490Solutions to Problems CHAPTER 1 1.1 Answers will vary, but should include the notion that each activity provides benefits in the form of satisfaction or additional income, but also ta kes time away from the pursuit of other activities (opportunity cost). Time spent on each activity is limited because the additional benefit of devoting an extra unit of time to any one activity falls as more time is devoted to the activity. Hence, as more and more time is spent on one activity, it will become increasingly attractive to devote the next unit of time to some other activity. 1.2 The average cost is $1.50 ($41.). The marginal cost is $0. 1.3 Opportunity costs of attending college include the income you forego by attending college instead of working, leisure time you give up by atte nding classes and studying, other activities and items that could have been enjoyed with the money sp ent to attend college, and experience that could have been gained by working instead of atte nding college. Opportunity costs of not attending college include the education and knowledge received by attending college, the potential to obtain a better or more fulfilling job by having a college education, potentially greater future income and a higher standard of living, and foregone opportu nities more readily available to those with a college education. 1.4 (a)From the standpoint of the women’s shelter, Monique is free. From Monique’s standpoint,
she gives up other uses of her time as well as wages that could be earned elsewhere.
(b)The $12 million could have been invested in other profit-making ventures or projects, or it
could have be en put in the bank or loaned to some one else with interest.
(c)The other goods and services or invest ments that Taylor c ould buy with $500.
(d)The other uses of time or the foregone wag es he could have earned had Hector decided to
work during th e summer.
(e)The tuition spent on the doctoral program wh ich could have been spent on other things,
forgone wag es had Molly chosen to enter the job market instead of continuing with he r
education, stu dy time, and so on.
(f)The cost of paint and supplies, as well as the time Monica is giving up that could be used for
other activities.
(g)Tiffany gives up the chance at a better grade, and depending on her grade, she may even need
to pay to retake the class. This could possibl y even affect her admission to a better grad
school or obtaining a higher-paying job. She h as traded off an invest ment in hu man capital
(stay ing in to study) for present c onsumption (staying out too late).
1.5 Jeff Bezos does face scarcity because resources are limited. A person’s net worth does not change the fact that everyone faces scarcity. Consider one of our most important resources— time. There are only 24 hours in a day, and everyone, including Bezos, must live their lives under this constraint, making decisions about how to spend this time. 1.6 Answers will vary depending on the occupations chosen. Principles of Econo mics, 13e Karl Case, Ray Fair, Sharon Oster (Solutions Manual All Chapters, 100% Original Verified, A+ Grade)
. Solutions to Problems 491 2.1 Answers will vary. 2.2 (a)This is an example of a microeconomic concern since it addresses a potential change in
operations for a particular industry.
(b)This is an example of a macroeconomic concern since it addresses a potential change in
marginal tax rates that wo uld im pact the entire nation.
(c)This is an example of a microeconomic concer n since it addresses wages for a specific firm in
a specific industry.
(d)This is an example of a macroeconomic con cern since it addresses a change in unemployme nt
benefits, which im pacts the whole economy.
3.1 Answers will vary. 3.2 (a) positive
3.3 3.4 3.5 (b) positive
(c) normative
(d) positive
(e) normative
(a) Each state should allow the market to provide what people want. Since smoking marijuana is not mandatory, only those who want to partake will do so. Tax revenues that arise from the purchase of recreational marijuana are paid voluntarily.
(b) Some argue that using marijuana is associated with reduced productivity that has a cost to the community at large. In addition, marijuana is considered by some to be addictive and can lead to the use of harder drugs. These concerns bear on the efficiency argument to the extent that there are costs from marijuana use that are not reflected in the price of marijuana. These costs could potentially affect the community at large (e.g., the social cost of addiction) or the individual (to the extent that marijuana use creates an unwanted addiction).
(c) Legalized marijuana has a number of fairness issues around it. First, a lot of people believe marijuana is not harmful and can provide desired benefits, and they want to receive these benefits. But many consider marijuana use to be bad and disagree with its legalization. A big fairness issue is that people who use marijuana may become addicted to it and possibly addicted to even harder drugs. Like many other issues of its kind there are positives and negatives from the fairness side. Equity arguments are always the subject of disagreement.
(d) Tax revenue would likely fall in those states that had legalized marijuana use prior to its legalization in all 50 states. For those states that just legalized marijuana use, tax revenues would likely rise.
