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Solution Manual for Essential Foundations of Economics, 8th Edition

  • Economics
  • 233 pages
  • Shared February 2025
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Solution Manual for Essential Foundations of Economics, 8th Edition is the ultimate guide for understanding and solving textbook problems.

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    Table of Contents Preface Your Complete Learning Package v ◼ Part 1 Introduction Chapter 1 Getting Started 1 Appendix: Making and Using Graphs 11 Chapter 2 The U.S. and Global Economies 1 7 Chapter 3 The Economic Problem 2 9 Chapter 4 Demand and Supply 3 9 ◼ Part 2 A Closer Look at Markets Chapter 5 Elasticities of Demand and Supply 49 Chapter 6 Efficiency and Fairness of Markets 59 Chapter 7 Government Actions in Markets 71 Chapter 8 Global Markets in Action 85 Chapter 9 Extern alities : Pollution, Education, and Health Care 97 ◼ Part 3 Prices, Profits, and Industry Performance Chapter 10 Production and Cost 107 Chapter 11 Perfect Competition 117 Chapter 12 Monopoly 131 Chapter 13 Monopolistic Competition and Oligopoly 143 ◼ Part 4 Monitoring the Macroeconomy Chapter 14 GDP : A Measure of Total Production and Income 155 Appendix: Measuring Real GDP 165 Chapter 1 5 Jobs and Unemployment 169 Chapter 16 The CPI and the Cost of Living 179 ◼ Part 5 Understanding t he Macroeconomy Chapter 17 Potential GDP and Economic Growth 189 Chapter 18 Money and Inflation 201 Chapter 19 Aggregate Supply and Aggregate Demand 213 Chapter 20 Fiscal Policy and Monetary Policy 223

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    Your Complete Learning Package WELCOME! ◼ Using Your Teaching Resources Your teaching resources are the most comprehensive, carefully developed, and accurate ever made avai l able. They consist of: • Instructor’s Manual • Solutions Manual • T est Ite m Files • PowerPoint Resources • MyEconLab The first four of these resources are delivered on the Essential Foundations of E conomics Instructor’s R e- source disk . A ll the components of the instructor’s resources key off the Checkpoints in the textbook , which gives t he entire package a tight integrity . We have played a leading role in author ing the questions in MyEconLab and the PowerPoint resourc es ; paid close attention to the design, structure, and organiz a- tion of MyEconLab ; helped create and check the Solutions Manual; a nd helped in reviewing and revi s- ing the Instructor’s Manual and Test Item Files . Our hands - on approach has ensure d that every el e- ment of the package achieves the consi s tency that teachers and their students need. Mark Rush walks you through the Inst ructor’s Manual and Solutions Manual on pp. ix – x, so we will f o cus on the other components. ◼ Test Item Files Our T est I tem F iles , with more than 7 ,000 questions, provide a huge variety of question types. We have multiple - choice questions , numerical questions , short - answer questions , questions based on c hapter figures, and essay questions. There are integrative questions, which are questions drawn from two or more checkpoints or chapters and therefore require the students to integrate the material in their minds. We also included all the questions from the Study Guide, so you may “reward” st u dents who are diligently using the Study Guide. The Study Guide questions are, of course, noted as such. The questions are in the order that the material is encountered in each checkpoint. The questions are ident i- fied as to their skill level and also identified according to the AACSB classification, that is, “r e flective thinking,” “analytical thinking,” and so on. Within each topic, the questions are also o r dered with the numeric and graphing que s tions following the more qualitative questions. For this edition, David Black (University of Toledo), Carol Dole (Jacksonville University), and Svitlana Maksymenko (University of Pittsburgh) worked to improve the Test Item Files. Mark Rush also wrote

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    vi PREFACE 1 some new questions. We have deleted que s tions about topics no longer covered. And, more important- ly, we have pruned questions that we thought were weaker than average. So what you have now is the best of the best. These questions should help you create exams that really determine how well your st u dents have “put it all together.” Along with our Checkpoint approach to the other Test Item File que s tions, you have one of the most comprehensive testing sy s tems on the market. The core of the questions comes from seven dedicated principles instructors to form one of the most comprehensive testing systems on the market. Our original questions authors are: Ali Ataiifar (Del a- ware County Community College), Diego Mendez - Carbajo (Illinois Wesleyan University), Carol Dole (Jacksonville University), Gregory E. Givens (University of Alabama), Homer Guevara, Jr. (Northwest Vista College), Lee Hoke (University of Ta m pa), William Mosher (Assumption College), Buffie Schmidt (Augusta State University), Terry Sutton (Sout h east Missouri State University), Cindy Tori (Valdosta State University), and Nora Underwood (University of Califo r nia, Davis). The same ques- tions authors also wrote questions for the Study Guide and Web site to e n sure consistency across the entire package. Many of the questions were reviewed by either John Gr a ham (Rutgers, The State Uni- versity of New Jersey, Campus at Newark) or Constantin Ogloblin (G eo r gia Southern University) to check the answers and i m prove the questions. ◼ Test Gen All Test Item Files are available in Test Generator s oftware (TestGen with QuizMaster). TestGen’s graphical interface enables instructors to view, edit, and add questions; transfer questions to tests; and print different forms of tests. Tests can be formatted by var y ing fonts and styles, margins, and headers and footers, as in any word - processing document. Search and sort features let the instru c tor quickly locate questions and arrange them in a preferred order. QuizMaster, working with your school’s co m- puter network, automatically grades the exams, stores the results on a disk, and allows the instru c tor to view and print a v a riety of reports. ◼ PowerPoint Resources We have created the PowerPoint resources based on our 24 years of experience using this tool in our own clas s rooms. These resources are: • Lecture notes with full - color, animated figures and speaking tips The speaking notes sections of the lecture notes provide material from the Instructor’s Manual on teaching tips and sugge s tions. • Stand - alone textbook figures and tables, animated with step - by - step walk - throughs The stand - alone textbook figures and tables enable you to incorporate these items in your own personal PowerPoint lecture notes. • Eye On features The Eye On features presentations give you an opportunity to enliven your lectures with d a ta and applications to issues in the U.S. and global economies and to add a historical dime n sion. • Alternative micro lecture notes with full - color, animated figures and tables that use examples dif- ferent from those in the textbook . We have set up the figures so that you can expand them to full - screen size or shrink them to di s- play text explanations alongside them at a single mouse click during a le c ture. We have determined the optimal build sequence for the animated figures and have produced them with the same degree of clarity and precision as the figures in the text.

