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Sexton 6e Solutions Manual for Problems Chapter 1: 1. In most countries the birth rate has fallen as incomes and the economic opportunities for women have increased. Use economics to explain this pattern. Answer: One of the most important resources […]

Teaching Tips ( Illustrations That Work ) for Sexton 6e General Introductory comments: It is not the purpose of this section to tell professors how to teach economics. You do not need to be told to be sure to use […]

Introductory Concepts and Supply and Demand (Chapters 1-9) 1. Introduction The Midnight Economist According to a famous definition: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” Some may […]

Chapter 10: Consumer Choice Theory 1. Since this chapter emphasizes the application of the rule of rational choice (e.g., consumer equilibrium), it may be worth quickly reviewing the rule at the beginning of this chapter. 2. A good classroom example […]

Chapter 10: 1. Why can we not say that two people who chose to buy the same quantity of a good at the same price have the same marginal utility? Answer: We cannot interpersonally compare utility between people, so even […]

Microeconomics (Chapters 10-17) 1. Tunnel Vision, Tunnel Use, and Advance of Theory The Midnight Economist The notions of demand and supply, when appropriately used, can help in explaining the world. But they are not perfectly self-evident notions and their fruitful […]

14. Dollars and Scholars, Cartels and Competition The Midnight Economist Especially in “higher” activities–including medicine, religion, and education–some majestically eschew the sordid and castigate the contemptible. And they are pleased to pronounce standards of refinement and punish transgressors. Sometimes they […]

Chapter 11: 1. What happens to the cost of growing strawberries on your own land if a housing developer offers you three times what you thought your land was worth? Answer: Since the opportunity cost (foregone alternative) of using your […]

Chapter 11: The Firm: Production and Costs owned resources in determining economic profit is to ask them how to calculate the profit of a farmer who 2. A good classroom illustration of implicit versus explicit costs is to ask students […]

Chapter 12: Firms in Perfectly Competitive Markets 1. It is worth emphasizing at the beginning of this chapter that the forthcoming discussion will focus both 2. Emphasize that firms in pure competition are more than just price takers. They are […]

Chapter 12: 1. Which of the following are most likely to be perfectly competitive? a. Chicago Board of Trade b. fast-food industry c. computer software industry d. New York Stock Exchange e. clothing industry Answer: A perfectly competitive market is […]

Chapter 13: 1. Which of the following could be considered a monopoly? a. Kate Hudson (an actress) b. DeBeers diamond company Answer: The diamond market is not a pure monopoly. However, the DeBeers company does possess significant monopoly power since […]

Chapter 13: Monopoly and Antitrust 1. Since there are substitutes, but not necessarily good ones, for any product, monopoly is a matter of degree. This is why antitrust (anti-monopoly) suits often turn on the definition of the appropriate market. 2. […]

Chapter 14: 1. Which of the following markets are perfectly competitive or monopolistically competitive. Why? a. soy market b. retail clothing stores c. Answer: The market for soybeans is perfectly competitive, as large numbers of buyers 2. List three ways […]

Chapter 14: Monopolistic Competition and Product Differentiation 1. Emphasize to students that monopolistic competition involves large numbers of substitutes, where no one individual rival is likely to take a large number of sales away, because that is why it is […]

Chapter 15: Oligopoly and Strategic Behavior 1. In addition to chess or bridge as illustrations of strategic interdependence, you could include many 2. A good way to get a class discussion going is to ask whether the competition among fraternities […]

Chapter 15: 1. Which of the following markets are oligopolistic? a. corn b. funeral services c. airline travel d. hamburgers e. oil f. breakfast cereals 2. Which of the following are characteristic of oligopolistic industries? a. a large number of […]

Chapter 16: 1. The following table shows the Total Output each week of workers on a perfectly competitive cherry farm. The equilibrium price of a pound of cherries is $4. Complete the Marginal Product of Labor and the Marginal Revenue […]

Chapter 16: The Markets for Labor, Capital and Land 1. As an extension of derived demand discussion in the text, it is worth making a point of discussing the fact that the resource thought to be responsible for superior performance […]

Chapter 17: Income, Poverty and Health Care 1. As an application of the Lorenz curve, it might be worth asking students whether an increase in the proportion of the population who were retired, young, or divorced would affect the Gini […]

Chapter 17: 1. How might each of the following affect the distribution of income in the near term? a. There is a massive influx of low-skilled immigrants. b. A new baby boom occurs. Answer: In the event of a baby […]

