SOLUTIONS MANUAL AND INSTRUCTOR MANUAL
PRINCIPLES OF MACROECONOMICS
11TH CANADIAN EDITION
CHAPTER NO. 01: THE ECONOMIC PROBLEM
ANSWERS TO TEST YOUR UNDERSTANDING QUESTIONS
1. A) P
b) N
c) N
d) P
2. a) Mi
b) Ma
c) Mi
d) Ma
3. a) K
b) C
c) K
d) C
e) B
f) K
4. a) K
b) N
c) N
d) L
e) E
f) K
5. a) 400 guns
b) 100 guns. (This means going from combination b to combination c. As a result,\
the number of guns would drop from 400 to 300)
c) greater (since it costs 150 guns going from c to d compared
to only 100 guns from b to c)
6. a) and b) See the following figure:
, c) 25 units of grain (old combination C would now be 25 grain and 12
tools)
Answers to It’s News to Me
I. d) (Any activity that uses resources has an opportunity cost and is therefore not
free)
II. c) (One could argue that taking a deep breathe on a remote mountain top is free)
III. b) (This is the answer that reveals the concept of opportunity costs, i.e., what
other uses those resources could have been used for)
Answers to Study Problems
1. a) 20 tea is gained at a cost of 10 coffee. (Point u means 0 tea and 120 coffees; point v
is 20 tea and 110 coffees)
b) 20 tea is gained at a cost of 30 coffee (Point w means 35 tea and 100 coffees;
point x is 55 tea and 70 coffees)
c) 5 tea is gained at a cost of 30 coffee (Point y means 65 tea and 30 coffees;
point z is7 0 tea and 0 coffees)
2. a) 10 beef (half-way between D and E)
b) 70 rice (half- way between B and C)
c) no (100 rice is between C and D but that means production of beef is between 20 and
35)
d) yes (combination C is 90 rice and 35 beef so it can certainly produce less than this)
3. a) 15 units of beef (This means going from combination A to combination C, where
beef drops from 50 to 35)
, b) 15 units of beef. (The increase in rice from 90 to 120 causes beef to drop from 35 to
20)
c) ½ unit of beef. (30 more rice costs 15 beef; therefore 1 more rice costs 15/30 beef)
d) 30 units of rice (The increase in beef from 20 to 35 causes rice to drop from 120 to
90)
4. a) See the following table: Table 1.9 (Completed)
Possibility A B C D E F
Cheese 0 30 50 65 75 80
Wine 110 105 95 70 40 0
b) No (If it produced 65 cheese – combination D – the maximum wine would be 70)
c) 30 wine (This would mean going from combination D to E. Production of wine
would drop from 70 to 40, a difference of 30)
d) 15 cheese (This would mean going from combination D to C. Production of cheese
would drop from 65 to 50, a difference of 15)
5. a) 40 wheat (This is half-way between combinations C and D. Half-way between 35
and 45 wheat is 40 wheat)
b) 4 cars (This means going from combination C to D. Car production would drop
from 18 to 14, a difference of 4)
c) 2 ½ wheat (This means going from combination D to C. 4 more cars would cost 10
wheat; so 1 car would cost 10/4 or 2 ½ wheat)
6. a) See the following table: Table 1.12 (Completed)
A B C D E F
Balls 0 150 250 325 375 400
Bats 55 52 46 36 20 0
b) 100 balls (Going from combination C to combination B, ball production drops from
250 to 150).
c) No. (The closest is combination C at 250 balls and 46 bats).
d) See the following table: Table 1.12 (Completed)
A B C D E F
Balls 0 150 250 325 375 400
Bats 55 52 46 36 20 0
Bats 2 80 72 61 46 25 0
(Bat production increases by ½ unit per worker – this is not a 50% increase in production!)
, e) Yes. This is shown in the revised production possibilities table: New combination C
gives exactly 250 balls and 61 bats.
7. a) 0.75 trucks (12/16)
b) 1.75 trucks (14/8)
c) 1.33 kiwis (16/12)
d) 0.57 kiwis (8/14)
e) 12 kiwis and 13 trucks (8 kiwis and 6 trucks in Kitchener and 4 kiwis and 7 trucks
in Waterloo).
f) 16 kiwis and 14 trucks (Kitchener produces only kiwis and Waterloo only trucks).
g) 4 kiwis and 1 truck (The difference between answers e) and f)).
