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1 Pearson Education, Inc. Getting StartedChapte r
ANSWERS TO CHAPTER CHECKPOINTS
Problems and Applications
1. Provide three examples of scarcity that illustrate why even the 1,826
billionaires in the formworld face scarcity.
The 1,826 billionaires might want to be able to eat unlimited meals with-
out gaining weight; live to be at least 140 years old and enjoy perfect health everyday; be able to wake up in San Francisco and go to sleep in Paris after spending no more than 3 hours on a plane. None of these wants can be fulfilled given the pres ent state of technology and resources available. 2. Label each entry in the list as dealing with a microeconomic topic or a
macroeconomic topic
. Explain your an swer.
•Moto
r vehicles production in China is growing by 10 percent a year.
This entry is a microeconomic topi c because individuals and businesses
make decisions whether to buy or sell cars.
•Coffee prices rock et.
This entry is a microeconomic topi c because individuals and businesses
make decisions whether to buy or sell coffee.
•Globalization has reduced African povert y.
This entry is a macroeconomic topic because globalization is the result
of choices made by billions of people rather than an individual or busi-
ness.
•The government must cut its budget de ficit.
This ent
ry is a macroeconomic topic because neither an individual nor a
business makes decision to cut expenditures.
•Apple sells 20 million iPho ne 6 smartphones a mont h.
This entry is a microecon
omic to pic because individuals an d Apple
make decisio
n whether to buy or sell iPhones.Foundations of MicroEconomics 9e Robin Bade, Michael Parkin (Solutions Manual All Chapters, 100% Origi nal Verified, A+ Grade) 2 Part 1 . INTRODUCTION © 2021 Pearson Education, Inc. Use the following information to work Problems 3 to 6. Jurassic World had world-wide box office receipts of $1.66 billion. The movie’s production budget was $150 mil lion with additional marketing costs. A successful movie brings pleasure to millions, creates work for thousands, and makes a few people rich. 3. What contribution does a movie like Jurassic World make to coping with scarcity? When you buy a movie ticket, are you buying a good or a ser-
vice? Scarcity still exists but the amount of entertainment available in the econ-
omy increases. Buying a ticket to watch a movie is buying a service. 4. Who decides whether a movie is going to be a blockbuster? How do you think the creation of a blockbuster movie influences what , how , and for whom goods and services are produced? The audience decides whether a movie will be a blockbuster because the audience decides whether to attend the movie. The “what” question is affected in th ree ways: First, one good or service that is produced is the blockbuster movie. Second, the people whose in-comes are higher as a result of the blockbuster then buy an assortment of goods and services and so this assort ment of goods and services is pro-
duced. Finally, the “what” question is influenced if the movie leads to spinoff goods (such as toys) or creates a series of sequels or similar films. The “how” question is affected to th e extent that movies use different production methods. Some movies, for instance, have a lot of special ef-
fects while other movies have few or none. The “for whom” question is influenced because those people who receive the profits of a blockbuster movie have higher incomes and so more goods and services are produced for them. 5. What are some of the components of marginal cost and marginal benefit that the producer of a movie faces? Some of the marginal costs the producer faces are the cost of an actor or actress, the costs of the crew for a day, the costs of a location, and the costs of advertising in a newspaper. The marginal benefits the producer enjoys are his or her salary and/or profit participation from the movie, royalties from the movie, the prestige resulting from a successful movie, and any awards given to the producer of the movie. 6. Suppose that Chris Pratt had been offered a part in another movie and that to hire him for Jurassic World , the producer had to double Chris Pratt’s pay. What incentives would have changed? How might the changed incentives have changed the choices that people made? The higher pay would have increased Mr. Pratt’s incentive to make Juras-
sic World rather than the other movie and perhaps affected his choice to Chapter 1 . Getting Started 3 © 2021 Pearson Education, Inc. make Jurassic World rather than the other movie. The higher pay would have increased the incentive of the producer to decrease the expense of other aspects of the movie so the prod ucer might have chosen to reduce the pay of the other stars in the movie. 7. What is the social interest? Distinguish it from self-interest. In your answer give an example of self-interest and an example of social interest. The social interest looks at what is be st for society as a whole; choices that are best for society as a whole are said to be in the social interest. The self-
