经济学原理 曼昆课后答案 chapter 4

第4章货币与通货膨胀跨考网独家整理最全经济学考研真题，经济学考研课后习题解析资料库，您可以在这里查阅历年经济学考研真题，经济学考研课后习题，经济学考研参考书等内容，更有跨考考研历年辅导的经济学学哥学姐的经济学考研经验，从前辈中获得的经验对初学者来说是宝贵的财富，这或许能帮你少走弯路，躲开一些陷阱。

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一、判断题1．由实际可变因素带来的货币变化的不相关性被称为货币中性，大多数经济学家认同货币中性的观点，将其作为一种对长期而不是短期的经济的好的描述。

（）【答案】T【解析】货币中性是指货币对实际变量的无关性。

大多数经济学家都认同，在长期内，货币是中性的。

2．古典理论使我们可以不用涉及货币供给而研究实际变量的决定。

（）【答案】T【解析】古典二分法的产生是因为在古典经济理论中，货币供给的变动不影响实际变量，货币是中性的，因此可以不用涉及货币供给而研究实际变量的决定。

3．货币可以将现在的购买力变成未来的购买力，这是货币交换媒介职能的表现。

（）【答案】F【解析】货币可以将现在的购买力变成未来的购买力，这是货币作为价值储藏手段的表现。

4．未预期到的通货膨胀如果高于预期的通货膨胀，那么债权人会受益而债务人受损。

（）【答案】F【解析】本题所述条件相当于未预期到的通货膨胀高于实际的通货膨胀，则债权人受损而债务人收益，因为偿还的价值比双方预期的低，也就是比实际应该支付的低。

5．如果通货膨胀被完全的预期到了，那么通货膨胀将是没有成本的。

（）【答案】F【解析】预期的通货膨胀的成本包括：①由通货膨胀税产生的人们持有的货币量的扭曲；②因高通货膨胀引起企业更经常地改变它们的价格，从而产生菜单成本；③面临菜单成本的企业不会频繁改变价格，导致资源配置上的无效率；④税法的许多条款并没有考虑通货膨胀的效应；⑤通货膨胀给人们的生活带来不方便。

6．当期物价水平不仅受当期货币供给量的影响，而且还与未来货币供给量预期相关。

产大量物品与劳务，才能使本国居民享有在国际贸易环境下的高生活水平。

2．假定社会决定减少消费并增加投资。

A．这种变化会如何影响经济增长?答：当社会决定减少消费并增加投资时，会使社会的储蓄增加，更多的资源用于生产资本品，结果，资本存量增加，引起生产率提高和 GDP 增长得更为迅速。

B．哪些社会群体会从这种变化中获益?哪些集团会受到损害?答：拥有资本品的人会从这种变化中获益，如拥有较多的物质资本和人力资本的人。

而那些依靠政府援助的人将从这种变化中受损，因为社会减少了现期物品与劳务的消费。

3．社会选择把多少资源用于消费和把多少资源用于投资。

这些决策中的一部分涉及私人支出；另一些涉及政府支出。

A．说明代表消费的一些私人支出形式，以及代表投资的一些私人支出形式。

国民收入账户把学费作为消费支出的一部分。

按你的看法，把资源用于教育是一种消费的形式，还是一种投资的形式。

答：如家庭购买食物和服装是消费的私人支出形式，而个人购买新住房、企业对厂房和设备的投资是代表投资的私人支出形式。

资源用于教育即可以看作是一种消费的形式，也可以看作是一种投资的形式。

B．说明代表消费的一些政府支出形式，以及代表投资的一些政府支出形式。

按你的看法，我们应该把政府用于医疗计划的支出作为一种消费的形式，还是投资的形式？你能区分青年人的医疗计划和老年人的医疗计划吗？答：社会保险、国防和退伍军人津贴等是代表消费的一些政府支出形式，政府修筑铁路、核电站是代表投资的一些政府支出形式。

政府用于医疗计划的支出是一种对人力资本的投资。

与老年人的医疗计划相比，青年人的医疗计划更接近对人力资本的投资。

4．投资于资本的机会成本是什么？你认为一国有可能对资本“过度投资”吗？人力资本投资的机会成本是什么？你认为一国可能对人力资本“过度投资”吗？解释之。

答：投资于资本的机会成本是牺牲现期的物品和劳务的消费。

一国有可能对资本“过度投资”。

人力资本投资也有机会成本。

当学生上学时．他们放弃了他们本可以赚到的收入。

曼昆经济学原理课后习题答案曼昆经济学原理课后习题答案经济学原理是一门研究人类经济行为的学科，它帮助我们理解和解释为什么人们做出特定的经济决策以及这些决策如何影响市场和整个经济体。

曼昆的经济学原理是经济学领域中的经典教材，它以其简明扼要的风格和实用的例子而闻名。

在学习这门课程时，我们经常会遇到一些习题，下面我将为大家提供一些曼昆经济学原理课后习题的答案。

1. 为什么经济学家关注稀缺性？经济学家关注稀缺性是因为资源有限而需求无限。

稀缺性意味着我们无法满足所有人的需求和欲望。

因此，经济学家研究如何有效地分配有限的资源，以满足人们的需求。

2. 什么是机会成本？机会成本是指做出某种选择所放弃的最高价值的替代选择。

当我们做出决策时，我们必须考虑放弃其他可能的选择所带来的损失。

例如，如果你决定去看电影而不是去上课，那么你放弃了上课所能获得的知识和学习机会。

3. 供求曲线是如何决定市场价格的？供求曲线是描述市场上商品供给和需求关系的工具。

供给曲线表示厂商愿意以不同价格提供的商品数量，需求曲线表示消费者愿意以不同价格购买的商品数量。

市场价格由供求曲线的交点决定，当供给和需求相等时，市场达到均衡，价格也就确定下来。

4. 为什么需求曲线向下倾斜？需求曲线向下倾斜是因为当价格降低时，消费者愿意购买更多的商品。

这是由于价格下降会增加消费者的购买力，使得他们能够购买更多的商品。

因此，需求曲线呈现出向下倾斜的趋势。

5. 为什么供给曲线向上倾斜？供给曲线向上倾斜是因为当价格上升时，厂商愿意提供更多的商品。

这是由于价格上升会增加厂商的利润，激励他们增加生产。

因此，供给曲线呈现出向上倾斜的趋势。

6. 什么是弹性需求和非弹性需求？弹性需求指的是当价格变动时，需求的变动程度。

如果需求对价格变动非常敏感，那么需求被认为是弹性的。

非弹性需求则指的是需求对价格变动不敏感的情况。

例如，基本生活必需品的需求通常是非弹性的，而奢侈品的需求通常是弹性的。

经济学原理曼昆课后答案c h a p t e r4本页仅作为文档封面，使用时可以删除This document is for reference only-rar21year.MarchProblems and Applications1. a. Cold weather damages the orange crop, reducing the supply of oranges.This can be seen in Figure 4-6 as a shift to the left in the supply curve fororanges. The new equilibrium price is higher than the old equilibriumprice.Figure 4-6b. People often travel to the Caribbean from New England to escape coldweather, so demand for Caribbean hotel rooms is high in the winter. Inthe summer, fewer people travel to the Caribbean, since northern climesare more pleasant. The result, as shown in Figure 4-7, is a shift to the leftin the demand curve. The equilibrium price of Caribbean hotel rooms isthus lower in the summer than in the winter, as the figure shows.Figure 4-7c. When a war breaks out in the Middle East, many markets are affected.Since much oil production takes place there, the war disrupts oil supplies, shifting the supply curve for gasoline to the left, as shown in Figure 4-8.The result is a rise in the equilibrium price of gasoline. With a higherprice for gasoline, the cost of operating a gas-guzzling automobile, like aCadillac, will increase. As a result, the demand for used Cadillacs willdecline, as people in the market for cars won't find Cadillacs as attractive.In addition, some people who already own Cadillacs will try to sell them.The result is that the demand curve for used Cadillacs shifts to the left,while the supply curve shifts to the right, as shown in Figure 4-9. Theresult is a decline in the equilibrium price of used Cadillacs.Figure 4-8Figure 4-92. The statement that "an increase in the demand for notebooks raises the quantityof notebooks demanded, but not the quantity supplied" is false, in general. AsFigure 4-10 shows, the increase in demand for notebooks results in an increased quantity supplied. The only way the statement would be true is if the supplycurve were perfectly inelastic, as shown in Figure 4-11.Figure 4-10Figure 4-113. a. If people decide to have more children (a change in tastes), they'll wantlarger vehicles for hauling their kids around, so the demand for minivanswill increase. Supply won't be affected. The result is a rise in both priceand quantity, as Figure 4-12 shows.Figure 4-12Figure 4-13b. If a strike by steelworkers raises steel prices, the costs of producing aminivan rise (a rise in input prices), so the supply of minivans decreases.Demand won't be affected. The result is a rise in the price of minivansand a decline in the quantity, as Figure 4-13 shows.c. The development of new automated machinery for the production ofminivans is an improvement in technology. The reduction in firms' costsresults in an increase in supply. Demand isn't affected. The result is a decline in the price of minivans and an increase in the quantity, as Figure 4-14shows.Figure 4-14Figure 4-15d. The rise in the price of station wagons affects minivan demand becausestation wagons are substitutes for minivans (that is, there's a rise in theprice of a related good). The result is an increase in demand for minivans.Supply isn't affected. In equilibrium, the price and quantity of minivansboth rise, as Figure 4-12 shows.e. The reduction in peoples' wealth caused by a stock-market crash reducestheir income, leading to a reduction in the demand for minivans, sinceminivans are a normal good. Supply isn’t affected. As a result, both priceand quantity decline, as Figure 4-15 shows.4. Technological advances that reduce the cost of producing computer chipsrepresent a decline in an input price for producing a computer. The result is ashift to the right in the supply of computers, as shown in Figure 4-16. Theequilibrium price falls and the equilibrium quantity rises, as the figure shows.Figure 4-16Figure 4-17Since computer software is a complement to computers, the increasedequilibriumquantity of computers increases the demand for software. As Figure 4-17 shows, the result is a rise in both the equilibrium price and quantity of software.Since typewriters are substitutes for computers, the increased equilibriumquantity of computers reduces the demand for typewriters. As Figure 4-18shows, the result is a decline in both the equilibrium price and quantity oftypewriters.Figure 4-185. a. When a hurricane in South Carolina damages the cotton crop, it raisesinput prices for producing sweatshirts. As a result, the supply ofsweatshirts shifts to the left, as shown in Figure 4-19. The newequilibrium has a higher price and lower quantity of sweatshirts.b. A decline in the price of leather jackets leads more people to buy leatherjackets, reducing the demand for sweatshirts. The result, shown in Figure 4-20, is a decline in both the equilibrium price and quantity of sweatshirts.Figure 4-20c. The effects of colleges requiring students to engage in morningcalisthenics in appropriate attire raises the demand for sweatshirts, asshown in Figure 4-21. The result is an increase in both the equilibriumprice and quantity of sweatshirts.d. The invention of new knitting machines increases the supply ofsweatshirts. As Figure 4-22 shows, the result is a reduction in theequilibrium price and an increase in the equilibrium quantity ofsweatshirts.Figure 4-226. A temporarily high birth rate in the year 2005 leads to opposite effects on theprice of babysitting services in the years 2010 and 2020. In the year 2010, there are more 5-year olds who need sitters, so the demand for babysitting servicesrises, as shown in Figure 4-23. The result is a higher price for babysitting services in 2010. However, in the year 2020, the increased number of 15-year olds shifts the supply of babysitting services to the right, as shown in Figure 4-24. Theresult is a decline in the price of babysitting services.Figure 4-23Figure 4-247. Since ketchup is a complement for hot dogs, when the price of hot dogs rises,the quantity demanded of hot dogs falls, thus reducing the demand for ketchup, causing both price and quantity of ketchup to fall. Since the quantity of ketchup falls, the demand for tomatoes by ketchup producers falls, so both price andquantity of tomatoes fall. When the price of tomatoes falls, producers of tomato juice face lower input prices, so the supply curve for tomato juice shifts down,causing the price of tomato juice to fall and the quantity of tomato juice to rise.The fall in the price of tomato juice causes people to substitute tomato juice for orange juice, so the demand for orange juice declines, causing the price andquantity of orange juice to fall. Now you can see clearly why a rise in the price ofhot dogs leads to a fall in price of orange juice!Figure 4-258. a. Cigars and chewing tobacco are substitutes for cigarettes, since a higherprice for cigarettes would increase demand for cigars and chewingtobacco.b. An increase in the tax on cigarettes leads to increased demand for cigarsand chewing tobacco. The result, as shown in Figure 4-25 for cigars, is arise in both the equilibrium price and quantity of cigars and chewingtobacco.c. The results in part (b) showed that a tax on cigarettes leads people tosubstitute cigars and chewing tobacco for cigarettes when the tax oncigarettes rises. To reduce total tobacco usage, policymakers might alsowant to increase the tax on cigars and chewing tobacco, or pursue sometype of public education program.9. Quantity supplied equals quantity demanded at a price of $6 and quantity of 81pizzas (Figure 4-26). If price were greater than $6, quantity supplied wouldexceed quantity demanded, so suppliers would reduce their price to gain sales.If price were less than $6, quantity demanded would exceed quantity supplied, so suppliers could raise their price without losing sales. In both cases, the price would continue to adjust until it reached $6, the only price at which there'sneither surplus nor shortage.Figure 4-2610. a. If the price of flour falls, since flour is an ingredient in bagels, the supplycurve for bagels would shift to the right. The result, shown in Figure 4-27,would be a fall in the price of bagels and a rise in the equilibrium quantityof bagels.Since cream cheese is a complement to bagels, the rise in quantitydemanded of bagels increases the demand for cream cheese, as shown inFigure 4-28. The result is a rise in both the equilibrium price and quantityof cream cheese. So, a fall in the price of flour indeed raises both theequilibrium price of cream cheese and the equilibrium quantity of bagels.Figure 4-27Figure 4-28What happens if the price of milk falls Since milk is an ingredient in cream cheese, the fall in the price of milk leads to an increase in the supply of cream cheese. This leads to a decrease in the price of cream cheese (Figure 4-29), rather than a rise in the price of cream cheese. So a fall in the price of milk couldn't have been responsible for the pattern observed.Figure 4-29Figure 4-30b. In part (a), we found that a fall in the price of flour led to a rise in theprice of cream cheese and a rise in the equilibrium quantity of bagels. Ifthe price of flour rose, the opposite would be true; it would lead to a fallin the price of cream cheese and a fall in the equilibrium quantity ofbagels. Since the question says the equilibrium price of cream cheese has risen, it couldn't have been caused by a rise in the price of flour.What happens if the price of milk rises From part (a), we found that a fallin the price of milk caused a decline in the price of cream cheese, so arise in the price of milk would cause a rise in the price of cream cheese.Since bagels and cream cheese are complements, the rise in the price ofcream cheese would reduce the demand for bagels, as Figure 4-30 shows.The result is a decline in the equilibrium quantity of bagels. So a rise inthe price of milk does cause both a rise in the price of cream cheese anda decline in the equilibrium quantity of bagels.11. a. As Figure 4-31 shows, the supply curve is vertical. The constant supplymakes sense because the basketball arena has a fixed number of seats nomatter what the price.Figure 4-31b. Quantity supplied equals quantity demanded at a price of $8. Theequilibrium quantity is 8,000 tickets.c.Price Quantity Demanded Quantity Supplied$ 4 14,0008,0008 11,0008,000128,0008,000165,0008,000202,0008,000The new equilibrium price will be $12, which equates quantity demandedto quantity supplied. The equilibrium quantity is 8,000 tickets.12. The executives are confusing changes in demand with changes in quantitydemanded. Figure 4-32 shows the demand curve prior to the marketing campaign (D1), and after the campaign (D2). The marketing campaign increased the demand for champagne, as shown, leading to a higher equilibrium price and quantity. Theinfluence of the higher price on demand is already reflected in the outcome. It's impossible for the scenario outlined by the executives to occur.Figure 4-32。