Chapter 18: 1. What would be the labor force participation rate if: a. The _____________ population = 200 million, the labor force = 160 million, and employment = 140 million? b. The _____________ population = 200 million, the labor force […]

Chapter 18: Introduction to Macroeconomics 1. It is important to emphasize that macroeconomic goals all deal with social coordination issues, because the better we coordinate our behavior with one another, the more successful we are at advancing our own interests. […]

13. Money, Non-Money, and Reputation The Midnight Economist disappointed, and irritated in his dismay.” “So what’s new,” cried Mouse Karl with cruel candor. “All economists are always unhappy.” “He has special reason to be annoyed,” replied Adam. “On a trip […]

Macroeconomics (Chapters 18-27) 1. The Causes of Unemployment The Midnight Economist As measured in this country, the unemployment rate is rarely below 3 to 4 percent, and at the depth of the Great Depression, it rose as high as 25 […]

Chapter 19: 1. Answer the following questions about GDP: a. What is the definition of GDP? Answer: GDP is the value of all final goods and services produced within a country during b. Why does GDP measure only the final […]

Chapter 19: Measuring Economic Performance 1. It is worth emphasizing that every variable macroeconomics tries to deal with has limitations–nothing is – discussing those limitations. It is important that students know something about macroeconomics 2. A way to motivate student […]

Chapter 2: 1. Which of the following goods are scarce? a. garbage b. salt water in the ocean c. clothes d. clean air in a big city e. dirty air in a big city f. a public library Answer: Scarce […]

Chapter 2: Eight Powerful Ideas 1. It is crucial to clearly discuss the basic paradigm that underlies all that we do in economics. Show what we mean by scarcity; how scarcity implies the necessity to making choices; how choices imply […]

Chapter 20: 1. a. According to the Rule of 70, how many years will it take a country to double its output at each of the following annual growth rates? 0.5 percent: _140__ years b. If a country has $100 […]

Chapter 20: Economic Growth in the Global Economy 1. Make sure you connect students back to the basics of economics by reminding them that economic growth as a goal arises from the fact of scarcity. 2. The growth rate versus […]

Chapter 21: Financial Markets, Saving and Investment prefer holding common stock over holding preferred stock or bonds in the corporation. 2. Two good examples of the principal-agent problem in corporations are to discuss how effectively 3. Emphasize that stock prices […]

Chapter 21: 1. Why are firms less likely to issue new shares of stock when consumers or businesses are pessimistic about economic conditions? Answer: When economic conditions result in consumer and/or producer pessimism, 2. In the event of a corporate […]

Chapter 22: Aggregate Demand and Aggregate Supply 1. Note to students that the large fraction of GDP that goes to consumption purchases explains why 2. Looking ahead, it is worth noting that changes in net taxes (taxes or transfer payments) […]

Chapter 22: 1. Describe what the effect on aggregate demand would be, other things being equal, if 2. Fill in the blanks in the following explanations: a. The real wealth effect is described by the following: An increase in the […]

Chapter 23: The Aggregate Expenditure Model 1. Emphasize the assumption being made of a fixed price level, so that real and nominal changes are the same. 2. Emphasize the difference between autonomous and induced consumption. Induced consumption–the 3. Emphasize that […]

Chapter 23: 1. Which of the following are likely to cause a reduction in consumption? a. an increase in interest rates 2. Identify the most volatile component of aggregate expenditure. Identify its largest component. Answer: Investment is the most volatile […]

Chapter 24: Fiscal Policy 1. Emphasize that taxes and transfer payments are different ways of changing net taxes, each of which 2. An interesting historical example involving different ways of changing net taxes was the 1984 Reagan– Mondale presidential campaign. […]

Chapter 24: 1. Why are federal government actions that increase deficits considered expansionary fiscal policy and those that decrease deficits considered contractionary fiscal policy? Answer: Government deficits are increased whenever government purchases rise or taxes fall, other things equal. However, […]

Chapter 25: Monetary Institutions 1. Note that many of our expressions involving money reflect goods that at some time or place have functioned as money–bucks (buckskins), clams, bread, describing a quarter as two bits (two one–eighth 2. Roy Radford s […]

Chapter 25: 1. Explain the difficulties that an economics professor might face in purchasing a new car under a barter system. Answer: An economics professor may find it difficult to locate a trading partner willing to 2. Why do people […]

Chapter 26: The Federal Reserve System and Monetary Policy 1. If you wish to add a historical note to you class, you may want to discuss how the Fed s structure arose from general distrust of New York financial interests. […]