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    YOUR COMPLETE LEARNING PACKAGE vii ◼ MyEconLab MyEconLab puts your students in control of their learning and gives you a powerful tool for monito r- ing their progress and setting automatically graded homework, tests, and quizzes . MyEconLab can even grade assignments that require st u dents to d raw a graph. • T he core of MyEconLab is a large bank of exercises consisting of four question types — multiple choice, free response numerical, fill blank, and draw graph. • All the exercises are automatically graded and the grades are captured in a grade book . • Many of the exercises are generated by algorithms and play a large number of variations. • All the exercises are access i ble in the instructor’s Homework and Test Manager. • Some of the exercises are available to your students with no further input required by you in Sa m- ple Tests and Quizzes (although you can disable student access to this material if you wish). • Other exercises are available to students only if assigned by the instructor in a Homework, Test or Quiz. • Students work a p ersonalized Study Plan that is generated from the ir performance on the Sample T ests and Quizzes and on Homework, Tests, and Quizzes that you assign . • When students work exercises in Study Plan or Homework assignments they receive instant and extensive feedback that is specific to the answer given (whether incorrect or correct) and have a c- cess to an array of other study resources that include: 1. Guided solution – a step - by - step walk through the question with a series of smaller questions that build up to the complete question 2. T extbook content – q uick reference to specific pages of the text that correspond to each Study Plan exercise. 3. A nimated figure — t he relevant figure in the textbook with a step - by - step an i mation and audio explanations of the action. • When students work exercises in a Test or Quiz, they get no help or feedback at the time of wor k- ing the exercises but y ou can set a review option after the Test or Quiz closes. • All the textbook Practice Problem s in each Checkpoint and all of the end - of - chapter Study Plan Problems and Applications are available in Study Plan . • All the Instructor Assignable Problems and Applications in the textbook are available in the Homework and Test Manager and are reserved for instructors. Students have no access to these questions unless they are instru c tor - assigned. • The correlation b e tween the text and MyEconLab is perfect and seamless. • The 1 2 ,00 0 - question Test Item File is available in MyEconLab for online tests and quizzes. • Economics in the News , which is updated daily through the school year on MyEconLab, is also u p- dated daily as instructor - assignable automatically graded problems in the Homework and Test Manager. Refer to the Instructor Quick Start Guide or contact your Pearson sales representative to set up MyEconLab for your course. ◼ Checklist and Checkpoints: The Glue that Holds Your Tools Together Each chapter of the textbook opens with a Chapter Checklist that tells your students what they’ll be able to do when they’ve completed the chapter. The number of tasks varies from two to five and most often is three or four. Each part of a chapter, in the textbook, Study Guide, and MyEconLab is linked directly to a Checklist item to enable your students to know exactly what they’re studying and how it will enable them to accomplish their learning objective. Each part of a chapter in the textbook ends with a Checkpoint — a page that offers a Practice Problem to test u n derstanding of the key ideas of the part, a worked and illustrated solution to the Practice Problem, and a further (para l lel) Exercise.

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    viii PREFACE 1 Our Checkpoints enable students to review material when it’s fresh in their minds. We su g gest that you encourage your students to work the Checkpoints and if possible, devote some class time to wor k- ing sample problems with them. The Test Item Files are organized by Checkpoints so that you can match your tests and exam papers closely to the parts of each chapter that you’ve e m phasized most. ◼ Instructor’s Resource Disk This disk contains the Instructor’s Manual and Solutions Manual in Microsoft Word and PDF format s . It also contains the Computerized Test Item Files (with a TestGen program installer) and PowerPoint resources. It is compatibl e with both Windows and Macintosh operating sy s tems. ◼ I n structors Tell U s What Works for You Please tell us the tools that you find most helpful. And tell us what you think we can improve. You can email us at robin @econ100.com or michael.parkin@uwo.ca , or use “Co n sult the Authors” on My E con L ab. Robin Bade Michael Parkin Ontario, Canada Febr uary , 20 1 7

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    YOUR COMPLETE LEARNING PACKAGE ix YOUR INSTRUCTOR’S MANUAL AND SOLUTIONS MANUAL Robin and Michael just presented an overview of the tools available to help you with your course. Pe r- sonally, I think that the existence of these tools is incredibly good ti m ing because at no time in history has teaching your students the principles of economics been either more challenging or more i m- portant. Similar to all the resources available to qualified adopters of Essential Foundations of E conomics , th e Instructor’s Manual and the Solutions Manual are designed to assist you in your teaching, so I wa nt to spend some time discussing them in more detail. Let me start with the I n structor’s Manual . ◼ Instructor’s Manual The Instructor’s Manual is your one - stop package of material you need for your lectures. I have d e- scribed what is contained in your Instructor’s Manual and given some suggested uses below. Chapter Outline Leading off is a brief outlin e of the chapter. This section is d e signed to help you as you rush off to class and need one last glance to discover whether a certain topic is covered in the chapter. The outline is brief, highlighting the major headings in the book. The extended lecture outline, presented later in this Instructor’s Manual, is a more complete ou t line. Chapter Roadmap The Chapter Roadmap has four concise sections that let you see how the current cha p ter fits into the flow of the material. One section covers “What’s New in this Edition;” another “Where We Are;” a n- other, “Where We’ve Been;” and the fourth, “Where We’re Going.” This section is designed as a le c ture helper, so if you need to determine how the chapter fits into the scheme of things, turn here. Class Time Needed This short section can be extremely valuable, particularly if du r ing the term you run out of time before you run out of material! The Class Time Needed section presents a careful estimate of how many 50 - minute lectures are usually needed to cover a pa r ticular chapter. These times are just estimates, but they are the results of consideration by several exper i enced instructors. There is nothing wrong with using more time or less time, depending on your interests and the class’s pa r ticipation. Chapter Lecture This section contains complete lecture notes that you can immediately use in your lecture or simply reference to help prepare your own lecture notes. This material might well be the most valuable se c- tion in the Instructor’s Manual when you are pressed for time and need to gather notes for your le c- ture! Incorporated in these notes are suggested figures that you can draw, tables with numerical e x- amples that you can use, and, in shaded boxes, suggested points to emphasize or interesting topics that you can men tion to bring your lecture to life. To help you recall what is new to the students, terms in bold face indicate glossary terms from the textbook, which are newly introduced to the students in the chapter. We have incorporated some additional features in these le c tures: Lecture Launchers We know how fascinating and relevant economics is. But now a days, with so many other events competing for our students’ attention, it is much too easy to lose out to the latest craze. This section helps overcome this problem by pr e senting class - tested methods devised by award - winning teachers that will stimulate your students’ interests. These suggestions are highlighted and are scattered throughout the lectures. As you glance through them, you will see a variety of sugge s- tions that cover a wide range of teaching styles. Select those that work best for your style. No matter whether or not you used the m a terial in this section before — you definitely want to take a look at it this

