Solution Manual For Modern Principles: Microeconomics, 4th Edition

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CHAPTER1Modern Principles of Economics:TheBig IdeasFacts and Tools1.A headline in theNew York Timesread: “Study Finds Enrollment Is Up at Colleges DespiteRecession.”How would you rewrite this headline now that you understand the idea of opportunity cost?Solution1.The easiest change is to switch “despite” to “because of.” Ordinary people focus on the fact thatwhen times are tough, people can’tafford college.Economists, on the other hand,see that there is anopposing effect:when times are tough the price (or opportunity cost) of attending college is low.There’s some truth to both viewpoints. It’s tough for you or your parents to pay for tuition when jobsare hard to come by and income is low,but,as you learned, in the real world it’s actually quite commonfor students to flood colleges during recessions. That means that the price effect usually dominates.2.When bad weather in India destroys the crop, does this sound like a fall in the total “supply” of cropsor a fall in people’s “demand” for crops? Keep your answer in mind as you learn about economic boomsand busts later on.Solution2.It sounds like a fall in supply.3.How much did national output fall during the Great Depression? According to the chapter, whichgovernment agency might have helped to avoid much of the Great Depression had it acted more quicklyand appropriately?Solution3.Output fell by about 30 percent and much of the blame belongs to the Federal Reserve for failing toact.4.The chapter lists four things that entrepreneurs save and invest in. Which of the four are actualobjects, and which are more intangible, like concepts or ideas or plans? Feel free to use Wikipedia orsome other reference source to get definitions of unfamiliar terms.Solution4.Physical capital is the object, while human capital (education), innovation, and efficient organizationare more like concepts, ideas, or plans.5.Who has a better incentive to work long hours in a laboratory researching new cures for diseases: ascientist who earns a percentage of the profits from any new medicine she might invent, or a scientistwho will get a handshake and a thank you note from her boss if she invents a new medicine?

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