Schiller, Bradley R., Essentials of Economics,8th (2011) ed., solutions manual and test bank for 0073511390

Schiller, Bradley R., Essentials of Economics,8th (2011) ed., solutions manual and test bank for 0073511390

Essentials of Economics by Schiller, Bradley 9th editions solutions manual and test bank

Essentials of Economics by Schiller, Bradley  9^th  editions  solutions manual and test bank

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Book Description

Publication Date: September 20, 2013 | ISBN-10: 0078021731 | ISBN-13: 978-0078021732 | Edition: 9

Schiller’s Essentials of Economics is the market leader for the one-semester survey course, praised for its strong policy focus and core theme of seeking the best possible answers to the basic questions of WHAT, HOW, and FOR WHOM to produce. The 9th edition is benefitted by SmartBook, the first adaptive reading experience designed to engage students with the content in an active and dynamic way, as opposed to the passive and linear reading experience they are used to. As a result, students are more likely to master and retain important concepts in the survey course.

ANSWERS TO QUESTIONS FOR DISCUSSION AND PROBLEMS

QUESTIONS FOR DISCUSSION

1.      Americans already enjoy living standards that far exceed world averages.  Do we have enough?  Should we even try to produce more?

LO: 2        AACSB: Ethics                         BT: Create

The reality of human nature is that needs are culturally conditioned.  There is never enough.  Just to maintain living standards as population grows will require more output.

2.   Why do we measure output in value terms rather than in physical terms?  For that matter why do we bother to measure output at all?

LO: 1        AACSB: Analytic                      BT: Analyze

Our economy produces thousands of different items, ranging from paper clips to sophisticated electronic equipment. Value estimates are a common denominator for measuring all of these different things.  In addition, in our complex and decentralized market economy, it is impossible to account for every item of output produced.  Sales records are more available for estimates of value than are output numbers across the economy.  Measures of output provide benchmarks that show if growth is occurring and at what rate. 

3.   Why do people suggest that the United States needs to devote more resources to investment goods?  Why not produce just consumption goods?

LO: 3        AACSB: Reflective Thinking           BT: Analyze

Investment goods are capital goods such as machines and factories that help us produce more output.  If we concentrated on only consumption goods, we would be unable to replace our machines as they wore out or to expand our productive capacity by producing more, and more efficient, machines.

4.   The U.S. farm population has shrunk by over 25 million people since 1900.  Where did they all go?  Why did they move?

LO: 4        AACSB: Analytic                      BT: Analyze

They went to the cities to become factory workers and service workers because there were jobs available for them in those sectors of the economy.  There were fewer and fewer jobs in the agricultural sector because of the advances of technology in that sector.

5.   Rich people have over 15 times as much income as poor people.  Is that fair?  How should output be distributed?

LO: 5        AACSB: Ethics                         BT: Create

Fair is generally considered to be a relative term.  On an individual basis, many would consider it ‘fair’ if they personally received more or if someone else received less.  In a market economy, the distribution of output (and therefore income) is determined primarily by the laws of supply and demand.  This often results in an unequal distribution. However, in order to make sure that the distribution is not so unequal that we have people literally starving to death in the streets, the government steps in and lessens the degree of inequality through various programs and tax policies. Thus, at some point, fairness does become less subjective and more objective when the inequality causes lives being put at risk, which, once recognized, results in a redistribution of income.

6.   If taxes were more progressive, would total output be affected?

LO: 5        AACSB: Analytic                      BT: Analyze

Taxes create a disincentive to engage in any activity that is being taxed.  If taxes were more progressive, people who face the higher taxes would have less incentive to work.  As a result, total output would decline.

7.   Why might income inequalities diminish as an economy develops?

LO: 5        AACSB: Analytic                      BT: Analyze

As an economy develops, more jobs become available and thus more people will work and earn incomes.  There will also be more capital available and therefore labor productivity – and income of workers – will rise.  Although incomes will not likely be equalized, on average there should be, and generally is, less income disparity.