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    x PREFACE 1 time! And if you have suggestions for other lecture launchers, please drop me a note at the e - mail a d- dress at the end of this preface — I am collecting additional suggestions for the next ed i tion. L and M ines As instructors, we know that certain topics are difficult for students. D e termining the best way to present difficult material can be a hard and tricky task. Th e s e suggestions are d e signed to ease this problem by using the insights of talented and experienced instructors. The l andmines identif y ar e- as that students have found difficult to grasp and then pr e sent suggestions about how to overcome these problems. In my career, I have taught over 6 0,000 students but I have found th ese suggestions to be incredibly valuable and, even as I worked on this Instructors’ Ma n ual, I adopted the m into my class. So check out the suggestions and, once again, if you have fu r ther tips please e - mail me. “Eye On” A wonderful feature of the textbook is the material presented in each chapter called “Eye O n.” “Eye on the U.S. Economy” describes the U.S. economy today or in the recent past. “Eye on the Global Econ o- my” and “Eye on the Past” help the student to place current and recent U.S. exper i ence in a global and historical perspective. And the “Eye on Your Life” helps the student relate what he or she is lear n ing to their own life. This material is fascinating and lends itself to further discussion or assignments so the last section in the Instructor’s Ma n ual presents suggestions about how you can use these “Eyes O n” for either class discussion or assignments. In either case, check out our suggestions because they can dee p- ly e n rich your course! A dditional Exercises for Assignment The last section of the Instructors Manual presents some additional discussion questions. (In pr e vious editions these questions had been located in the Solutions Manual.) Some of these questions are suit a- ble for essay exams; some are more open - ended and are probably best used for classroom discussion; and some are similar to the Checkpoint Exercises. All of them are designed to make your students think and use the material you have been teaching them. The Instructors Manual also has suggested answers for th ese questions which you can use yourself or pass out to your st u dents. ◼ Solutions Manual The Solutions Manual has complete answers to all the Chapter Checkpoint questions. For ease of use, the Solutions Manual reprints the questions from the textbook before the a n swers so you will not need to carry both the textbook and the Solutions Manual to class in order to assign or a n swer the questions. Answers to Chapter Checkpoint Problems and Applications One of the remarkable pedagogical tools of the textbook is the Chapter Checkpoint problems and a p- plications at the end of each chapter. Each chapter has three pages of questions; “Study Plan Problems and Applications” on the first page can be worked by students in their MyEconLab Study Plan . “I n- structor Assignable Problems and Applications” on the other two pages are in the MyEconLab H om e- work and Test Manager . If you prefer to assign these problems and applications as paper tests, you will appreciate the complete answers in the Solutions Manual . You can use these answers to help you in grading a s signed questions or you can copy the answers and distribute them to your st u dents.

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    YOUR COMPLETE LEARNING PACKAGE xi ACKNOWLEDGMENTS In a very real sense, teaching the principles of economics is a “work in progress.” As new i n sights are uncovered, as new knowledge is developed, the principles of economics is a l- ways changing and evolving. You can be a s- sured that Bade / Parkin’s Essential Foundations of E conomics will likewise always change and evolve to remain the best book available for you and your students’ use. So it is with a great deal of pleasure that we acknowledge people who have helped create th e Instru c- tor’s Manual and S o lutions Manual . Richard Gosselin of Houston Community College and Carol Dole of Jacksonville Un i- versity are the authors of the first edition of the Instructor’s Manual , which was ultimat e- ly d i vided into the Solutions Manual and the Instructor’s Manual. For a past edition, Ma r- garet Anne Shannon of Gordon College and Richard Gosselin helped revise the Instru c- tor’s Manual . For this edition, Luke Ar m- strong of Lee College essentially wrote and i m proved the Instructor’s Manual so that it r e flects the changes made in the textbook. I u p dated the Solutions Manual, but in truth the main parts of it still belong to the original a u thors, Richard Gosselin and Carol Dole. For the past edition s , Pearson assembled three very talented instructors who checked the acc u racy of the entire set of supplements. Although not all look ed explicitly at the se books , often comments made on the Study Guide or Test Item Files helped improve the I n structor’s Manual or Solutions Manual . So I want to thank all of them for their help : • Harry Ellis, University of North Texas • John Graham, Rutgers The State Univers i- ty of New Jersey • Kate Krause, University of New Mexico The number of errors they found and the i m- provements they created are beyond count. I soon learned that without their input , th ese books would be very much inf e rior product s . And, working with each was a sheer plea s- ure! Jeannie Shearer - Gillmore, University of Wes t- ern Ontario, checked every word, every se n- tence, every paragraph, and every page of th e book s . She made a huge number of corre c- tions and comments and found an embarras s- ingly large number of errors in the answers to the questions in the Solutions Manual for this edition. Jeannie’s value - added is almost b e- yond calculation. And she accomplished all this work while basking in the Canadian wi n- ter. Even with all this help, it is undoubtedly the case that there remains substantial room for improvement in both the Instructor’s Manual and Solutions Manual . Indeed, any corre c- tions, suggestions, or comments that you might have would be greatly appreciated. Moreover, it is extremely easy for you to bring these to my attention. You can either write me, at the address b e low, or e - mail me at MarkRush@ufl.edu. Either way, I would greatly appreciate hearing from you. In a bet- ter world, there would be some co m pen sation offered for suggestions, corre c tions, and comments you might make. Unfortunat e ly, this is not that better world! But I can promise that I’ll acknowledge your help in f u ture ed i- tions. Mark Rush Economics Depar t ment University of Florida Gainesville, Florida 32611 February , 20 1 7

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    Getting Started Chapter 1 ANSWERS TO CHAPTER CHECKPOINT S ◼ Study Plan Problems and Applications 1. Provide three examples of scarcity that illustrate why even the 1, 826 bi l lionaires in the world face scarcity. The 1, 826 billionaires might want to be able to eat unlimited meals wit h- out gaining weight; live to be at least 140 years old and enjoy perfect health everyday; be able to wake up in San Francisco and go to sleep in Paris after spending no more than 3 hours on a plane. None of these wants can be fulfilled given the present state of technology and r e sources available. 2. Label each entry in the l ist as dealing with a microeconomic topic or a macroeconomic topic. Explain your answer. • Motor vehicle s production in China is growing by 10 percent a year . This entry is a microeconomic topic because individuals and businesses make decisions whether to buy or sell cars. • Coffee prices rocket . This entry is a microeconomic topic because individuals and businesses make decisions whether to buy or sell coffee. • Globalization has reduced African poverty . This entry is a macroeconomic topic because globalization is the result of choices made by billions of people rather than an individual or bus i- ness . • The government must cut its budget deficit . This entry is a m a croeconomic topic because neither an individual nor a business makes decision to cut expenditures . • Apple sells 20 million iPhone 6 s martphones a month . This entry is a m i croeconomic topic because individual s and Apple make decision whether to buy or sell iPhones .