Chapter 26: 1. Why is the private ownership of the Federal Reserve System essentially meaningless? Answer: 2. How is central bank independence related to average inflation rates across countries? How is the Fed insulated from executive branch pressures? Answer: The […]

Chapter 27: 1. Use the following diagrams and a. show what would happen in both diagrams if government purchases increase in the short run. to the right, and move the economy up along a given SRPC. b. show what would […]

Chapter 27: Issues in Macroeconomic Theory and Policy 1. It is worth making sure the increasing steepness of the Phillips curve at lower unemployment rates is connected to the logic of fooling people into changing their behavior by changing inflation. […]

Chapter 28: 1. Bud and Larry have been shipwrecked on a deserted island. Their economic activity consists of either gathering berries or fishing. We know that Bud can catch four fish in one hour or harvest two buckets of berries. […]

Chapter 28: International Trade 1. Remind students that international trade principles are the same as interpersonal trade principles. Is it in your interest to protect yourself from trading with others next door? Is it in your interest to stop buying […]

International Trade and Finance (Chapters 28-29) 1. Trade and Mutual Gain The Midnight Economist Everyone in every society does it. They always have. But until less than 200 years ago, no one could explain why it is done–and Senator Snort […]

Chapter 29: 1. Indicate whether each of the following represents a credit or debit on the U.S. current account. 2. Indicate whether each of the following represents a credit or debit on the U.S. capital account. a. a French bank […]

Chapter 29: International Finance 1. Note that since our imports provide foreigners the means (dollars) by which they can buy our exports, 2. Especially if you have a large number of foreign students in class, it is often interesting to […]

Chapter 3: Scarcity, Tradeoffs, and Production Possibilities 1. You can show students that the prototypical ly American, who complains that they don t do it like back home when they travel, is someone who fails to recognize that there isn […]

Chapter 3 1. What are the three basic economic questions? How are decisions made differently in a market economy than in planned economies? Answer: The three basic economic questions are: What is to be produced? How are these 2. Recently […]

Chapter 4: Demand, Supply and Market Equilibrium 1. A close-to-home example of a market about which students may have strong negative feelings is the used book buyback market, where the bookstore acts as a middleman between past textbook users and […]

Chapter 4: 1. Is the market for laptop computers local, national, or global? Answer: The market is global. Manufacturers sell to dealers throughout the world. 2. Sid moves from New York City, where he lived in a small condominium, to […]

Chapter 5: 1. Using supply and demand curves, show the effect of each of the following events on the market for wheat. a. The Midwestern United States (a major wheat-producing area) suffers a flood. b. The price of corn decreases […]

Chapter 5: Markets in Motion and Price Controls 1. Reinforce to students that while the actual details and speed with which markets adjust may vary (e.g. organized exchanges with price adjusting almost instantaneously, compared with less organized markets 2. There […]

Chapter 6: Elasticities 1. It is worth emphasizing to students that elasticities are just extensions of supply and demand analysis 2. Emphasize that the intuition behind the elasticities of supply and demand is that of the cost of changing behavior. […]

Chapter 6: 1. In each case below, indicate which good you think has a relatively more price elastic demand and identify the most likely reason, in terms of the determinants of the elasticity of demand (more substitutes, greater share of […]

Chapter 7: Market Efficiency and Welfare 1. Emphasize to students that lost consumer and producer surplus are not just of minor importance in considering efficiency issues. It is a large part of the efficiency rationale for opposing monopoly, 2. As […]

Chapter 7: 1. Refer to the following exhibit. a. If the price of each karate lesson is P0, his consumer surplus is equal to what area? b. If the price falls from P0 to P1, the change in consumer surplus […]

Chapter 8: Market Failure 1. Dorm noise rules, much like nighttime noise rules in residential neighborhoods, are good (and familiar to students) illustrations of the issues involved in the attempt to deal with potential negative externalities. 2. Apartment damage deposits […]

Chapter 8: 1. Indicate which of the following activities create a positive externality, a negative externality, or no externality at all: b. You are given a flu shot. Positive c. You purchase and drink a soda during a break from […]

Chapter 9: 1. Why would means-tested transfer payments, such as food stamps, in which benefits are reduced as income rises, act like an income tax facing recipients? 2. Why are income taxes more progressive than excise taxes such as those […]

Chapter 9: Public Finance and Public Choice 1. An interesting class discussion starter is to ask how best to measure the size of government. Should you count the costs of taxes or the level of spending (when there is a […]