曼昆微观经济学课后练习英文答案集团标准化办公室：[VV986T-J682P28-JP266L8-68PNN]the link between buyers’ willingness to pay for a good and the demandcurve.how to define and measure consumer surplus.the link between sellers’ costs of producing a good and the supply curve.how to define and measure producer surplus.that the equilibrium of supply and demand maximizes total surplus in amarket.CONTEXT AND PURPOSE:Chapter 7 is the first chapter in a three-chapter sequence on welfare economics and market efficiency. Chapter 7 employs the supply and demand model to develop consumer surplus and producer surplus as a measure of welfare and market efficiency. These concepts are then utilized in Chapters 8 and 9 to determine the winners and losers from taxation and restrictions on international trade.The purpose of Chapter 7 is to develop welfare economics—the study of how the allocation of resources affects economic well-being. Chapters 4 through 6 employed supply and demand in a positive framework, which focused on the question, “What is the equilibrium price and quantity in a market” This chapter now addresses the normative question, “Is the equilibrium price and quantity in a market the best possible solution to the resource allocation problem, or is it simply the price and quantity that balance supply and demand” Students will discover that under most circumstances the equilibrium price and quantity is also the one that maximizes welfare.KEY POINTS:Consumer surplus equals buyers’ willingness to pay for a good minus the amount they actually pay for it, and it measures the benefit buyers get from participating in a market. Consumer surplus can be computed by finding the area below the demand curve and above the price.Producer surplus equals the amount sellers receive for their goods minus their costs of production, and it measures the benefit sellers get from participating in a market. Producer surplus can be computed by finding the area below the price and above the supply curve.An allocation of resources that maximizes the sum of consumer and producer surplus is said to be efficient. Policymakers are often concerned with the efficiency, as well as the equality, of economic outcomes.The equilibrium of supply and demand maximizes the sum of consumer andproducer surplus. That is, the invisible hand of the marketplace leadsbuyers and sellers to allocate resources efficiently.Markets do not allocate resources efficiently in the presence of market failures such as market power or externalities.CHAPTER OUTLINE:I. Definition of welfare economics: the study of how the allocation of resources affects economic well-being.A. Willingness to Pay1. Definition of willingness to pay: the maximum amount that a buyer will pay for a good.2. Example: You are auctioning a mint-condition recording of Elvis Presley’s first album. Four buyers show up. Their willingness to pay is as follows:If the bidding goes to slightly higher than $80, all buyersdrop out except for John. Because John is willing to paymore than he has to for the album, he derives some benefitfrom participating in the market.3. Definition of consumer surplus: the amount a buyer is willing to payfor a good minus the amount the buyer actually pays for it.4. Note that if you had more than one copy of the album, the price in the auction would end up being lower (a little over $70 in the case of two albums) and both John and Paul would gain consumer surplus.B. Using the Demand Curve to Measure Consumer Surplus1. We can use the information on willingness to pay to derive a demandmarginal buyer . Because the demand curve shows the buyers’ willingness to pay, we can use the demand curve to measure c onsumer surplus.C. How a Lower Price Raises Consumer Surplussurplus because they are paying less for the product than before (area A on the graph).b. Because the price is now lower, some new buyers will enter the market and receive consumer surplus on these additional units of output purchased (area B on the graph).D. What Does Consumer Surplus Measure?1. Remember that consumer surplus is the difference between the amount that buyers are willing to pay for a good and the price that they actually pay.2. Thus, it measures the benefit that consumers receive from the good as the buyers themselves perceive it.III. Producer SurplusA. Cost and the Willingness to Sell1. Definition of cost: the value of everything a seller must give up to produce a good .2. Example: You want to hire someone to paint your house. You accept bidsfor the work from four sellers. Each painter is willing to work if the priceyou will pay exceeds her opportunity cost. (Note that this opportunity costthus represents willingness to sell.) The costs are:sellers will drop out except for Grandma. Because Grandma receives more than she would require to paint the house, she derives some benefit from producing in the market.4. Definition of producer surplus: the amount a seller is paid for a good minus the seller’s cost of providing it.5. Note that if you had more than one house to paint, the price in the auction would end up being higher (a little under $800 in the case of two houses) and both Grandma and Georgia would gain producer surplus.ALTERNATIVE CLASSROOM EXAMPLE:Review the material on price ceilings from Chapter 6. Redraw themarket for two-bedroom apartments in your town. Draw in a priceceiling below the equilibrium price.Then go through:consumer surplus before the price ceiling is put into place. consumer surplus after the price ceiling is put into place. You will need to take some time to explain the relationship between the producers’ willingness to sell and the cost of producing the good. The relationship between cost and the supply curve is not as apparent as the relationship between the It is important to stress that consumer surplus is measured inmonetary terms. Consumer surplus gives us a way to place amonetary cost on inefficient market outcomes (due to governmentB. Using the Supply Curve to Measure Producer Surplus1. We can use the information on cost (willingness to sell) to derive a2.the cost of the marginal seller. Because the supply curve shows the sellers’ cost (willingness to sell), we can use the supply curve to measure producer surplus.C. How a Higher Price Raises Producer Surplussurplus because they are receiving more for the product than before (area C on the graph).b. Because the price is now higher, some new sellers will enter the market and receive producer surplus on these additional units of output sold (area D on the graph).D. Producer surplus is used to measure the economic well-being of producers,ALTERNATIVE CLASSROOM EXAMPLE:Review the material on price floors from Chapter 6. Redraw the marketfor an agricultural product such as corn. Draw in a price supportabove the equilibrium price.Then go through:producer surplus before the price support is put in place.producer surplus after the price support is put in place.Make sure that you discuss the cost of the price support tomuch like consumer surplus is used to measure the economic well-being of consumers.IV. Market EfficiencyA. The Benevolent Social Planner1. The economic well-being of everyone in society can be measured by total surplus, which is the sum of consumer surplus and producer surplus:Total Surplus = Consumer Surplus + Producer SurplusTotal Surplus = (Value to Buyers – Amount Paid byBuyers) +(Amount Received by Sellers – Cost to Sellers)Because the Amount Paid by Buyers = Amount Received bySellers:2. Definition of efficiency: the property of a resource allocation of maximizing the total surplus received by all members of society .3. Definition of equality: the property of distributing economicprosperity uniformly the members of society .a. Buyers who value the product more than the equilibrium price will purchase the product; those who do not, will not purchase the product. Inother words, the free market allocates the supply of a good to the buyers who value it most highly, as measured by their willingness to pay.b. Sellers whose costs are lower than the equilibrium price will produce the product; those whose costs are higher, will not produce the product. Inother words, the free market allocates the demand for goods to the sellers who can produce it at the lowest cost.value of the product to the marginal buyer is greater than the cost to the marginal seller so total surplus would rise if output increases.Pretty Woman, Chapter 6. Vivien (Julia Roberts) and Edward(Richard Gere) negotiate a price. Afterward, Vivien reveals shewould have accepted a lower price, while Edward admits he wouldhave paid more. If you have done a good job of introducingconsumer and producer surplus, you will see the light bulbs gob. At any quantity of output greater than the equilibrium quantity, the value of the product to the marginal buyer is less than the cost to the marginal seller so total surplus would rise if output decreases.3. Note that this is one of the reasons that economists believe Principle #6: Markets are usually a good way to organize economic activity.C. In the News: Ticket Scalping1. Ticket scalping is an example of how markets work to achieve anefficient outcome.2. This article from The Boston Globe describes economist Chip Case’sexperience with ticket scalping.D. Case Study: Should There Be a Market in Organs?1. As a matter of public policy, people are not allowed to sell their organs.a. In essence, this means that there is a price ceiling on organs of $0.b. This has led to a shortage of organs.2. The creation of a market for organs would lead to a more efficientallocation of resources, but critics worry about the equity of a market system for organs.V. Market Efficiency and Market FailureA. To conclude that markets are efficient, we made several assumptions about how markets worked.1. Perfectly competitive markets.2. No externalities.B. When these assumptions do not hold, the market equilibrium may not be efficient.C. When markets fail, public policy can potentially remedy the situation. SOLUTIONS TO TEXT PROBLEMS:Quick Quizzes1. Figure 1 shows the demand curve for turkey. The price of turkey is P 1and the consumer surplus that results from that price is denoted CS. Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. It measures the benefit to buyers ofparticipating in a market.Figure 1 Figure 22. Figure 2 shows the supply curve for turkey. The price of turkey is P 1and the producer surplus that results from that price is denoted PS. Producer surplus is the amount sellers are paid for a good minus the sellers’ cost of providing it (measured by the supply curve). It measures the benefit to sellers of participating in a market.It would be a good idea to remind students that there are circumstances when the market process does not lead to the most efficient outcome. Examples include situations such as when a firm (or buyer) has market power over price or when there areFigure 33. Figure 3 shows the supply and demand for turkey. The price of turkey is P, consumer surplus is CS, and producer surplus is PS. Producing more turkeys 1than the equilibrium quantity would lower total surplus because the value to the marginal buyer would be lower than the cost to the marginal seller on those additional units.Questions for Review1. The price a buyer is willing to pay, consumer surplus, and the demand curve are all closely related. The height of the demand curve represents the willingness to pay of the buyers. Consumer surplus is the area below the demand curve and above the price, which equals the price that each buyer is willing to pay minus the price actually paid.2. Sellers' costs, producer surplus, and the supply curve are all closely related. The height of the supply curve represents the costs of the sellers. Producer surplus is the area below the price and above the supply curve, which equals the price received minus each seller's costs of producing the good.Figure 43. Figure 4 shows producer and consumer surplus in a supply-and-demand diagram.4. An allocation of resources is efficient if it maximizes total surplus, the sum of consumer surplus and producer surplus. But efficiency may not be the only goal of economic policymakers; they may also be concerned about equitythe fairness of the distribution of well-being.5. The invisible hand of the marketplace guides the self-interest of buyers and sellers into promoting general economic well-being. Despite decentralized decision making and self-interested decision makers, free markets often lead to an efficient outcome.6. Two types of market failure are market power and externalities. Market power may cause market outcomes to be inefficient because firms may cause price and quantity to differ from the levels they would be under perfect competition, which keeps total surplus from being maximized. Externalities are side effects that are not taken into account by buyers and sellers. As a result, the free market does not maximize total surplus.Problems and Applications1. a. Consumer surplus is equal to willingness to pay minus the price paid. Therefore, Melissa’s willingness to pay must be $200 ($120 + $80).b. Her consumer surplus at a price of $90 would be $200 $90 = $110.c. If the price of an iPod was $250, Melissa would not have purchased one because the price is greater than her willingness to pay. Therefore, she would receive no consumer surplus.2. If an early freeze in California sours the lemon crop, the supply curve for lemons shifts to the left, as shown in Figure 5. The result is a rise in the price of lemons and a decline in consumer surplus from A + B + C to just A. So consumer surplus declines by the amount B + C.Figure 5 Figure 6In the market for lemonade, the higher cost of lemons reduces the supply of lemonade, as shown in Figure 6. The result is a rise in the price of lemonade and a decline in consumer surplus from D + E + F to just D, a loss of E + F. Note that an event that affects consumer surplus in one market oftenhas effects on consumer surplus in other markets.3. A rise in the demand for French bread leads to an increase in producer surplus in the market for French bread, as shown in Figure 7. The shift of the demand curve leads to an increased price, which increases producer surplusfrom area A to area A + B + C.Figure 7The increased quantity of French bread being sold increases the demandfor flour, as shown in Figure 8. As a result, the price of flour rises, increasing producer surplus from area D to D + E + F. Note that an event that affects producer surplus in one market leads to effects on producer surplus in related markets.Figure 84. a.Figure 9b. When the price of a bottle of water is $4, Bert buys two bottles of water. His consumer surplus is shown as area A in the figure. He values hisfirst bottle of water at $7, but pays only $4 for it, so has consumer surplus of $3. He values his second bottle of water at $5, but pays only $4 for it, so has consumer surplus of $1. Thus Bert’s total consumer surplus is $3 + $1 = $4, which is the area of A in the figure.c. When the price of a bottle of water falls from $4 to $2, Bert buys three bottles of water, an increase of one. His consumer surplus consists of both areas A and B in the figure, an increase in the amount of area B. He gets consumer surplus of $5 from the first bottle ($7 value minus $2 price), $3from the second bottle ($5 value minus $2 price), and $1 from the third bottle ($3 value minus $2 price), for a total consumer surplus of $9. Thus consumer surplus rises by $5 (which is the size of area B) when the price of a bottle of water falls from $4 to $2.5. a.Figure 10b. When the price of a bottle of water is $4, Ernie sells two bottles of water. His producer surplus is shown as area A in the figure. He receives $4 for his first bottle of water, but it costs only $1 to produce, so Ernie has producer surplus of $3. He also receives $4 for his second bottle of water, which costs $3 to produce, so he has producer surplus of $1. Thus Ernie’s total producer surplus is $3 + $1 = $4, which is the area of A in the figure.c. When the price of a bottle of water rises from $4 to $6, Ernie sells three bottles of water, an increase of one. His producer surplus consists of both areas A and B in the figure, an increase by the amount of area B. He gets producer surplus of $5 from the first bottle ($6 price minus $1 cost), $3 from the second bottle ($6 price minus $3 cost), and $1 from the third bottle ($6 price minus $5 price), for a total producer surplus of $9. Thus producer surplus rises by $5 (which is the size of area B) when the price of a bottle of water rises from $4 to $6.6. a. From Ernie’s supply schedule and Bert’s demand schedule, thean equilibrium quantity of two.b. At a price of $4, consumer surplus is $4 and producer surplus is $4, as shown in Problems 3 and 4 above. Total surplus is $4 + $4 = $8.c. If Ernie produced one less bottle, his producer surplus would decline to $3, as shown in Problem 4 above. If Bert consumed one less bottle, hisconsumer surplus would decline to $3, as shown in Problem 3 above. So total surplus would decline to $3 + $3 = $6.d. If Ernie produced one additional bottle of water, his cost would be $5, but the price is only $4, so his producer surplus would decline by $1. If Bert consumed one additional bottle of water, his value would be $3, but the price is $4, so his consumer surplus would decline by $1. So total surplus declines by $1 + $1 = $2.7. a. The effect of falling production costs in the market for stereos results in a shift to the right in the supply curve, as shown in Figure 11. As a result, the equilibrium price of stereos declines and the equilibriumquantity increases.Figure 11b. The decline in the price of stereos increases consumer surplus from area A to A + B + C + D, an increase in the amount B + C + D. Prior to the shift in supply, producer surplus was areas B + E (the area above the supply curve and below the price). After the shift in supply, producer surplus is areas E + F + G. So producer surplus changes by the amount F + G – B, which may be positive or negative. The increase in quantity increases producer surplus, while the decline in the price reduces producer surplus. Because consumer surplus rises by B + C + D and producer surplus rises by F + G – B, total surplus rises by C + D + F + G.c. If the supply of stereos is very elastic, then the shift of the supply curve benefits consumers most. To take the most dramatic case, suppose the supply curve were horizontal, as shown in Figure 12. Then there is no producer surplus at all. Consumers capture all the benefits of falling production costs, with consumer surplus rising from area A to area A + B.Figure 128. Figure 13 shows supply and demand curves for haircuts. Supply equals demand at a quantity of three haircuts and a price between $4 and $5. Firms A, C, and D should cut the hair of Ellen, Jerry, and Phil. Oprah’s willingnessto pay is too low and firm B’s costs are too high, so they do not participate. The maximum total surplus is the area between the demand and supply curves, which totals $11 ($8 value minus $2 cost for the first haircut, plus $7 value minus $3 cost for the second, plus $5 value minus $4 cost for the third).Figure 139. a. The effect of falling production costs in the market for computers results in a shift to the right in the supply curve, as shown in Figure 14. As a result, the equilibrium price of computers declines and the equilibrium quantity increases. The decline in the price of computers increases consumer surplus from area A to A + B + C + D, an increase in the amount B + C + D.Figure 14 Figure 15Prior to the shift in supply, producer surplus was areas B + E(the area above the supply curve and below the price). After theshift in supply, producer surplus is areas E + F + G. So producersurplus changes by the amount F + G – B, which may be positive ornegative. The increase in quantity increases producer surplus,while the decline in the price reduces producer surplus. Becauseconsumer surplus rises by B + C + D and producer surplus rises byF +G – B, total surplus rises by C + D + F + G.b. Because typewriters are substitutes for computers, the decline in the price of computers means that people substitute computers for typewriters, shifting the demand for typewriters to the left, as shown in Figure 15. The result is a decline in both the equilibrium price and equilibrium quantity of typewriters. Consumer surplus in the typewriter market changes from area A + B to A + C, a net change of C – B. Producer surplus changes from area C + D + E to area E, a net loss of C + D. Typewriter producers are sad about technological advances in computers because their producer surplus declines.c. Because software and computers are complements, the decline in the price and increase in the quantity of computers means that the demand for software increases, shifting the demand for software to the right, as shown in Figure 16. The result is an increase in both the price and quantity of software. Consumer surplus in the software market changes from B + C to A + B, a net change of A – C. Producer surplus changes from E to C + D + E, an increase of C + D, so software producers should be happy about the technological progress in computers.Figure 16d. Yes, this analysis helps explain why Bill Gates is one the world’s richest people, because his company produces a lot of software that is a complement with computers and there has been tremendous technological advance in computers.10. a. With Provider A, the cost of an extra minute is $0. WithProvider B, the cost of an extra minute is $1.b. With Provider A, my friend will purchase 150 minutes [= 150 –(50)(0)]. With Provider B, my friend would purchase 100 minutes [=150 – (50)(1)].c. With Provider A, he would pay $120. The cost would be $100 with Provider B.Figure 17d. Figure 17 shows the friend’s demand. With Provider A, he buys 150minutes and his consumer surplus is equal to (1/2)(3)(150) – 120= 105. With Provider B, his consumer surplus is equal to(1/2)(2)(100) = 100.e. I would recommend Provider A because he receives greater consumer surplus.11. a. Figure 18 illustrates the demand for medical care. If each procedure has a price of $100, quantity demanded will be Q1 procedures.Figure 18b. If consumers pay only $20 per procedure, the quantity demanded will be Qprocedures. Because the cost to society is $100, the number of procedures 2performed is too large to maximize total surplus. The quantity that maximizes total surplus is Q1 procedures, which is less than Q2.c. The use of medical care is excessive in the sense that consumers get procedures whose value is less than the cost of producing them. As a result, the economy’s total surplus is reduced.d. To prevent this excessive use, the consumer must bear the marginal cost of the procedure. But this would require eliminating insurance. Another possibility would be that the insurance company, which pays most of the marginal cost of the procedure ($80, in this case) could decide whether the procedure should be performed. But the insurance company does not get the benefits of the procedure, so its decisions may not reflect the value to the consumer.。