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    2 Part 1 . INTRODUCTION Use the following information to work Problems 3 to 6. Jurassic World had world - wide box office receipts of $ 1.66 b illion. The movie ’s production budget was $ 15 0 million with additional marketing costs . A successful movie brings pleasure to millions, creates work for tho u sands, and makes a few people rich. 3. What contribution does a movie like Jurassic World make to coping with scarcity? When you buy a movie ticket, are you buying a good or a se r- vice? Scarcity still exists but the amount of entertainment available in the eco n- omy increases. Buying a ticket to watch a movie is buying a service. 4. Who decides whether a movie is going to be a blockbuster? How do you think the creation of a blockbuster movie influences what , how , and for whom goods and services are produced? The audience decides whether a movie will be a blockbuster because the audience decides whether to attend the movie. The “what” question is affected in three ways: First, one good or service that is produced is the blockbuster movie. Second, the people whose i n- comes are higher as a r e sult of the blockbuster then buy an assortment of goods and services and so this assortment of goods and services is pr o- duced. Finally, the “what” question is influenced if the movie leads to spinoff goods (such as toys) or creates a series of sequels or similar films. The “how” question is affected to the extent that movies use different pro duction methods. Some movies, for instance, have a lot of special e f- fects while other movies have few or none. The “for whom” question is infl u enced because those people who receive the profits of a blockbuster mo v ie have higher incomes and so more goods and services are produced for them. 5. What are some of the components of marginal cost and marginal benefit that the produ c er of a movie faces? Some of the marginal costs the producer faces are the cost of an actor or actress, the costs of the crew for a day, the costs of a location, and the costs of advertising in a newspaper. The marginal benefits the producer enjoys are his or her salary and/or profit participation from the movie, royalties from the movie, the prestige resulting from a successful movie, and any awards given to the producer of the movie. 6. Suppose that Chris Pratt had been offered a part in another movie and that to hire him for Jurassic World , the producer had to double Chris Pratt’s pay. What incentives would have changed? How might the changed i n centives have changed the choices that people made? The higher pay would have increased Mr. Pratt’s incentive to make Jura s- sic World rather than the other movie and perhaps affected his choice to

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    Chapter 1 . Getting Started 3 make Jurassic World rather than the other movie. The higher pay would have increased the incentive of the producer to decrease the expense of other aspects of the movie so the producer might have chosen to reduce the pay of the other stars in the movie. 7 . What is the social interest? Distinguish it from self - interest. In your answer give an example of self - interest and an example of social interest. The social interest looks at what is best for society as a whole; choices that are best for society as a whole are said to be in the social interest. The self - interest looks at what is best for the individual; choices that are best for the individual making the choice are said to be in the self - interest. An e x- ample of a choice made in the self - interest is a student’s decision to take an economics class. An example of a choice made in the social interest is a firm’s decision to reduce its air pollution. 8 . Pam, Pru, and Pat are deciding how they will celebrate the New Year. Pam prefers to take a cruise, is happy to go to Hawaii, but does not want to go skiing. Pru prefers to go skiing, is happy to go to Hawaii, but does not want to take a cruise. Pat prefers to go to Hawaii or to take a cruise but does not want to go skiing. Their decision is to go to Hawaii. Is this decision rational? What is the opportunity cost of the trip to Hawaii for each of them? What is the benefit that each gets? Pam, Pru and Pat’s decision to go to Hawaii is rational. All three of them considered the cost and benefit of various New Year’s plans. All three were at least willing to go to Hawaii while Pam and Pat were unwilling to go skiing and Pru was unwilling to go on a cruise. The opportunity cost of the trip for Pam is a cruise; for Pru, it is skiing; and for Pat, it is a cruise. The benefit each receives is the pleasure, the relaxation, excitement, and/or know l edge gained from the trip. 9 . Label each of the entries in the list as a positive or a normative statement. • Low - income people pay too much for housing . The entry that low - income people pay too much for housing is a norm a- tive statement. • The number of U.S. farms has decreased over the past 50 years . The entry about the number of farms is a positive statement. • Toyota expands parts production in the United States . The entry about Toyota expanding parts production is a positive stat e- ment. • Imports from China are swamping U.S. department stores . The entry about imports is a normative stat e ment. • The rural population in the United States is declining . The entry about the population in rural areas is a positive stat e ment.

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    4 Part 1 . INTRODUCTION Use the following information to work Problems 10 to 12. REI is paying its employees to take Black Friday, Thanksgiving off REI, the outdoor gear and apparel retailer, is paying employees to celebrate Thanksgiving 2015 by spending Black Friday outdoors with their families. Source: Sustainable Brands , October 28, 2015 10. With Black Friday off with full pay, explain what is free and what is scarce. The workers’ time remains scarce because Black Friday remains only one day. REI’s gear and apparel remain scarce because there is a still a limited amount of these products. The publicity that REI received is not free b e- cause the company paid for it with less production and, accordingly, less rev e nue and profit. 11 . What is REI’s incentive to give its workers Black Friday off? Was REI’s decision made in self - interest or in the social interest? Explain your a n- swer. REI’s managers have the incentive to give their employees the day off if they believe that the positive publicity that resulted could lead to i n- creased future sales. The managers might also believe that the employees would feel grateful and would worker harder in the future. Of course, the managers also had the incentive to give their workers the day off because many other employers do so. REI’s decision to give its workers a paid day off had elements of both self - interest and social interest. To the extent that his decision was motivated by the free publicity and a resulting rise in sales, or the expectation that its employees would work more diligently in the future, the decision was motivated by self - interest. However, to the extent that a desire to a l low the workers a chance to spend time with their families, the decision also had elements of social i n terest. 12. Do you think that REI workers will shop or spend the day with family? Explain your answer. Some REI workers will shop and others will spend the day with their family, depending on which alternative is in their self - interest. 13. Read Eye on the Benefit and Cost of Sc h ool on p. 1 2 and e xplain why both you and Clayton Kershaw made the right dec i sion. Clayton Kershaw made the correct decision to skip college because the opportunity cost to him of attending college (which includes his forgone salary playing baseball) vastly exceeded the benefits to him of attending college. For most students, the opportunity cost of attending college is not so large, so for most students the benefits from attending college exceed the opportunity cost of attendance. For these students, attending college is the correct decision.

