CHAPTER 3
ECONOMIC DECISION MAKERS
SOLUTIONS TO END OF CHAPTER PROBLEMS
1.
a. Opportunity costs rise as higher levels of education increase the level of earnings available to
2.
a. This would reduce the amount of household production because the opportunity cost of
cultivating a vegetable garden is high for high earners.
3. The householder must consider factors such as (1) whether production requires specialized
skills or resources that the householder does not have, (2) whether home production would
4. Households are assumed to make decisions to maximize utility, or their overall level of
satisfaction. With the exception of not-for-profit institutions, firms are assumed to make
5. With the Industrial Revolution it became more efficient to organize several stages of
6. The owner of a sole proprietorship faces unlimited liability for the debts of the firm, meaning
that the owner’s personal assets may be sold off to pay for the firm’s debts. Raising money
7. The goal of a typical business is profit maximization. Consumer cooperatives consist of many
8. In the cottage industry system, production was decentralized. Raw material was provided to
rural households, each of which specialized in only one stage of production and was
9.
a. Public goods
10.
c. The marginal tax rates are 20 percent, 15 percent, and 10 percent, respectively.
Income Tax Marginal Tax Rate
11. Federal, state, and local governments in the United States receive revenues from taxes (in-
government are personal income taxes (47 percent) and payroll taxes (33 percent).
12. An external cost is a cost not reflected in the price of the good and therefore is ignored by
13. International trade occurs because of comparative advantage and specialization. Countries
specialize in the production of those goods and services in which they have a comparative
14. Tariffs are trade restrictions in the form of taxes on imports. They affect sales by changing
the price of the good, but they do not directly limit the quantity. Quotas directly limit the
Chapter 3 Economic Decision Makers 3