SOLUTIONS MANUAL
** All Chapters included
** Questions for Discussion & Problems
** Instructor Manual
,Table of Contents are given below
1. Economics: The Core Issues
2. The U.S. Economy: A Global View
3. Supply and Demand
4. The Role of Government
5. National Income Accounting
6. Unemployment
7. Inflation
8. The Business Cycle
9. Aggregate Demand
10. Self-Adjustment or Instability?
11. Fiscal Policy
12. Deficits and Debt
13. Money and Banks
14. The Federal Reserve System
15. Monetary Policy
16. Supply-Side Policy: Short-Run Options
17. Growth and Productivity: Long-Run Possibilities
18. Theory Versus Reality
19. Consumer Choice
20. Elasticity
21. The Costs of Production
22. The Competitive Firm
23. Competitive Markets
24. Monopoly
25. Oligopoly
26. Monopolistic Competition
27. Natural Monopolies: (De)Regulation?
28. Environmental Protection
29. The Farm Problem
30. The Labor Market
31. Labor Unions
32. Financial Markets
33. Taxes: Equity Versus Efficiency
34. Transfer Payments: Welfare and Social Security
35. International Trade
36. International Finance
37. Global Poverty
, CHAPTER 1: Economics: The Core Issues
SOLUTIONS MANUAL
Learning Objectives for Chapter 1
After reading this chapter, you should know
LO1-1 What scarcity is.
LO1-2 How scarcity creates opportunity costs.
LO1-3 What the production possibilities curve represents.
LO1-4 The three core economic questions that every society must answer.
LO1-5 How market and government approaches to economic problems differ.
Questions for Discussion
1. What opportunity costs did you incur in reading this chapter? If you read another chapter today, would
your opportunity cost (per chapter) increase? Explain. LO1-2
Answer: Opportunity cost is what you must give up to get the next-best alternative. In this case,
opportunity costs include the things you could have done with your time instead of reading this chapter.
The most desired activity you give up is the value of the opportunity cost.
As you first begin to read, you first give up the alternative activities that have the least value to you. As
you spend more time studying, you begin giving up activities that have increasing value to you. For
example, the first hour of studying may have resulted in you not watching a TV show. The second hour
of studying may result in you not using your PlayStation 5, which you believe offers more satisfaction
than the first TV show that you gave up, and so on.
2. How much time could you spend on homework in a day? How much do you spend? How do you decide?
LO1-2
Answer: You theoretically could spend 24 hours a day doing homework. However, in reality, there is a
limit to the amount of time in which you can effectively complete your homework. Most students spend
substantially less than 24 hours per day because there are competing needs for their time, such as work,
sleep, and social time.
A person decides how much time to spend on homework based on the perceived payoff (an
improvement in learning or an improvement in your course grade) and compares this to the value of
what must be given up to complete the homework. Those activities that are perceived as giving the
most benefit are usually the activities completed first. At some point, the perceived benefit from
completing additional homework is less than the benefit from other activities, and you stop working on
homework.
3. What’s the real cost of a “free lunch,” as mentioned in the discussion of “Opportunity Costs”? LO1-2
Answer: There is no such thing as a “free lunch.” Every time we use scarce resources in one way, we give
up the opportunity to use them in other ways. A free lunch’s opportunity cost is what could be produced
or consumed otherwise with those resources that were used for the lunch.
1
, 4. How might a nation’s production possibilities be affected by the following? LO1-3
a. Discovery of a new oil field.
b. A decrease in immigration.
c. An increase in military spending.
d. More job training.
Answer: In general, a nation’s production possibilities curve will shift due to a change in resources, a
change in the quality of resources, or a change in technology.
a. Discovery of a new oil field is an example of a change in resources, which causes an increase in a
country’s production possibilities. Discovering a new oil field allows a country to have a greater capacity
in the long run, leading to more output.
b. A decrease in immigration is an example of a decrease in resources for a nation. A decrease in
immigration certainly is a decrease in the number of laborers, which would necessarily decrease the
production possibilities. These immigrants also have varying levels of skills and education (human
capital) that also will decrease the production possibilities of a nation.
c. An increase in military spending will, in general, simply move the economy from one point on the
production possibilities curve to a different point on the curve since this is nothing more than a trade-off
in the government spending pattern. If the increase in spending results in new research and
development that improves technology that has civilian applications, then the production possibilities
could potentially increase over time.
d. An increase in job training makes workers more productive. This increased productivity means that
more output can be produced with the existing number of workers, which would increase a nation’s
production possibilities curve.
5. What benefits might we get from Mars exploration? Will those benefits exceed the opportunity costs?
LO1-2
Answer: Students can discuss some of the possible benefits, which include scientific discovery, the
possibility of technical advancements and how these advancements may benefit us on Earth, global
collaboration between countries to complete a mission, the potential for human settlement, business
and job growth in the space industry, potential use of Mars resources in production, etc. Students also
need to explain that any investment in Mars exploration means we cannot use those same resources
(workers, capital) for other uses (i.e., opportunity costs). Students then need to discuss whether those
benefits exceed the opportunity costs.
6. Who would go to college in a completely private (market) college system? How does government
intervention change this FOR WHOM outcome? LO1-4
Answer: Financial aid and guaranteed student loans make college accessible to more people. Many
states also subsidize in-state students with low tuition so that more individuals can afford school. In a
completely private system, without access to adequate funds, many people with the intellectual ability
would not be able to go to college.
