Solution Manual for Economics, 13th Edition

Name: Solution Manual for Economics, 13th Edition
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Author: John Wilson

Solution Manual for Economics, 13th Edition helps you tackle difficult exercises with expert guidance.

John Wilson

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Preface iii
 Part 1 Introduction
Chapter 1 What is Economics? 1
Appendix Graphs in Economics 9
Chapter 2 The Economic Problem 21
 Part 2 How Markets Work
Chapter 3 Demand and Supply 39
Chapter 4 Elasticity 53
Chapter 5 Efficiency and Equity 65
Chapter 6 Government Actions in Markets 79
Chapter 7 Global Markets in Action 93
 Part 3 Households’ Choices
Chapter 8 Utility and Demand 107
Chapter 9 Possibilities, Preferences, and Choices 121
 Part 4 Firms and Markets
Chapter 10 Organizing Production 137
Chapter 11 Output and Costs 151
Chapter 12 Perfect Competition 165
Chapter 13 Monopoly 179
Chapter 14 Monopolistic Competition 197
Chapter 15 Oligopoly 209
 Part 5 Market Failure and Government
Chapter 16 Public Choices, Public Goods, and Healthcare 223
Chapter 17 Externalities 237
 Part 6 Factor Markets, Inequality, and Uncertainty
Chapter 18 Markets for Factors of Production 249
Chapter 19 Economic Inequality 261
Chapter 20 Uncertainty and Information 275
T a b l e o f C o n t e n t s

Introduction
At no time in history has teaching the principles of economics been
either more challenging or more important. Your decision to adopt the
thirteenth edition of my textbook brings to your task a set of teaching and
learning tools that are unmatched in their clarity, relevance, and currency.
It is my hope that with the help of these tools, you will enable your
students to become as excited about economics as you are.
This Solutions Manual has the complete answers to all the questions and
problems from the textbook in one handy source. You can either use these
solutions to help you grade problems you have assigned or photocopy them and
hand them out directly to the students.
In addition to the answers, this Solutions Manual also has the questions
copied directly from the textbook. If you are working through the questions
and answers in class you will no longer need to turn from the textbook for
the questions to another book for the answers because this one book has
both.
At the end of each chapter in this book there are extra problems (and
answers) which are similar to some of the End of Chapter problems from the
textbook. You can use these problems by either handing them out to your
class for credit or for practice. Either way your students are sure to
benefit.
Acknowledgments
Mark Rush of the University of Florida put together the initial draft of
the book. His work was checked by Jeannie Gilmore of the University of
Western Ontario. Mark reports that based on the errors and extensive
comments Jeannie made, he is worried that he might not pass this class.
Even with the quality of all the help, there remains room for improvement
in the text and (says Mark) in this manual. Any corrections, suggestions, or
comments that you have will be greatly appreciated. Send your comments on
this manual to Mark (MarkRush@ufl.edu) and your comments on the text to me
(michael.parkin@uwo.ca).
Whether you’re teaching the principles course for the first time or are
an experienced teacher at this level, I hope you will find this manual
helpful. I wish you success and enjoyment in your course!
Michael Parkin
University of Western Ontario
P r e f a c e

A n s w e r s t o t h e
R e v i e w Q u i z
Page 2
1. List some examples of the scarcity that you face.
Examples of scarcity common to students include not enough income to
afford both tuition and a nice car, not enough learning capacity to
study for both an economics exam and a chemistry exam in one night,
and not enough time to allow extensive studying and extensive
socializing.
2. Find examples of scarcity in today’s headlines.
A headline in The Baltimore Sun on June 20, 2017 was “Davis Says
Special Deployment Helped Stall Violence.” The story presented
Police Commissioner Kevin Davis stating that a week-long deployment
of uniformed police officers on the streets of Baltimore helped
reduce shootings in the city. But the story pointed out the role of
scarcity when Commissioner Davis said that “the deployment was not
sustainable over the long term” due to its cost.
3. Find an example of the distinction between microeconomics and macroeconomics in
today’s headlines.
Microeconomics: On June 20, 2017 a headline in East Bay Times was
“Reality vs Fantasy: FTC to Block FanDuel-DraftKings Merger.” This
story covers a microeconomic topic because it discusses how two on-
line fantasy sports sites, which were trying to merge, now faced
opposition by the Federal Trade Commission (FTC) which announced it
would challenge the merger. Macroeconomics: On June 20, 2017, a
headline in The Wall Street Journal was “Ryan Talks Up Likelihood of
Tax Overhaul.” This story covers a macroeconomic topic because it
concerns taxes that affect every business and individual in the
entire economy.
Page 7
1. Describe the broad facts about what, how, and for whom goods and services are produced.
What gets produced is significantly different today than in the
past. Today the U.S. economy produces more services, such as medical
operations, teaching, and hair styling, than goods, such as pizza,
automobiles, and computers. How goods and services are produced is
by businesses determining how the factors of production, land,
labor, capital and entrepreneurship, are combined to make the goods
and services we consume. Land includes all natural resources, both
renewable natural resources such as wood, and nonrenewable natural
1
WHAT IS
ECONOMICS?
C h a p t e r

2 C H A P T E R 1
resources such as natural gas. Labor’s quality depends on people’s
human capital. In the U.S. economy, human capital obtained through
schooling has increased over the years with far more people
completing high school and attending college than in past years.
Finally, for whom are goods and services to be produced depends on
the way income is distributed to U.S. citizens. This distribution is
not equal; the 20 percent of people with the lowest income earn
about 5 percent of the nation’s total income while the 20 percent of
people with the highest incomes earn about 50 percent of total
income. On the average, men earn more than women, whites more than
non-whites, and college graduates more than high school graduates.
2. Use headlines from the recent news to illustrate the potential for conflict between self-
interest and the social interest.
One example of an issue concerns the use of a school board’s credit
card to make personal purchases. A June 20, 2017 headline from Star
Tribune was “Shakopee Board Approves Superintendent’s Resignation
Will Pay Him $50,000.” This story discusses the superintendent’s use
of a school board credit card to buy items such as a television and
trip to Nashville. The superintendent was following his self-
interest because he may not have repaid the purchases had they not
been uncovered. The school board chair said “In light of the current
issues facing the school district, the school board feel (sic) that
a change in leadership is warranted.” The chair believes that the
social interest is served by having a new superintendent without the
issue of misuse of a credit card hanging over his or her head.
Page 10
1. Explain the idea of a tradeoff and think of three tradeoffs that you have made today.
A tradeoff reflects the point that when someone gets one thing,
something else must be given up. What is given up is the opportunity
cost of whatever is obtained. Three examples of tradeoffs that are
common to students include: a) When a student sleeps in rather than
going to his or her early morning economics class, the student
trades off additional sleep for study time. The opportunity cost of
the decision is a lower grade on the exam. b) When a student running
late for class parks his or her car illegally, the student trades
off saving time for the risk of a ticket. The potential opportunity
cost of the decision is the goods and services that cannot be
purchased if the student receives an expensive parking ticket. c) A
student trades off higher income by spending time during the day
working at a part-time job for less time spent at leisure time and
study. The opportunity cost for the higher income is less leisure
and lower grades in classes.
2. Explain what economists mean by rational choice and think of three choices that you’ve
made today that are rational.
A rational choice is one that compares the costs and benefits of the
different actions and then chooses the action that has the greatest
benefit over cost for the person making the choice. Three rational
choices made by students include: a) The choice to skip breakfast to

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