8.   Why is per capita GDP so much higher in the United States than in Mexico?

LO: 3        AACSB: Analytic                      BT: Analyze

Per capita GDP in the U.S. was $49,000 in 2012, almost five times the world average, and more than three times Mexico’s per capita GDP. Thus, the average U.S. worker produces about three times as much, when measured in dollars, as the average Mexican worker. This is largely caused by the higher productivity capabilities of the U.S. workers resulting from more education, better technology and management practices. 

9.   Do we need more or less government intervention to decide WHAT, HOW, and FOR WHOM?  Give specific examples.

LO: 4        AACSB: Reflective Thinking           BT: Create

It really depends on the type of goods and services society would like to see provided.  Some products such as clean water and clean air are not usually provided well by private markets and more government intervention might be desired.  Other products such as computers, food, etc., are usually best provided by markets and less government intervention might be desired.

10. POLICY PERSPECTIVES  What can poor nations do to raise their living standards?

LO: 3        AACSB: Reflective Thinking           BT: Create

This is a complicated issue. A few of the things that poor nations can do to raise their living standards include increasing their investment/consumption ratio, investing in human capital, and reducing illiteracy. Many believe that poor nations will need the assistance of the rich nations of the world to achieve this goal.

PROBLEMS

1.   Draw a production-possibilities curve with consumer goods on one axis and investment goods on the other axis.

(a) Identify the opportunity cost of increasing investment from I₁ to I₂.

(b) What will happen to future production possibilities if investment increases now?

(c) What will happen to future production possibilities if only consumer goods are produced now?

Answers:

(a)    the reduced consumer goods of C₁ to C₂

(b) production possibilities will increase, shifting the ppc to the right

(c) production possibilities will decrease, shifting the ppc to the left

Explanation:

(a) The opportunity cost of increasing investment is the loss of consumer goods.  Specifically, when investment increases from I₁ to I₂ consumption goods decrease from C₁ to C₂.

(b) Investment goods include the plant, machinery, and equipment that are produced for use in the business sector.  If investment increases it will improve our stock of capital, and will expand our production possibilities, shifting our curve to the right.

(c) Consumer goods include everything consumers buy.  If only consumer goods are produced, equipment and factories (for example) will not be replaced and production possibilities will diminish leading to a shift to the left in the curve.

LO 02-01

Topic: What America Produces

AACSB: Analytic

Blooms: Level 4 Analyze

2.   Suppose the following data describe output in two different years:

                  Item                 Year 1                         Year 2

      Apples                     20,000 @ $0.25 each           30,000 @ $0.30 each

      Bicycles                   700 @ $800 each         650 @ $900 each

      Movie rentals           10,000 @ $1.00 each           12,000 @ $1.50 each

                  (a) Compute nominal GDP in each year.

                  (b) By what percentage did nominal GDP increase between Year 1 and Year 2?

                  (c) Now compute real GDP in Year 2 by using the prices of Year 1.

                  (d) By what percentage did real GDP increase between Year 1 and Year 2?

Answers:

(a) Year 1 = $575,000  Year 2 = $612,000

(b) 6%

(c) $539,000

(d) 6%

Explanation:

(a) Nominal GDP is the value of output measured in current prices.  In Year 1 nominal GDP is $575,000 (= (20,000 x $0.25) + (700 x $800) + (10,000 x $1.00)).  In Year 2 nominal GDP is $612,000 (= (30,000 x $0.30) + (650 x $900) + (12,000 x $1.50)).

(b) Nominal GDP increased from $575,000 to $612,000, or 6% (= ($612,000 - $575,000) / $575,000).

(c) Real GDP is the value of output measured in constant prices, or in this case the prices of Year 1.  Real GDP in Year 2 is $539,500 (= (30,000 x $0.25) + (650 x $800) + (12,000 x $1.00)). 

(d) Real GDP decreased from $575,000 in Year 1 to $539,500 in Year 2, this is a decrease of 6% (= ($539,500 - $575,000) / $575,000).

LO 02-01

Topic: What America Produces

AACSB: Analytic

Blooms: Level 4 Analyze

3.   GDP per capita in the United States was approximately $50,000 in 2013.  What will it be in the year 2016 if GDP per capita grows each year by

(a) 0 percent?

(b) 2 percent?

Answers:

(a) $50,000

(b) $54,122

Explanation:

(a) GDP per capita will remain the same over time if the GDP per capita growth rate is 0%.

