Macroeconomics 12th Edition Michael Parkin Solutions Manual
Macroeconomics 12th Edition Michael Parkin Solutions Manual
Macroeconomics 12th Edition Michael Parkin Solutions Manual
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C h a p t e r
1 WHAT IS
ECONOMICS?
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 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 income necessary to live in an apartment building in San
Francisco. A May 5, 2014 headline from The San Francisco Chronicle was “S.F. Landlord: Make $100K or
Get Out.” This story discusses an owner’s attempt to make the tenants prove that their annual income
is at least $100,000. The owner is following his self-interest because he wants to have only high-income
residents who, presumably, create less damage and might be willing to pay more rent. The head of San
Francisco’s Housing Rights Committee, Sara Shortt, believes that the requirement is not in the social
interest. She asserts that the effort “definitely reads like a harassment tactic” and that the effort to force
tenants to move is illegal. She believes that the social interest is served by having a variety of tenants in
the apartments.
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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 go to class. In this case the benefit
is the higher grade in the class and the cost is the breakfast forgone. b) The choice to stop talking with a
friend on the phone and start studying for an impending exam. In this case the benefit is the resulting
higher grade in the class and the cost is the conversation forgone. c) The choice to do laundry today
rather than watch television. In this case the benefit is the fact the student will have clean clothes to
wear and the cost is the loss of the entertainment the television show would have provided.
3. Explain why opportunity cost is the best forgone alternative and provide examples of some
opportunity costs that you have faced today.
When a decision to undertake one activity is made, often many alternative activities are no longer
possible. Often these activities are mutually exclusive so only the highest valued alternative is actually
forgone. For instance, the decision to go to a student’s 8:30 AM class eliminates the possibility of
sleeping in during the hour and of jogging during the hour. But in this case, it is impossible to both sleep
in and to jog during the hour, so the opportunity cost cannot be both activities. What is lost is only the
activity that otherwise would have been chosen—either sleeping in or jogging—which is whatever
activity would have been chosen, that is, the most highly valued of the forgone alternatives. For
students, attending class, doing homework, studying for a test are all activities with opportunity costs.
4. Explain what it means to choose at the margin and illustrate with three choices at the margin that
you have made today.
Choosing at the margin means choosing to do a little more or a little less of some activity. Three
common examples students encounter are: a) When a student faces a chemistry and an economics final
exam in one day, the student must determine whether spending the last hour studying a little more
chemistry or a little more economics will yield a better contribution (marginal benefit) to his or her
overall GPA. b) A college student buying a computer must decide whether the marginal benefit of
adding 1 GB of additional memory is worth the marginal cost of the additional memory. c) A student
football fan with a choice of a cheap seat in the student bleachers located at the far end of the playing
field or a more expensive seat located on the 30 yard line must determine whether the marginal benefit
of watching the game from a better seat is worth the marginal cost of the higher ticket price.
5. Explain why choices respond to incentives and think of three incentives to which you have
responded today.
People making rational decisions compare the marginal benefits of different actions to their marginal
costs. Therefore people’s choices change when their incentives, that is the marginal benefit and/or
marginal cost, of the choice changes. Just as everyone else, students respond to incentives; a) A student
studies because of the incentives offered by grades. b) A student is more likely to attend a class if
attendance is factored into the grade. c) A student might attend a meeting of a club if the student’s
significant other is eager to attend the meeting.
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1. Distinguish between a positive statement and a normative statement and provide examples.
A positive statement is a description of how the world is. It is testable. A normative statement is a
description of how the world ought to be. It is, by its very nature, not testable because there is no
universally approved criterion by which the statement can be judged. “I will receive an A for this
course,” is a positive statement made by an economics student—it might not be true, but it is testable.
“I will receive a good grade for this course,” is a normative statement. Whether someone agrees with it
depends on his or her interpretation of what makes for a “good” grade.
2. What is a model? Can you think of a model that you might use in your everyday life?
A model is a description of some aspect of the economic world. It includes only those features that are
necessary to understand the issue under study. An economic model is designed to reflect those aspects
of the world that are relevant to the user of the model and ignore the aspects that are irrelevant. A
typical model is a GPS map. It reflects only those aspects of the real world that are relevant in assisting
the user in reaching his or her destination and avoids using information irrelevant to travel.
3. How do economists try to disentangle cause and effect?
Economists use models to understand some aspect of the economic world. Testing the predictions of
models makes it necessary to disentangle cause and effect. To overcome this problem, economists have
three methods of testing their models: Using a natural experiment, using a statistical investigation, and
using economic experiments. A natural experiment is a situation that arises in the ordinary course of
life in which one factor being studied varies and the other factors are the same. This method allows the
economist to focus on the effect from the factor that differs between the two situations. A statistical
investigation looks for correlations between variables but then determining whether the correlation
actually reflects causation can be difficult. An economic experiment puts people into decision making
situations and then varies the relevant factors one at a time to determine each factor’s effect.
4. How is economics used as a policy tool?
Cereal-gods, 12
Cosmogony, 36–64
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Day-gods, 362–3
[Contents]
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H
[Contents]
Interpretative Codices, 8
Itztli, 336–7
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Monachism in Mexico, 9, 10
Nagualism, 18
Nahuatl language, 2
Nanahuatzin, a deity, 43
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Omacatl, 352–3
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P
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Tecciztecatl, a moon-god, 43
Tonalamatl, the, a book of fate and fortune. See Appendix, 359 ff.;
nature of, 359–60;
day-signs of, 360–1;
in tabular form, 361–2;
day-gods of, 362–3;
gods of the “weeks,” 363;
“Lords of the Night,” or Acompañados, in, 364;
lords of the day-hours in, 365;
festivals included in the, 366;
recapitulation of information regarding the, 366;
solar calendar and the, 367;
names of the years, 368;
the calendar-round, 368–9;
the nemontemi, 369–70;
Venus period and the, 370;
bibliography of the, 373
Totemism, 17–18
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