Chapter 4The market forces of supply and demandSolutions to text problemsQZ What is a market? What does it mean for a market to be competitive? (page 60)A market is a group of buyers (who determine demand) and a group of sellers (who determine supply) of a particular good or service. A competitive market is one in which there are many buyers and many sellers so that each has a negligible impact on the market price.QZ List the determinants of the demand for pizza. Give an example of a demand schedule for pizza, and graph the implied demand curve. Give an example of something that would shift this demand curve. Would a change in the price of pizza shift this demand curve? (page 66)The determinants of the quantity of pizza demanded should include price, income, prices of related goods, tastes, expectations and the number of buyers.Here is an example of a demand schedule for pizza:Price of pizza slice Number of pizza slices demanded$0.00 100.25 90.50 80.75 71.00 61.25 51.50 41.75 32.00 22.25 12.50 0The demand curve is graphed in Figure 4.1.Figure 4.1Chapter 4: The market forces of supply and demand 31Examples of things that would shift the demand curve include changes in income, prices of related goods like soft drink or hot dogs, tastes, and expectations about future income or prices.A change in the price of pizza would not shift this demand curve; it would only move from one point to another along the curve.QZ List the determinants of the supply of pizza. Give an example of a supply schedule for pizza, and graph the implied supply curve. Give an example of something that would shift this supply curve. Would a change in the price of pizza shift this supply curve? (page 71)The determinants of the quantity of pizza supplied include the price of pizza, the prices of inputs into pizza production, the technology for producing pizza, expectations about things like the future price of pizza and the number of suppliers of pizza.Here is an example of a supply schedule for pizza:Price of pizza slice Number of pizza slices supplied$0.00 00.25 1000.50 2000.75 3001.00 4001.25 5001.50 6001.75 7002.00 8002.25 9002.50 1000The supply curve is graphed in Figure 4.2.Figure 4.232 Principles of Economics, Third edition, Instructor’s ManualExamples of things that would shift the supply curve include changes in prices of inputs like tomato sauce and cheese, changes in technology like more efficient pizza ovens or automatic dough makers, and changes in expectations about the future price of pizza.A change in the price of pizza would not shift this supply curve; it would only move from one point to another along the curve.QZ Analyse what happens to the market for pizza if the price of tomatoes rises. Analyse what happens to the market for pizza if the price of hamburgers falls. (page 75)If the price of tomatoes rises, the supply curve for pizza shifts to the left because of the increased price of an input into pizza production, however there is no effect on demand. The shift to the left of the supply curve causes the equilibrium price to rise and the equilibrium quantity to decline, as Figure 4.3 shows.Figure 4.3Chapter 4: The market forces of supply and demand 33 If the price of hamburgers falls, the demand curve for pizza shifts to the left because the lower price of hamburgers will lead consumers to buy more hamburgers and less pizza, but there is no effect on supply. The shift to the left of the demand curve causes the equilibrium price to fall and the equilibrium quantity to decline, as Figure 4.4 shows.Figure 4.434 Principles of Economics, Third edition, Instructor’s ManualQuestions for review (page 79)1 A competitive market is a market in which there are many buyers and many sellers so that each has anegligible impact on the market price.2The quantity of a good that buyers demand is determined by the price of the good, income, the prices of related goods, tastes, expectations and the number of buyers.3The demand schedule is a table that shows the relationship between the price of a good and the quantity demanded. The demand curve is the downward-sloping line relating price and quantity demanded. The demand schedule and demand curve are related because the demand curve is simplya graph showing the points in the demand schedule.4The demand curve slopes downward because of the law of demand—other things equal, when the price of a good rises, the quantity demanded of the good falls. People buy less of a good when its price rises, both because they can't afford to buy as much and because they switch to purchasing other goods.5 A change in consumers' tastes leads to a shift of the demand curve. A change in price leads to amovement along the demand curve.6The quantity of a good that sellers supply is determined by the price of the good, input prices, technology, expectations and the number of suppliers.7 A supply schedule is a table showing the relationship between the price of a good and the quantity aproducer is willing and able to supply. The supply curve is the upward-sloping line relating price and quantity supplied. The supply schedule and the supply curve are related because the supply curve is simply a graph showing the points in the supply schedule.8The supply curve slopes upward because when the price is high, suppliers' profits increase, so they supply more output to the market. The result is the law of supply—other things equal, when the price of a good rises, the quantity supplied of the good also rises.9 A change in producers' technology leads to a shift in the supply curve. A change in price leads to amovement along the supply curve.10The equilibrium of a market is the point at which the demand and supply curves intersect. At the equilibrium price, the quantity of the good that buyers are willing and able to buy exactly balances the quantity that sellers are willing and able to sell. If the price is above the equilibrium price, sellers want to sell more than buyers want to buy, so there is a surplus. Sellers try to increase their sales by cutting prices; that continues until they reach the equilibrium price. If the price is below theequilibrium price, buyers want to buy more than sellers want to sell, so there is a shortage. Sellers can raise their price without losing customers; that continues until they reach the equilibrium price. 11When the price of beer rises, the demand for pies declines, because beer and pies are complements and people want to buy less beer. When we say the demand for pies declines, we mean that the demand curve for pies shifts to the left as in Figure 4.5 below. The supply curve for pies isn'taffected. With a shift to the left in the demand curve, the equilibrium price and quantity both decline, as the figure shows. Thus the quantity of pies supplied and demanded both fall. In summary, supply is unchanged, demand is decreased, quantity supplied declines, quantity demanded declines, and the price falls.Chapter 4: The market forces of supply and demand 35Figure 4.512 Prices play a vital role in market economies because they bring markets into equilibrium. If the priceis different from its equilibrium level, quantity supplied and quantity demanded aren't equal. The resulting surplus or shortage leads suppliers to adjust the price until equilibrium is restored. Prices thus serve as signals that guide economic decisions and allocate scarce resources.Problems and applications (page 80)1 a The cyclone damages the banana harvest, reducing the supply of bananas. This can be seen inFigure 4.6 as a shift to the left in the supply curve for bananas. The new equilibrium price is higher than the old equilibrium price. Figure 4.6P r i c e o f p i e sQuantity of bananasP r i c e o f b a n a n a sQuantity of pies36 Principles of Economics, Third edition, Instructor’s Manualb People often go to the pictures during school holidays so demand for picture tickets is highduring school holidays. When school holidays end, fewer people go to the pictures. The result, as shown in Figure 4.7, is a shift to the left in the demand curve. The equilibrium price of picture tickets is thus lower when school holidays end, as the figure shows. Figure 4.7c When a war breaks out in the Middle East, many markets are affected. Since much oilproduction takes place there, the war disrupts oil supplies, shifting the supply curve for petrol tothe left, as shown in Figure 4.8. The result is a rise in the equilibrium price of petrol. With a higher price for petrol, the cost of operating a big car, like a Ford Falcon, will increase. As a result, the demand for used Ford Falcons will decline, as people in the market for cars won't find Falcons as attractive. In addition, some people who already own Falcons will try to sell them. The result is that the demand curve for used Falcons shifts to the left, while the supply curve shifts to the right, as shown in Figure 4.9. The result is a decline in the equilibrium price of used Falcons.Figure 4.8Quantity of theatre tickets P r i c e o f t h e a t r e t i c k e t sP r i c e o f p e t r o l Quantity of petrolChapter 4: The market forces of supply and demand 37Figure 4.92 The statement that ‘an increase in the demand for notebooks raises the quantity of notebooksdemanded, but not the quantity supplied’ is false, in general. As Figure 4.10 shows, the increase in demand for notebooks results in an increased quantity supplied. The only way the statement would be true is if the supply curve were perfectly inelastic, as shown in Figure 4.11. Figure 4.10P r i c e o f u s e d F o r d F a l c o n sQuantity of used Ford Falcons38 Principles of Economics, Third edition, Instructor’s ManualFigure 4.113 a If people decide to have more children (a change in tastes), they'll want larger vehicles forhauling their kids around, so the demand for station wagons will increase. Supply won't be affected. The result is a rise in both price and quantity, as Figure 4.12 shows. Figure 4.12Quantity of Station WagonsP r i c e o f S t a t i o n W a g o n sChapter 4: The market forces of supply and demand 39b If a strike by steelworkers raises steel prices, the costs of producing a station wagon rise (a risein input prices), so the supply of station wagons decreases. Demand won't be affected. The result is a rise in the price of station wagons and a decline in the quantity, as Figure 4.13 shows.Figure 4.13c The development of new automated machinery for the production of station wagons is animprovement in technology. The reduction in firms' costs results in an increase in supply. Demand isn't affected. The result is a decline in the price of station wagons and an increase in the quantity, as Figure 4.14 shows.Figure 4.14d The rise in the price of minivans affects station wagon demand because minivans are substitutesfor station wagons (that is, there's a rise in the price of a related good). The result is an increase in demand for station wagons. Supply isn't affected. In equilibrium, the price and quantity of station wagons both rise, as Figure 4.12 shows.P r i c e o f S t a t i o n W a g o n sQuantity of Station WagonsP r i c e o f S t a t i o n W a g o n sQuantity of Station Wagonse The reduction in peoples' wealth caused by a stock market crash reduces their income, leading toa reduction in the demand for station wagons, since station wagons are a normal good. Supply isn’t affected. As a result, both price and quantity decline, as Figure 4.15 shows. Figure 4.154 Technological advances that reduce the cost of producing computer chips represent a decline in aninput price for producing a computer. The result is a shift to the right in the supply of computers, as shown in Figure 4.16. The equilibrium price falls and the equilibrium quantity rises, as the figure shows. Figure 4.16Quantity of Station WagonsP r i c e o f S t a t i o n W a g o n sSince computer software is a complement to computers, the increased equilibrium quantity of computers increases the demand for software. As Figure 4.17 shows, the result is a rise in both the equilibrium price and quantity of software.Figure 4.17Since typewriters are substitutes for computers, the increased equilibrium quantity of computers reduces the demand for typewriters. As Figure 4.18 shows, the result is a decline in both theequilibrium price and quantity of typewriters.Figure 4.185 a When an outbreak of ‘foot and mouth’ disease hits sheep farms in New Zealand, it raises inputprices for producing woollen jumpers. As a result, the supply of woollen jumpers shifts to the left, as shown in Figure 4.19. The new equilibrium has a higher price and lower quantity of woollen jumpers. Figure 4.19b A decline in the price of leather jackets leads more people to buy leather jackets, reducing thedemand for woollen jumpers. The result, shown in Figure 4.20, is a decline in both theequilibrium price and quantity of woollen jumpers.Figure 4.20Quantity of woollen jumpers P r i c e o f w o o l l e n j u m p e r sQuantity of woollen jumpersP r i c e o f w o o l l e n j u m p e r sc Kylie wearing a woollen jumper raises the demand for woollen jumpers, as shown in Figure4.21. The result is an increase in both the equilibrium price and quantity of woollen jumpers. Figure 4.21d The invention of new knitting machines increases the supply of woollen jumpers. As Figure 4.22shows, the result is a reduction in the equilibrium price and an increase in the equilibriumquantity of woollen jumpers.Figure 4.22P r i c e o f W o o l l e n J u m p e r sQuantity of Woollen Jumpers Quantity of Woollen JumpersP r i c e o f W o o l l e n J u m p e r s6 A temporarily high birth rate in the year 2005 leads to opposite effects on the price of babysittingservices in the years 2010 and 2020. In the year 2010, there are more 5-year-olds who need sitters, so the demand for babysitting services rises, as shown in Figure 4.23. The result is a higher price for babysitting services in 2010. However, in the year 2020, the increased number of 15-year-olds shifts the supply of babysitting services to the right, as shown in Figure 4.24. The result is a decline in the price of babysitting services.Figure 4.23Figure 4.247Since tomato sauce is a complement for hot dogs, when the price of hot dogs rises, the quantity demanded of hot dogs falls, thus reducing the demand for tomato sauce, causing both price and quantity of tomato sauce to fall. Since the quantity of tomato sauce falls, the demand for tomatoes by tomato sauce producers falls, so both price and quantity of tomatoes fall. When the price of tomatoes falls, producers of tomato juice face lower input prices, so the supply curve for tomato juice shifts down, causing the price of tomato juice to fall and the quantity of tomato juice to rise. The fall in the price of tomato juice causes people to substitute tomato juice for orange juice, so the demand for orange juice declines, causing the price and quantity of orange juice to fall. Now you can see clearly why a rise in the price of hot dogs leads to a fall in price of orange juice!8 a Cigars and chewing tobacco are substitutes for cigarettes, since a higher price for cigaretteswould increase demand for cigars and pipe tobacco.b An increase in the tax on cigarettes leads to increased demand for cigars and pipe tobacco. Theresult, as shown in Figure 4.25 for cigars, is a rise in both the equilibrium price and quantity of cigars and pipe tobacco.Figure 4.25c The results in part (b) showed that a tax on cigarettes leads people to substitute cigars and pipetobacco for cigarettes when the tax on cigarettes rises. To reduce total tobacco usage,policymakers might also want to increase the tax on cigars and pipe tobacco, or pursue sometype of public education program.9Quantity supplied equals quantity demanded at a price of $6 and quantity of 81 pizzas (Figure 4.26).If price were greater than $6, quantity supplied would exceed quantity demanded, so suppliers would reduce their price to gain sales. If price were less than $6, quantity demanded would exceed quantity supplied, so suppliers could raise their price without losing sales. In both cases, the price would continue to adjust until it reached $6, the only price at which there is neither surplus nor shortage. Figure 4.2610 a If the price of flour falls, since flour is an ingredient in bagels, the supply curve for bagels wouldshift to the right. The result, shown in Figure 4.27, would be a fall in the price of bagels and arise in the equilibrium quantity of bagels. Since cream cheese is a complement to bagels, the rise in quantity demanded of bagels increases the demand for cream cheese, as shown in Figure 4.28.The result is a rise in both the equilibrium price and quantity of cream cheese. So, a fall in theprice of flour indeed raises both the equilibrium price of cream cheese and the equilibriumquantity of bagels.Figure 4.27Figure 4.28What happens if the price of milk falls? Since milk is an ingredient in cream cheese, the fall in the price of milk leads to an increase in the supply of cream cheese. This leads to a decrease in the price of cream cheese (Figure 4.29), rather than a rise in the price of cream cheese. So a fall in the price of milk couldn't have been responsible for the pattern observed.Figure 4.29b In part (a), we found that a fall in the price of flour led to a rise in the price of cream cheese anda rise in the equilibrium quantity of bagels. If the price of flour rose, the opposite would be true;it would lead to a fall in the price of cream cheese and a fall in the equilibrium quantity ofbagels. Since the question says the equilibrium price of cream cheese has risen, it couldn't have been caused by a rise in the price of flour.What happens if the price of milk rises? From part (a), we found that a fall in the price of milk caused a decline in the price of cream cheese, so a rise in the price of milk would cause a rise in the price of cream cheese. Since bagels and cream cheese are complements, the rise in the price of cream cheese would reduce the demand for bagels, as Figure 4.30 shows. The result is adecline in the equilibrium quantity of bagels. So a rise in the price of milk does cause both a rise in the price of cream cheese and a decline in the equilibrium quantity of bagels.Figure 4.3011 a As Figure 4.31 shows, the supply curve is vertical. The constant supply makes sense because thepicture theatre has a fixed number of seats no matter what the price.Figure 4.31b Quantity supplied equals quantity demanded at a price of $8. The equilibrium quantity is 800tickets. cPriceQuantity demandedQuantity supplied$4 1400 800 8 1100 800 12 800 800 16 500 800 20 200800The new equilibrium price will be $12, which equates quantity demanded to quantity supplied. The equilibrium quantity is 800 tickets.P r i c e o f p i c t u r e t h e a t r e t i c k e t sQuantity of picture theatre tickets 80012The executives are confusing changes in demand with changes in quantity demanded. Figure 4.32 shows the demand curve prior to the marketing campaign (D1), and after the campaign (D2). The marketing campaign increased the demand for champagne, as shown, leading to a higher equilibrium price and quantity. The influence of the higher price on demand is already reflected in the outcome.It's impossible for the scenario outlined by the executives to occur.Figure 4.3213 At equilibrium Q S=Q D. Therefore here:1400 + 700P = 1600 – 300P1000P = 200P = $0.20The equilibrium price is $0.20 per bar of chocolate. Substitute this into either Q S or Q D to get the equilibrium quantity of 1540 bars of chocolate.。