(b) GDP per capita will increase to $54,122.  GDP per capita will grow four years and can be determined by using the growth function GDP per capita = $50,000 (1.02)4.

LO 03-01

Topic: What America Produces

AACSB: Analytic

Blooms: Level 3 Apply

4.   According to Figure 2.4

      (a) Did the quantity of manufactured output increase or decrease between 1900 and 2000?

      (b) By how much (in percentage terms)?

      (c) Did the manufacturing share of GDP rise or fall during this time?

Answers:

(a) increase

(b) 1082%

(c) fall

Explanation:

(a) Technological advances have made it possible to increase manufacturing output tremendously. According to the figure, in the twentieth century the total output of the U.S. economy increased thirteenfold while the percentage of the total output decreased from 22% to 20%.  Clearly quantity of manufactured output increased.

(b) In 1900 manufacturing was 22% of the total output (total output was 100).  In 2000 manufacturing was 20% of a total output that had increased thirteen times (an output base of 1300).  Manufacturing increased from 22 (= 0.22 x 100) to 260 (= 0.20 x 1300) or 1082% (= (260 – 22) / 22).

(c) According to the figure, the share fell from 22% to 20% if total output over the last 100 years.

LO 02-04

Topic: The Mix of Output

AACSB: Analytic

Blooms: Level 4 Analyze

5.   Assume that total output is determined by the formula:

      number of workers   x     productivity      = total output

                       (output per worker)

(a) If the workforce is growing by 1 percent a year but productivity doesn’t improve, how fast can output increase?

(b) If productivity increases by 3 percent and the number of workers increases by 1 percent a year, how fast will output grow?

Answer:

(a) 1 percent

(b) 4 percent

Explanation:

(a) If the workforce is growing by 1% (number of workers = 1.01) and productivity isn’t changing (productivity = 1) total output is increasing by 1% (= 1.01 x 1).

(b) If productivity is increasing by 3% (productivity = 1.03) and the number of workers increases by 1% (number of workers = 1.01) total output will grow by 4% (= 1.03 x 1.01).

LO 02-03

Topic: How America Produces

AACSB: Analytic

Blooms: Level 3 Apply

6.   According to the News Wire on p. 38 by what percentage did productivity increase at Boeing between 1995 and 2010? 

Answer: 45.5%

Explanation:

According to the article, the number of days to build a 737 airliner fell from 22 days to 12 days, a productivity increase of 45.5% (= 10/22).

LO 02-03

Topic: How America Produces

AACSB: Analytic

Blooms: Level 2 Understand

7.   According to Table 2.4,

(a) What is the average income in the United States?

(b) What percentage of the income of people in the highest fifth would have to be taxed away to bring them down to that average?

Answer:

(a) $69,677

(b) 61%

Explanation:

(a) The average income in the U.S. is $69,677(= ($178,020 + 80,080 + 49,842 + 29,204 + 11,239) / 5).

(b) The highest fifth of the U.S. population earn $178,020 on average.  They would need to lose $108,343 in order to bring them down to the average of $69,677.  This is a 61% loss (= $108,343 / $178,020).

LO 02-05

Topic: For Whom America Produces

AACSB: Analytic

Blooms: Level 3 Apply

8.  According to the News Wire on p. 46, what percentage of their income would the highest-decile households in Namibia have to give up to end up with an average income?

Answer: 54.5%

Explanation:

Suppose the country of Namibia had 10 citizens, so that each represented one decile of the population. If the average income is $7,910, then the total for all ten citizens is $79,000.  The richest one person is currently earning 64.5% of that total, which is 0.645 x $79,100 - $51,019.50.  In order to reduce this person’s income to the average, $43,109.50 (= $51,019.59 - $7,910) would have to be taxed away.  This represents 84.5% (= $43,109.50 / $51,019.50) of the income of the richest decile.

LO 02-05

Topic: For Whom America Produces

AACSB: Analytic

Blooms: Level 5 Evaluate

9.   Complete the following table:

                              Before Tax    Tax Rate Tax Paid After Tax

                              Income                               Income

Rich Family             $500,000 30%       $150,000 $350,000

Middle-class Family $ 50,000 20%       $ 10,000 $  40,000

Poor Family             $ 20,000 2%        $      400     $  19,600

What is the ratio of a rich family’s income to a poor family’s income?