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    Chapter 1 . Getting Started 5 ◼ Instructor Assignable Problems and Applications 1. Which of the following are components of the opportunity cost of being a full - time student who lives at home ? The things that the student would have bought with : • A higher income The items the student wou ld have purchased with the higher income he or she would have earned if he or she was not a full - time student are an opportunity cost of being a full - time student. • Expenditure on t uition The cost of tuition is part of the opportunity cost of being a full - time student because th is expense i s paid only because the person is a st u- dent. • A subscription to the Rolling Stone magazine If the subscription was required by a class and the individual su b- scribed only because of the class requirement, then the cost of the su b- scription is an opportunity cost of being a student. However if the pe r- son would have subscribed to Rolling Stone even if he or she was not a student, then the cost of the subscription is not an opportunity cost of being a student. • The income a stu dent will earn after graduating The income earned after graduation is not an opportunity cost of being a student. 2. Think about the following news items and label each as involving a what , how , or for whom question: • Today, most stores use computers to keep their inventory records, whereas 20 years ago most stores used paper records. Stores using computers for inventory records today versus paper 20 years ago answers the how question. • Healthcare professionals and drug companies recommend that Med i- caid drug rebates be made available to everyone in need. Deciding whether to offer lower Medicaid drug rebates, which would lower the prices for drugs, is a for whom que s tion. • A n increase in the gas tax pays for low - cost public transit. Building a low - cost public transit system answers a what question. B e- cause not everyone will use the public transportation equally nor will everyone pay the same amount of taxes, there also is a for whom aspect of the headline. 3. T he headlines in the list appeared in The Wall Street Journal . Classify each headline as a signal that the news article is about a microeconomic to p ic or

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    6 Part 1 . INTRODUCTION a macroeconomic topic. Explain your a n swers. • Job Gains Calm Slump Worries This entry is a macroeconomic topic because the slump concerns a turndown in the overall economy and neither an individual nor a bus i- ness makes the decision to slow the aggregate economy. • Washington Post’s Profit Falls This entry is a m i croeconomic topic because it concerns the profit ou t- come of one business, the Washington Post. • Overcapacity, Fuel Costs Hit Shipping Th is entry is a microeconomic topic . I t describes the situation within one sector — shipping — which is being affected by overcapacity and a rise in the price of fuel. • U.S. Budget Deficit Expands This entry is a macroeconomic topic because the budget deficit is the r e- sult of taxes and government spending spread over all sectors in the e n- tire economy. 4. Your school decides to increase the intake of new students next year. To make its decision, what economic concepts would it have considered? Would the school have used the “economic way of thinking” in reaching its decision? Would the school have made its decision on the margin? The school would consider the extra revenue that each additional st u dent would bring and compare that to the extra cost of providing each student with instruction and service. By comparing the extra revenue and the e x- tra cost, the school is making its decision on the margin and is using the economic way of thinking. If the school compares the additional revenue to the additional cost, it makes its decision on the ma r gin. 5. Provide examples of ( a ) a monetary incentive and (b) a non - monetary incentive, a carrot and a stick of each, that government policies use to i n- fluence behavior. (a) A monetary carrot that the students might answer because it is close to their lives is student aid, such as Pell grants. A monetary stick might be taxes on liquor. (b) A non - monetary carrot is government support for youth sports , such as allowing little league teams to use a county park, and a non - monetary stick is jail terms for illegal drug or a l cohol use. 6. Think about each of the items in the l ist and explain how they affect ince n tives and might change the choices that people make: • A hurricane hits Central Florida. The hurricane affects the people in Central Florida and the consumers who purchase the products produced in Central Florida, such as oran g-

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    Chapter 1 . Getting Started 7 es or vacation services. Residents’ incentives change if they suffered damage from the hurricane because they have the incentive to repair the damage. If the price of home repair rises, residents who specia l ize in home repair have an incentive to work longer hours to earn the higher price. If the hurricane raises the price of the goods and services pr o- duced in Central Florida, consumers have the incentive to buy less of these particular goods and services because they are more expe n sive. • The World Series begins tonight but a storm warning is in effect for the area around the stadium. The report of the possible storm decreases fans’ incentive to attend the game. Some fans decide to stay at home and watch the game on telev i sion . • The price of a personal computer falls to $50. The fall in the price of a computer increases consumers’ incentive to buy a computer. More consumers decide to buy a computer. The fall in the price of a computer decreases producers’ incentives to produce co m- puters. Fewer producers decide to produce computers. • Unrest in the Middle East sends the price of gas to $5 a gallon. The rise in the price of gasoline affects drivers’ incentives to buy gas o- line and large gas - guzzling cars. Drivers decide to buy less gasoline and fewer large gas - guzzling cars. They also might decide to ride public transport a tion more often. 7. Does the decision to make a blockbuster movie mean that some other more desirable activities get fewer resources than they deserve? Is your answer positive or normative? Explain your answer. Making a blockbuster movie means that some other activities get fewer resources. But whether “more desirable” activities get fewer resources than they “deserve” is a normative answer for two reasons. First the que s- tion of whether an activity is more desirable or less desirable depends on the person’s judgment and values. Second the determination of whether an activity gets fewer resources than it deserves also involves the norm a- tive decision about the quantity of resources an activity deserves. So the answe r to the question of whether making a blockbuster movie means that other more desirable activities get fewer resources than they deserve is a normative answer that depends on the st u dent’s values. 8. Provide two examples of economics being used as a tool by (a) a st u dent, (b) a business, and (c) a government. Classify your examples as dealing with microeconomic topics and macroec o nomic topics. (a) Students might answer that they use economics as a tool when they budget their student aid and when they decided which college to a t- tend based on the costs of their options. Both instances deal with m i- croeconomics.