interest looks at what is best for the individual; choices that are best for the individual making the choice are said to be in the self-interest. An ex-
ample of a choice made in the self-int erest is a student’s decision to take an economics class. An example of a choice made in the social interest is a firm’s decision to reduce its air pollution. 8. Pam, Pru, and Pat are deciding how they will celebrate the New Year. Pam prefers to take a cruise, is happy to go to Hawaii, but does not want to go skiing. Pru prefers to go skiing, is happy to go to Hawaii, but does not want to take a cruise. Pat prefers to go to Hawaii or to take a cruise but does not want to go skiing. Their decision is to go to Hawaii. Is this decision rational? What is the opportunity cost of the trip to Hawaii for each of them? What is the benefit that each gets? Pam, Pru and Pat’s decision to go to Hawaii is rational. All three of them considered the cost and benefit of various New Year’s plans. All three were at least willing to go to Hawaii while Pam and Pat were unwilling to go skiing and Pru was unwilling to go on a cruise. The opportunity cost of the trip for Pam is a cruise; for Pru, it is skiing; and for Pat, it is a cruise. The benefit each receives is the pl easure, the relaxation, excitement, and/or knowledge gained from the trip. 9. Label each of the entries in the list as a positive or a normative statement. • Low-income people pay too much for housing. The entry that low-income people pay too much for housing is a norma-
tive statement. • The number of U.S. farms has decr eased over the past 50 years. The entry about the number of farms is a positive statement. • Toyota expands parts producti on in the United States. The entry about Toyota expanding parts production is a positive state-
ment. • Imports from China are swamping U.S. department stores. The entry about imports is a normative statement. • The rural population in the United States is declining. The entry about the population in ru ral areas is a positive statement. 4 Part 1 . INTRODUCTION © 2021 Pearson Education, Inc. Use the following information to work Problems 10 to 12. REI is paying its employees to ta ke Black Friday, Thanksgiving off REI, the outdoor gear and apparel retailer, is paying employees to celebrate Thanksgiving 2015 by spending Black Fr iday outdoors with their families. Source: Sustainable Brands , October 28, 2015 10. With Black Friday off with full pay, explain what is free and what is scarce. The workers’ time remains scarce because Black Friday remains only one day. REI’s gear and apparel remain scarce because there is a still a limited amount of these products. The publicity that REI received is not free be-cause the company paid for it with less production and, accordingly, less revenue and profit. 11. What is REI’s incentive to give its workers Black Friday off? Was REI’s decision made in self-interest or in the social interest? Explain your answer. REI’s managers have the incentive to give their employees the day off if they believe that the positive publicity that resulted could lead to in-creased future sales. The managers mi ght also believe that the employees would feel grateful and would worker harder in the future. Of course, the managers also had the incentive to gi ve their workers the day off because many other employers do so. REI’s decision to give its workers a pa id day off had elements of both self-
interest and social interest. To the extent that his decision was motivated by the free publicity and a resulting rise in sales, or the expectation that its employees would work more diligently in the future, the decision was motivated by self-interest. However to the extent that a desire to allow the workers a chance to spend time with their families, the decision also had elements of social interest. 12. Do you think that REI workers will shop or spend the day with family? Explain your answer. REI workers will make a rational choice. People make a rational choice when they undertake an activity in which the marginal benefit of the ac-
tivity exceeds the marginal cost of the activity. Some REI workers will shop and others will spend the day with their family, depending on which alternative’s marginal benefit exceeds its marginal cost. 13. Read Eye on the Benefit and Cost of School on p. 12 and explain why both you and Clayton Kershaw made the right decision. Clayton Kershaw made the right decisi on to skip college because his op-
portunity cost of attending college (which includes his forgone salary playing baseball) exceeded his benefits from attending college. For most students, the opportunity cost of attending college is not so large, so for most students the benefits from attending college exceed the opportunity cost of attendance. For these students, attending college is the right decision.