(a) Before taxes?

(b) After taxes?

(c) Is this tax progressive?

Answers:

(a) 25:1

(b) 18:1

(c) yes

Explanation:

(a) The before tax ratio of a rich family to a poor family is 25:1 (= $500,000 / $20,000).

(b) The after tax ratio of a rich family to a poor family is 18:1 (= $350,000 / 19,600).

(c) A tax system in which tax rates rise as incomes rise is a progressive tax system.  In this example higher incomes are taxed at a higher rate.

LO 02-05

Topic: For Whom America Produces

AACSB: Analytic

Blooms: Level 3 Apply

10. The United States devotes 0.2 percent of its GDP to development assistance.

(a) How much money is that? (See Figure 2.1.)

(b) If the aid share doubled, how much more (than the value determined in part (a)) would that be for each of the 3 billion “extremely poor” people in developing nations?

Answers:

(a) $0.03 trillion

(b) $10

Explanation:

(a) According to the figure the U.S. has a GDP of $15.20 trillion which implies development assistance of $0.03 trillion (= $15.20 trillion x 0.002).

(b) If the aid share doubled, development assistance would increase by an additional $0.03 trillion (= $15.20 trillion x 0.002).  This is approximately $10 for each of the 3 billion “extremely poor” people in the developing nations.

LO 02-02

Topic: What America Produces

AACSB: Analytic

Blooms: Level 2 Understand

Essentials of Economics,8th (2011) ed., by Schiller, Bradley R., solutions manual and test bank

Schiller, Bradley R., Essentials of Economics,8th (2011) ed., solutions manual and test bank for 0073511390
Essentials of Economics,8th (2011) ed.,  by Schiller, Bradley R.,  solutions manual and test bank for 0073511390
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 solutions manual

 

THE U.S. ECONOMY

 

PROBLEMS

1.    Draw a production-possibilities curve with consumer goods on one axis and investment goods on the other axis.

                       (a)       Identify the opportunity cost of increasing investment from I₁ to I₂.

(b)  What will happen to future production possibilities if investment increases?  Illustrate.

(c)  What will happen to future production possibilities if only consumer goods are produced?

LO: 1              AACSB: Analytic                          BT: Apply

 

(a)    The opportunity cost of increased investment is a decrease in production of consumer goods. For example, see the movement from point D to point E.

(b)    If investments increase, the production possibilities curve will shift outward.  This occurs because the capital stock, a factor of production, increases with increases in investment.

(c)     If only consumer goods are produced, the capital stock will begin to decline as factories and equipment wear out.  As a result, the production possibilities curve will shift in toward the origin.

2.    Suppose the following data describe output in two different years.

Item	Year 1	Year 2
Apples Bicycles Movie Rentals	20,000 @ 25¢ each 700 @ $800 each 6,000@ $1.00 each	30,000 @ 30¢ each 650 @ $900 each 8,000 @ $1.50 each

(a)  Compute nominal GDP in each year.

(b)  By what percentage did nominal GDP increase between Year 1 and Year 2?

(c)  Now compute real GDP in Year 2 by using the prices of Year 1.

(d)  How has real GDP changed from Year 1 to Year 2?

LO: 1              AACSB: Analytic                          BT: Apply

        (a)                        GDP Figures

                                   Year 1

                  Apples                      20,000 x $.25 = $    5,000

                              Bicycles                             700 x $800     =         $560,000

                  Movie Rentals               6,000 x $1.00   =     $    6,000

GDP                                              $571,000

                                   Year 2

                  Apples                      30,000 x $.30 = $      9,000

Bicycles                             650 x $900     =  $ 585,000

                  Movie Rentals               8,000 x $1.50      =       $   12,000

                  GDP                                                                $606,000

(b)  From year 1 to year 2 GDP increased by $35,000.  This is a 6.1% increase over the $571,000 figure for year 1.   The calculations for this number are: 

35,000 / 571,000 * 100 = 6.1%

(c)                Real GDP Year 2

                  Apples                      30,000 x $.25 =   $    7,500

                              Computers                       650 x $800     =         $520,000

                  Movie Rentals               8,000 x $1.00   =     $    8,000

                  GDP                                                            $535,500

(d)  Real GDP in year 1 is $571,000.  In year 2 it is $535,500.  This is a decrease of $35,500.  That represents a decline of 6.2% in real GDP.  The calculations for this number are:  -35,500 / 571,000 * 100 = -6.2%

3.    GDP per capita in the United States was approximately $49,000 in 2009.  What will it be in the year 2015 if GDP per capita grows each year by

(a)  0 percent?

