PRINCIPLES OF MICROECONOMICS

Answers to Recommended Problems I

Chapter 2

1.9

a.  E is unattainable because it is outside the production possibilities frontier (PPF).  There are not enough resources to produce that particular combination of goods.

b.  B, C, and D are efficient because they are on the PPF.

c.  A is inefficient because it is inside the PPF.  The economy can produce more of both goods with the existing resources.

d.  B.  By producing more capital goods, there will be more production and growth in the future.

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1.10

a. 

b.  The opportunity cost would be a one point decrease in economics for each one point increase in chemistry.

c.  A would be sensible if the combination of grades (95 in economics, 70 in chemistry) gives you more satisfaction than the other combinations.

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Chapter 3

4.14

The first part of the analysis (increase in supply) is correct, but the second part (increase in demand) is incorrect.  When the price decreases, that increases quantity demanded, which is a movement along the demand curve, not a shifting of the demand curve.

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4.15

You should show each of the situations below graphically.

a.  1 = Price of Coke (a substitute) would increase => D increases

b.  4 = Decrease in income with a normal good => D decreases

c.  3 = Favorable change in technology => S increases

d.  2 = Increase in the price of inputs => S decreases

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4.17

The graph on the left represents what happens in the market for hotel rooms at a ski resort during the winter.  Because of the snow in winter, there is a positive change in preferences for hotel rooms at ski resorts.  If hotel rates stayed at the summer level, there would be a shortage of hotel rooms.