourmprodu
mundermlicense. ncluding mphotocopying,mrecording,mta cts,mcontactmusmat:
ping,mWeb mdistribution,minformation mst
Printed min mthe mUnited mStatesmof mAmeri orage mandmretrieval msystems,morminma Thomson mLearningmAcademicmResource m
ca nymothermmanner— Center
1m 2 m 3m 4 m 5m 09m 08 m 07 m 06 exceptmasmmaymbe mpermitted mbymtheml 1-800-423-0563
icense mtermsmherein.
ISBN m0-324-31908-8 ThomsonmHigher mEducation
5191 mNatorp mBoulevard
Mason,mOH m45040 mU
SA
,Preface
Theminstructor’smmaterialmthatmaccompaniesmthemfivemversionsmofmMankiw’smPrinciples mof
m Economics,m Fourthm Editionm textbooks maddress mthe mneeds mofmboth mnovice mandmexperienc
edm instructors.mTo mmeetmthemneedsmofmthesemtwo mgroups,mthismInstructor’s mManualmwithm
Solutions mManualmcomprisesm bothm chapter m outlinesm andmteachingm tipsm asm wellm asm soluti
onsmto m allm ofm them questionsm andm problemsm foundm inm them textbook.
LindamGhentmofmEasternmIllinoism Universitympreparedm them mainmportionmofmeachmchap
termincludingmamsynopsismofm whatmismnewminmthismeditionmcomparedm to mthemthirdmeditio
n.mHermworkmformeachmchapter malso m includesmam listmofmlearningmobjectivesmandm keympoin
ts.mThesemitemsmaremfollowedmbymdetailedmchapter moutlinesm thatmfocusmonmthemcontentmf
oundminmthemtextbook.mHelpfulm tipsmandmiconsmoccasionallyminterruptmthesemoutlines.mT
hembombmiconm(Warnings)m indicatesmareasm wheremstudentsmmaymhavemparticular mdiffic
ultymwithmthem material.mThem lightmbulbmiconm(BrightmIdeas)moffersmideasmformpresentingm
themmaterialminmamnewmorm moremthoughtfulm way.mAlso m includedm inmeachmchapter mofmthe
mInstructor’s m Manual m are mclassroommactivities,mdeveloped m inmpartmbym Charles mStullmofm
Kalamazoo mCollege.mEachmactivitymprovidesmimportantmdetailsmto massistminmplanningmasm
wellmasmclearminstructionsmformleadingm themactivity.mRecommendedm“PointsmformDiscussi
on”mconnectmthemactivitymto m themrelevantmeconomicmconceptsmdiscussedminmthemchapter.
Usingmthesemresources,manminstructor mcanmquicklymreviewmthemchapter mlearningmobjecti
vesmandmchapter msummariesmto m makemsuremtheirmlecturemnotesmcovermeverythingminm the
mtextmchapter.mInmaddition,mthe m chapter moutlines mare mdesigned masmambase mfor mcreating mle
cturemnotesmformnoviceminstructors.mTheym maymalso mbemusedmasmam completemsetmofmnote
smformmoremexperiencedminstructors. m Therefore,mthismsupplementmismalso mavailablemelect
ronicallymfrommthemproductmsupportm Webmsitem(http://mankiw.swlearning.com).
Formqueriesmandmgrading,mthemInstructor’s mManual mcontainsmsolutionsm to mexercisesmfr
ommthemtextbook.mDeanmCroushorem(UniversitymofmRichmond)mpreparedmmanymof mthemso
lutionsmformthem“Quickm Quizzes,”m“m QuestionsmformReview,”mandm“ProblemsmandmApplica
tions”mfoundminmthemtextbook.
