Teaching Assistance Manual x x
Economics
AContemporaryIntroduction
x x
TENTH EDITION x
William A. McEachernx x
University of Connecticut
x x
Australiax•xBrazilx•xJapanx•xKoreax•xMexicox•xSingaporex•xSpainx•xUnitedxKingdomx•xUnitedxStates
©x2014xCengagexLearning.xAllxRightsxReserved.xMayxnotxbexscanned,xcopiedxorxduplicate
d,x orxpostedxtoxaxpublicallyxaccessiblexwebsite,xinxwholexorxinxpart.
, x
©x2014,x2012,x2009xSouth-Western,xCengagexLearning ISBN-13:x 978-1-111-29627-8
ISBN-10:x 1-111-29627-8
ALLxRIGHTSxRESERVED.xNoxpartxofxthisxworkxcoveredxbyxthe
xcopyrightxhereinxmayxbexreproduced,xtransmitted,xstored,xorxu South-WesternxCengagexLearning
sedxinxanyxformxorxbyxanyxmeansxgraphic,xelectronic,xorxmech 5191xNatorpxBoulevard
anical,xincludingxbutxnotxlimitedxtoxphotocopying,xrecording,xsc Mason,xOHx45040xUS
anning,xdigitizing,xtaping,xWebxdistribution,xinformationxnetwor A
ks,xorxinformationxstoragexandxretrievalxsystems,xexceptxasxpe
rmittedxunderxSectionx107xorx108xofxthex1976xUnitedxStatesxC CengagexLearningxisxaxleadingxproviderxofxcustomizedxlear
opyrightxAct,xwithoutxthexpriorxwrittenxpermissionxofxthexpublish ningxsolutionsxwithxofficexlocationsxaroundxthexglobe,xinclud
erxexceptxasxmayxbexpermittedxbyxthexlicensextermsxbelow. ingxSingapore,xthexUnitedxKingdom,xAustralia,xMexico,xBra
zil,xandxJapan.xLocatexyourxlocalxofficexat:xinternational.ce
ngage.com/region.
CengagexLearningxproductsxarexrepresentedxinxCana
Forxproductxinformationxandxtechnologyxassistance,xcontactxusxat daxbyxNelsonxEducation,xLtd.
CengagexLearningxAcademicxResourcexCenter
,x1-800-423-0563. Forxyourxcoursexandxlearningxsolutions,xvisit
www.cengage.com.
Forxpermissionxtoxusexmaterialxfromxthisxtextxorxproduct,xsubmit
xallxrequestsxonlinexatxwww.cengage.com/permissions.
Purchasexanyxofxourxproductsxatxyourxlocalxcollegexsto
Furtherxpermissionsxquestionsxcanxbexemailedxto
rexorxatxourxpreferredxonlinexstorexwww.CengageBrai
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n.com.
NOTE:xUNDERxNOxCIRCUMSTANCESxMAYxTHISxMATERIALxORxANYxPORTIONxTHEREOFxBExSOLD,xLICENSED,xAUCTIONED,
xORxOTHERWISExREDISTRIBUTEDxEXCEPTxASxMAYxBExPERMITTEDxBYxTHExLICENSExTERMSxHEREIN.
READxIMPORTANTxLICENSExINFORMATION
DearxProfessorxorxOtherxSupplementxRecipient:
CengagexLearningxhasxprovidedxyouxwithxthisxproductx(thex“Supple form.xWexaskxthatxyouxtakexreasonablexstepsxtoxprotectxthexSupple
ment”)x forx yourx reviewx and,x tox thex extentx thatx youx adoptxthexas mentxfromxunauthorizedxuse,xreproduction,xorxdistribution.xYourxus
sociatedxtextbookxforxusexinxconnectionxwithxyourxcoursex(thex“Cou exofxthexSupplementxindicatesxyourxacceptancexofxthexconditionsxs
rse”),xyouxandxyourxstudentsxwhoxpurchasexthextextbookxmayxusext etxforthxinxthisxAgreement.xIfxyouxdoxnotxacceptxthesexconditions,xy
hexSupplementxasxdescribedxbelow.xCengagexLearningxhasxestabli ouxmustxreturnxthexSupplementxunusedxwithinx30xdaysxofxreceipt.