6.The holders of money pay the inflation tax. As prices rise, the real value of the moneythat people hold falls—that is, a given amount of money buys fewer goods and services since prices are higher.7.The Fisher equation expresses the relationship between nominal and real interestrates. It says that the nominal interest rate i equals the real interest rate r plus the inflation rate π:i= r+ π.This tells us that the nominal interest rate can change either because the real interest rate changes or the inflation rate changes. The real interest rate is assumed to be unaf-fected by inflation; as discussed in Chapter 3, it adjusts to equilibrate saving and investment. There is thus a one-to-one relationship between the inflation rate and the nominal interest rate: if inflation increases by 1 percent, then the nominal interest rate also increases by 1 percent. This one-to-one relationship is called the Fisher effect.If inflation increases from 6 to 8 percent, then the Fisher effect implies that the nominal interest rate increases by 2 percentage points, while the real interest rate remains constant.8.The costs of expected inflation include the following:a.Shoeleather costs.H igher inflation means higher nominal interest rates, whichmean that people want to hold lower real money balances. If people hold lowermoney balances, they must make more frequent trips to the bank to withdrawmoney. This is inconvenient (and it causes shoes to wear out more quickly).b.Menu costs.H igher inflation induces firms to change their posted prices moreoften. This may be costly if they must reprint their menus and catalogs.c.Greater variability in relative prices. If firms change their prices infrequently,then inflation causes greater variability in relative prices. Since free-marketeconomies rely on relative prices to allocate resources efficiently, inflation leads tomicroeconomic inefficiencies.d.Altered tax liabilities.Many provisions of the tax code do not take into account theeffect of inflation. Hence, inflation can alter individuals’ and firms’ tax liabilities,often in ways that lawmakers did not intend.e.The inconvenience of a changing price level.It is inconvenient to live in a worldwith a changing price level. Money is the yardstick with which we measure eco-nomic transactions. Money is a less useful measure when its value is alwayschanging.There is an additional cost to unexpected inflation:f.Arbitrary redistributions of wealth.Unexpected inflation arbitrarily redistributeswealth among individuals. For example, if inflation is higher than expected,debtors gain and creditors lose. Also, people with fixed pensions are hurt becausetheir dollars buy fewer goods.9.Hyperinflation is always a reflection of monetary policy. That is, the price level cannotgrow rapidly unless the supply of money also grows rapidly; and hyperinflations do not end unless the government drastically reduces money growth. This explanation, howev-er, begs a central question: Why does the government start and then stop printing lots of money? The answer almost always lies in fiscal policy: When the government has a large budget deficit (possibly due to a recent war or some other major event) that it can-not fund by borrowing, it resorts to printing money to pay its bills. And only when this fiscal problem is alleviated—by reducing government spending and collecting more taxes—can the government hope to slow its rate of money growth.10.Real variables are measured in physical units, and nominal variables are measured interms of money. Real variables have been adjusted for inflation and are often measured in terms of constant dollars, while nominal variables are measured in terms of current dollars. For example, real GDP is measured in terms of constant base-year dollars, while nominal GDP is measured in current dollars. An increase in real GDP means weand growth of M 3 was 22 percent. Note that countries with higher rates of inflation have higher nominal interest rates. To show that countries with higher rates of money growth have higher rates of inflation is more difficult and requires gathering data on inflation and money growth across a range of years. Money growth can vary substan-tially from year to year within a country, and this is not always immediately reflected in the inflation rate.As another example, in the twelve months ending in November 2001, consumer prices in Turkey rose 69 percent from a year earlier, M 1 rose 55 percent while M 2 rose 52 percent, and short-term interest rates were 54 percent. By contrast, in the United States in the twelve months ending in December 2001, consumer prices rose about 2percent, M 1 rose 8 percent, M 2 rose 14 percent; and short-term interest rates were a little under 2 percent. These data are consistent with the theories in the chapter, in that high-inflation countries have higher rates of money growth and also higher nomi-nal interest rates.More Problems and Applications to Chapter 41.With constant money growth at rate µ, the question tells us that the Cagan modelimplies that p t = m t + γµ. This question draws out the implications of this equation.a.One way to interpret this result is to rearrange to find:m t – p t = –γµ.That is, real balances depend on the money growth rate. As the growth rate of money rises, real balances fall. This makes sense in terms of the model in this chapter, since faster money growth implies faster inflation, which makes it less desirable to hold money balances.b.With unchanged growth in the money supply, the increase in the level of the money supply m t increases the price level p t one-for-one. c.With unchanged current money supply m t , a change in the growth rate of money µchanges the price level in the same direction. d.When the central bank reduces the rate of money growth µ, the price level willimmediately fall. To offset this decline in the price level, the central bank can increase the current level of the money supply m t , as we found in part (b). These answers assume that at each point in time, private agents expect the growth rate of money to remain unchanged, so that the change in policy takes them by sur-prise—but once it happens, it is completely credible. A practical problem is that the private sector might not find it credible that an increase in the current money supply signals a decrease in future money growth rates.e.If money demand does not depend on the expected rate of inflation, then the price level changes only when the money supply itself changes. That is, changes in the growth rate of money µdo not affect the price level. In part (d), the central bank can keep the current price level p t constant simply by keeping the current money supply m tconstant.。

圣才考研网 ——考研考博专业课辅导―中国第一品牌咨询 QQ：1224978229第2篇 第4章市场如何运行供给与需求的市场力量一、概念题 1．市场（market） 答： 市场指某种物品或劳务的买者与卖者组成的一个群体。

买者作为一个群体决定了一 种物品或劳务的需求，而卖者作为一个群体决定了一种物品或劳务的供给。

市场作为商品经济的范畴，具有三层含义：一是指商品交换的场所；二是指由商品供求 双方及其中介人之间， 围绕着体现各自利益的价格而展开激烈竞争所形成的各种经济关系总 和； 三是指调节社会经济运行的一种关系。

贯穿于这三层含义并能统一于市场这一范畴的核 心是商品交换，或者说是商品流通。

2．竞争市场（competitive market） 答： 竞争市场指有许多买者和卖者， 以至于每一个人对市场价格的影响都微不足道的市 场。

竞争市场一般指完全竞争市场。

完全竞争，又称为纯粹竞争，是指不存在任何阻碍和干 扰竞争因素的市场情况， 亦即没有任何垄断因素的市场结构。

完全竞争市场需要具备以下四 个条件：①市场上有大量的买者和卖者；②市场上每一个厂商提供的商品都是同质的；③所 有的资源具有完全的流动性；④信息是完全的。

3．需求量（quantity demanded） 答： 需求量是指消费者在一定时期内， 在各种可能的价格水平下愿意而且能够购买的商 品的数量。

根据定义，如果消费者对某种商品只有购买的欲望而没有购买的能力，就不能算 作是需求。

需求必须是既有购买欲望又有购买能力的有效需求。

影响商品需求的因素有:该 商品的价格、消费者收入、其他相关商品价格、消费者偏好和消费者对未来的预期等。

在其 他影响因素不变的条件下，需求量与价格的关系可用需求曲线来表示。

一般说来，随着商品 价格的提高，消费者消费商品的数量减少。

4．需求定理（law of demand） 答：需求定理是有关物品价格与需求量之间关系的定理。

该定理的内容是：在其他条件 不变的情况下， 某商品的需求量与价格之间成反方向变动， 即需求量随着商品本身价格的上 升而减少，随商品价格的下降而增加。

第四篇公共部门经济学第十章外部性复习题1．举出一个负外部性的例子和一个正外部性的例子。

答：负外部性的例子：化工厂排放的化学废气，污染了环境，但它却不必承担污染的全部成本。

正外部性的例子：在临街的自家院子里种花，既美化了自己家的环境，又使邻居和路人可以欣赏到美丽的花，具有正外部性。

2．用供求图解释生产中负外部性的影响。

图10－1 存在负外部性的供求图答：生产中的外部性使该物品的社会成本大于私人成本，生产该物品的最优数量小于其均衡数量，即市场量。

3．专利制用什么方法帮助社会解决了一个外部性问题?答：专利制利用法律法规的形式规定专利发明者可以在一定时期排他性的使用自己的发明的权利，激励发明者更多地进行新技术研究，科技发明的正外部性内在化。

4．列出不用政府干预时也可以解决外部性引起的问题的一些方法。

答：私人解决外部性所引起的问题的方法有：(1)用道德规范和社会约束来解决；(2)慈善行为；(3)通过依靠有关各方的私利来解决外部性问题；(4)利益各方签订合约。

5．设想你与一个吸烟者同住一间房，但你不吸烟。

根据科斯定理，什么因素决定了你的室友是否在房间里吸烟?这个结果有效率吗?你和你室友如何达成这种解决方法?答：根据科斯定理，如果我被迫吸烟所承受的成本大于我的室友吸烟所获得的收益，我的室友就不应该在房间里吸烟。

