SOLUTION MANUAL ESSENTIAL FOUNDATIONS OF ECONOMICS 7TH EDITION BADE

SOLUTION MANUAL ESSENTIAL FOUNDATIONS OF ECONOMICS 7TH EDITION BADE

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 17
Chapter 3 The Economic Problem 29
Chapter 4 Demand and Supply 39
 Part 2 A Closer Look at Markets
Chapter 5 Elasticities of Demand and Supply 51
Chapter 6 Efficiency and Fairness of Markets 61
Chapter 7 Government Actions in Markets 73
Chapter 8 Global Markets in Action 87
Chapter 9 Externalities: Pollution, Education, and Health Care 99
 Part 3 Prices, Profits, and Industry Performance
Chapter 10 Production and Cost 109
Chapter 11 Perfect Competition 119
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 157
Appendix: Measuring Real GDP 167
Chapter 15 Jobs and Unemployment 171
Chapter 16 The CPI and the Cost of Living 181
 Part 5 Understanding the Macroeconomy
Chapter 17 Potential GDP and Economic Growth 191
Chapter 18 Money and the Monetary System 203
Chapter 19 Aggregate Supply and Aggregate Demand 215
Chapter 20 Fiscal Policy and Monetary Policy 225

© 2015 Pearson Education, Inc.
Your Complete
Learning Package
WELCOME!
 Using Your Teaching Resources
Your teaching resources are the most comprehensive, carefully developed, and accurate ever made
available. They consist of:
• Instructor’s Manual
• Solutions Manual
• Test Item Files
• PowerPoint Resources
• MyEconLab
The first four of these resources are delivered on the Essential Foundations of Economics Instructor’s Resource disk.
All the components of the instructor’s resources key off the Checkpoints in the textbook, which gives
the entire package a tight integrity. We have played a leading role in authoring the questions in
MyEconLab and the PowerPoint resources; paid close attention to the design, structure, and organization of MyEconLab; helped create and check the Solutions Manual; and helped in reviewing and revising the Instructor’s Manual and Test Item Files. Our hands-on approach has ensured that every element of the package achieves the consistency that teachers and their students need.
Mark Rush walks you through the Instructor’s Manual and Solutions Manual on pp. ix – x, so we will
focus on the other components.
 Test Item Files
Our Test Item Files, 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 chapter
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” students 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 identified as to their skill level and also identified according to the AACSB classification, that is, “reflective
thinking,” “analytical thinking,” and so on. Within each topic, the questions are also ordered with the
numeric and graphing questions following the more qualitative questions.
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For this edition, Gregory E. Givens (University of Alabama), Lee Hoke (University of Tampa), Carol
Dole (Jacksonville University), Homer Guevara, Jr. (Northwest Vista College), and Buffie Schmidt
(Augusta State University) worked to improve the Test Item Files. Mark Rush also wrote some new
questions. We have deleted questions about topics no longer covered. And, more importantly, 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 students have
“put it all together.” Along with our Checkpoint approach to the other Test Item File questions, you
have one of the most comprehensive testing systems 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 (Delaware County Community College), Diego Mendez-Carbajo (Illinois Wesleyan University), Carol Dole
(Jacksonville University), William Mosher (Assumption College), Terry Sutton (Southeast Missouri
State University), Cindy Tori (Valdosta State University), and Nora Underwood (University of California, Davis). The same questions authors also wrote questions for the Study Guide and Web site to ensure consistency across the entire package. Many of the questions were reviewed by either John Graham (Rutgers, The State University of New Jersey, Campus at Newark) or Constantin Ogloblin (Georgia Southern University) to check the answers and improve the questions.
 TestGen
All Test Item Files are available in Test Generator software (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 varying fonts and styles, margins, and headers
and footers, as in any word-processing document. Search and sort features let the instructor quickly
locate questions and arrange them in a preferred order. QuizMaster, working with your school’s computer network, automatically grades the exams, stores the results on a disk, and allows the instructor
to view and print a variety of reports.
 PowerPoint Resources
We have created the PowerPoint resources based on our 20 years of experience using this tool in our
own classrooms. These resources are:
• Lecture notes with speaking tips
The speaking notes sections of the lecture notes provide material from the Instructor’s Manual on
teaching tips and suggestions.