(b)  2 percent?

LO:1        AACSB: Analytic                          BT: Apply

              

(a)    $49,000

(b)    $55,181.96 which is $49,000 × (1.02)⁶.

Alternatively,

Year	Growth from previous year	GDP per capita
2009		$49,000
2010	1.02 × $49,000	$49,980
2011	1.02 × $49,980	$50,979.60
2012	1.02 × $50,979.60	$51,999.19
2013	1.02 × $51,999.19	$53,039.18
2014	1.02 × $53,039.18	$54,099.96
2015	1.02 × $54,099.96	$55,181.96

4.   According to Figure 2.4,

(a)  Has the quantity of manufactured output increased or decreased since 1900?

(b)  By how much (in percentage terms)?

(c)  Why has the manufacturing share of GDP fallen?

LO: 4              AACSB: Analytic                          BT: Apply

(a) In 1900, manufacturing output accounted for 22% of total output. In 2000, manufacturing output accounted for 20% of total output. However, total output has grown thirteen-fold over this time, which implies that 22% of GDP₁₉₀₀ < 20% of GDP_2000. The quantity of manufacturing output has grown.

(b) 1,082%

(c) The share of manufacturing has fallen because manufacturing has not grown as quickly as GDP (total output) has grown. Alternatively, the service sector and government sectors have grown more quickly over time.

5.   Assume that total output is determined by the formula:

        

number of workers × productivity = total output (output per worker)

        

(a) If productivity doesn’t improve, how fast can output increase?

(b) If productivity increases by 2 percent and the number of workers increases by 1 percent a year, how fast will output grow?

LO: 1,3           AACSB: Analytic                          BT: Apply

(a) Total output can only increase at the same rate as the population (of workers) increases.  If the population of workers increases by 1%, then total output will increase by 1% as well.

(b) Output will grow by (1.01) × (1.02) – 1 = 0.0302 or 3.02%. Students can also approximate the correct answer simply by adding the growth rate of the population to the growth rate of productivity, because the percentages are both very small.

6.    According to Table 2.4,

(a) What is the average income in the United States?

(b) What percent of the income of people in the highest fifth would have to be taxed away to achieve that average?

LO: 5              AACSB: Analytic                          BT: Apply

(a) According to the data in Table 2.4, the average is $68,424.

(b) In order to reduce their income from $171,057 to $68,424, the highest fifth would have to have $171,057 – $68,424 = $102,633 of their income taxed away. This represents $102,633 / $171,057 = 60% of the average income for this income bracket.

7. According to the Headline on p. 46, what percent of their income would the highest-decile households in Namibia have to give up to end up with an average income?

LO: 5              AACSB: Analytic                          BT: Apply

There are many ways to calculate the right answer, but this way may make the most sense for students: Suppose the country of Namibia had 10 citizens, so that each represented one decile of the population. If the average income is $7,910, then the total for all ten citizens is $79,100. The richest one person is currently earning 64.5% of that total, which is 0.645 × $79,100 = $51,019.50. In order to reduce this person’s income to the average, $51,019.50 – $7,910 = $43,109.50 would have to be taxed away. This represents $43,109.50 / $51,019.50 = 0.845 = 84.5% of the income of the richest decile.

8.    Suppose that the following table describes the spending behavior of individuals at various income levels:

Income	Total Spending	Sales Tax	Sales Tax Paid As Percentage of Income
$10,000	$12,000
20,000	18,000
50,000	40,000
100,000	70,000

If a sales tax of 10 percent is levied on all purchases, calculate

(a)   The amount of sales tax paid at each income level.

(b)  The fraction of income paid in taxes at each income level. 

Is the sales tax progressive or regressive in relation to income?