如果我的成本小于室友的收益，她就可以在房间里吸烟。

我可以通过对她进行吸烟有害的教育，同时给她买一些糖果以缓解她不能吸烟的痛苦，来与她达成协议——她以后不在房间里吸烟。

6．为什么经济学家对庇古税作为一种保护环境免受污染的方法的偏好大于管制?答：经济学家偏爱庇古税，首先是因为它减少污染更有效率。

庇古税实际上规定了污染权的价格，并把污染权分配给那些减少污染成本最高的工厂。

无论环境保护机构选择的污染水平是多少，它都可以用税收以最低的总成本达到这个目标。

其次，庇古税对环境更有利。

在管制政策下，企业被动地减少污染，一旦达到了管制的要求，它就没有理由再减少排污。

WHAT’S NEW IN THE SIXTH EDITION:There are no major changes to this chapter.LEARNING OBJECTIVES:By the end of this chapter, students should understand: the link between buyers’ willingness to pay for a good and the demand curve. how to define and measure consumer surplus. the link between sellers’ costs of producing a good and the supply curve. how to define and measure producer surplus. that the equilibrium of supply and demand maximizes total surplus in a market.CONTEXT AND PURPOSE:Chapter 7 is the first chapter in a three-chapter sequence on welfare economics and market efficiency. Chapter 7 employs the supply and demand model to develop consumer surplus and producer surplus as a measure of welfare and market efficiency. These concepts are then utilized in Chapters 8 and 9 to determine the winners and losers from taxation and restrictions on international trade. The purpose of Chapter 7 is to develop welfare economics —the study of how the allocation of resources affects economic well-being. Chapters 4 through 6 employed supply and demand in a positive framework, which focused on the question, “What is the equilibrium price and quantity in a market” This chapter now addresses the normative question, “Is the equilibri um price and quantity in a market the best possible solution to the resource allocation problem, or is it simply the price and quantity that balance supply and demand” Students will discover that under most circumstances the equilibrium price and quantity is also the one that maximizes welfare.CONSUMERS, PRODUCERS, AND THEEFFICIENCY OF MARKETSKEY POINTS:Consumer surplus equals buyers’ willingness to pay for a good minus the amount they actually pay for it, and it measures the benefit buyers get from participating in a market. Consumer surplus can be computed by finding the area below the demand curve and above the price.Producer surplus equals the amount sellers receive for their goods minus their costs of production, and it measures the benefit sellers get from participating in a market. Producer surplus can be computed by finding the area below the price and above the supply curve.An allocation of resources that maximizes the sum of consumer and producer surplus is said to be efficient.Policymakers are often concerned with the efficiency, as well as the equality, of economic outcomes.The equilibrium of supply and demand maximizes the sum of consumer and producer surplus. That is, the invisible hand of the marketplace leads buyers and sellers to allocate resources efficiently.Markets do not allocate resources efficiently in the presence of market failures such as market power or externalities.CHAPTER OUTLINE:I. Definition of welfare economics: the study of how the allocation of resources affects economic well-being.II. Consumer SurplusA. Willingness to Pay1. Definition of willingness to pay: the maximum amount that a buyer will pay for a good.2. Example: You are auctioning a mint-condition recording of Elvis Presley’s first album. Four buyersshow up. Their willingness to pay is as follows:If the bidding goes to slightly higher than $80, all buyers drop out except for John.Because John is willing to pay more than he has to for the album, he derives somebenefit from participating in the market.3. Definition of consumer surplus: the amount a buyer is willing to pay for a good minus the amountthe buyer actually pays for it.4. Note that if you had more than one copy of the album, the price in the auction would end up beinglower (a little over $70 in the case of two albums) and both John and Paul would gain consumer surplus.B. Using the Demand Curve to Measure Consumer Surplus1. We can use the information on willingness to pay to derive a demand curve for the rare Elvis Presleyalbum.PriceBuyersQuantity DemandedMore than $100 None 0 $80 to $100 John1 $70 to $80 John, Paul2 $50 to $70 John, Paul, George3 $50 or lessJohn, Paul, George, Ringo42. At any given quantity, the price given by the demand curve reflects the willingness to pay of themarginal buyer . Because the demand curve shows the buyers’ willingness to pay, we can use the demand curve to measure consumer surplus.Figure 1 “This represents the demand curve for the time machine. Consumer surplus is the difference between what consumers are willing to pay and the amount they actually have to pay. The market price will determine who uses the time machi ne and how much surplus they keep.”“If the price of a time machine ride was $500, three rides would be sold—one to Scott, one to Carol, and one to Steve. Jeanne is not willing to pay $500, so she wouldn’t time travel.”“We can calculate the consumer su rplus of three time trips. Scott would pay $3,000 but only pays $500, leaving $2,500 of net benefits.” (Put these numbers on the board.) “Carol has net benefits of $2,000. Steve has $300 in net benefits. Adding up these net savings gives $4,800 in consumer surplus.”Points for DiscussionThe consumer surplus depends on a good’s selling price and the number of consumers who are willing to purchase the good at that price. The lower the price, the greater the consumer surplus.Figure 23. Consumer surplus can be measured as the area below the demand curve and above the price.C. How a Lower Price Raises Consumer SurplusFigure 31. As price falls, consumer surplus increases for two reasons.a. Those already buying the product will receive additional consumer surplus because they arepaying less for the product than before (area A on the graph).b. Because the price is now lower, some new buyers will enter the market and receive consumersurplus on these additional units of output purchased (area B on the graph).D. What Does Consumer Surplus MeasureIt is important to stress that consumer surplus is measured in monetary terms. Consumersurplus gives us a way to place a monetary cost on inefficient market outcomes (due togovernment involvement or market failure).1. Remember that consumer surplus is the difference between the amount that buyers are willing topay for a good and the price that they actually pay.2. Thus, it measures the benefit that consumers receive from the good as the buyers themselvesperceive it.III. Producer SurplusA. Cost and the Willingness to Sell1. Definition of cost: the value of everything a seller must give up to produce a good .2. Example: You want to hire someone to paint your house. You accept bids for the work from foursellers. Each painter is willing to work if the price you will pay exceeds her opportunity cost. (Note that this opportunity cost thus represents willingness to sell.) The costs are:3. Bidding will stop when the price gets to be slightly below $600. All sellers will drop out except forGrandma. Because Grandma receives more than she would require to paint the house, she derives some benefit from producing in the market.4. Definition of producer surplus : the amount a seller is paid for a good minus the seller’s cost ofproviding it.5. Note that if you had more than one house to paint, the price in the auction would end up beinghigher (a little under $800 in the case of two houses) and both Grandma and Georgia would gain producer surplus.ALTERNATIVE CLASSROOM EXAMPLE:Review the material on price ceilings from Chapter 6. Redraw the market for two-bedroom apartments in your town. Draw in a price ceiling below the equilibrium price.Then go through: consumer surplus before the price ceiling is put into place. consumer surplus after the price ceiling is put into place.B. Using the Supply Curve to Measure Producer Surplus1. We can use the information on cost (willingness to sell) to derive a supply curve for house paintingservices.Price Sellers Quantity Supplied$900 or more Mary, Frida, Georgia, Grandma4$800 to $900Frida, Georgia, Grandma3$600 to $800Georgia, Grandma2$500 to $600Grandma1less than $500None02. At any given quantity, the price given by the supply curve represents the cost of the marginal seller.Because the supply curve shows the sellers’ cost (willingness to sell), we can use the supply curve to measure producer surplus.3. Producer surplus can be measured as the area above the supply curve and below the price.Figure 4Figure 5C. How a Higher Price Raises Producer Surplus1. As price rises, producer surplus increases for two reasons.a. Those already selling the product will receive additional producer surplus because they arereceiving more for the product than before (area C on the graph).b. Because the price is now higher, some new sellers will enter the market and receive producersurplus on these additional units of output sold (area D on the graph).D. Producer surplus is used to measure the economic well-being of producers, much like consumer surplus isused to measure the economic well-being of consumers.Figure 6ALTERNATIVE CLASSROOM EXAMPLE:Review the material on price floors from Chapter 6. Redraw the market for an agricultural productsuch as corn. Draw in a price support above the equilibrium price.Then go through:producer surplus before the price support is put in place.producer surplus after the price support is put in place.Make sure that you discuss the cost of the price support to taxpayers.Pretty Woman, Chapter 6. Vivien (Julia Roberts) and Edward (Richard Gere) negotiate aprice. Afterward, Vivien reveals she would have accepted a lower price, while Edward admitshe would have paid more. If you have done a good job of introducing consumer andproducer surplus, you will see the light bulbs go off above your students’ heads as theywatch this clip.IV. Market EfficiencyA. The Benevolent Social Planner1. The economic well-being of everyone in society can be measured by total surplus, which is the sum ofconsumer surplus and producer surplus:Total Surplus = Consumer Surplus + Producer SurplusTotal Surplus = (Value to Buyers – Amount Paid by Buyers) + (Amount Received by Sellers – Cost to Sellers)Because the Amount Paid by Buyers = Amount Received by Sellers:2. Definition ofefficiency: the property of a resource allocation of maximizing the total surplusreceived by all members of society .3. Definition of equality: the property of distributing economic prosperity uniformly the members ofsociety .B. Evaluating the Market EquilibriumTotal Surplus = Value to Buyers Cost to Sellers Figure 7 Now might be a good time to point out that many government policies involve a trade-off between efficiency and equity. When you evaluate government policies, like price ceilings or floors, you can explain them in terms of equity and efficiency.1. At the market equilibrium price:a. Buyers who value the product more than the equilibrium price will purchase the product; thosewho do not, will not purchase the product. In other words, the free market allocates the supplyof a good to the buyers who value it most highly, as measured by their willingness to pay.b. Sellers whose costs are lower than the equilibrium price will produce the product; those whosecosts are higher, will not produce the product. In other words, the free market allocates thedemand for goods to the sellers who can produce it at the lowest cost.2. Total surplus is maximized at the market equilibrium.Figure 8a. At any quantity of output smaller than the equilibrium quantity, the value of the product to themarginal buyer is greater than the cost to the marginal seller so total surplus would rise if outputincreases.b. At any quantity of output greater than the equilibrium quantity, the value of the product to themarginal buyer is less than the cost to the marginal seller so total surplus would rise if outputdecreases.3. Note that this is one of the reasons that economists believe Principle #6: Markets are usually a goodway to organize economic activity.It would be a good idea to remind students that there are circumstances when the marketprocess does not lead to the most efficient outcome. Examples include situations such aswhen a firm (or buyer) has market power over price or when there are externalities present.These situations will be discussed in later chapters.C. In the News: Ticket Scalping1. Ticket scalping is an example of how markets work to achieve an efficient outcome.2. This article from The Boston Globe describes economist Chip Case’s experience with ticket scalping.D. Case Study: Should There Be a Market in Organs1. As a matter of public policy, people are not allowed to sell their organs.a. In essence, this means that there is a price ceiling on organs of $0.b. This has led to a shortage of organs.2. The creation of a market for organs would lead to a more efficient allocation of resources, but criticsworry about the equity of a market system for organs.V. Market Efficiency and Market FailureA. To conclude that markets are efficient, we made several assumptions about how markets worked.1. Perfectly competitive markets.2. No externalities.B. When these assumptions do not hold, the market equilibrium may not be efficient.C. When markets fail, public policy can potentially remedy the situation.SOLUTIONS TO TEXT PROBLEMS:Quick Quizzes1. Figure 1 shows the demand curve for turkey. The price of turkey is P1 and the consumer surplus thatresults from that price is denoted CS. Consumer surplus is the amount a buyer is willing to pay for agood minus the amount the buyer actually pays for it. It measures the benefit to buyers ofparticipating in a market.Figure 1 Figure 22. Figure 2 shows the supply curve for turkey. The price of turkey is P1 and the producer surplus thatresults from that price is denoted PS. Producer surplus is the amount sellers are paid for a goodminus the sellers’ cost of providing it (measured by the supply curve). It measures the benefit tosellers of participating in a market.Figure 33. Figure 3 shows the supply and demand for turkey. The price of turkey is P1, consumer surplus is CS,and producer surplus is PS. Producing more turkeys than the equilibrium quantity would lower totalsurplus because the value to the marginal buyer would be lower than the cost to the marginal selleron those additional units.Questions for Review1. The price a buyer is willing to pay, consumer surplus, and the demand curve are all closely related.The height of the demand curve represents the willingness to pay of the buyers. Consumer surplus isthe area below the demand curve and above the price, which equals the price that each buyer iswilling to pay minus the price actually paid.2. Sellers' costs, producer surplus, and the supply curve are all closely related. The height of the supplycurve represents the costs of the sellers. Producer surplus is the area below the price and above thesupply curve, which equals the price received minus each seller's costs of producing the good.Figure 43. Figure 4 shows producer and consumer surplus in a supply-and-demand diagram.4. An allocation of resources is efficient if it maximizes total surplus, the sum of consumer surplus andproducer surplus. But efficiency may not be the only goal of economic policymakers; they may also beconcerned about equitythe fairness of the distribution of well-being.5. The invisible hand of the marketplace guides the self-interest of buyers and sellers into promotinggeneral economic well-being. Despite decentralized decision making and self-interested decisionmakers, free markets often lead to an efficient outcome.6. Two types of market failure are market power and externalities. Market power may cause marketoutcomes to be inefficient because firms may cause price and quantity to differ from the levels theywould be under perfect competition, which keeps total surplus from being maximized. Externalitiesare side effects that are not taken into account by buyers and sellers. As a result, the free marketdoes not maximize total surplus.Problems and Applications1. a. Consumer surplus is equal to willingness to pay minus the price paid. Therefore, Melissa’swillingness to pay must be $200 ($120 + $80).b. Her consumer surplus at a price of $90 would be $200 $90 = $110.c. If the price of an iPod was $250, Melissa would not have purchased one because the price isgreater than her willingness to pay. Therefore, she would receive no consumer surplus.2. If an early freeze in California sours the lemon crop, the supply curve for lemons shifts to the left, asshown in Figure 5. The result is a rise in the price of lemons and a decline in consumer surplus from A+ B + C to just A. So consumer surplus declines by the amount B + C.Figure 5 Figure 6In the market for lemonade, the higher cost of lemons reduces the supply of lemonade, as shown inFigure 6. The result is a rise in the price of lemonade and a decline in consumer surplus from D + E + Fto just D, a loss of E + F. Note that an event that affects consumer surplus in one market often haseffects on consumer surplus in other markets.3. A rise in the demand for French bread leads to an increase in producer surplus in the market forFrench bread, as shown in Figure 7. The shift of the demand curve leads to an increased price, which increases producer surplus from area A to area A + B + C.Figure 7The increased quantity of French bread being sold increases the demand for flour, as shown in Figure8. As a result, the price of flour rises, increasing producer surplus from area D to D + E + F. Note thatan event that affects producer surplus in one market leads to effects on producer surplus in related markets.Figure 84. a. Bert’s demand schedule is:Price Quantity DemandedMore than $70$5 to $71$3 to $52$1 to $33$1 or less4Bert’s demand curve is shown in Figure 9.Figure 9b. When the price of a bottle of water is $4, Bert buys two bottles of water. His consumer surplus isshown as area A in the figure. He values his first bottle of water at $7, but pays only $4 for it, so has consumer surplus of $3. He values his second bottle of water at $5, but pays only $4 for it, so has consumer surplus of $1. Thus Bert’s total consumer surplus is $3 + $1 = $4, which is the area of A in the figure.c. When the price of a bottle of water falls from $4 to $2, Bert buys three bottles of water, anincrease of one. His consumer surplus consists of both areas A and B in the figure, an increase in the amount of area B. He gets consumer surplus of $5 from the first bottle ($7 value minus $2price), $3 from the second bottle ($5 value minus $2 price), and $1 from the third bottle ($3value minus $2 price), for a total consumer surplus of $9. Thus consumer surplus rises by $5(which is the size of area B) when the price of a bottle of water falls from $4 to $2.5. a. Ernie’s supply schedule for water is:Price Quantity SuppliedMore than $74$5 to $73$3 to $52$1 to $31Less than $10Ernie’s supply curve i s shown in Figure 10.Figure 10b. When the price of a bottle of water is $4, Ernie sells two bottles of water. His producer surplus isshown as area A in the figure. He receives $4 for his first bottle of water, but it costs only $1 toproduce, so Ernie has producer surplus of $3. He also receives $4 for his second bottle of water, which costs $3 to produce, so he has producer surplus of $1. Thus Ernie’s total producer surplus is $3 + $1 = $4, which is the area of A in the figure.c. When the price of a bottle of water rises from $4 to $6, Ernie sells three bottles of water, anincrease of one. His producer surplus consists of both areas A and B in the figure, an increase by the amount of area B. He gets producer surplus of $5 from the first bottle ($6 price minus $1cost), $3 from the second bottle ($6 price minus $3 cost), and $1 from the third bottle ($6 priceminus $5 price), for a total producer surplus of $9. Thus producer surplus rises by $5 (which is the size of area B) when the price of a bottle of water rises from $4 to $6.6. a. From Ernie’s supply schedule and Bert’s demand schedule, the quantity demanded and suppliedare:Price Quantity Supplied Quantity Demanded$213$422$631Only a price of $4 brings supply and demand into equilibrium, with an equilibrium quantity oftwo.b. At a price of $4, consumer surplus is $4 and producer surplus is $4, as shown in Problems 3 and 4above. Total surplus is $4 + $4 = $8.c. If Ernie produced one less bottle, his producer surplus would decline to $3, as shown in Problem4 above. If Bert consumed one less bottle, his consumer surplus would decline to $3, as shown inProblem 3 above. So total surplus would decline to $3 + $3 = $6.d. If Ernie produced one additional bottle of water, his cost would be $5, but the price is only $4, sohis producer surplus would decline by $1. If Bert consumed one additional bottle of water, hisvalue would be $3, but the price is $4, so his consumer surplus would decline by $1. So totalsurplus declines by $1 + $1 = $2.7. a. The effect of falling production costs in the market for stereos results in a shift to the right in thesupply curve, as shown in Figure 11. As a result, the equilibrium price of stereos declines and the equilibrium quantity increases.Figure 11b. The decline in the price of stereos increases consumer surplus from area A to A + B + C + D, anincrease in the amount B + C + D. Prior to the shift in supply, producer surplus was areas B + E(the area above the supply curve and below the price). After the shift in supply, producer surplus is areas E + F + G. So producer surplus changes by the amount F + G – B, which may be positive or negative. The increase in quantity increases producer surplus, while the decline in the pricereduces producer surplus. Because consumer surplus rises by B + C + D and producer surplusrises by F + G – B, total surplus rises by C + D + F + G.c. If the supply of stereos is very elastic, then the shift of the supply curve benefits consumers most.To take the most dramatic case, suppose the supply curve were horizontal, as shown in Figure 12.Then there is no producer surplus at all. Consumers capture all the benefits of falling productioncosts, with consumer surplus rising from area A to area A + B.Figure 128. Figure 13 shows supply and demand curves for haircuts. Supply equals demand at a quantity of threehaircuts and a price between $4 and $5. Firms A, C, and D should cut the hair of Ellen, Jerry, and Phil.Oprah’s willingness to pay is too low and firm B’s costs are too high, so they do not participate. The maximum total surplus is the area between the demand and supply curves, which totals $11 ($8 value minus $2 cost for the first haircut, plus $7 value minus $3 cost for the second, plus $5 value minus $4 cost for the third).Figure 139. a. The effect of falling production costs in the market for computers results in a shift to the right inthe supply curve, as shown in Figure 14. As a result, the equilibrium price of computers declines and the equilibrium quantity increases. The decline in the price of computers increases consumer surplus from area A to A + B + C + D, an increase in the amount B + C + D.Figure 14 Figure 15Prior to the shift in supply, producer surplus was areas B + E (the area above the supply curve and below the price). After the shift in supply, producer surplus is areas E + F + G. So producer surplus changes by the amount F + G – B, which may be positive or negative. The increase in quantity increases producer surplus, while the decline in the price reduces producer surplus.Because consumer surplus rises by B + C + D and producer surplus rises by F + G – B, total surplus rises by C + D + F + G.b. Because typewriters are substitutes for computers, the decline in the price of computers meansthat people substitute computers for typewriters, shifting the demand for typewriters to the left, as shown in Figure 15. The result is a decline in both the equilibrium price and equilibriumquantity of typewriters. Consumer surplus in the typewriter market changes from area A + B to A + C, a net change of C – B. Producer surplus changes from area C + D + E to area E, a net loss of C + D. Typewriter producers are sad about technological advances in computers because their producer surplus declines.c. Because software and computers are complements, the decline in the price and increase in thequantity of computers means that the demand for software increases, shifting the demand forsoftware to the right, as shown in Figure 16. The result is an increase in both the price andquantity of software. Consumer surplus in the software market changes from B + C to A + B, a net change of A – C. Producer surplus changes from E to C + D + E, an increase of C + D, so softwareproducers should be happy about the technological progress in computers.Figure 16d. Yes, this analysis helps explain why Bill Gates is one the world’s richest people, because hiscompany produces a lot of software that is a complement with computers and there has beentremendous technological advance in computers.10. a. With Provider A, the cost of an extra minute is $0. With Provider B, the cost of an extra minute is$1.b. With Provider A, my friend will purchase 150 minutes [= 150 – (50)(0)]. With Provider B, myfriend would purchase 100 minutes [= 150 – (50)(1)].c. With Provider A, he would pay $120. The cost would be $100 with Provider B.Figure 17d. Figure 17 shows the friend’s demand. With Provider A, he buys 150 minutes and his cons umersurplus is equal to (1/2)(3)(150) – 120 = 105. With Provider B, his consumer surplus is equal to(1/2)(2)(100) = 100.e. I would recommend Provider A because he receives greater consumer surplus.11. a. Figure 18 illustrates the demand for medical care. If each procedure has a price of $100, quantitydemanded will be Q1 procedures.Figure 18b. If consumers pay only $20 per procedure, the quantity demanded will be Q2 procedures. Becausethe cost to society is $100, the number of procedures performed is too large to maximize totalsurplus. The quantity that maximizes total surplus is Q1 procedures, which is less than Q2.c. The use of medical care is excessive in the sense that consumers get procedures whose value isless than the cost of produ cing them. As a result, the economy’s total surplus is reduced.d. To prevent this excessive use, the consumer must bear the marginal cost of the procedure. Butthis would require eliminating insurance. Another possibility would be that the insurancecompany, which pays most of the marginal cost of the procedure ($80, in this case) could decide whether the procedure should be performed. But the insurance company does not get thebenefits of the procedure, so its decisions may not reflect the value to the consumer.。