• Stand-alone textbook figures and tables
The stand-alone textbook figures and tables enable you to incorporate these items in your own
personal PowerPoint lecture notes.
• Checkpoint Practice Problems
The Checkpoint Practice Problem slides include all Checkpoint Practice Problems and their in-text
solutions.
• Eye On features
The Eye On features presentations give you an opportunity to enliven your lectures with data and
applications to issues in the U.S. and global economies and to add a historical dimension.
• Every figure and table—including those used in Checkpoint questions and solutions—is included
in the PowerPoint resources. In the lecture notes, we have animated most of the figures and tables
so that you can build them gradually in the classroom. The stand alone textbook figures are also
animated.
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We have set up the figures so that you can expand them to full-screen size or shrink them to display text explanations alongside them at a single mouse click during a lecture.
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.
 MyEconLab
MyEconLab puts your students in control of their learning and gives you a powerful tool for monitoring their progress and setting automatically graded homework, tests, and quizzes. MyEconLab can
even grade assignments that require students to draw a graph.
• The 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 accessible 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 Sample 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 personalized Study Plan that is generated from their performance on the Sample
Tests 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 access 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. Textbook content – quick reference to specific pages of the text that correspond to each Study
Plan exercise.
3. Animated figure—the relevant figure in the textbook with a step-by-step animation 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 working the exercises but you can set a review option after the Test or Quiz closes.
• All the textbook Practice Problems 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 instructor-assigned.
• The correlation between the text and MyEconLab is perfect and seamless.
• The 12,000-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 updated 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
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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 understanding of the key ideas of the
part, a worked and illustrated solution to the Practice Problem, and a further (parallel) Exercise.
Our Checkpoints enable students to review material when it’s fresh in their minds. We suggest that
you encourage your students to work the Checkpoints and if possible, devote some class time to working 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 emphasized most.
 Instructor’s Resource Disk
This disk contains the Instructor’s Manual and Solutions Manual in Microsoft Word and PDF formats.
It also contains the Computerized Test Item Files (with a TestGen program installer) and PowerPoint
resources. It is compatible with both Windows and Macintosh operating systems.
 Instructors Tell Us 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 “Consult the Authors” on
MyEconLab.
Robin Bade
Michael Parkin
Ontario, Canada
February, 2014
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YOUR INSTRUCTOR’S MANUAL AND SOLUTIONS MANUAL
Robin and Michael just presented an overview of the tools available to help you with your course. Personally, I think that the existence of these tools is incredibly good timing because at no time in history
has teaching your students the principles of economics been either more challenging or more important. Similar to all the resources available to qualified adopters of Essential Foundations of Economics,
the Instructor’s Manual and the Solutions Manual are designed to assist you in your teaching, so I
want to spend some time discussing them in more detail. Let me start with the Instructor’s Manual.
 Instructor’s Manual
The Instructor’s Manual is your one-stop package of material you need for your lectures. I have described what is contained in your Instructor’s Manual and given some suggested uses below.
Chapter Outline
Leading off is a brief outline of the chapter. This section is designed 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 outline.
Chapter Roadmap
The Chapter Roadmap has four concise sections that let you see how the current chapter fits into the
flow of the material. One section covers “What’s New in this Edition;” another “Where We Are;” another, “Where We’ve Been;” and the fourth, “Where We’re Going.” This section is designed as a lecture
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 during 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 particular chapter. These times are just estimates, but
they are the results of consideration by several experienced instructors. There is nothing wrong with
using more time or less time, depending on your interests and the class’s participation.
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 section in the Instructor’s Manual when you are pressed for time and need to gather notes for your lecture! Incorporated in these notes are suggested figures that you can draw, tables with numerical examples that you can use, and, in shaded boxes, suggested points to emphasize or interesting topics that
you can mention 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 lectures:
Lecture Launchers We know how fascinating and relevant economics is. But nowadays, 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 presenting class-tested methods devised by awardwinning 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 suggestions that cover a wide range of teaching styles. Select those that work best for your style. No matter
whether or not you used the material in this section before—you definitely want to take a look at it this
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time! And if you have suggestions for other lecture launchers, please drop me a note at the e-mail address at the end of this preface—I am collecting additional suggestions for the next edition.