shedxthesexusexlimitationsxinxresponsextoxconcernsxraisedxbyxauth
ors,xprofessors,xandxotherxusersxregardingxthexpedagogicalxproble Allxrightsx(includingxwithoutxlimitation,xcopyrights,xpatents,xandxtrad
msxstemmingxfromxunlimitedxdistributionxofxSupplements. exsecrets)xinxthexSupplementxarexandxwillxremainxthexsolexandxexcl
usivexpropertyxofxCengagexLearningxand/orxitsxlicensors.xThexSupp
CengagexLearningxherebyxgrantsxyouxaxnontransferablexlicensextox lementxisxfurnishedxbyxCengagexLearningxonxanx“asxis”xbasisxwitho
usexthexSupplementxinxconnectionxwithxthexCourse,xsubjectxtoxthexf utxanyxwarranties,xexpressxorximplied.xThisxAgreementxwillxbexgove
ollowingxconditions.xThexSupplementxisxforxyourxpersonal,xnoncom rnedxbyxandxconstruedxpursuantxtoxthexlawsxofxthexStatexofx NewxY
mercialxusexonlyxandxmayxnotxbexreproduced,xpostedxelectronically ork,xwithoutxregardxtoxsuchxState’sxconflictxofxlawxrules.
xorxdistributed,xexceptxthatxportionsxofxthexSupplementxmayxbexpro
videdxtoxyourxstudentsxINxPRINTxFORMxONLYxinxconnectionxwithx Thankxyouxforxyourxassistancexinxhelpingxtoxsafeguardxthexintegrity
yourxinstructionxofxthexCourse,xsoxlongxasxsuchxstudentsxarexadvis x ofxthexcontentxcontainedxinxthisxSupplement.xWextrustxyouxfindxth
edxthatxtheyxmayxnotxcopyxorxdistributexanyxportionxofxthexSupplem exSupplementxaxusefulxteachingxtool.
entxtoxanyxthirdxparty.xYouxmayxnotxsell,xlicense,x auction,x orx other
wisex redistributex thex Supplementx inx any
PrintedxinxthexUnitedxStatesxofxAmericax
1x2x3x4x5x6x7x11x10
©x2014xCengagexLearning.xAllxRightsxReserved.xMayxnotxbexscanned,xcopiedxorxduplicate
d,x orxpostedxtoxaxpublicallyxaccessiblexwebsite,xinxwholexorxinxpart.
,CONTENTS
Introduction .......................................................................................................................................1
1 ThexArtxandxSciencexofxEconomicxAnalysis ......................................................................................3
2 EconomicxToolsxandxEconomicxSystems .......................................................................................... 6x
3 EconomicxDecisionxMakers ..............................................................................................................9
4 Demand,xSupply,xandxMarkets ........................................................................................................12
5 ElasticityxofxDemandxandxSupply ....................................................................................................15
6 ConsumerxChoicexandxDemand .......................................................................................................18
7 ProductionxandxCostxinxthexFirm......................................................................................................21
8 PerfectxCompetition ........................................................................................................................24
9 Monopoly ........................................................................................................................................27
10 MonopolisticxCompetitionxandxOligopoly.......................................................................................30
11 ResourcexMarkets............................................................................................................................33
12 LaborxMarketsxandxLaborxUnions ...................................................................................................36
13 Capital,xInterest,xEntrepreneurship,xandxCorporatexFinance............................................................ 40
14 TransactionxCosts,xImperfectxInformation,xandxBehavioralxEconomics .......................................... 43
15 EconomicxRegulationxandxAntitrustxPolicy .....................................................................................46
16 PublicxGoodsxandxPublicxChoice .....................................................................................................49
17 ExternalitiesxandxthexEnvironment ..................................................................................................52
18 IncomexDistributionxandxPoverty ....................................................................................................55
19 IntroductionxtoxMacroeconomics.....................................................................................................58
20 TrackingxthexU.S.xEconomy ............................................................................................................ 61
21 UnemploymentxandxInflation ..........................................................................................................64
22 ProductivityxandxGrowth .................................................................................................................67
23 AggregatexExpenditurexandx Aggregatex Demand ......................................................................... 70
iii
©x2014xCengagexLearning.xAllxRightsxReserved.xMayxnotxbexscanned,xcopiedxorxduplicate
d,x orxpostedxtoxaxpublicallyxaccessiblexwebsite,xinxwholexorxinxpart.
