SOLUTION MANUAL
Whats, included ?
All chapters end-of-chapters problems and study problems answers are
included. Latest 3rd Edition and covers all chapters (Chap 1 to 20)
,PART I Foundations of Economics
Chapter 1 The Four Core Principles of Economics
Chapter 2 Demand and Consumer Choice
Chapter 3 Supply and Producer Choice
Chapter 4 Equilibrium: Where Supply Meets Demand
PART II Analyzing Markets
Chapter 5 Elasticity: Measuring Responsiveness
Chapter 6 Taxes, Price Controls, and Quantity Regulations
Chapter 7 Welfare Economics: Evaluating Market Efficiency
and Market Failure
Chapter 8 Comparative Advantage and Gains from Trade
PART III Applications and Policy Issues
Chapter 9 International Trade
Chapter 10 Externalities and Public Goods
Chapter 11 The Labor Market
Chapter 12 Why Wages Vary: Workers, Jobs, Institutions, and Discrimination
Chapter 13 Inequality, Poverty, and Social Insurance
PART IV Industrial Organization and Business Strategy
Chapter 14 Market Structure and Degrees of Market Power
Chapter 15 Entry, Exit, and Long-Run Profitability
Chapter 16 Price Discrimination and Sophisticated Pricing Strategies
Chapter 17 Economics of Strategic Management
PART V Advanced Decisions
Chapter 18 Game Theory and Strategic Choices
Chapter 19 Decisions Involving Uncertainty
Chapter 20 Decisions Involving Private Information
,[Chapter 1 (Common): End-of-Chapter Solutions]
Study Problems
Problem 1
1. Consider the following statement: “Economists always put things into monetary terms; as a
result economics can most appropriately be called the study of money.”
Is this true or false? Briefly explain your reasoning.
Solution 1
1. This is false. Economists use monetary values because they provide a common metric for
measurement that enables them to compare the costs and benefits of a variety of different
outcomes. Essentially, it allows economists to compare apples to oranges. Expressing benefits
and costs in monetary terms simplifies the process of analyzing the decisions that we make in our
everyday lives. Economics, therefore, is more accurately described as the study of the decisions
that are made by individuals, firms, and governments.
Problem 2
2. Use the cost-benefit principle to evaluate the following:
a. You are about to buy a calculator for $10, and the salesperson tells you that the model you
want to buy is on sale for $5 at the store’s other branch, which is a 20-minute drive away. Would
you make the trip?
b. You are about to buy a laptop for $1,000 and the salesperson tells you that the model you want
to buy is on sale for $995 at the store’s other branch, which is a 20-minute drive away. Would
you make the trip?
, c. Did you make the same choice in both cases? Should you have? Do you think this is how
people actually choose?
Solution 2
2. Student answers will vary. To apply the cost-benefit principle, analyze the full set of costs and
benefits (both monetary and non-monetary) of both alternatives. Only pursue the choice whose
benefits are at least as large as the costs to maximize your economic surplus. Convert costs and
benefits into dollars using your willingness to pay.
In parts a and b, your answer will depend on your willingness to pay. If you buy at the current
store, you will get the benefit of having the calculator and laptop now. If you buy at the other
branch, you save money off the purchase, but you forgo gas cost and travel time. How much
does the gas cost, and how much is your time worth to you?
For part c, note that in both cases, if you accept the offer, you are driving 20 minutes to save $5.
Your answer should be the same in both cases. However, many people may fall victim to the
framing effect, when a decision is affected by how a choice is presented. Saving $5 off the
calculator is 50% off the retail price. Saving $5 off the laptop is 0.5% off the retail price. In both
cases, the savings is $5. Although the framing effect is common, it is not rational. You should
make decisions based on the costs and benefits, not by how they are framed.
Problem 3
3. Ivan has inherited his mother’s 1963 Chevrolet Corvette, which he values at $45,000. He
decides that he might be willing to sell it so he posts it on Craigslist for $55,000. Samantha is
interested and willing to pay up to $72,000. Would Ivan and Samantha want to voluntarily
engage in trade? How much economic surplus is created for both of them as a result of this
exchange? What is the total economic surplus?
