Answers to Selected Exercises

This appendix provides answers to selected exercises from each chapter. Odd-numbered problems are answered here; even-numbered problems are for practice and class discussion.

Chapter 1

A1. The opportunity cost of your decision should include both monetary costs and the value of what you gave up (time, alternative activities, foregone earnings). The key insight: the opportunity cost is the next-best alternative, not all alternatives.

A3. Maya's non-monetary costs: lost study time (exam grade), lost sleep (tomorrow's performance), friendship strain (if she says no). Non-monetary benefits: friendship credit (if she says yes), reduced rent stress, the experience of helping.

B1. Apply marginal thinking: the marginal benefit of the 4th hour depends on how much you've already studied. If the first 3 hours covered most material, the 4th hour has low marginal benefit. If there's still uncovered material, the 4th hour has high marginal benefit. Compare to the marginal cost (tiredness, foregone sleep/leisure).

Chapter 5

A3. At $25, quantity demanded = 50 (from the table). Quantity supplied = 5. There is a shortage of 45 units. The price will rise toward equilibrium.

A4. At $55, quantity demanded = 10. Quantity supplied = 45. There is a surplus of 35 units. The price will fall toward equilibrium.

C1. (a) Frost in Brazil: supply of coffee shifts left → price rises, quantity falls. (b) Study shows tablets improve reading: demand shifts right → price rises, quantity rises. (c) Uber/Lyft enter taxi market: supply of rides shifts right → price falls, quantity rises.

Chapter 6

A1. % change in Q = (80-100)/90 = -22.2%. % change in P = (12-10)/11 = 18.2%. Elasticity = 22.2/18.2 = 1.22. Elastic.

A3. Elasticity = 12%/5% = 2.4. Elastic — a 1% price increase causes a 2.4% drop in quantity demanded.

Chapter 8

C1. Equilibrium: 100 - Q = 10 + Q → 2Q = 90 → Q = 45, P = 55. CS = (1/2)(45)(100-55) = $1,012.50. PS = (1/2)(45)(55-10) = $1,012.50. Total surplus = $2,025.

Chapter 17

A1. At each output level: TC = FC + VC. For output 10: TC = 500 + 200 = 700. ATC = 700/10 = 70. AFC = 500/10 = 50. AVC = 200/10 = 20. MC (from 0 to 10): 200/10 = 20.

Chapter 22

A1. Year 1 nominal GDP: (100×10) + (50×40) = $3,000. Year 2 nominal GDP: (110×12) + (55×44) = $3,740. Nominal growth: ($3,740-$3,000)/$3,000 = 24.7%.

A2. Real GDP Year 2 (using Year 1 prices): (110×10) + (55×40) = $3,300. Real growth: ($3,300-$3,000)/$3,000 = 10.0%. The difference (24.7% vs 10.0%) is inflation.

Chapter 25

A1. Doubling time = 70/3 ≈ 23.3 years.

A3. India needs to reach $85,000 from $2,500 at 6% growth. That's 34× growth. At 6%, doubling time is ~11.7 years. 34× requires about 5 doublings = ~58 years (roughly 2083). The U.S. would also be growing (at 2%), so reaching the current U.S. level takes ~58 years, but the U.S. would be much richer by then.

Chapter 31

C1. Taylor Rule: FFR = 2% + 4% + 0.5(4%-2%) + 0.5(-2%) = 2 + 4 + 1 - 1 = 6%. The recommended rate is 6%.

Note: This is a selection. Full answer keys for all odd-numbered problems are available in the instructor guide.