Land Mines As instructors, we know that certain topics are difficult for students. Determining the best
way to present difficult material can be a hard and tricky task. These suggestions are designed to ease
this problem by using the insights of talented and experienced instructors. The landmines identify areas that students have found difficult to grasp and then present suggestions about how to overcome
these problems. In my career, I have taught over 60,000 students but I have found these suggestions to
be incredibly valuable and, even as I worked on this Instructors’ Manual, I adopted them into my class.
So check out the suggestions and, once again, if you have further tips please e-mail me.
“Eye On”
A wonderful feature of the textbook is the material presented in each chapter called “Eye On.” “Eye on
the U.S. Economy” describes the U.S. economy today or in the recent past. “Eye on the Global Economy” and “Eye on the Past” help the student to place current and recent U.S. experience in a global and
historical perspective. And the “Eye on Your Life” helps the student relate what he or she is learning to
their own life. This material is fascinating and lends itself to further discussion or assignments so the
last section in the Instructor’s Manual presents suggestions about how you can use these “Eyes On” for
either class discussion or assignments. In either case, check out our suggestions because they can deeply enrich your course!
Additional Exercises for Assignment
The last section of the Instructors Manual presents some additional discussion questions. (In previous
editions these questions had been located in the Solutions Manual.) Some of these questions are suitable 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 these questions which you can use yourself or pass out to your students.
 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 answers so you will not need
to carry both the textbook and the Solutions Manual to class in order to assign or answer the questions.
Answers to Chapter Checkpoint Problems and Applications
One of the remarkable pedagogical tools of the textbook is the Chapter Checkpoint problems and applications 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. “Instructor Assignable Problems and Applications” on the other two pages are in the MyEconLab Homework 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 assigned questions
or you can copy the answers and distribute them to your students.
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ACKNOWLEDGMENTS
In a very real sense, teaching the principles of
economics is a “work in progress.” As new
insights are uncovered, as new knowledge is
developed, the principles of economics is always changing and evolving. You can be assured that Bade/Parkin’s Essential Foundations
of Economics 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 the Instructor’s Manual and Solutions Manual.
Richard Gosselin of Houston Community
College and Carol Dole of Jacksonville University are the authors of the first edition of
the Instructor’s Manual, which was ultimately divided into the Solutions Manual and the
Instructor’s Manual. For a past edition, Margaret Anne Shannon of Gordon College and
Richard Gosselin helped revise the Instructor’s Manual. For this edition, Luke Armstrong of Lee College fine-tuned and improved the Instructor’s Manual so that it reflects the changes made in the textbook. I updated the Solutions Manual, but in truth the
main parts of it still belong to the original authors, Richard Gosselin and Carol Dole.
For the past editions, Pearson assembled
three very talented instructors who checked
the accuracy of the entire set of supplements.
Although not all looked explicitly at these
books, often comments made on the Study
Guide or Test Item Files helped improve the
Instructor’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 University of New Jersey
• Kate Krause, University of New Mexico
The number of errors they found and the improvements they created are beyond count. I
soon learned that without their input, these
books would be very much inferior products.
And, working with each was a sheer pleasure!
Jeannie Shearer-Gillmore, University of Western Ontario, checked every word, every sentence, every paragraph, and every page of the
books. She made a huge number of corrections and comments and found an embarrassingly large number of errors in the answers to
the questions in the Solutions Manual for this
edition. Jeannie’s value-added is almost beyond calculation. And she accomplished all
this work while basking in the Canadian winter.
Sarah Dumouchelle and Andra Skaalrud, of
Pearson, played a huge role in helping see
these books through to the end. I cannot imagine how Sarah retained her cheerfulness in
the face of my obstinacy, occasional random
disappearances (when my class duties summoned me), and my ability to lose everything
that was sent to me at least once. Andra managed to overlook all my technological failings
with not even one negative comment! I look
forward with great pleasure to working with
them in the future.
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 corrections, 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 below, or e-mail me
at Mark.Rush@cba.ufl.edu. Either way, I
would greatly appreciate hearing from you.