Solution 3
Whats, included ?
All chapters end-of-chapters problems and study problems answers are
included. Latest 3rd Edition and covers all chapters (Chap 1 to 20)
,PART I Foundations of Economics
Chapter 1 The Four Core Principles of Economics
Chapter 2 Demand and Consumer Choice
Chapter 3 Supply and Producer Choice
Chapter 4 Equilibrium: Where Supply Meets Demand
PART II Analyzing Markets
Chapter 5 Elasticity: Measuring Responsiveness
Chapter 6 Taxes, Price Controls, and Quantity Regulations
Chapter 7 Welfare Economics: Evaluating Market Efficiency
and Market Failure
Chapter 8 Comparative Advantage and Gains from Trade
PART III Applications and Policy Issues
Chapter 9 International Trade
Chapter 10 Externalities and Public Goods
Chapter 11 The Labor Market
Chapter 12 Why Wages Vary: Workers, Jobs, Institutions, and Discrimination
Chapter 13 Inequality, Poverty, and Social Insurance
PART IV Industrial Organization and Business Strategy
Chapter 14 Market Structure and Degrees of Market Power
Chapter 15 Entry, Exit, and Long-Run Profitability
Chapter 16 Price Discrimination and Sophisticated Pricing Strategies
Chapter 17 Economics of Strategic Management
PART V Advanced Decisions
Chapter 18 Game Theory and Strategic Choices
Chapter 19 Decisions Involving Uncertainty
Chapter 20 Decisions Involving Private Information
,[Chapter 1 (Common): End-of-Chapter Solutions]
Study Problems
Problem 1
1. Consider the following statement: “Economists always put things into monetary terms; as a
result economics can most appropriately be called the study of money.”
Is this true or false? Briefly explain your reasoning.
Solution 1
1. This is false. Economists use monetary values because they provide a common metric for
measurement that enables them to compare the costs and benefits of a variety of different
outcomes. Essentially, it allows economists to compare apples to oranges. Expressing benefits
and costs in monetary terms simplifies the process of analyzing the decisions that we make in our
everyday lives. Economics, therefore, is more accurately described as the study of the decisions
that are made by individuals, firms, and governments.
Problem 2
2. Use the cost-benefit principle to evaluate the following:
a. You are about to buy a calculator for $10, and the salesperson tells you that the model you
want to buy is on sale for $5 at the store’s other branch, which is a 20-minute drive away. Would
you make the trip?
b. You are about to buy a laptop for $1,000 and the salesperson tells you that the model you want
to buy is on sale for $995 at the store’s other branch, which is a 20-minute drive away. Would
you make the trip?
, c. Did you make the same choice in both cases? Should you have? Do you think this is how
people actually choose?
Solution 2
2. Student answers will vary. To apply the cost-benefit principle, analyze the full set of costs and
benefits (both monetary and non-monetary) of both alternatives. Only pursue the choice whose
benefits are at least as large as the costs to maximize your economic surplus. Convert costs and
benefits into dollars using your willingness to pay.
In parts a and b, your answer will depend on your willingness to pay. If you buy at the current
store, you will get the benefit of having the calculator and laptop now. If you buy at the other
branch, you save money off the purchase, but you forgo gas cost and travel time. How much
does the gas cost, and how much is your time worth to you?
For part c, note that in both cases, if you accept the offer, you are driving 20 minutes to save $5.
Your answer should be the same in both cases. However, many people may fall victim to the
framing effect, when a decision is affected by how a choice is presented. Saving $5 off the
calculator is 50% off the retail price. Saving $5 off the laptop is 0.5% off the retail price. In both
cases, the savings is $5. Although the framing effect is common, it is not rational. You should
make decisions based on the costs and benefits, not by how they are framed.
Problem 3
3. Ivan has inherited his mother’s 1963 Chevrolet Corvette, which he values at $45,000. He
decides that he might be willing to sell it so he posts it on Craigslist for $55,000. Samantha is
interested and willing to pay up to $72,000. Would Ivan and Samantha want to voluntarily
engage in trade? How much economic surplus is created for both of them as a result of this
exchange? What is the total economic surplus?
Solution 3