, 24 AggregatexSupply ........................................................................................................................... 73
25 FiscalxPolicy ................................................................................................................................... 76
26 FederalxBudgetsxandxPublicxPolicy ................................................................................................. 79
27 MoneyxandxthexFinancialxSystem .................................................................................................... 82
28 BankingxandxthexMoneyxSupply ...................................................................................................... 85
29 MonetaryxTheoryxandxPolicy .......................................................................................................... 88
30 MacroxPolicyxDebate:xActivexorxPassive? ....................................................................................... 91
31 InternationalxTrade.......................................................................................................................... 94
32 InternationalxFinance ...................................................................................................................... 97
33 EconomicxDevelopment ................................................................................................................ 100
AppendixxA:xClassroomxPresentation ........................................................................................... 103
AppendixxB:xLeadingxaxDiscussion ............................................................................................... 111
AppendixxC:xQuizzesxandxExams ................................................................................................. 116
AppendixxD:xSpecialxChallengesxFacingxthexForeignxGraduatexAssistant..................................... 121
iv Contents
©x2014xCengagexLearning.xAllxRightsxReserved.xMayxnotxbexscanned,xcopiedxorxduplicate
d,x orxpostedxtoxaxpublicallyxaccessiblexwebsite,xinxwholexorxinxpart.
Economics
AContemporaryIntroduction
x x
TENTH EDITION x
William A. McEachernx x
University of Connecticut
x x
Australiax•xBrazilx•xJapanx•xKoreax•xMexicox•xSingaporex•xSpainx•xUnitedxKingdomx•xUnitedxStates
©x2014xCengagexLearning.xAllxRightsxReserved.xMayxnotxbexscanned,xcopiedxorxduplicate
d,x orxpostedxtoxaxpublicallyxaccessiblexwebsite,xinxwholexorxinxpart.
, x
©x2014,x2012,x2009xSouth-Western,xCengagexLearning ISBN-13:x 978-1-111-29627-8
ISBN-10:x 1-111-29627-8
ALLxRIGHTSxRESERVED.xNoxpartxofxthisxworkxcoveredxbyxthe
xcopyrightxhereinxmayxbexreproduced,xtransmitted,xstored,xorxu South-WesternxCengagexLearning
sedxinxanyxformxorxbyxanyxmeansxgraphic,xelectronic,xorxmech 5191xNatorpxBoulevard
anical,xincludingxbutxnotxlimitedxtoxphotocopying,xrecording,xsc Mason,xOHx45040xUS
anning,xdigitizing,xtaping,xWebxdistribution,xinformationxnetwor A
ks,xorxinformationxstoragexandxretrievalxsystems,xexceptxasxpe
rmittedxunderxSectionx107xorx108xofxthex1976xUnitedxStatesxC CengagexLearningxisxaxleadingxproviderxofxcustomizedxlear
opyrightxAct,xwithoutxthexpriorxwrittenxpermissionxofxthexpublish ningxsolutionsxwithxofficexlocationsxaroundxthexglobe,xinclud
erxexceptxasxmayxbexpermittedxbyxthexlicensextermsxbelow. ingxSingapore,xthexUnitedxKingdom,xAustralia,xMexico,xBra
zil,xandxJapan.xLocatexyourxlocalxofficexat:xinternational.ce
ngage.com/region.