Answers will vary.
(a) This statement confuses correlation and causation. There is most likely a correlation between people who eat quinoa and also exercise daily, since both are healthy actions, but the act of eating quinoa is not the cause of people exercising on a daily basis.
(b) This statement is an example of the post hoc fallacy. Just because Cassandra watched the game with her ferret and the Cubs won, this does not mean that watching the game with Bobo caused the Cubs to win.
(c) This statement is an example of the fallacy of composition, which is the erroneous belief that what is true for a part is necessarily true for the whole. Requiring all salespeople to attend a
. 492 Case/Fair/Oster, Principles of Microeconomics, 13th Edition motivational training workshop would waste re sources on those employees who do not need motivation, and would not be a good use of time for those employees. CHAPTER 1 APPENDIX 1A.1. The slopes are as follows: line 1: 5; line 2: –5; line 3: 1; line 4: –1; line 5: slope is 1 as X goes from 0 to 20, and –1 as X goes from 20 to 40; line 6: –250. 1A.2 There is a positive relationship be tween income and consumption. 1A.3. Answers will vary. (a) Negative slope. As price rises, quantity of apples purchased falls. (b) Positive (and declining) slope. As income rises, taxes rise; but the rise in taxes is less at higher incomes than at lower incomes. (c) Negative (and declining) slope. As mortga ge rates fall, home sales increase, but the increase in home sales is more at lower mortgage rates than at higher mortgage rates. (d) Negative, then positive slope. As young child ren get older, they run faster, but as adults get older (beyond a certain age), they run slower. (e) Positive slope. Greater sunshine leads to greater corn yield. 25
X20
15
10
5
12
SLOPE 1 SLOPE –5 SLOPE 5
SLOPE (0–20) SLOPE –1 = 1
SLOPE (20–40) = –1
slope is 1 as x goes from 0 to 20,
and –1 as x goes from 20 to 40.SLOPE –250345 X40
30
20
10
10 20 30 40 X25YY Y
20
15
10
5
100 02345
X100
75
50
25
0.1 0.2 0.3 0.4 0.5 X40
30
20
10
00 010 20 30 40 XY
YY
20
10
10 20 30 40
. Solutions to Problems 493 (f) Positive, then negative slope. Up to a poi nt, more fertilizer increases corn yield, but beyond a certain point, adding more fertilizer actually decreases the yield. 1A.4 (a) The relationship between the price of turk eys and the quantity of turkeys sold by Godfrey’s Free-Range Gobblers is a positive relationship b ecause as the price increases, the quantity sold increases. (b) The slope of the line is equal to 0.4. (c) At point A, the tangent line runs through the points (p = 34, q = 20) and (p = 24, q = 45). The slope is therefore (34 – 24) / (20 – 45) = 10 / –25 = –0.4. At point B, the tangent line runs through the points (p = 12, q = 90) and (p = 5, q = 140). The slope is therefore (12 – 5) / (90 – 140) = 7 / –50 = –0.14. CHAPTER 2 1.1 Answers will vary, but should include: (a) the value of alternative uses of time (study ing for final exams, other forms of leisure) (b) the value of alternative uses of tim e (other forms of leisure or exercise) (c) the value of other goods and services that the government could have purchased with the money used to purchase the land for the sanctuary, or the value of the goods and services that taxpayers could have purchased with the ta x revenue used to purchase the sanctuary (d) the value of the goods and services that the government could have purchased with the money used to subsidize the airline (e) the value of other goods and services that you could have purchased with the money used to upgrade to a suite (f) the value of alternative uses of time (studying, sleep, other forms of leisure) 1.2 Disagree. To be efficient, an economy must pr oduce what people want. This means that in addition to operating on the ppf (resources are fully employed, best technology is being used), the economy must be operating at the right point on the ppf. 1.3 Opportunity costs of building the bridge include the value of other goods and services that the government of Mallsburg could have purchased with $25 million or the value of the goods and services that taxpayers could have purchased with the tax revenue used to finance the bridge, as well as any inefficiencies created by the income tax by reducing incentives to work. In addition, the construction itself may impose costs—delays , noise, and so on—and presumably shopkeepers located near the older bridge will lose as consum ers shift their business toward the main mall. .
