Solution Manual for Economics Today The Macro View, 20th Edition

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Solution Manual for Economics Today The Macro View, 20th Edition is packed with detailed solutions to help you grasp concepts effortlessly.

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Contents
Part I Introduction
1 The Nature of Economics 1
2 Scarcity and the World of Trade-Offs 17
3 Demand and Supply 31
4 Extensions of Demand and Supply Analysis 47
5 Public Spending and Public Choice 63
6 Funding the Public Sector 81
Part 2 Introduction to Macroeconomics and Economic Growth
7 The Macroeconomy: Unemployment, Inflation, and Deflation 95
8 Measuring the Economy’s Performance 111
9 Global Economic Growth and Development 129
Part 3 Real GDP Determination and Fiscal Policy
10 Real GDP and the Price Level in the Long Run 141
11 Classical and Keynesian Macro Analyses 155
12 Consumption, Real GDP, and the Multiplier 167
13 Fiscal 185
14 Deficit Spending and the Public 201
Part 4 Money, Stabilization, and Growth
15 Money, Banking, and Central Banking 215
16 Domestic and International Dimensions of Monetary Policy 233
17 Stabilization in an Integrated World Economy 249
18 Policies and Prospects for Global Economic Growth 263

iv Miller • Economics Today, Eighteenth Edition
Part 5 Dimensions of Microeconomics
19 Demand and Supply Elasticity 275
20 Consumer Choice 287
21 Rents, Profits, and the Financial Environment of Business 305
Part 6 Market Structure, Resource Allocation, and Regulation
22 The Firm: Cost and Output Determination 319
23 Perfect Competition 333
24 Monopoly 349
25 Monopolistic Competition 363
26 Oligopoly and Strategic Behavior 379
27 Regulation and Antitrust Policy in a Globalized Economy 393
Part 7 Labor Resources and the Environment
28 The Labor Market: Demand, Supply, and Outsourcing 409
29 Unions and Labor Market Monopoly Power 423
30 Income, Poverty, and Health Care 437
31 Environmental Economics 451
Part 8 Global Economics
32 Comparative Advantage and the Open Economy 465
33 Exchange Rates and the Balance of Payments 477
Lecture Extenders 489

Lecture Extender Examples
Chapter 1 The Nature of Economics
The Perceived Value of Gifts
At Christmas and birthdays, aunts, uncles, grandparents, and parents give gifts to their college-aged loved
ones. Joel Waldfogel, an economist at Yale University, surveyed several thousand college students after
Christmas to find out the value of holiday gifts as perceived by the students. He found that CDs and
outerwear (coats and jackets) had a perceived value about equal to their actual cash value. By the time he
got down to socks, underwear, and cosmetics, the students’ evaluation was only about 85 percent of the
cash value of the gift. What argument can be made against the idea of substituting cash or gift certificates
for physical gifts?
Physical gifts show that the giver has gone to the trouble to try to find a gift that will please the recipient.
Such an effort can be viewed as caring, whereas a gift of cash or a gift certificate may not send such a message.
Student Printing in the University
Most universities allow students to use university network printers in student labs when they are working
on the university network as part of their tuition or computer use or technology fees charged to students
when they register for classes. The average school spends several thousand dollars per month for this
service. This service is expensive because students print personal jobs unrelated to academics, such as
downloads from entertainment Web sites and photos of friends and family. Winthrop University in South
Carolina decided to charge students a $10 printing fee that allows them to print 250 pages per semester on
University network printers. After that, the students are charged $0.04 for each additional page that they
print. Assuming students are rational, what do you predict happened to Winthrop’s printing costs after
they implemented this charge? Why?
Winthrop’s printing costs declined by about one-half. Students had been printing some pages that had
little additional value to them because those pages were essentially free. Once each page costs something to
print, rational students printed only those pages that were worth the price charged to them.
Are Economics Students Rational?
If you did a survey in your economics class, not all students would agree with the statement “I am
rational.” In an attempt to show that the rationality assumption is accurate nonetheless, an increasing
number of economists are doing the same kinds of experiments that are used in the physical sciences. One
researcher, David M. Grether, ran some experiments at the University of California at Los Angeles in the
early 1980s. His experiment involved separating students as volunteers into two groups. One group was
paid the same, $7, no matter how it performed. The second group was paid less for poor performance and
more for better performance. This group was paid either $5 or $25, depending on the level of
performance. Performance was measured by how well students were able to pick gambles that had the
greatest probability of winning. Students had to do some relatively complicated math calculations to make
the best guess.
The results were consistent with the rationality assumption. One-third of the students in the group that
was paid regardless of performance picked all of the gambles correctly. In the second group, for which