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    8 Part 1 . INTRODUCTION (b) A business uses economics as a tool when it decides the price it charges for its product and the salaries it pays its managers. Both i n- stances are microeconomic examples. (c) The government use economics as a tool when it decides whether to increase taxes on cigarettes or lower the interest rate. The first exa m- ple is microeconomic in nature and the second involves macroec o- nomics. Use the following news clip to work Problems 9 to 12. Obama unveils major climate change policy Obama’s Clean Power Plan, which will set federal limits on carbon emissions from coal - fired power plants, will cost $8.4 billion and reap benefits of more than $34 billion. Opponents of the plan say it will drive up the cost of ele c- tricity for millions of Americans. Source: CNN, August 3, 2015 9. What are the more than $34 billion of benefits from using less coal to produce electricity? Who receives these benefits: the users of electricity or the owners of power plants, or both the users and the owners? Benefits include: (1) a reduction in carbon emissions, which brings a d e- crease in the contribution of human activity to global warming and cl i- mate change, and (2) cleaner air, which contributes to improved health. Both the users of electricity and the owners of power plants receive the benefits. 10. What are the $8.4 billion of costs arising from using less coal to produce electricity? Who bears these costs: the users of electricity or the owners of power plants, or both the users and the owners? To decrease carbon emissions from coal - fired plants requires that the plants install more pollution abatement equipment, such as scrubbers on their stacks that decrease emissions of carbon. The costs of the equipment and its installation account for the costs of the Clean Power Plan. Users of electricity, who pay higher prices for electricity, will pay some of these costs and owners of power plants, who receive lower profits from produ c- ing ele c tricity, also will pay some of the costs. 11. Explain why someone might oppose the Clean Power Plan when its benefits exceed its costs. Someone might oppose the Clean Power Plan because he or she believes that the benefits and costs are measured incorrectly so that in reality the costs exceed the benefits. Others might oppose it because the costs that fall on them exceed the benefits that they receive. 12. Explain whether the Clean Power Plan has an opportunity cost. The Clean Power Plan has an opportunity cost because the resources d e- voted to meeting its goals and requirements could be used instead to pr o- ducing other goods and services.

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    Chapter 1 . Getting Started 9 ◼ Multiple Choice Quiz 1. Which of the following describes the reason why scarcity exists? A. Governments make bad economic decisions. B. The gap between the rich and the poor is too wide. C. Wants exceed the resources available to satisfy them. D. There i s too much unemployment. Answer: C Answer C uses the definition of scarcity on page 2. 2. Which of the following defines economics? Economics is the social science that studies ___________. A. the best way of eliminating scarcity B. the choices made to cope with scarcity, how incentives influence those choices, and how the choices are coordinated C. how money is created and used D. the inevitable conflict between self - interest and the social interest Answer: B Answer B uses the definition of economics on page 2. 3. Of the three big questions, what , how , and for whom , which of the fo l- lowing is an example of a how question? A. Why do doctors and lawyers earn high incomes? B. Why don’t we produce more small cars and fewer gas guzzlers? C. Why do we use machines rather than migrant workers to pick grapes? D. Why do college football coaches earn more than professors? Answer: C Answer C describes how grapes are picked. 4 Which of the following is not a key idea in the economic way of thinking? A. People make rational choices by comparing costs and benefits. B. Poor people are discriminated against and should be treated more fairly. C. A rational choice is made at the margin. D. Choices respond to incentives. Answer: B Answer B is not part of description of the economic way of thinking on page 8.

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    10 Part 1 . INTRODUCTION 5. A rational choice is ___________. A. the best thing you must forgo to get something B. what you are willing to forgo to get something C. made by comparing marginal benefit and marginal cost D. the best for society Answer: C Answer C is part of description of a rational choice on page s 8 and 9. 6. Which of the following best illustrates your marginal benefit from studying? A. The knowledge you gain from studying 2 hours a night for a month B. The best things forgone by studying 2 hours a night for a month C. What you are willing to give up to study for one additional hour D. What you must give up to be able to study for one additional hour Answer: C Page 10 shows that a nswer C is the marginal benefit from studying. 7. The scientific method uses models to ___________. A. clarify normative disagreements B. avoid the need to study real questions C. replicate all the features of the real world D . focus on those features of reality assumed relevant for understan d ing a cause and effect relationship Answer: D Answer D uses the definition of an economic model on page 1 5 . 8. Which of the following is a positive statement? A. We should stop using corn to make ethanol because it is raising the cost of food. B. You will get the most out of college life if you play a sport once a week. C. Competition among wireless service providers across the borders of Canada, Mexico, and the United States has driven roaming rates down. D . Bill Gates ought to spend more helping to eradicate malaria in Afr i ca. Answer: C Answer C is a positive statement because it can, in theory, be tested.

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    Appendix: Making and Using Graphs Chapter 1 ANSWERS TO APPENDIX CHECKPOINT ◼ Study Plan Problems The s preadsheet in the t able provides data on the U.S. economy: Column A is the year; the other columns are quantities sold in millions per year of compact discs (column B), music videos (column C), and singles downloads (co l- umn D). Use this spreadsheet to work Pro b lems 1 and 2. 1. Draw a scatter diagram to show the relationship between the quantities sold of compact discs and music videos. Describe the rel a tionship. Figure A1.1 illustrates the relationship of the data from the spreadsheet between the quantities sold of compact discs and the quantities sold of music vi d- eos. Over all the period, there appears to be a pos i- tive or direct relationship; that is, when more co m- pact discs are sold, more music vid e os are sold. A B C D 1 200 4 767 33 1 39 2 200 6 6 20 2 3 586 3 200 8 385 1 3 1,033 4 20 1 0 226 9 1, 162 5 20 1 2 2 11 11 1, 392 6 2014 144 4 1,200

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    12 Part 1 . INTRODUCTION 2. Draw a time - series graph of quantity of compact discs sold. Say in which year or years the quantity sold (a) was highest, (b) was lowest, (c) i n- creased the most, and (d) decreased the most. If the data show a trend, d e- scribe it. Figure A1.2 illustrates the time series of the quantity of compact discs sold using the data from the spreadsheet. a. The quantity sold was the highest in 200 4 . b. The quantity sold was the lowest in 201 4 . c. The quantity sold never increased. d. The quantity sold decreased the most b e- tween 2006 and 2008 when it decreased by 235 million. Over the entire time period covered in the fi g- ure, there is a downward trend in the quantity of compact discs sold. 3. The following data shows the relationship between two variables x and y . x 0 1 2 3 4 5 y 32 31 28 23 16 7 Is the relationship between x and y positive or negative? Calculate the slope of the relationship when x equals 2 and when x equals 4. How does the slope change as the value of x i n creases? The relationship is negative: When x increases, y decreases. The slope of the relationship equals the change in y divided by the change in x along the tangent line; that is, the slope of the relationship at a point equals the slope of the tangent line at that point. When x equals 2, the slope of the tangent line equals – 4, so the slope of the relationship equals – 4. When x equals 4, the slope of the tangent line equals – 8, so the slope of the rel a- tionship equals – 8. The slope of the relationship increases i n magnitude (the line becomes steeper) as x increases.