Problems and Applications1. If an early freeze in California sours the lemon crop, the supply curve for lemons shiftsto the left, as shown in Figure 7-5. The result is a rise in the price of lemons and adecline in consumer surplus from A + B + C to just A. So consumer surplus declines by the amount B + C.Figure 7-5In the market for lemonade, the higher cost of lemons reduces the supply of lemonade, as shown in Figure 7-6. The result is a rise in the price of lemonade and a decline in consumer surplus from D + E + F to just D, a loss of E + F. Note that an event that affects consumer surplus in one market often has effects on consumer surplus in other markets.Figure 7-62. A rise in the demand for French bread leads to an increase in producer surplus in themarket for French bread, as shown in Figure 7-7. The shift of the demand curve leads to an increased price, which increases producer surplus from area A to area A + B + C.Figure 7-7The increased quantity of French bread being sold increases the demand for flour, as shown in Figure 7-8. As a result, the price of flour rises, increasing producer surplus from area D to D + E + F. Note that an event that affects producer surplus in onemarket leads to effects on producer surplus in related markets.3. a. Bert’s demand schedule is:Bert’s demand curve is shown in Figure 7-9.Figure 7-9b. When the price of a bottle of water is $4, Bert buys two bottles of water. Hisconsumer surplus is shown as area A in the figure. He values his first bottle ofwater at $7, but pays only $4 for it, so has consumer surplus of $3. He valueshis second bottle of water at $5, but pays only $4 for it, so has consumersurplus of $1. Thus Bert’s total consumer surplus is $3 + $1 = $4, which isthe area of A in the figure.c. When the price of a bottle of water falls from $4 to $2, Bert buys three bottlesof water, an increase of one. His consumer surplus consists of both areas Aand B in the figure, an increase in the amount of area B. He gets consumersurplus of $5 from the first bottle ($7 value minus $2 price), $3 from thesecond bottle ($5 value minus $2 price), and $1 from the third bottle ($3 valueminus $2 price), for a total consumer surplus of $9. Thus consumer surplusrises by $5 (which is the size of area B) when the price of a bottle of water fallsfrom $4 to $2.4. a. Ernie’s supply schedule for water is:Ernie’s supply curve is shown in Figure 7-10.Figure 7-10b. When the price of a bottle of water is $4, Ernie sells two bottles of water. Hisproducer surplus is shown as area A in the figure. He receives $4 for his firstbottle of water, but it costs only $1 to produce, so Ernie has producer surplusof $3. He also receives $4 for his second bottle of water, which costs $3 toproduce, so he has producer surplus of $1. Thus Ernie’s total producersurplus is $3 + $1 = $4, which is the area of A in the figure.c. When the price of a bottle of water rises from $4 to $6, Ernie sells three bottlesof water, an increase of one. His producer surplus consists of both areas Aand B in the figure, an increase by the amount of area B. He gets producersurplus of $5 from the first bottle ($6 price minus $1 cost), $3 from the secondbottle ($6 price minus $3 cost), and $1 from the third bottle ($6 price minus $5price), for a total producer surplus of $9. Thus producer surplus rises by $5(which is the size of area B) when the price of a bottle of water rises from $4 to$6.5. a. From Ernie’s supply schedule and Bert’s demand schedule, the quantitydemanded and supplied are:Only a price of $4 brings supply and demand into equilibrium, with anequilibrium quantity of 2.b. At a price of $4, consumer surplus is $4 and producer surplus is $4, as shownin problems 3 and 4. Total surplus is $4 + $4 = $8.c. If Ernie produced one fewer bottle, his producer surplus would decline to $3,as shown in problem 4. If Bert consumed one fewer bottle, his consumersurplus would decline to $3, as shown in problem 3. So total surplus woulddecline to $3 + $3 = $6.d. If Ernie produced one additional bottle of water, his cost would be $5, but theprice is only $4, so his producer surplus would decline by $1. If Bertconsumed one additional bottle of water, his value would be $3, but the priceis $4, so his consumer surplus would decline by $1. So total surplus declinesby $1 + $1 = $2..6. a. The effect of falling production costs in the market for stereos results in a shiftto the right in the supply curve, as shown in Figure 7-11. As a result, theequilibrium price of stereos declines and the equilibrium quantity increases.b. The decline in the price of stereos increases consumer surplus from area A to A+ B + C + D, an increase in the amount B + C + D. Prior to the shift in supply,producer surplus was areas B + E (the area above the supply curve and belowthe price). After the shift in supply, producer surplus is areas E + F + G. Soproducer surplus changes by the amount F + G - B, which may be positive ornegative. The increase in quantity increases producer surplus, while thedecline in the price reduces producer surplus. Since consumer surplus risesby B + C + D and producer surplus rises by F + G - B, total surplus rises by C +D + F + G.c. If the supply of stereos is very elastic, then the shift of the supply curvebenefits consumers most. To take the most dramatic case, suppose thesupply curve were horizontal, as shown in Figure 7-12. Then there is noproducer surplus at all. Consumers capture all the benefits of fallingproduction costs, with consumer surplus rising from area A to area A + B.Figure 7-11.Figure 7-127. Figure 7-13 shows supply and demand curves for haircuts. Supply equals demand ata quantity of three haircuts and a price between $4 and $5. Firms A, C, and D shouldcut the hair of Sally Jessy, Jerry, and Montel. Oprah’s willingness to pay is too low and firm B’s costs are too high, so they do not participate. The maximum total surplus is the area between the demand and supply curves, which totals $11 ($8 value minus $2 cost for the first haircut, plus $7 value minus $3 cost for the second, plus $5 valueminus $4 cost for the third).Figure 7-13.8. a. The effect of falling production costs in the market for computers results in ashift to the right in the supply curve, as shown in Figure 7-14. As a result, theequilibrium price of computers declines and the equilibrium quantity increases.The decline in the price of computers increases consumer surplus from area Ato A + B + C + D, an increase in the amount B + C + D.Figure 7-14Prior to the shift in supply, producer surplus was areas B + E (the area abovethe supply curve and below the price). After the shift in supply, producersurplus is areas E + F + G. So producer surplus changes by the amount F + G- B, which may be positive or negative. The increase in quantity increasesproducer surplus, while the decline in the price reduces producer surplus.Since consumer surplus rises by B + C + D and producer surplus rises by F + G- B, total surplus rises by C + D + F + G.Figure 7-15b. Since adding machines are substitutes for computers, the decline in the priceof computers means that people substitute computers for adding machines,shifting the demand for adding machines to the left, as shown in Figure 7-15.The result is a decline in both the equilibrium price and equilibrium quantity of adding machines. Consumer surplus in the adding-machine market changes from area A + B to A + C, a net gain of C - B. Producer surplus changes from area C + D + E to area E, a net loss of C + D. Adding machine producers are sad about technological advance in computers because their producer surplus declines.c. Since software and computers are complements, the decline in the price andincrease in the quantity of computers means that people’s demand forsoftware increases, shifting the demand for software to the right, as shown in Figure 7-16. The result is an increase in both the price and quantity ofsoftware. Consumer surplus in the software market changes from B + C to A + B, a net increase of A - C. Producer surplus changes from E to C + D + E, an increase of C + D, so software producers should be happy about thetechnological progress in computers.d. Yes, this analysis helps explain why Bill Gates is one the world’s richest men,since his company produces a lot of software that’s a complement withcomputers and there has been tremendous technological advance incomputers.Figure 7-169. a. Figure 7-17 illustrates the demand for medical care. If each procedure has aprice of $100, quantity demanded will be Q1 procedures.Figure 7-17b. If consumers pay only $20 per procedure, the quantity demanded will be Q2procedures. Since the cost to society is $100, the number of proceduresperformed is too large to maximize total surplus. The quantity thatmaximizes total surplus is Q1 procedures, which is less than Q2.c. The use of medical care is excessive in the sense that consumers getprocedures whose value is less than the cost of producing them. As a result,the economy’s total surplus is reduced.d. To prevent this excessive use, the consumer must bear the marginal cost ofthe procedure. But this would require eliminating insurance. Anotherpossibility would be that the insurance company, which pays most of themarginal cost of the procedure ($80, in this case) could decide whether theprocedure should be performed. But the insurance company doesn’t get thebenefits of the procedure, so its decisions may not reflect the value to theconsumer.10. a. Figure 7-18 illustrates the effect of the drought. The supply curve shifts tothe left, leading to a rise in the equilibrium price from P1 to P2 and a decline inthe equilibrium quantity from Q1 to Q2.Figure 7-18b. If the price of water is not allowed to change, there will be an excess demandfor water, with the shortage shown on the figure as the difference between Q1and Q3.c. The system for allocating water is inefficient because it no longer allocateswater to those who value it most highly. Some people who value water atmore than its cost of production will be unable to obtain it, so society’s totalsurplus isn’t maximized.The allocation system seems unfair as well. Water is allocated simply on pastusage, rewarding past wastefulness. If a family’s demand for water increases,say because of an increase in family size, the policy doesn’t allow them toobtain more water. Poor families, who probably used water mostly fornecessary uses like drinking, would suffer more than wealthier families whowould have to cut back only on luxury uses of water like operating backyardfountains and pools. However, the policy also keeps the price of water lower, which benefits poor families, since otherwise more of their family budgetwould have to go for water.d. If the city allowed the price of water to rise to its equilibrium price P2, theallocation would be more efficient. Quantity supplied would equal quantitydemanded and there would be no shortage. Total surplus would bemaximized.Whether the market allocation would be more or less fair than theproportionate reduction in water under the old policy is difficult to say, but it is likely to be more fair. Notice that the quantity supplied would be higher (Q2) in this case than under the water restrictions (Q3), so there’s less reduction in water usage. To make the market solution even more fair, the governmentcould provide increased tax relief or welfare payments for poor families whosuffer from paying the higher water prices.。