, Comparative Table of Contents
m m m
Brief
Core Micro Macro Essentials Macro
Partm1:mIntroduction Partm1 Partm1 Partm1 Partm1
1 Tenm Principles m ofm Economics 1 1 1 1
2 ThinkingmLikem anmEconomist 2 2 2 2
3 Interdependencem andm them Gains m fromm Trade 3 3 3 3
Partm2:mHowmMarketsmWork Partm2 Partm2 Partm2 Partm2
4 ThemMarketmForces mofmSupply mandmDemand 4 4 4 4
5 Elasticity m andm Its m Application 5 5 5
6m m Supply, mDemand, mandm Gov ernmentm Policies 6 6 6
Partm3:mMarketsmandmWelfare Partm3 Partm3 Partm3
7 Consumers, mProducers, mandmthemEfficiency mofmMarkets 7 7 7
8 Application:mThem Costs m ofmTaxation 8 8 8
9 Application:m International m Trade 9 9 9
Partm4:mThemEconomicsmofmthemPublicmSector Partm4 Partm4
10m Externalities 10 10
11m Publicm Goods m andm Commonm Resources 11 11
12m ThemDesignmofmthemTaxm System 12
Partm5:mFirm mBehaviormandmthemOrganizationmofmIndustry Partm5 Partm5
13m ThemCosts mofm Producti on 13 12
14m Firms minmCompeti tiv emMarkets 14 13
15m Monopoly 15 14
16m Oligopoly 16
17m Monopolistic mCompetition 17
Partm6:mThemEconomicsmofmLabormMarket Partm6
18m ThemMarkets mformthemFactors mof mProduction 18
19m Earnings m andm Discrimination 19
20m IncomemInequality mandmPov erty 20
Partm7:mTopicsmformFurthermStudy Partm7
21m ThemTheory mofmCons umer mChoice 21
22m Frontiers mofmMicroeconomics 22
Partm8:mThemDatamofmMacroeconomics Partm4 Partm6 Partm3
23m Measuri ngm amNation’s mIncome 10 15 5
24m Measuringm them Cos tmofmLiving 11 16 6
Partm9:mThemRealmEconomyminmthemLongmRun Partm5 Partm7 Partm4
25m Productionmand mGrowth 12 17 7
26m Saving, mInv es tment, mandmthemFi nanci al mSys tem 13 18 8
27mThemBasicmTools mofmFinance 14 19 9
28mUnemployment 15 20 10
Partm10:mMoneymandmPricesminmthemLongmRun Partm6 Partm8 Partm5
29m ThemMonetary mSystem 16 21 11
30m Money mGrowthm andmInflation 17 22 12
Partm11:mThemMacroeconomicsmofmOpenmEconomics Partm7 Partm6
31m Open-Economy m Macroeconomics:m Basicm Concepts 18 13
32m AmMacroeconomic mTheory mofmthemO penmEconomy 19 14
Partm12:mShort-RunmEconomicmFluctuations Partm8 Partm9 Partm7
33m Aggregatem D emandmandm AggregatemSupply 20 23 15
34mThemInfluencemofmMonetary mandmFiscal mPolicy monmAggregatemDemand 21 24 16
35m ThemShort-RunmTrade-offmbetweenmInflationmandmUnemploy ment 22 17
Partm13:mFinalmThoughts Partm9 Partm8
36m FivemDebates movermM acroeconomic mPolicy 23 18
Instructor's Manual with Solutions Manual
m m m m
Principlesof Microeconomicsm m
FOURTH EDITION
m
N. Gregory Mankiw
m m
Harvard University
m
Prepared by m
Linda Ghent
m
Eastern Illinois University
m m
, Instructor’smManual
PrinciplesmofmMicroeconomics,m4thmEdition
N.mGregory mMankiwmPrepa
red mby mLindamS.mGhent
VP/EditorialmDirector: Sr.mProduction mProject mManager: Assistant mEditor:
Jack mW.mCalhoun Emily mS.mGross Erin mBerger
Editor-in-Chief: ManagermofmTechnology,mEditorial
AncillarymCoordinator:
Alex mvon mRosenberg :
Erin mM.mDonohoe
Vicky mTrue
Publisher:
StevemMomper TechnologymProject mEditor: Art mDirector:
DanamCowden MichellemKunkler
Sr.mAcquisitionsmEditor:
MikemWorls Production mArtist:
WebmCoordinator: Patti mHudepohl
Developmentalm Editor:
JanemTufts Karen mSchaffer Internalmand mCovermDesigner:
Stratton mDesign
Contributing m Editors: Sr.mManufacturing mCoordinator:
Sarah mK.mDorgermJenni SandeemMilewski CovermIllustration:
fer mE.mBaker TatemGallery,mLondon/ArtmResource,mNY
Production mHouse:
Sr.mMarketing mManager: OffCenter mConceptmHouse InternalmIllustrator:
Brian mJoyner WilliammLow/CobaltmIllustration mServices
Printer: m Dar
Assoc.mMarketing mCommunication by mPrintingmA
smManager: tlanta,mGA
Sarah mGreber
COPYRIGHTm©m2007 ALL mRIGHTSmRESERVED.mNompartm Formpermissionmtomusemmaterial mfrommt
Thomson mSouth- of hismtextmormproduct,msubmitmamrequestm
Western,mampartmof mThemThomson mCor thismworkmcovered mbymthemcopyrightm online matmhttp://www.thomsonrights.co
poration.mThomson,mthemStarmlogo,man hereon mmaymbemreproducedmormusedm m.