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    Appendix 1 . Making and Using Graphs 13 4 . The table provides data on the price of a balloon ride, the te m- perature, and the number of rides a day. Draw graphs to show the relationship b e tween • The price and the nu m ber of rides, when the temper a ture is 70°F . Figure A1.3 illustrates the relationship between the price and the number of rides when the temperature is 70°F. • The number of rides and the temper a- ture, when the price is $15 a ride . Figure A1.4 illustrates the relationship between the number of rides and the temperature, when the price is $15 a ride. Price (dollars per ride) Balloon rides (number per day) 50  F 70  F 90  F 5 32 50 40 10 27 40 32 15 18 32 27 20 10 27 18

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    14 Part 1 . INTRODUCTION ◼ Instructor Assignable Problems Use the information in the table to work Problems 1 and 2 . Column A is the year; th e other columns are quantities sold in mi l- lions per year of co m pact discs (column B), music videos (column C), and singles downloads (column D). 1. Draw a scatter diagram to show the rel a- tionship between quantities sold of music videos and singles downloads. Describe the rel a tionship. Figure A1.5 illustrates the relationship of the data from the spreadsheet between the quant i- ties sold of music videos and singles dow n- loads. Over all the period, there appears to be a negative or indirect relationship; that is, when fewer music videos are sold, more singles are dow n loaded. A B C D 1 200 4 767 33 1 39 2 200 6 6 20 2 3 586 3 200 8 385 1 3 1,033 4 20 1 0 226 9 1, 162 5 201 2 2 11 11 1, 39 2 6 2014 144 4 1,200

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    Appendix 1 . Making and Using Graphs 15 2. Draw a time - series graph of the quantity of music videos sold. Say in which year or years the quantity sold (a) was highest, (b) was lowest, (c) decreased the most, and (d) decreased the least. If the data show a trend, describe it. Figure A1.6 illustrates the time series of music videos sold using the data from the sprea d- sheet. a. The quantity sold was the highest in 200 6 . b. The quantity sold was the lowest in 201 4 . c. The quantity sold decreased the most b e- tween 2004 and 2006 and between 2006 and 2008, when it decreased by 10 million per period. d. Setting aside the period s during which the quantity increased, the quantity sold d e- creased the least between 200 8 and 20 1 0. There is a downward trend in the quantity of music videos sold. Use the following data on the relationship between two variables x and y to work Problems 3 and 4. x 0 1 2 3 4 5 y 0 1 4 9 16 25 3. Is the relationship between x and y positive or neg a tive? Explain. The relationship is positive: When x increases, y also increases. 4. Calculate the slope of the relationship when x equals 2 and x equals 4. How does the slope change as the value of x increases? The slope of the relationship equals the change in y divided by the change in x along the tangent line; that is, the slope of the relationship at a point equals the slope of the tangent line at that point. When x equals 2, the slope of the tangent line equals 4, so the slope of the relationship equals 4. When x equals 4, the slope of the tangent line equals 8, so the slope of the relationship equals 8. The slope of the relationship increases as x increa s- es.

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    16 Part 1 . INTRODUCTION 5. T he t able provides data on the price of hot chocolate, the temperature, and the cups of hot chocolate bought . Draw graphs to show the relationship between • The price and cups of hot chocolate bought , when the temperature is constant. Figure A1.7 illustrates the relationship between the price and the number of cups bought holding constant the te m- perature. Note that there are three rel a- tio n ships, one for each temperature. • The temperature and cups of hot chocolate bought , when the price is constant. Figure A1.8 illustrates the relationship between the number of cups bought and the temperature, holding constant the price. Note that there are four rel a- tio n ships, one for each price. Price (dollars per cup ) Hot chocolate ( cups per week ) 50  F 70  F 90  F 2.00 40 30 20 2.50 30 20 10 3.00 20 10 0 3.50 10 0 0

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    The U.S. and Global Economies Chapter 2 ANSWERS TO CHAPTER CHECKPOINT ◼ Study Plan Problems and Applications 1. W hich of the following items are not consumption goods and services ? Explain why not. • A chocolate bar A chocolate bar is a consumpt ion good. • A ski lift A ski lift is not a consumption good. It is capital that produces a se r- vice for sk i ers. • A golf ball A golf ball is a consumption good. 2. W hich of the following items are not capital goods ? Explain why not. • An auto assembly line An auto assembly line is a capital good. • A shopping mall A shopping mall is a capital good. • A golf ball A golf ball is not a capital good. It is a consumption good. 3. W hich of the following items are not factors of production ? Explain why not . • Vans used by a baker to deliver bread Vans used to deliver bread are capital, so they are factors of produ c- tion. • 1,000 shares of Amazon.com stock 1,000 shares of Amazon.com stock are not a factor of production. The shares represent partial ownership of Am a zon.com and therefore are financial capital. • Undiscovered oil in the Arctic Ocean Undiscovered oil is not a factor of produ c tion because it is not used to

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    18 Part 1 . INTRODUCTION produce goods or services. Once it is discovered, it will become a fa c- tor of pr o duction. 4. Which factor of production earns the highest percentage of total U.S. i n- come? Define that factor of production. What is the income earn ed by this factor of production called? Labor earns by far the largest percentage of total U.S. income, 6 3 percent of total income in 201 4 . Labor consists of the work time and the work e f- fort that people devote to producing goods and services. The income earned by labor is a wage. 5. With more job training and more scholarships to poor American st u- dents, which special factor of production is likely to grow faster than in the past? As more people go to school and/or receive job training, the nation’s h u- man capital will grow more rapidly. Human capital is the knowledge and skills people obtain from education, on - the - job training, and work exper i- ence. With more job training and more scholarships, human capital will grow more rapidly. 6 . Define the factor of production called capital. Give three examples of capital, different from those in the chapter. Distinguish between the fa c- tor of production capital and financial cap i tal. Capital is the tools, instruments, machines, buildings, and other items that have been produced in the past and that businesses now use to produce goods and services. Capital includes railroad engines and cars, servers, and ATMs. The factor of production “capital” is the actual good itself; “f i- nancial capital,” suc h as stocks and bonds, are the funds that provide businesses with their financial resources which can be used to acquire capital goods. 7. The pace at which new businesses are created in the U.S. economy and the percentage of U.S. jobs in young firms has fallen. Ryan Decker and others, “The Role of Entrepreneu r ship in U.S. Job Creation and Economic Dynamism.” Journal of Economic Perspe c tives , 2014. Explain how you would expect these facts to influence what, how, and for whom goods and services are produced in the United States The answer to the what question change s if, as is probably the case, new and young business produce different goods and services than more e s- tablished business. For example, new and young firms are more likely to create apps than older and more established firms. If these groups of pr o- ducers produced their goods and services using different technologies than the rest of the producers, then the question of how goods and se r- vices would change. For whom goods and services are produced would