CengagexLearningxproductsxarexrepresentedxinxCana
Forxproductxinformationxandxtechnologyxassistance,xcontactxusxat daxbyxNelsonxEducation,xLtd.
CengagexLearningxAcademicxResourcexCenter
,x1-800-423-0563. Forxyourxcoursexandxlearningxsolutions,xvisit
www.cengage.com.
Forxpermissionxtoxusexmaterialxfromxthisxtextxorxproduct,xsubmit
xallxrequestsxonlinexatxwww.cengage.com/permissions.
Purchasexanyxofxourxproductsxatxyourxlocalxcollegexsto
Furtherxpermissionsxquestionsxcanxbexemailedxto
rexorxatxourxpreferredxonlinexstorexwww.CengageBrai
.
n.com.
NOTE:xUNDERxNOxCIRCUMSTANCESxMAYxTHISxMATERIALxORxANYxPORTIONxTHEREOFxBExSOLD,xLICENSED,xAUCTIONED,
xORxOTHERWISExREDISTRIBUTEDxEXCEPTxASxMAYxBExPERMITTEDxBYxTHExLICENSExTERMSxHEREIN.
READxIMPORTANTxLICENSExINFORMATION
DearxProfessorxorxOtherxSupplementxRecipient:
CengagexLearningxhasxprovidedxyouxwithxthisxproductx(thex“Supple form.xWexaskxthatxyouxtakexreasonablexstepsxtoxprotectxthexSupple
ment”)x forx yourx reviewx and,x tox thex extentx thatx youx adoptxthexas mentxfromxunauthorizedxuse,xreproduction,xorxdistribution.xYourxus
sociatedxtextbookxforxusexinxconnectionxwithxyourxcoursex(thex“Cou exofxthexSupplementxindicatesxyourxacceptancexofxthexconditionsxs
rse”),xyouxandxyourxstudentsxwhoxpurchasexthextextbookxmayxusext etxforthxinxthisxAgreement.xIfxyouxdoxnotxacceptxthesexconditions,xy
hexSupplementxasxdescribedxbelow.xCengagexLearningxhasxestabli ouxmustxreturnxthexSupplementxunusedxwithinx30xdaysxofxreceipt.
shedxthesexusexlimitationsxinxresponsextoxconcernsxraisedxbyxauth
ors,xprofessors,xandxotherxusersxregardingxthexpedagogicalxproble Allxrightsx(includingxwithoutxlimitation,xcopyrights,xpatents,xandxtrad
msxstemmingxfromxunlimitedxdistributionxofxSupplements. exsecrets)xinxthexSupplementxarexandxwillxremainxthexsolexandxexcl
usivexpropertyxofxCengagexLearningxand/orxitsxlicensors.xThexSupp
CengagexLearningxherebyxgrantsxyouxaxnontransferablexlicensextox lementxisxfurnishedxbyxCengagexLearningxonxanx“asxis”xbasisxwitho
usexthexSupplementxinxconnectionxwithxthexCourse,xsubjectxtoxthexf utxanyxwarranties,xexpressxorximplied.xThisxAgreementxwillxbexgove
ollowingxconditions.xThexSupplementxisxforxyourxpersonal,xnoncom rnedxbyxandxconstruedxpursuantxtoxthexlawsxofxthexStatexofx NewxY
mercialxusexonlyxandxmayxnotxbexreproduced,xpostedxelectronically ork,xwithoutxregardxtoxsuchxState’sxconflictxofxlawxrules.
xorxdistributed,xexceptxthatxportionsxofxthexSupplementxmayxbexpro
videdxtoxyourxstudentsxINxPRINTxFORMxONLYxinxconnectionxwithx Thankxyouxforxyourxassistancexinxhelpingxtoxsafeguardxthexintegrity
yourxinstructionxofxthexCourse,xsoxlongxasxsuchxstudentsxarexadvis x ofxthexcontentxcontainedxinxthisxSupplement.xWextrustxyouxfindxth
edxthatxtheyxmayxnotxcopyxorxdistributexanyxportionxofxthexSupplem exSupplementxaxusefulxteachingxtool.