490 Miller • Economics Today, Eighteenth Edition
performance was distinctly rewarded, two-thirds of the students had no errors in making their
calculations.
Does the experiment prove that economics students are rational? Why or why not? The experiment does
not prove that economics students are rational, only that the rationality assumption predicts better
performance when the incentive to make the right choice is higher than one that does not. Note that one-
third of the students in the better-rewarded group did no better than did the majority of the uniformly paid
group.
Incentives and Childhood Obesity
Children who gain weight eat more calories than they use up each day. The ones who gain weight the
fastest eat relatively more high-calorie foods such as hamburgers, French fries, and other fast foods. They
also exercise less, preferring to spend more of their time watching TV and playing video games rather
than playing out doors and participating in sports.
Traditionally, mothers have taken responsibility for making the choices about what foods children eat and
the scope of their outdoor activities. As compared to the 1960s, when about one-half of mothers worked
outside the home, more than three-fourths do so today. These mothers have less time to keep their
children from eating too much, e.g., in the hours after school before getting home from work, and to take them
to playgrounds to exercise. This helps explain why only 8 percent of children whose mothers have never
worked outside the home are obese as compared to 17 percent among children whose mothers work full-
time. It is important to realize that children have always had an incentive to eat sweet snacks and tasty
high-calorie foods and engage in sedentary activities; it is now also true that parents have economic
incentives that affect the choices they make that affect the time available to devote to child rearing. Finally,
our society has developed a taste for bigger houses with more expensive furnishings and bigger, more
expensive cars.
From an economic standpoint, is it possible that some parents effectively make a choice to have bigger,
more expensive houses, cars, furnishings, and overweight children? (Hint: To be able to purchase bigger,
more expensive houses, cars, and furnishings, parents must spend more time earning incomes and less
time rearing their children.) Yes. By making the decision to have bigger houses and cars and more
expensive furnishings, some parents are also choosing to supervise their children’s eating habits and
activities less. Thus, they are choosing to let their children become obese.
Incentives and the Internet
It is worth examining the idea that changes in incentives cause people to change their behavior. In recent
years, the cost of some types of high-speed Internet service has declined to as little as $20 per month for
unlimited access to the Internet. This means that people who use their high-speed connection primarily
for surfing the Web for information and e-mail pay exactly the same amount per month as do gamers and
people who download music and videos. The first group uses very little bandwidth, and the second group
uses very high amounts of bandwidth. Recently, some Internet service providers (ISPs) have put forth the
idea that the monthly fee for high-speed Internet service be for a specific amount of bandwidth use. After
that bandwidth has been used by a customer, a fee would be charged on additional bandwidth use. What do
you expect this form of pricing by ISPs for bandwidth would do to the volume of video and music
downloads from companies such as iTunes and companies that provide movies over the Internet? The
volume of such downloads and thus sales of high bandwidth applications would decrease because the price
of each additional downloaded movie or song would go from being essentially free under the current
pricing scheme to having a positive price after the initial amount of bandwidth sold with the Internet
service had been used.

Lecture Extender Examples 491
Getting Directions
Suppose that you plan to take a trip from San Diego to San Francisco and you have never made this trip
before. You could use Google Maps and it would tell you to get on Interstate 5 going north until you get
to San Francisco. Alternatively, suppose that you want to get to a specific address in San Francisco. In
this case, Google would give you a map that tells you to get on Interstate 5 going north until you get to
San Francisco. At this point, it would give you the freeway exit number needed and a detailed street map
that would allow you to drive to the address you have chosen.
How does a map resemble a model and the realism necessary of that model? A model should capture only
the essential relationships that are necessary to analyze a problem at hand. Thus in the first case of getting
from San Francisco to San Diego, a very simple map (model) that has almost no detail is adequate for
your purpose. In the second case, considerably more detail (more realistic) is required.
Chapter 2 Scarcity and the World of Trade-Offs
Why Today’s College Bands Get Less Playing Time
At a college basketball game with only 25 seconds left, the home team, which is behind by 1 point,
steals the ball and calls time-out. As the home team’s band director gets ready to play part of the school’s
fight song to get the fans fired up behind the team, she gets a message over her headset telling her that
there is one more commercial to do before the game ends. As the scoreboard flashes the name of a local
bank, the gym’s 110-decibel sound system blares out a prerecorded voice describing the bank’s low
interest rate loans and top-notch customer service. The commercial then ends just before the play begins.
Across the nation, college athletic departments have found that they can charge up to $15,000 per minute
to advertisers for a commercial played to the fans at the arena. Thus, many bands find that they are getting
to play less—even in 15-second segments called “shorts”—because even 15-second commercial time
slots can be sold to advertisers. If the average minute of time at a college game can be sold for $10,000
in advertising revenues, what is the opportunity cost to the college of a 15-second band “short?” Fifteen
seconds is one

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