The Market Forces of Supply and DemandWHAT’S NEW IN THE THIRD EDITION:This chapter has been completely rearranged and rewritten.LEARNING OBJECTIVES:By the end of this chapter, students should understand:what a competitive market is.what determines the demand for a good in a competitive market.what determines the supply of a good in a competitive market.how supply and demand together set the price of a good and the quantity sold.the key role of prices in allocating scarce resources in market economies.CONTEXT AND PURPOSE:Chapter 4 is the first chapter in a three-chapter sequence that deals with supply and demand and how markets work. Chapter 4 shows how supply and demand for a good determines both the quantityproduced and the price at which the good sells. Chapter 5 will add precision to the discussion of supply and demand by addressing the concept of elasticity —the sensitivity of the quantity supplied and quantity demanded to changes in economic variables. Chapter 6 will address the impact of government policies on prices and quantities in markets.The purpose of Chapter 4 is to establish the model of supply and demand. The model of supply and demand is the foundation for the discussion for the remainder of this text. For this reason, time spent studying the concepts in this chapter will return benefits to your students throughout their study of economics. Many instructors would argue that this chapter is the most important chapter in the text.THE MARKET FORCES OF SUPPLY AND DEMAND52 Chapter 4/The Market Forces of Supply and DemandKEY POINTS:1.Economists use the model of supply and demand to analyze competitive markets. In a competitivemarket, there are many buyers and sellers, each of whom has little or no influence on the market price.2.The demand curve shows how the quantity of a good demanded depends on the price. According tothe law of demand, as the price of a good falls, the quantity demanded rises. Therefore, the demand curve slopes downward.3.In addition to price, other determinants of how much consumers want to buy include income, theprices of substitutes and complements, tastes, expectations, and the number of buyers. If one of these factors changes, the demand curve shifts.4.The supply curve shows how the quantity of a good supplied depends on the price. According to thelaw of supply, as the price of a good rises, the quantity supplied rises. Therefore, the supply curve slopes upward.5.In addition to price, other determinants of how much producers want to sell include input prices,technology, expectations, and the number of sellers. If one of these factors changes, the supply curve shifts.6.The intersection of the supply and demand curves determines the market equilibrium. At theequilibrium price, the quantity demanded equals the quantity supplied.7.The behavior of buyers and sellers naturally drives markets toward their equilibrium. When themarket price is above the equilibrium price, there is a surplus of the good, which causes the market price to fall. When the market price is below the equilibrium price, there is a shortage, which causes the market price to rise.8.To analyze how any event influences a market, we use the supply-and-demand diagram to examinehow the event affects equilibrium price and quantity. To do this we follow three steps. First, we decide whether the event shifts the supply curve or the demand curve (or both). Second, we decide which direction the curve shifts. Third, we compare the new equilibrium with the initial equilibrium.9.In market economies, prices are the signals that guide economic decisions and thereby allocatescarce resources. For every good in the economy, the price ensures that supply and demand are in balance. The equilibrium price then determines how much of the good buyers choose to purchase and how much sellers choose to produce.CHAPTER OUTLINE:I. Markets and CompetitionChapter 4/The Market Forces of Supply and Demand 53A. Definition of market: a group of buyers and sellers of a particular good orservice.B. Definition of competitive market: a market in which there are many buyers andmany sellers so that each has a negligible impact on the market price.C. Competition: Perfect and Otherwise1. Characteristics of a perfectly competitive market:a. The goods being offered for sale are all the same.b. The buyers and sellers are so numerous that none can influence themarket price.2. Because buyers and sellers must accept the market price as given, they are oftencalled "price takers."3. Not all goods are sold in a perfectly competitive market.a. A market with only one seller is called a monopoly market.b. A market with only a few sellers is called an oligopoly.c. A market with a large number of sellers, each selling a product that isslightly different from its competitors‘ products, is called monopolisticcompetition.D. We will start by studying perfect competition.II. DemandA. The Demand Curve: The Relationship between Price and Quantity Demanded1. Definition of quantity demanded: the amount of a good that buyers arewilling and able to purchase.2. One important determinant of quantity demanded is the price of the product.a. Quantity demanded is negatively related to price. This implies that thedemand curve is downward sloping.b. Definition of law of demand: the claim that, other things equal,the quantity demanded of a good falls when the price of thegood rises.54 Chapter 4/The Market Forces of Supply and Demand3. Definition of demand schedule: a table that shows the relationshipbetween the price of a good and the quantity demanded.4. Definition of demand curve: a graph of the relationship between theprice of a good and the quantity demanded. a. Price is generally drawn on the vertical axis.b.Quantity demanded is represented on the horizontal axis.Chapter 4/The Market Forces of Supply and Demand 55B. Market Demand Versus Individual Demand1.The market demand is the sum of all of the individual demands for a particular good or service.2.The demand curves are summed horizontally —meaning that the quantities demanded are added up for each level of price.3.The market demand curve shows how the total quantity demanded of a good varies with the price of the good, holding constant all other factors that affect how much consumers want to buy.C.Shifts in the Demand Curve1. The demand curve shows how much consumers want to buy at any price,holding constant the many other factors that influence buying decisions.2. If any of these other factors change, the demand curve will shift.a. An increase in demand can be represented by a shift of the demandcurve to the right.b.A decrease in demand can be represented by a shift of the demand curve to the left.3.Income56 Chapter 4/The Market Forces of Supply and Demanda.The relationship between income and quantity demanded depends on what type of good the product is.b.Definition of normal good: a good for which, other things equal, an increase in income leads to an increase in demand.c.Definition of inferior good: a good for which, other things equal, an increase in income leads to a decrease in demand.4. Prices of Related Goodsa.Definition of substitutes: two goods for which an increase in theprice of one good leads to an increase in the demand for the other.b.Definition of complements: two goods for which an increase in the price of one good leads to a decrease in the demand for the other.5. Tastes6.Expectationsa. Future Incomeb.Future Prices7. Number of BuyersD.Case Study: Two Ways to Reduce the Quantity of Smoking Demanded1.Public service announcements, mandatory health warnings on cigarette packages, and the prohibition of cigarette advertising on television are policies designed to reduce the demand for cigarettes (and shift the demand curve to the left). 2.Raising the price of cigarettes (through tobacco taxes) lowers the quantity of cigarettes demanded.Chapter 4/The Market Forces of Supply and Demand 57a. The demand curve does not shift in this case, however.b. An increase in the price of cigarettes can be shown by a movementalong the original demand curve.3. Studies have shown that a 10% increase in the price of cigarettes causes a 4%reduction in the quantity of cigarettes demanded. For teens a 10% increase inprice leads to a 12% drop in quantity demanded.4. Studies have also shown that a decrease in the price of cigarettes is associatedwith greater use of marijuana. Thus, it appears that tobacco and marijuana arecomplements.III. SupplyA. The Supply Curve: The Relationship between Price and Quantity Supplied1. Definition of quantity supplied: the amount of a good that sellers arewilling and able to sell.a. Quantity supplied is positively related to price.b. Definition of law of supply: the claim that, other things equal, thequantity supplied of a good rises when the price of the goodrises.2. Definition of supply schedule: a table that shows the relationshipbetween the price of a good and the quantity supplied.3. Definition of supply curve: a graph of the relationship between the priceof a good and the quantity supplied.58 Chapter 4/The Market Forces of Supply and DemandB.Market Supply Versus Individual Supply1. The market supply curve can be found by summing individual supply curves.2. Individual supply curves are summed horizontally at every price.3.The market supply curve shows how the total quantity supplied varies as the price of the good varies.Chapter 4/The Market Forces of Supply and Demand 59C. Shifts in the Supply Curve1. The supply curve shows how much producers offer for sale at any given price, holding constant all other factors that may influence producers‘ decisions about how much to sell.2. When any of these other factors change, the supply curve will shift.a. An increase in supply can be represented by a shift of the supply curve to the right.b.A decrease in supply can be represented by a shift of the supply curve to the left.3. Input Prices4.Technology5. Expectations6. Number of SellersIV. Supply and Demand Together A.Equilibrium 1. The point where the supply and demand curves intersect is called the market‘s equilibrium.2.Definition of equilibrium: a situation in which the price has reached the level where quantity supplied equals quantity demanded.60 Chapter 4/The Market Forces of Supply and DemandDefinition of equilibrium price: the price that balances quantity supplied and quantity demanded.4.The equilibrium price is often called the "market-clearing" price because both buyers and sellers are satisfied at this price.5.Definition of equilibrium quantity: the quantity supplied and the quantity demanded at the equilibrium price.6. If the actual market price is higher than the equilibrium price, there will be asurplus of the good.a. Definition of surplus: a situation in which quantity supplied isgreater than quantity demanded.b.To eliminate the surplus, producers will lower the price until the marketreaches equilibrium.7. If the actual price is lower than the equilibrium price, there will be a shortage ofthe good.a. Definition of shortage: a situation in which quantity demanded isgreater than quantity supplied.b.Sellers will respond to the shortage by raising the price of the good untilthe market reaches equilibrium. Array8. Definition of the law of supply and demand: the claim that the price ofany good adjusts to bring the supply and demand for that good intobalance.B.Three Steps to Analyzing Changes in Equilibrium1. Decide whether the event shifts the supply or demand curve (or perhaps both).2. Decide in which direction the curve shifts.3.Use the supply-and-demand diagram to see how the shift changes the equilibrium price and quantity.A.Example: A Change in Demand — the effect of hot weather on the market for ice cream.ALTERNATIVE CLASSROOM EXAMPLE:Go through these examples of events that would shift either the demand or supply of #2 lead pencils:▪ an increase in the income of consumers▪ an increase in the use of standardized exams (using opscan forms) ▪ a decrease in the price of graphite (used in the production of pencils) ▪ a decrease in the price of ink pens ▪ the start of a school year▪ new technology that lowers the cost of producing pencilsD.Shifts in Curves versus Movements Along Curves 1.A shift in the demand curve is called a "change in demand." A shift in the supply curve is called a "change in supply."2.A movement along a fixed demand curve is called a "change in quantity demanded." A movement along a fixed supply curve is called a "change in quantity supplied."E.Example: A Change in Supply — the effect of a hurricane that destroys part of the sugar-cane crop and drives up the price of sugar.F.In the News: Mother Nature Shifts the Supply Curve1.Newspaper articles about specific industries can give students practice understanding the things that affect supply and demand.2.This is an article from The New York Times that describes the effect of a freeze on the citrus market.G.Example: A Change in Both Supply and Demand —the effect of both hot weather and an earthquake which destroys several ice cream factories on the market for ice cream.H. Summary1. When an event shifts the supply or demand curve, we can examine the effectson the equilibrium price and quantity.2. Table 4 reports the end results of these shifts in supply and demand.V. Conclusion: How Prices Allocate Resources A. The model of supply and demand is a powerful tool for analyzing markets.B.Supply and demand together determine the price of the economy‘s goods and services. 1.These prices serve as signals that guide the allocation of scarce resources in the economy.2.Prices determine who produces each good and how much of each good is produced.SOLUTIONS TO TEXT PROBLEMS:Quick Quizzes 1. A market is a group of buyers (who determine demand) and a group of sellers (who determinesupply) of a particular good or service. A competitive market is one in which there are many buyers and many sellers of an identical product so that each has a negligible impact on the market price.2. Here‘s an example of a demand schedule for pizza:The demand curve is graphed in Figure 1.Figure 1Examples of things that would shift the demand curve include changes in income, prices ofrelated goods like soda or hot dogs, tastes, expectations about future income or prices, and the number of buyers.A change in the price of pizza would not shift this demand curve; it would only lead us to movefrom one point to another along the same demand curve.3. Here is an example of a supply schedule for pizza:The supply curve is graphed in Figure 2.Figure 2Examples of things that would shift the supply curve include changes in prices of inputs liketomato sauce and cheese, changes in technology like more efficient pizza ovens or automaticdough makers, changes in expectations about the future price of pizza, or a change in thenumber of sellers.A change in the price of pizza would not shift this supply curve; it would only move from onepoint to another along the same supply curve.4. If the price of tomatoes rises, the supply curve for pizza shifts to the left because of theincreased price of an input into pizza production, but there is no effect on demand. The shift to the left of the supply curve causes the equilibrium price to rise and the equilibrium quantity todecline, as Figure 3 shows.If the price of hamburgers falls, the demand curve for pizza shifts to the left because the lower price of hamburgers will lead consumers to buy more hamburgers and less pizza, but there is no effect on supply. The shift to the left of the demand curve causes the equilibrium price to falland the equilibrium quantity to decline, as Figure 4 shows.Figure 3Questions for Review1. A competitive market is a market in which there are many buyers and many sellers of an identicalproduct so that each has a negligible impact on the market price. Other types of markets includemonopoly, in which there is only one seller, oligopoly, in which there are a few sellers that do notalways compete aggressively, and monopolistically competitive markets, in which there are many sellers, each offering a slightly different product.2. The quantity of a good that buyers demand is determined by the price of the good, income, theprices of related goods, tastes, expectations, and the number of buyers.3. The demand schedule is a table that shows the relationship between the price of a good and thequantity demanded. The demand curve is the downward-sloping line relating price and quantity demanded. The demand schedule and demand curve are related because the demand curve is simply a graph showing the points in the demand schedule.The demand curve slopes downward because of the law of demand—other things equal, whenthe price of a good rises, the quantity demanded of the good falls. People buy less of a goodwhen its price rises, both because they cannot afford to buy as much and because they switch to purchasing other goods.4. A change in consumers' tastes leads to a shift of the demand curve. A change in price leads to amovement along the demand curve.5. Since Popeye buys more spinach when his income falls, spinach is an inferior good for him.Since he buys more spinach, but the price of spinach is unchanged, his demand curve for spinach shifts out as a result of the decrease in his income.6. The quantity of a good that sellers supply is determined by the price of the good, input prices,technology, expectations, and the number of sellers.7. A supply schedule is a table showing the relationship between the price of a good and thequantity a producer is willing and able to supply. The supply curve is the upward-sloping linerelating price and quantity supplied. The supply schedule and the supply curve are relatedbecause the supply curve is simply a graph showing the points in the supply schedule.The supply curve slopes upward because when the price is high, suppliers' profits increase, sothey supply more output to the market. The result is the law of supply—other things equal,when the price of a good rises, the quantity supplied of the good also rises.8. A change in producers' technology leads to a shift in the supply curve. A change in price leads toa movement along the supply curve.9. The equilibrium of a market is the point at which the quantity demanded is equal to quantitysupplied. If the price is above the equilibrium price, sellers want to sell more than buyers want to buy, so there is a surplus. Sellers try to increase their sales by cutting prices. That continues until they reach the equilibrium price. If the price is below the equilibrium price, buyers want to buy more than sellers want to sell, so there is a shortage. Sellers can raise their price withoutlosing customers. That continues until they reach the equilibrium price.10. When the price of beer rises, the demand for pizza declines, because beer and pizza arecomplements and people want to buy less beer. When we say the demand for pizza declines, we mean that the demand curve for pizza shifts to the left as in Figure 5. The supply curve for pizza is not affected. With a shift to the left in the demand curve, the equilibrium price and quantityboth decline, as the figure shows. Thus the quantity of pizza supplied and demanded both fall.In sum, supply is unchanged, demand is decreased, quantity supplied declines, quantitydemanded declines, and the price falls.Figure 511. Prices play a vital role in market economies because they bring markets into equilibrium. If theprice is different from its equilibrium level, quantity supplied and quantity demanded are notequal. The resulting surplus or shortage leads suppliers to adjust the price until equilibrium is restored. Prices thus serve as signals that guide economic decisions and allocate scarceresources.Problems and Applications1. a. Cold weather damages the orange crop, reducing the supply of oranges. This can beseen in Figure 6 as a shift to the left in the supply curve for oranges. The newequilibrium price is higher than the old equilibrium price.Figure 6b. People often travel to the Caribbean from New England to escape cold weather, sodemand for Caribbean hotel rooms is high in the winter. In the summer, fewer peopletravel to the Caribbean, since northern climes are more pleasant. The result, as shownin Figure 7, is a shift to the left in the demand curve. The equilibrium price of Caribbeanhotel rooms is thus lower in the summer than in the winter, as the figure shows.Figure 7c. When a war breaks out in the Middle East, many markets are affected. Since much oilproduction takes place there, the war disrupts oil supplies, shifting the supply curve forgasoline to the left, as shown in Figure 8. The result is a rise in the equilibrium price ofgasoline. With a higher price for gasoline, the cost of operating a gas-guzzlingautomobile, like a Cadillac, will increase. As a result, the demand for used Cadillacs willdecline, as people in the market for cars will not find Cadillacs as attractive. In addition,some people who already own Cadillacs will try to sell them. The result is that thedemand curve for used Cadillacs shifts to the left, while the supply curve shifts to theright, as shown in Figure 9. The result is a decline in the equilibrium price of usedCadillacs.Figure 8 Figure 92. The statement that "an increase in the demand for notebooks raises the quantity of notebooksdemanded, but not the quantity supplied," in general, is false. As Figure 10 shows, the increase in demand for notebooks results in an increased quantity supplied. The only way the statement would be true is if the supply curve was a vertical line, as shown in Figure 11.Figure 10Figure 113. a. If people decide to have more children (a change in tastes), they will want larger vehiclesfor hauling their kids around, so the demand for minivans will increase. Supply won't beaffected. The result is a rise in both price and quantity, as Figure 12 shows.Figure 12b. If a strike by steelworkers raises steel prices, the cost of producing a minivan rises (a risein input prices), so the supply of minivans decreases. Demand won't be affected. Theresult is a rise in the price of minivans and a decline in the quantity, as Figure 13 shows.Figure 13c. The development of new automated machinery for the production of minivans is animprovement in technology. The reduction in firms' costs results in an increase in supply.Demand isn't affected. The result is a decline in the price of minivans and an increase inthe quantity, as Figure 14 shows.Figure 14d. The rise in the price of sport utility vehicles affects minivan demand because sport utilityvehicles are substitutes for minivans (that is, there is a rise in the price of a related good).The result is an increase in demand for minivans. Supply is not affected. In equilibrium,the price and quantity of minivans both rise, as Figure 12 shows.e. The reduction in peoples' wealth caused by a stock-market crash reduces their income,leading to a reduction in the demand for minivans, since minivans are likely a normalgood. Supply isn‘t affected. As a result, both price and quantity decline, as Figure 15shows.Figure 154. Technological advances that reduce the cost of producing computer chips represent a decline inan input price for producing a computer. The result is a shift to the right in the supply ofcomputers, as shown in Figure 16. The equilibrium price falls and the equilibrium quantity rises, as the figure shows.Figure 16Since computer software is a complement to computers, the lower equilibrium price of computers increases the demand for software. As Figure 17 shows, the result is a rise in both theequilibrium price and quantity of software.Figure 17Since typewriters are substitutes for computers, the lower equilibrium price of computers reduces the demand for typewriters. As Figure 18 shows, the result is a decline in both the equilibriumprice and quantity of typewriters.Figure 185. a. When a hurricane in South Carolina damages the cotton crop, it raises input prices forproducing sweatshirts. As a result, the supply of sweatshirts shifts to the left, as shownin Figure 19. The new equilibrium has a higher price and lower quantity of sweatshirts.Figure 19b. A decline in the price of leather jackets leads more people to buy leather jackets,reducing the demand for sweatshirts. The result, shown in Figure 20, is a decline in both the equilibrium price and quantity of sweatshirts.Figure 20c. The effects of colleges requiring students to engage in morning calisthenics inappropriate attire raises the demand for sweatshirts, as shown in Figure 21. The result is an increase in both the equilibrium price and quantity of sweatshirts.Figure 21d. The invention of new knitting machines increases the supply of sweatshirts. As Figure 22shows, the result is a reduction in the equilibrium price and an increase in the equilibriumquantity of sweatshirts.Figure 226. A temporarily high birth rate in the year 2005 leads to opposite effects on the price of babysittingservices in the years 2010 and 2020. In the year 2010, there are more 5-year olds who needsitters, so the demand for babysitting services rises, as shown in Figure 23. The result is ahigher price for babysitting services in 2010. However, in the year 2020, the increased number of 15-year olds shifts the supply of babysitting services to the right, as shown in Figure 24. The result is a decline in the price of babysitting services.Figure 23 Figure 247. Since ketchup is a complement for hot dogs, when the price of hot dogs rises, the quantitydemanded of hot dogs falls, thus reducing the demand for ketchup, causing both price andquantity of ketchup to fall. Since the quantity of ketchup falls, the demand for tomatoes byketchup producers falls, so both price and quantity of tomatoes fall. When the price of tomatoes falls, producers of tomato juice face lower input prices, so the supply curve for tomato juice shifts out, causing the price of tomato juice to fall and the quantity of tomato juice to rise. The fall in the price of tomato juice causes people to substitute tomato juice for orange juice, so thedemand for orange juice declines, causing the price and quantity of orange juice to fall. Now you can see clearly why a rise in the price of hot dogs leads to a fall in price of orange juice!Figure 258. a. Cigars and chewing tobacco are substitutes for cigarettes, since a higher price forcigarettes would increase the demand for cigars and chewing tobacco.b. An increase in the tax on cigarettes leads to increased demand for cigars and chewingtobacco. The result, as shown in Figure 25 for cigars, is a rise in both the equilibriumprice and quantity of cigars and chewing tobacco.c. The results in part (b) showed that a tax on cigarettes leads people to substitute cigarsand chewing tobacco for cigarettes when the tax on cigarettes rises. To reduce totaltobacco usage, policymakers might also want to increase the tax on cigars and chewingtobacco, or pursue some type of public education program.9. Quantity supplied equals quantity demanded at a price of $6 and quantity of 81 pizzas (Figure26). If price were greater than $6, quantity supplied would exceed quantity demanded, sosuppliers would reduce their price to gain sales. If price were less than $6, quantity demandedwould exceed quantity supplied, so suppliers could raise their price without losing sales. In both cases, the price would continue to adjust until it reached $6, the only price at which there isneither a surplus nor a shortage.。