7. Why do people around the world have so much faith in free markets (World View “Market Reliance vs.
Government Reliance?”)? LO1-5
2
** All Chapters included
** Questions for Discussion & Problems
** Instructor Manual
,Table of Contents are given below
1. Economics: The Core Issues
2. The U.S. Economy: A Global View
3. Supply and Demand
4. The Role of Government
5. National Income Accounting
6. Unemployment
7. Inflation
8. The Business Cycle
9. Aggregate Demand
10. Self-Adjustment or Instability?
11. Fiscal Policy
12. Deficits and Debt
13. Money and Banks
14. The Federal Reserve System
15. Monetary Policy
16. Supply-Side Policy: Short-Run Options
17. Growth and Productivity: Long-Run Possibilities
18. Theory Versus Reality
19. Consumer Choice
20. Elasticity
21. The Costs of Production
22. The Competitive Firm
23. Competitive Markets
24. Monopoly
25. Oligopoly
26. Monopolistic Competition
27. Natural Monopolies: (De)Regulation?
28. Environmental Protection
29. The Farm Problem
30. The Labor Market
31. Labor Unions
32. Financial Markets
33. Taxes: Equity Versus Efficiency
34. Transfer Payments: Welfare and Social Security
35. International Trade
36. International Finance
37. Global Poverty
, CHAPTER 1: Economics: The Core Issues
SOLUTIONS MANUAL
Learning Objectives for Chapter 1
After reading this chapter, you should know
LO1-1 What scarcity is.
LO1-2 How scarcity creates opportunity costs.
LO1-3 What the production possibilities curve represents.
LO1-4 The three core economic questions that every society must answer.
LO1-5 How market and government approaches to economic problems differ.
Questions for Discussion
1. What opportunity costs did you incur in reading this chapter? If you read another chapter today, would
your opportunity cost (per chapter) increase? Explain. LO1-2
Answer: Opportunity cost is what you must give up to get the next-best alternative. In this case,
opportunity costs include the things you could have done with your time instead of reading this chapter.
The most desired activity you give up is the value of the opportunity cost.
As you first begin to read, you first give up the alternative activities that have the least value to you. As
you spend more time studying, you begin giving up activities that have increasing value to you. For
example, the first hour of studying may have resulted in you not watching a TV show. The second hour
of studying may result in you not using your PlayStation 5, which you believe offers more satisfaction
than the first TV show that you gave up, and so on.
2. How much time could you spend on homework in a day? How much do you spend? How do you decide?
LO1-2
Answer: You theoretically could spend 24 hours a day doing homework. However, in reality, there is a
limit to the amount of time in which you can effectively complete your homework. Most students spend
substantially less than 24 hours per day because there are competing needs for their time, such as work,
sleep, and social time.
A person decides how much time to spend on homework based on the perceived payoff (an
improvement in learning or an improvement in your course grade) and compares this to the value of
what must be given up to complete the homework. Those activities that are perceived as giving the
most benefit are usually the activities completed first. At some point, the perceived benefit from
completing additional homework is less than the benefit from other activities, and you stop working on
homework.
3. What’s the real cost of a “free lunch,” as mentioned in the discussion of “Opportunity Costs”? LO1-2
Answer: There is no such thing as a “free lunch.” Every time we use scarce resources in one way, we give
up the opportunity to use them in other ways. A free lunch’s opportunity cost is what could be produced
or consumed otherwise with those resources that were used for the lunch.
1
, 4. How might a nation’s production possibilities be affected by the following? LO1-3
a. Discovery of a new oil field.
b. A decrease in immigration.
c. An increase in military spending.
d. More job training.
Answer: In general, a nation’s production possibilities curve will shift due to a change in resources, a
change in the quality of resources, or a change in technology.
a. Discovery of a new oil field is an example of a change in resources, which causes an increase in a
country’s production possibilities. Discovering a new oil field allows a country to have a greater capacity
in the long run, leading to more output.
b. A decrease in immigration is an example of a decrease in resources for a nation. A decrease in
immigration certainly is a decrease in the number of laborers, which would necessarily decrease the
production possibilities. These immigrants also have varying levels of skills and education (human
capital) that also will decrease the production possibilities of a nation.
c. An increase in military spending will, in general, simply move the economy from one point on the
production possibilities curve to a different point on the curve since this is nothing more than a trade-off
in the government spending pattern. If the increase in spending results in new research and
development that improves technology that has civilian applications, then the production possibilities
could potentially increase over time.
d. An increase in job training makes workers more productive. This increased productivity means that
more output can be produced with the existing number of workers, which would increase a nation’s
production possibilities curve.
5. What benefits might we get from Mars exploration? Will those benefits exceed the opportunity costs?
LO1-2
Answer: Students can discuss some of the possible benefits, which include scientific discovery, the
possibility of technical advancements and how these advancements may benefit us on Earth, global
collaboration between countries to complete a mission, the potential for human settlement, business
and job growth in the space industry, potential use of Mars resources in production, etc. Students also
need to explain that any investment in Mars exploration means we cannot use those same resources
(workers, capital) for other uses (i.e., opportunity costs). Students then need to discuss whether those
benefits exceed the opportunity costs.
6. Who would go to college in a completely private (market) college system? How does government
intervention change this FOR WHOM outcome? LO1-4
Answer: Financial aid and guaranteed student loans make college accessible to more people. Many
states also subsidize in-state students with low tuition so that more individuals can afford school. In a
completely private system, without access to adequate funds, many people with the intellectual ability
would not be able to go to college.
7. Why do people around the world have so much faith in free markets (World View “Market Reliance vs.
Government Reliance?”)? LO1-5
2