dmSouth- in manymform mormbymanymmeans—
Western maremtrademarksmused mherein graphic,melectronic,mormmechanical,mi Formmore minformation maboutmourmprodu
mundermlicense. ncluding mphotocopying,mrecording,mta cts,mcontactmusmat:
ping,mWeb mdistribution,minformation mst
Printed min mthe mUnited mStatesmof mAmeri orage mandmretrieval msystems,morminma Thomson mLearningmAcademicmResource m
ca nymothermmanner— Center
1m 2 m 3m 4 m 5m 09m 08 m 07 m 06 exceptmasmmaymbe mpermitted mbymtheml 1-800-423-0563
icense mtermsmherein.
ISBN m0-324-31908-8 ThomsonmHigher mEducation
5191 mNatorp mBoulevard
Mason,mOH m45040 mU
SA
,Preface
Theminstructor’smmaterialmthatmaccompaniesmthemfivemversionsmofmMankiw’smPrinciples mof
m Economics,m Fourthm Editionm textbooks maddress mthe mneeds mofmboth mnovice mandmexperienc
edm instructors.mTo mmeetmthemneedsmofmthesemtwo mgroups,mthismInstructor’s mManualmwithm
Solutions mManualmcomprisesm bothm chapter m outlinesm andmteachingm tipsm asm wellm asm soluti
onsmto m allm ofm them questionsm andm problemsm foundm inm them textbook.
LindamGhentmofmEasternmIllinoism Universitympreparedm them mainmportionmofmeachmchap
termincludingmamsynopsismofm whatmismnewminmthismeditionmcomparedm to mthemthirdmeditio
n.mHermworkmformeachmchapter malso m includesmam listmofmlearningmobjectivesmandm keympoin
ts.mThesemitemsmaremfollowedmbymdetailedmchapter moutlinesm thatmfocusmonmthemcontentmf
oundminmthemtextbook.mHelpfulm tipsmandmiconsmoccasionallyminterruptmthesemoutlines.mT
hembombmiconm(Warnings)m indicatesmareasm wheremstudentsmmaymhavemparticular mdiffic
ultymwithmthem material.mThem lightmbulbmiconm(BrightmIdeas)moffersmideasmformpresentingm
themmaterialminmamnewmorm moremthoughtfulm way.mAlso m includedm inmeachmchapter mofmthe
mInstructor’s m Manual m are mclassroommactivities,mdeveloped m inmpartmbym Charles mStullmofm
Kalamazoo mCollege.mEachmactivitymprovidesmimportantmdetailsmto massistminmplanningmasm
wellmasmclearminstructionsmformleadingm themactivity.mRecommendedm“PointsmformDiscussi
on”mconnectmthemactivitymto m themrelevantmeconomicmconceptsmdiscussedminmthemchapter.
Usingmthesemresources,manminstructor mcanmquicklymreviewmthemchapter mlearningmobjecti
vesmandmchapter msummariesmto m makemsuremtheirmlecturemnotesmcovermeverythingminm the
mtextmchapter.mInmaddition,mthe m chapter moutlines mare mdesigned masmambase mfor mcreating mle
cturemnotesmformnoviceminstructors.mTheym maymalso mbemusedmasmam completemsetmofmnote
smformmoremexperiencedminstructors. m Therefore,mthismsupplementmismalso mavailablemelect
ronicallymfrommthemproductmsupportm Webmsitem(http://mankiw.swlearning.com).