entxtoxanyxthirdxparty.xYouxmayxnotxsell,xlicense,x auction,x orx other
wisex redistributex thex Supplementx inx any
PrintedxinxthexUnitedxStatesxofxAmericax
1x2x3x4x5x6x7x11x10
©x2014xCengagexLearning.xAllxRightsxReserved.xMayxnotxbexscanned,xcopiedxorxduplicate
d,x orxpostedxtoxaxpublicallyxaccessiblexwebsite,xinxwholexorxinxpart.
,CONTENTS
Introduction .......................................................................................................................................1
1 ThexArtxandxSciencexofxEconomicxAnalysis ......................................................................................3
2 EconomicxToolsxandxEconomicxSystems .......................................................................................... 6x
3 EconomicxDecisionxMakers ..............................................................................................................9
4 Demand,xSupply,xandxMarkets ........................................................................................................12
5 ElasticityxofxDemandxandxSupply ....................................................................................................15
6 ConsumerxChoicexandxDemand .......................................................................................................18
7 ProductionxandxCostxinxthexFirm......................................................................................................21
8 PerfectxCompetition ........................................................................................................................24
9 Monopoly ........................................................................................................................................27
10 MonopolisticxCompetitionxandxOligopoly.......................................................................................30
11 ResourcexMarkets............................................................................................................................33
12 LaborxMarketsxandxLaborxUnions ...................................................................................................36
13 Capital,xInterest,xEntrepreneurship,xandxCorporatexFinance............................................................ 40
14 TransactionxCosts,xImperfectxInformation,xandxBehavioralxEconomics .......................................... 43
15 EconomicxRegulationxandxAntitrustxPolicy .....................................................................................46
16 PublicxGoodsxandxPublicxChoice .....................................................................................................49
17 ExternalitiesxandxthexEnvironment ..................................................................................................52
18 IncomexDistributionxandxPoverty ....................................................................................................55
19 IntroductionxtoxMacroeconomics.....................................................................................................58
20 TrackingxthexU.S.xEconomy ............................................................................................................ 61
21 UnemploymentxandxInflation ..........................................................................................................64
22 ProductivityxandxGrowth .................................................................................................................67
23 AggregatexExpenditurexandx Aggregatex Demand ......................................................................... 70
iii
©x2014xCengagexLearning.xAllxRightsxReserved.xMayxnotxbexscanned,xcopiedxorxduplicate
d,x orxpostedxtoxaxpublicallyxaccessiblexwebsite,xinxwholexorxinxpart.
, 24 AggregatexSupply ........................................................................................................................... 73
25 FiscalxPolicy ................................................................................................................................... 76
26 FederalxBudgetsxandxPublicxPolicy ................................................................................................. 79
27 MoneyxandxthexFinancialxSystem .................................................................................................... 82
28 BankingxandxthexMoneyxSupply ...................................................................................................... 85
29 MonetaryxTheoryxandxPolicy .......................................................................................................... 88
30 MacroxPolicyxDebate:xActivexorxPassive? ....................................................................................... 91
31 InternationalxTrade.......................................................................................................................... 94
32 InternationalxFinance ...................................................................................................................... 97
33 EconomicxDevelopment ................................................................................................................ 100
AppendixxA:xClassroomxPresentation ........................................................................................... 103
AppendixxB:xLeadingxaxDiscussion ............................................................................................... 111
AppendixxC:xQuizzesxandxExams ................................................................................................. 116
AppendixxD:xSpecialxChallengesxFacingxthexForeignxGraduatexAssistant..................................... 121
iv Contents
©x2014xCengagexLearning.xAllxRightsxReserved.xMayxnotxbexscanned,xcopiedxorxduplicate
d,x orxpostedxtoxaxpublicallyxaccessiblexwebsite,xinxwholexorxinxpart.