SOLUTIONS TO TEXT PROBLEMS:Quick Quizzes1. Monetary and fiscal policies work with a lag. Monetary policy works with a lagbecause it affects spending for residential and business investment, but spending plans for such investment are often set in advance. Thus it takes time for changes inmonetary policy, working through interest rates, to affect investment. Fiscal policyworks with a lag because of the long political process that governs changes in spending and taxes.These lags matter for the choice between active and passive policy because if the lags are long, policy must be set today for conditions far in the future, about which we can only guess. Since economic conditions may change between the time a policy isimplemented and when it takes effect, policy changes may be destabilizing. Thus the lags favor policy that is passive rather than active.2. There are many possible rules for monetary policy. One example is a rule that setsmoney growth at 3 percent per year. This rule might be better than discretionarypolicy because it prevents the political business cycle and the time inconsistencyproblem. It might be worse than discretionary policy because it would tie the Fed’shands when there are shocks to the economy. For example, in response to a stockmarket crash, the rule would prevent the Fed from easing monetary policy, even if itsaw the economy slipping into recession.3. The benefits of reducing inflation to zero include: (1) eliminating shoeleather costs;(2) eliminating menu costs; (3) reducing the variability of relative prices; (4)preventing unintended changes in tax liabilities due to nonindexation of the tax code;(5) eliminating the confusion and inconvenience resulting from a changing unit ofaccount; and (6) preventing arbitrary redistribution of wealth associated withdollar-denominated debts. These benefits are all permanent. The costs of reducing inflation to zero are the high unemployment and low output needed to reduce inflation;these costs are temporary.4. Reducing the budget deficit makes future generations better off because with lowerdebt today, future taxes will be lower; in addition, lower debt will reduce real interest rates, causing investment to increase, leading to a larger stock of capital in the future, which means higher future labor productivity and higher real wages. A fiscal policythat might improve the lives of future generations even more than reducing the budget deficit is increased spending on education, which will also increase incomes in thefuture.5. Our society discourages saving in a number of ways: (1) taxing the return on interestincome; (2) taxing some forms of capital twice; (3) taxing bequests; (4) having means tests for welfare and Medicaid; and (5) granting financial aid as a function of wealth.The drawback of eliminating these disincentives is that, in most cases [(1) to (3) and(5)], doing so would increase income for wealthy taxpayers and the lost income to thegovernment would require higher taxes on everyone, so there would be a redistribution from rich to poor.Questions for Review1. The lags in the effect of monetary and fiscal policy on aggregate demand are caused bythe fact that many households and firms set their spending plans in advance, so ittakes time for changes in interest rates to alter the aggregate demand for goods andservices. As a result, it is more difficult to engage in activist stabilization policy,because the economy will not respond immediately to policy changes.2. A central banker might be motivated to cause a political business cycle by trying toinfluence the outcome of elections. A central banker who is sympathetic to theincumbent knows that if the economy is doing well at election time, the incumbent islikely to be reelected. So the central banker could stimulate the economy before the election. To prevent this, it might be desirable to have monetary policy set by rules,rather than discretion.3. Credibility might affect the cost of reducing inflation because it influences how quicklythe short-run Phillips curve adjusts. If the Fed announces a credible plan to reduceinflation, the short-run Phillips curve will shift down quickly and the cost of disinflation will be low. But if the plan is not credible, people will not adjust their expectations of inflation, the short-run Phillips curve will not shift, and the cost of disinflation will behigh.4. Some economists are against a target of zero inflation because they believe the costsof reaching zero inflation are large and the benefits are small.5. Two ways in which a government budget deficit hurts a future worker are: (1) taxeson future workers are higher to pay off the government debt; and (2) because ofcrowding out, budget deficits lead to a reduction in the economy's capital stock, sofuture workers have lower incomes.6. Two situations in which a budget deficit is justifiable are: (1) in wartime, so tax rateswill not have to be increased so much that they lead to large deadweight losses; and (2) during a temporary downturn in economic activity, during which balancing the budget would force the government to increase taxes and cut spending, making the downturn even worse.7. An example of how the government might hurt young generations while reducing thegovernment debt they inherit occurs if the government reduces spending on education.Then the government debt will be smaller, so future generations will pay less in taxes.But they will also be less educated, so they will have less human capital and thus have lower incomes. So future generations might be worse off in this case.8. The government can run a budget deficit forever because population and productivitycontinuously increase. Thus the economy's capacity to pay off its debt grows overtime. So as long as the government debt grows slower than the economy's income,government deficits can continue forever.9. Income from capital is taxed twice in the case of dividends on corporate stock. Theincome is taxed once by the corporate income tax and a second time by the individual income tax on dividend income.10. Examples, other than tax policy, of how our society discourages saving include: (1)the fact that some government benefits, such as welfare and Medicaid, aremeans-tested, so people who save get reduced benefits; and (2) the fact that colleges and universities grant financial aid inversely to the wealth of students and their families, so people who save get less financial aid.11. Tax incentives to raise saving may have the adverse effect of raising the governmentbudget deficit, which reduces public saving. Thus national saving may not increaseeven though private saving rises.Problems and Applications1. a. Figure 1 illustrates the short-run effect of a fall in aggregate demand. Theeconomy starts at point A on aggregate-demand curve AD1 and short-runaggregate-supply curve SRAS1. The decline in aggregate demand shifts theaggregate-demand curve from AD1 to AD2 and the economy moves to point B.Total output falls from Y1 to Y2, so income and employment fall as well.Figure 1b. With no policy changes, the economy restores itself gradually over time. Therecession induces declines in wages, so the cost of production declines, andthe short-run aggregate-supply curve shifts down to SRAS2. The economyends up at point C, with a lower price level, but with output back at Y1.However, this process may take years to complete.c. If policymakers are passive, the economy restores itself, but very slowly. Ifpolicymakers shift aggregate demand to the right, they can get the economyback to long-run equilibrium much more quickly. However, due to lags andimperfect information, a policy to increase aggregate demand may bedestabilizing.2. It is difficult for policymakers to choose the appropriate strength of their actionsbecause of lags between when policy is changed and when it affects aggregatedemand, as well as the difficulty in forecasting the economy's future condition. It is also difficult to anticipate how sensitive consumers and firms will be to the changes in policy.3. a. If money demand rises, the interest rate increases for a given money supply,as shown in Figure 2. The rise in the interest rate from r1 to r2 reducesconsumption and investment spending, shifting the aggregate-demand curveto the left from AD1 to AD2. The result is a decline in output from Y1 to Y2 anda reduction of the price level from P1 to P2.Figure 2Figure 3b. If the Fed's rule responded to the unemployment rate, then the effects in parta would be modified, as shown in Figure 3. After output declines to Y2 as inpart a, which causes a rise in the unemployment rate, the Fed increases themoney supply to from MS1 to MS2, thus reducing the interest rate from r2 to r3.This stimulates consumption and investment spending, so theaggregate-demand curve shifts from AD2 to AD3. The result is a rise in output from Y2 to Y3.c. Having an element of feedback in the Fed's rule, as in part b, helps to stabilizethe economy. If shocks to aggregate demand can be anticipated, as in thecase of changes in fiscal policy, then it would help if the Fed's rule respondedto predicted unemployment instead of current unemployment, especially giventhe lags in the effects of policy. For example, suppose the governmentannounced a cut in spending to occur in a year. Then forecasts of theeconomy would show rising unemployment in the future because of thereduction in aggregate demand. If the Fed's rule could respond to thoseforecasts, the money supply could increase today, so that interest rates woulddecline today, causing spending in the future to increase, offsetting thecontractionary fiscal policy.4. a. The logic behind this rule has 3 elements. First, the 2% + π term means thatin long-run equilibrium when y = y* and π = π*, the real interest rate is 2percent, since 2 percent is the difference between the nominal interest rate (r)and the inflation rate (π).Second, when the term y - y* is positive, that would mean that aggregatedemand and short-run aggregate supply intersect to the right of long-runaggregate supply, so the Fed should tighten monetary policy (raising r) to shiftthe aggregate-demand curve left. If y - y* is negative, that would mean thataggregate demand and short-run aggregate supply intersect to the left oflong-run aggregate supply, so the Fed should ease monetary policy (reducing r)to shift the aggregate-demand curve right.Third, when the term π - π* is positive, the inflation rate exceeds the Fed’s goal,so it needs to tighten monetary policy (raising r) to move down the short-runPhillips curve to reduce inflation. When π - π* is negative, the inflation rateis below the Fed’s goal, so it needs to ease monetary policy (reducing r) tomove up the short-run Phillips curve to increase inflation.b. With actual values used in the rule, the rule is backward looking, which is apotential problem since policy works with lags−thus, the policy could bedestabilizing. Using forecasts in the rule makes more sense because it avoidsthe lag problem, but forecasts may not be good enough for basing policy.5. a. If investors believe that capital taxes will remain low, then a reduction incapital taxes leads to increased investment.b. After the increase in investment has occurred, the government has anincentive to renege on its policy because it can get more tax revenue byincreasing taxes on the higher income from the larger capital stock.c. Given the government's obvious incentive to renege on its promise, firms willbe reluctant to increase investment when the government reduces tax rates.The government can increase the credibility of its tax change by somehowcommitting to low future tax rates. For example, it could write a law thatguarantees low future tax rates for all capital income from investments madewithin the next year, or write a law penalizing itself if it raises future taxes.d. This situation is similar to the time-inconsistency problem facing monetarypolicymakers because the government's incentives change over time. In bothcases, the policymaker has an incentive to tell people one thing, then to doanother once people have made an economic decision. For example, in thecase of monetary policy, policymakers could announce an intention to lowerinflation, so firms and workers will enter labor contracts with lower nominalwages, then the policymakers could increase inflation to reduce real wagesand stimulate the economy.6. Issues about whether the costs of inflation are large or small are positive statements,as is the question about the size of the costs of reducing inflation. But the question of whether the Fed should reduce inflation to zero is a normative question.7. The benefits of reducing inflation are permanent and the costs are temporary. Figure4 illustrates this. The economy starts at point A. To reduce inflation, the Fed usescontractionary policy to move the economy down the short-run Phillips curve SRPC1.Inflation declines and unemployment rises, so there are costs to reducing inflation.But the costs are only temporary, since the short-run Phillips curve eventually shiftsdown to SRPC2, and the economy ends up at point B. Since inflation is lower at pointB than at point A, and point B is on the long-run Phillips curve, the benefits of reducinginflation are permanent.Figure 4The costs of increasing inflation are permanent and the benefits are temporary forsimilar reasons. Again, suppose the economy starts at point A. To increase inflation, the Fed uses expansionary policy to move the economy up the short-run Phillips curve SRPC1. Inflation rises and unemployment declines, so there are benefits to increasing inflation. But the benefits are only temporary, since the short-run Phillips curveeventually shifts up to SRPC3, and the economy ends up at point C. Since inflation is higher at point C than at point A, and point C is on the long-run Phillips curve, the costs of increasing inflation are permanent.8. If the budget deficit is 12 percent of GDP and nominal GDP is rising 7 percent each year,the ratio of government debt to GDP will rise until it hits a fairly high level. (That level turns out to be debt/income = 12/7, because at that point, a deficit that's 12 percent of GDP with GDP growing 7 percent maintains the debt/income ratio at exactly 12/7. To be sustainable, debt and GDP must grow at the same rate, 7 percent each year. If the deficit is 12 percent of GDP, which is growing 7 percent each year, the ratio of debt to GDP must be 12/7, so that the deficit can be both 12 percent of GDP and maintain aconstant ratio of debt to GDP.) Such a high debt level is likely to require a big taxincrease on future generations. To keep future generations from having to pay such high taxes, you could increase your savings today and leave a bequest to them.9. a. An increase in the budget deficit redistributes income from young to old, sincefuture generations will have to pay higher taxes and will have a lower capitalstock.b. More generous subsidies for education loans redistribute income from old toyoung, since future generations benefit from having higher human capital.c. Greater investments in highways and bridges redistribute income from old toyoung, since future generations benefit from having a higher level of publiccapital than otherwise.d. The indexation of Social Security benefits to inflation prevents income frombeing unintentionally redistributed from old to young, since older people getunchanged real benefits with indexation, but their benefits would decline overtime without indexation.10. People's opposition to budget deficits may be stronger in principle than in practicebecause people want the budget deficit to be lower, but they also don't want to cutgovernment spending or to pay increased taxes.11. In a recession, the government can use a budget deficit to increase aggregate demand,thus boosting income and output. But in the long run, budget deficits raise interestrates, reducing investment, thus leading to a lower capital stock and reduced futureincome. An ideal fiscal policy would be one that allows budget deficits in the short run to combat recessions, but requires that the budget be balanced over time so that itdoes not have a detrimental effect on future income.12. The fundamental tradeoff that society faces if it chooses to save more is that it willhave to reduce its consumption. Thus, society can consume less today and save more if it wants higher future income and consumption. The choice is really one ofconsumption today versus consumption in the future.13. a. A reduction in the tax rate on income from saving would most directly benefitwealthy people who have a greater amount of capital income.b. The increased incentive to save would reduce the interest rate, thus increasinginvestment, so the capital stock would be larger. As capital per worker rises,productivity would increase, as well as the real wage paid to workers.c. Thus, in the long run, everyone, not just the wealthy, would benefit fromreducing the tax rate on income from savings.。

第一章经济学十大原理复习题4．为什么决策者应该考虑激励?答：因为人们会对激励做出反应。

如果政策改变了激励，它将使人们改变自己的行为，当决策者未能考虑到行为如何由于政策的原因而变化时，他们的政策往往会产生意想不到的效果。

6．市场中的那只“看不见的手”在做什么呢?答：市场中那只“看不见的手”就是商品价格，价格反映商品自身的价值和社会成本，市场中的企业和家庭在作出买卖决策时都要关注价格。

因此，他们也会不自觉地考虑自己行为的(社会)收益和成本。

从而，这只“看不见的手”指引着千百万个体决策者在大多数情况下使社会福利趋向最大化。

7．解释市场失灵的两个主要原因，并各举出一个例子。

答：市场失灵的主要原因是外部性和市场势力。

外部性是一个人的行为对旁观者福利的影响。

当一个人不完全承担(或享受)他的行为所造成的成本(或收益)时，就会产生外部性。

举例：如果一个人不承担他在公共场所吸烟的全部成本，他就会毫无顾忌地吸烟。

在这种情况下，政府可以通过制定禁止在公共场所吸烟的规章制度来增加经济福利。

市场势力是指一个人(或一小群人)不适当地影响市场价格的能力。

例如：某种商品的垄断生产者由于几乎不受市场竞争的影响，可以向消费者收取过高的垄断价格。

在这种情况下，规定垄断者收取的价格有可能提高经济效率。

9．什么是通货膨胀，什么引起了通货膨胀?答：通货膨胀是流通中货币量的增加而造成的货币贬值，由此产生经济生活中价格总水平上升。

货币量增长引起了通货膨胀。

10．短期中通货膨胀与失业如何相关?答：短期中通货膨胀与失业之间存在着权衡取舍，这是由于某些价格调整缓慢造成的。

政府为了抑制通货膨胀会减少流通中的货币量，人们可用于支出的货币数量减少了，但是商品价格在短期内是粘性的，仍居高不下，于是社会消费的商品和劳务量减少，消费量减少又引起企业解雇工人。

在短期内，对通货膨胀的抑制增加了失业量。

问题与应用7．社会保障制度为65岁以上的人提供收入。

如果一个社会保障的领取者决定去工作并赚一些钱，他(或她)所领到的社会保障津贴通常会减少。

微观经济学Chapter4The Market Forces of SupplyAnd Demand完全竞争市场被定义有两个基本特点：1）提供的物品全部相同2）买者与卖者众多，因此没有单一买家或卖家可以影响市场价格。

由于买卖双方都必须接受这一价格，我们称他们为价格接受者。

有些市场我们是可以考虑为完全竞争的。

谷物市场，比如说，有成千的销售者和上万的买家，没有人可以撼动市场价格，我们说它是完全竞争的。

不是每个市场都是完全竞争的，有一种情况称为垄断，在垄断的情况下，价格由唯一的卖价设定。

一些市场介于完全竞争与垄断之间，称为寡头垄断：由一定数量的卖家，但并不激烈地竞争。

航空公司是一个范例，如果一条航线只由两到三个载运承担，则这些承运者可以躲避竞争，从而使机票价格保持在高位。

另一种竞争是垄断竞争。

市场中有很多买家，但他们的商品不尽相同，因此他们有权为自己定价。

举例：杂志。

杂志竞争中，市场里随时都能闯入新人，并开创新的杂志。

尽管今天市场种产品多样，我们仍要从完全竞争学起。

完全竞争市场在这当中最容易分析。

需求Figure 3(需求增长,曲线右移,需求下降,曲线左移)指出，有很多变数可以影响需求曲线，以下是一些主要的：收入（Income ）低收入意味着你的支出将减少，低而降低了，我们就说这种商品为normal good .不是所有商品都为一般商品，如果收入下降而需求升高，则我们称该商品为替代商品（Inferior good ）。

就像，收入降低时，我们不会去买车或打出租车，而改坐公交。

1234567相关产品价格(Price of Related Goods)假如,冻酸奶的价格下降,则需求定理告诉我们，我们可能去购买冻得更好的酸奶。

同时，你会减少冰淇淋的购买量。

因为冰淇淋和冻酸奶都是冷的、甜的、奶油制甜品，他们满足人本呈负相关。

技术（Technology）技术有利于降低商品成本，解放人力，降低成本后，先进的技术增加了供给量。