Formqueriesmandmgrading,mthemInstructor’s mManual mcontainsmsolutionsm to mexercisesmfr
ommthemtextbook.mDeanmCroushorem(UniversitymofmRichmond)mpreparedmmanymof mthemso
lutionsmformthem“Quickm Quizzes,”m“m QuestionsmformReview,”mandm“ProblemsmandmApplica
tions”mfoundminmthemtextbook.
, Comparative Table of Contents
m m m
Brief
Core Micro Macro Essentials Macro
Partm1:mIntroduction Partm1 Partm1 Partm1 Partm1
1 Tenm Principles m ofm Economics 1 1 1 1
2 ThinkingmLikem anmEconomist 2 2 2 2
3 Interdependencem andm them Gains m fromm Trade 3 3 3 3
Partm2:mHowmMarketsmWork Partm2 Partm2 Partm2 Partm2
4 ThemMarketmForces mofmSupply mandmDemand 4 4 4 4
5 Elasticity m andm Its m Application 5 5 5
6m m Supply, mDemand, mandm Gov ernmentm Policies 6 6 6
Partm3:mMarketsmandmWelfare Partm3 Partm3 Partm3
7 Consumers, mProducers, mandmthemEfficiency mofmMarkets 7 7 7
8 Application:mThem Costs m ofmTaxation 8 8 8
9 Application:m International m Trade 9 9 9
Partm4:mThemEconomicsmofmthemPublicmSector Partm4 Partm4
10m Externalities 10 10
11m Publicm Goods m andm Commonm Resources 11 11
12m ThemDesignmofmthemTaxm System 12
Partm5:mFirm mBehaviormandmthemOrganizationmofmIndustry Partm5 Partm5
13m ThemCosts mofm Producti on 13 12
14m Firms minmCompeti tiv emMarkets 14 13
15m Monopoly 15 14
16m Oligopoly 16
17m Monopolistic mCompetition 17
Partm6:mThemEconomicsmofmLabormMarket Partm6
18m ThemMarkets mformthemFactors mof mProduction 18
19m Earnings m andm Discrimination 19
20m IncomemInequality mandmPov erty 20
Partm7:mTopicsmformFurthermStudy Partm7
21m ThemTheory mofmCons umer mChoice 21
22m Frontiers mofmMicroeconomics 22
Partm8:mThemDatamofmMacroeconomics Partm4 Partm6 Partm3
23m Measuri ngm amNation’s mIncome 10 15 5
24m Measuringm them Cos tmofmLiving 11 16 6
Partm9:mThemRealmEconomyminmthemLongmRun Partm5 Partm7 Partm4
25m Productionmand mGrowth 12 17 7
26m Saving, mInv es tment, mandmthemFi nanci al mSys tem 13 18 8
27mThemBasicmTools mofmFinance 14 19 9
28mUnemployment 15 20 10
Partm10:mMoneymandmPricesminmthemLongmRun Partm6 Partm8 Partm5
29m ThemMonetary mSystem 16 21 11
30m Money mGrowthm andmInflation 17 22 12
Partm11:mThemMacroeconomicsmofmOpenmEconomics Partm7 Partm6
31m Open-Economy m Macroeconomics:m Basicm Concepts 18 13
32m AmMacroeconomic mTheory mofmthemO penmEconomy 19 14
Partm12:mShort-RunmEconomicmFluctuations Partm8 Partm9 Partm7
33m Aggregatem D emandmandm AggregatemSupply 20 23 15
34mThemInfluencemofmMonetary mandmFiscal mPolicy monmAggregatemDemand 21 24 16
35m ThemShort-RunmTrade-offmbetweenmInflationmandmUnemploy ment 22 17
Partm13:mFinalmThoughts Partm9 Partm8
36m FivemDebates movermM acroeconomic mPolicy 23 18