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    Chapter 2 . The U.S. and Global Economies 19 change if some groups of consumers prefer the goods and services pr o- duced by the new and young firms while other groups do not. 8 . In the circular flow model, explain the real flow and/or the money flow in which each item below belongs. Illustrate your answers on a circular flow diagram. • You buy a coffee at Starbucks . In Figure 2.1 the dark arrows repr e- sent money flows and the grey a r rows represent flows of goods and services and factors of pr o- duction . If you buy a coffee at Starbucks , your expenditure is a money flow from households to the goods market, l a- beled a in the fi g ure. • The government buys some Dell computers. The purchase of computers by the government repr e- sents a flow of co m- puters from the goods market to the government, labeled b in the fi g ure. • A student works at a FedEx office . The student working at FedEx is a factor of production, so the flow is a flow of the services of factor of production from households to the factor markets, labeled c in the fi g ure. • Donald Trump rents a Ma n hattan building to a hotel. Donald Trump’s building in Manhattan is a factor of production, so the flow is the services from this factor of production from hous e- holds to the factor markets, labeled d in the figure. • You pay your income tax. Your income tax payment is a money flow from households to the government and is labeled e in the fi g ure.

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    20 Part 1 . INTRODUCTION 9. Why you can get a free college education in Germany but not in California Even American students can get a free college degree in Germany, where high taxes pay for colleges. D e spite college being free, fewer students in Germany earn college degrees than in the United States and more enter vocational apprenticeships. Source: Los Angeles Times , October 29, 2015 If California adopted the German model of higher education, how would that change for whom goods and services are produced? The students in California who otherwise would not have gone to co l- lege but who take advantage of the “ free ” college education will have higher incomes than otherwise. Consequently, more goods and se r- vices will be produced for them. The taxpayers who must pay the taxes necessary to fund these college educations will have less income to spend on goods and services, so fewer goods and services will be produced for them. 10. Read Eye on the Dreamliner on p. 4 3 and then answer the following que s- tions: • How many firms are involved in the production of the Dreamliner and how many are identified in the fi g ure on p. 4 3 ? Over 400 firms are involved in the production of the Dreamliner. O n- ly 15 of them are identified in the figure. • Is the Dreamliner a capital good or a consumption good? Explain why? The Dreamliner is a capital good because it will be used to produce services (airline travel) throughout many future years. • State the factors of production that make the Dreamliner and pr o vide an example of each. All the factors of production — land, labor, capital, and entrepreneu r- ship — are used to make the Dreamliner. The copper used for wiring is an example of the land used; the engineer who helped design the landing gear is an example of labor; the huge cranes that lift the var i- ous pieces of the Dreamliner to assemble them is an example of cap i- tal; and the creative and imaginative input of Boeing ’ s top managers who organize the resources used to produce the Dreamliner exempl i- fy entrepreneurship . • Explain how the pr oduction of the Dreamliner influences wha t , how , and for whom , goods and se r vices are produced. Dreamliner influences “what” goods and services are produced by creating a demand for components manufactured around the world . It influences “how: goods are produced because Boeing and the other 400 firms all determine the best way to produce each particular part

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    Chapter 2 . The U.S. and Global Economies 21 of the Dreamliner. It influences “for whom” because factors of pr o- duction employed to make the Dreamliner receive income from this production, thereby increasing the quantity of goods and services they can purchase. • Use a graph to show where in the circular flow model of the global economy the flows of the components listed on p. 4 3 appear and where the sales of Drea m liners appear. Except for the components built in the United States, spending on the other components appear in the flow of e x- penditure on U.S. imp orts. Sales of Dreamliners appear in the flow of e x- penditure on U.S. e x ports.

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    22 Part 1 . INTRODUCTION ◼ Instructor Assignable Problems and Applications 1. Boeing’s Dreamliner has had a rocky start. • Why doesn’t Boeing manufacture all the components of the Drea m- liner at its own facto ry in the United States? Boeing wants to manufacture the Dreamliner at the lowest possible cost. It would be more expensive for Boeing to manufacture Drea m- liners at its own factory in the United States because Boeing does not have the expertise possessed by its subcontractors and because the wages Boeing pay s U.S. workers exceed the wages its subco n tractors pay s their workers. • Describe some of the changes in what , how , and for whom , that would occur if Boeing manufactured all the components of the Dreamliner at its own factories in the United States. If Boeing manufactured all the components of the Dreamliner at its own factories in the United States, more components would be pr o- duced in the United States and more capital would have been used in their production. U.S. workers and investors would have received higher incomes but the Dreamliner would cost more to produce so Boeing would have earned a lower profit. • State some of the tradeoffs that Boeing faces in making the Drea m- liner. Boeing faced a huge number of tradeoffs. For example, when desig n- ing the plane, Boeing’s engineers had to make decisions about fuel economy and passenger load. Increasing the passenger load d e- creased fuel economy, so the engineers traded passenger load for fuel economy . Another example revolves around the construction of the Dreamliner. Boeing could have constructed the plane using just a few companies but instead it used over 400. Boeing was trading off the simplicity of dealing with just a handful of com panies for the i n- creased specialization by dealing with many specialized companies. • Why might Boeing’s decisions in making the Dreamliner be in the social interest? Building the Dreamliner itself advances the social interest because it increases the quantity of comfortable, rapid transportation. The amount of high - quality transportation available in the economy i n- creases, which benefits society. The decisions in making the Drea m- liner advance the social interest because they were designed to make the Dreamliner at low cost and thereby avoid wasting resources. 2. The global economy has seen a fall in the number of landlines and rapid growth in the number of smartphones. In the United States, 41 percent of

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