In a better world, there would be some compensation offered for suggestions, corrections,
and comments you might make. Unfortunately, this is not that better world! But I can
promise that I’ll acknowledge your help in future editions.
Mark Rush
Economics Department
University of Florida
Gainesville, Florida 32611
February, 2014

© 2015 Pearson Education, Inc.
Getting
Started
Chapter
ANSWERS TO CHAPTER CHECKPOINTS
 Study Plan Problems and Applications
1. Provide three examples of scarcity that illustrate why even the 1,210
billionaires in the world face scarcity.
The 1,210 billionaires might want to be able to eat unlimited meals without 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 resources
available.
2. Label each entry in the list as dealing with a microeconomic topic or a
macroeconomic topic. Explain your answer.
• Motor vehicles 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 business.
• The government must cut its budget deficit.
This entry is a macroeconomic topic because neither an individual nor a
business makes decision to cut expenditures.
• Apple sells 3 million iPhones a month.
This entry is a microeconomic topic because individuals and Apple
make decision whether to buy or sell iPhones.
2 Part 1 . INTRODUCTION
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Use the following information to work Problems 3 to 6.
The Social Network had world-wide box office receipts of $225 million. The
movie had a production budget of about $70 million and additional marketing costs of about $50 million. Creating a successful movie brings pleasure to
millions, generates work for thousands, and makes a few people rich.
3. What contribution does a movie like The Social Network make to coping
with scarcity? When you buy a movie ticket to see a movie in a theater,
are you buying a good or a service?
Scarcity still exists but the amount of entertainment available in the economy 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 incomes are higher as a result of the blockbuster then buy an assortment of
goods and services and so this assortment of goods and services is produced. 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
production methods. Some movies, for instance, have a lot of special effects while other movies have few or none. The “for whom” question is
influenced because those people who receive the profits of a blockbuster
movie 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 producer 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 Jesse Eisenberg had been offered a bigger and better part in
another movie and that to hire him for The Social Network, the producer
had to double Jesse’s pay. What incentives would have changed? How
might the changed incentives have changed the choices that people made?
The higher pay would have increased Mr. Eisenberg’s incentive to make
The Social Network rather than the other movie and perhaps affected his
Chapter 1 . Getting Started 3
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choice to make The Social Network 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 selfinterest 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 example 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 knowledge 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 normative 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 statement.
• Imports from China are swamping U.S. department stores.
The entry about imports is a normative statement.
• The population of rural United States is declining.
The entry about the population in rural areas is a positive statement.
4 Part 1 . INTRODUCTION
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Use the following information to work Problems 10 to 12.
Hundreds line up for 5 p.m. Eminem ticket giveaway
Eminem fans lined up all day to get a free ticket to his secret concert at which
he will release his new album Relapse (his first in 5 years).
Source: Detroit Free Press, May 18, 2009
10. With tickets free and the show to be held in the 1,500-seat Detroit theater,
what is free and what is scarce? Explain your answer.
The seats in the concert are scarce—there are only a limited number
(1,500) available. Also scarce is the time the enthusiastic fans spent in line
to acquire the tickets. The publicity that Eminem received is not free to
him because he paid for the theater, hauling equipment to the theater, and
so on.
11. What do you think Eminem’s incentive is to give a free show? Was his
decision made in self-interest or in the social interest? Explain your answer.
Eminem likely wants to allow his most enthusiastic fans the opportunity
to see him in concert. He also has the incentive to promote his album by
the publicity he gets from having the free concert and the resulting massive demand for tickets. This publicity will lead to increased sales of his
album and increased income to him.
Eminem’s decision to give a free concert had elements of both self-interest
and social interest. To the extent that his decision was motivated by the
free publicity and rise in album sales, the decision was motivated by selfinterest. However to the extent that a desire to allow his most enthusiastic
fans the chance to see him perform, the decision also had elements of social interest.
12. Is the marginal benefit from the concert zero? Explain your answer.
The marginal benefit from the concert was not zero. Regardless of the
price paid for the concert, Eminem’s fans enjoyed the concert and therefore enjoyed a marginal benefit from it.
13. Read Eye on the Benefit and Cost of School on p. 15 and explain why both
you and Clayton Kershaw made the right decision.
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.