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Solutions Manual for ECON Micro 7th Edition by William A. McEachern (Ch 1 to 22) A+
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Created By: A SolutionSolutions Manual for ECON Micro 7th Edition by
William A. McEachern (Ch 1 to 22) A+
ANSWERS TO END OF CHAPTER QUESTIONS
Review Questions
1. A resource is scarce when the amount people desire exceeds the amount available at a
price of zero. The concept of scarcity is important to the definition of economics because scarcity
forces people to choose how they will use their resources in an attempt to satisfy their unlimited
wants and desires. Economics is about making choices. Without scarcity, there would be no
economic problem and, therefore, no need to choose between competing wants and desires.
2. a. Individuals will compare the expected benefits of attending college full time with
the expected costs. One benefit might be that the individual’s stock of knowledge and
productivity will grow, and so will their wage. Costs include not only tuition but also the forgone
wages, wages that could have been earned by working instead of attending college full time. If
the expected benefits outweigh the costs, then the rational person will choose to go to college full
time.
b. Individuals will compare the expected benefits of a new textbook with the higher costs of
purchasing a new textbook. The benefits include not being confused by other students’ markings
in the book and a higher resale value. However, the out-of-pocket cost of a new book will be
higher than the cost of a used book. If the expected benefits outweigh the costs, then a rational
person will purchase the new textbook.
c. Individuals will compare the expected benefits and costs associated with both colleges
under consideration and will choose the college at which the difference between benefits and
costs is greater. The costs of attending an out-of-town college may include greater travel costs
and phone bills, while the benefits may include learning about a different region.
3. Rational self-interest is not blind materialism, pure selfishness, or greed. Rational self-
interest means we choose the option that maximizes expected benefits with a given cost. People
will give more to charities when the contribution is tax deductible. The lower the personal cost of
helping others, the more we are willing to help and contribute.
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4. By increasing its delivery radius, the store will have greater sales. However, these
marginal revenues must be balanced against the additional costs incurred, such as a greater
consumption of pizza
ingredients, more gasoline for the delivery truck, and possibly the need to hire additional labor
and increase advertising.
5. Rational decision makers will continue to acquire information as long as the benefit of
the additional information exceeds the additional costs. Oftentimes, we are willing to pay others
to gather and digest the information for us.
6. Answers may vary. Students select college majors for a variety of reasons, and the
expected pay is only one of them. Some students have the aptitude necessary to successfully
study economics.
Problems and Applications
1.1
a. macro
b. micro
c. macro
d. micro
e. macro
f. micro
g. macro
1.2
a. positive
b. positive
c. normative
d. normative
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e. normative
f. positive
g. normative
h. normative
1.3
a. Owen, stove, utensils, other kitchen appliances, building where the pizza place is located
– capital, pizza chef, delivery person – labor, skills and experience of pizza chef and driving
skills and driving licence of the delivery person – human capital, ingredients, electricity, water,
land – natural resources
b. Lecture hall, classroom building, chairs, desks, projector – capital, faculty,
administrators, genitors – labor, education and skills of faculty, administrators, and genitors –
human capital, electricity, water, land – natural resources
c. Scissors, brushes, mirrors, hairclips – capital, hairstylist, receptionist – labor, skills and
education of hairstylist and receptionist – human capital, electricity, water, land – natural
resources
1.4 The things that influence how well corn grows are: amount of water, soil quality, amount
of sun exposure, temperature, type of seeds, etc. These are the things to be hold constant, the
same for the control and treatment group. The only thing that should be different between the
two groups is the fertilizer – if it is added or not.
1.5
a. The professor, classroom, classroom size, the textbook, other material used for teaching,
the students should be also the same or as similar as possible (based on socioeconomic status –
race/ethnicity, sex, income, parental education) and their major, full-time vs part-time students,
working or not, on campus resident or not, year in college, etc. The amount and effort put into
studying.
b. If there is a national recession or expansion, other major macroeconomic events that
impact the economy and employment like the Covid-19 pandemic. These are the things that
should be held constant and anything else that can impact the employment/unemployment. The
only thing that should change is the minimum wage. This is a very hard and unlikely to achieve.
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c. One of the most important effect on the wage are personal characteristics of a person –
work habit, perseverance, health, motivation, talent and ability. In addition, the type of the major
and which college you go to also matter. Finally, there are a number of life events that might
prevent you from completing the college. So, these thing should be held constant among
individuals that we are comparing. The only difference should be if the person completed college
or not – everything else should be identical or near identical (very difficult to achieve).
d. How many people are in a country (population size), how wealthy is the country (GDP or
GDP per capita), how much money they are investing in health, or education, or sports as a share
of GDP. All of these characteristics should be held constant. They only difference should be
income inequality.
1.6
• Add the government (with taxes, subsidies and government expenditure) as well as
government employment of people and production of goods and services.
• Financial sector with financial intermediaries such as banks, so that households and firms
can also save or borrow.
• International trade – imports and exports.
1.7
a. This assertion is a mistake because the secondary effects of taxes on production and the
labor supply are ignored. If the tax rate were raised to 100 percent, for example, no one would
want to work or produce, so government revenues would decline.
b. This is the fallacy that association implies causation. It is more likely that recession
causes a change in imports than the other way around.
c. This is a fallacy of composition. True, the tariff may help the steel industry. But it hurts
purchasers of steel, including the automobile and construction industries. The overall effect on
the economy is unclear.
d. This is the fallacy of composition, since attempts to sell so much gold at once would push
down the price of gold.
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