8. a) See the following table: Table 1.13 (Completed)
A B C D E F
Capital goods 0 25 40 50 55 58
Capital goods 2 0 40 64 80 88 92.8
Consumer goods 50 40 30 20 10 0
b) 24 more capital goods (If it still wants 30 consumer goods, it could now have 64
capital goods – 24 more than previously)
c) 10 more consumer goods (If it still wants 40 capital goods, it can get them at the
new combination B, which will also give 40 consumer goods – 10 more than
previously)
d) 33 capital goods (This is a movement from combination F to combination B, which
would result in capital goods falling from 58 to 25)
e) 52.8 capital goods (This is a movement from combination F to combination B in the
table above which would result in capital goods in the capital 2 row falling from 92.8 to
40)
9. a) See the following table: Table 1.15 (Completed)
A B C D E F
Movies watched 0 1 2 3 4 5
Pages studied 180 175 160 130 80 0
b) See the following figure: Figure 1.10 (completed)
PRINCIPLES OF MACROECONOMICS
11TH CANADIAN EDITION
CHAPTER NO. 01: THE ECONOMIC PROBLEM
ANSWERS TO TEST YOUR UNDERSTANDING QUESTIONS
1. A) P
b) N
c) N
d) P
2. a) Mi
b) Ma
c) Mi
d) Ma
3. a) K
b) C
c) K
d) C
e) B
f) K
4. a) K
b) N
c) N
d) L
e) E
f) K
5. a) 400 guns
b) 100 guns. (This means going from combination b to combination c. As a result,\
the number of guns would drop from 400 to 300)
c) greater (since it costs 150 guns going from c to d compared
to only 100 guns from b to c)
6. a) and b) See the following figure:
, c) 25 units of grain (old combination C would now be 25 grain and 12
tools)
Answers to It’s News to Me
I. d) (Any activity that uses resources has an opportunity cost and is therefore not
free)
II. c) (One could argue that taking a deep breathe on a remote mountain top is free)
III. b) (This is the answer that reveals the concept of opportunity costs, i.e., what
other uses those resources could have been used for)
Answers to Study Problems
1. a) 20 tea is gained at a cost of 10 coffee. (Point u means 0 tea and 120 coffees; point v
is 20 tea and 110 coffees)
b) 20 tea is gained at a cost of 30 coffee (Point w means 35 tea and 100 coffees;
point x is 55 tea and 70 coffees)
c) 5 tea is gained at a cost of 30 coffee (Point y means 65 tea and 30 coffees;
point z is7 0 tea and 0 coffees)
2. a) 10 beef (half-way between D and E)
b) 70 rice (half- way between B and C)
c) no (100 rice is between C and D but that means production of beef is between 20 and
35)
d) yes (combination C is 90 rice and 35 beef so it can certainly produce less than this)
3. a) 15 units of beef (This means going from combination A to combination C, where
beef drops from 50 to 35)
, b) 15 units of beef. (The increase in rice from 90 to 120 causes beef to drop from 35 to
20)
c) ½ unit of beef. (30 more rice costs 15 beef; therefore 1 more rice costs 15/30 beef)
d) 30 units of rice (The increase in beef from 20 to 35 causes rice to drop from 120 to
90)
4. a) See the following table: Table 1.9 (Completed)
Possibility A B C D E F
Cheese 0 30 50 65 75 80
Wine 110 105 95 70 40 0
b) No (If it produced 65 cheese – combination D – the maximum wine would be 70)
c) 30 wine (This would mean going from combination D to E. Production of wine
would drop from 70 to 40, a difference of 30)
d) 15 cheese (This would mean going from combination D to C. Production of cheese
would drop from 65 to 50, a difference of 15)
5. a) 40 wheat (This is half-way between combinations C and D. Half-way between 35
and 45 wheat is 40 wheat)
b) 4 cars (This means going from combination C to D. Car production would drop
from 18 to 14, a difference of 4)
c) 2 ½ wheat (This means going from combination D to C. 4 more cars would cost 10
wheat; so 1 car would cost 10/4 or 2 ½ wheat)
6. a) See the following table: Table 1.12 (Completed)
A B C D E F
Balls 0 150 250 325 375 400
Bats 55 52 46 36 20 0
b) 100 balls (Going from combination C to combination B, ball production drops from
250 to 150).
c) No. (The closest is combination C at 250 balls and 46 bats).
d) See the following table: Table 1.12 (Completed)
A B C D E F
Balls 0 150 250 325 375 400
Bats 55 52 46 36 20 0
Bats 2 80 72 61 46 25 0
(Bat production increases by ½ unit per worker – this is not a 50% increase in production!)
, e) Yes. This is shown in the revised production possibilities table: New combination C
gives exactly 250 balls and 61 bats.
7. a) 0.75 trucks (12/16)
b) 1.75 trucks (14/8)
c) 1.33 kiwis (16/12)
d) 0.57 kiwis (8/14)
e) 12 kiwis and 13 trucks (8 kiwis and 6 trucks in Kitchener and 4 kiwis and 7 trucks
in Waterloo).
f) 16 kiwis and 14 trucks (Kitchener produces only kiwis and Waterloo only trucks).
g) 4 kiwis and 1 truck (The difference between answers e) and f)).
8. a) See the following table: Table 1.13 (Completed)
A B C D E F
Capital goods 0 25 40 50 55 58
Capital goods 2 0 40 64 80 88 92.8
Consumer goods 50 40 30 20 10 0
b) 24 more capital goods (If it still wants 30 consumer goods, it could now have 64
capital goods – 24 more than previously)
c) 10 more consumer goods (If it still wants 40 capital goods, it can get them at the
new combination B, which will also give 40 consumer goods – 10 more than
previously)
d) 33 capital goods (This is a movement from combination F to combination B, which
would result in capital goods falling from 58 to 25)
e) 52.8 capital goods (This is a movement from combination F to combination B in the
table above which would result in capital goods in the capital 2 row falling from 92.8 to
40)
9. a) See the following table: Table 1.15 (Completed)
A B C D E F
Movies watched 0 1 2 3 4 5
Pages studied 180 175 160 130 80 0
b) See the following figure: Figure 1.10 (completed)
