Exercises 9-16. Chapter 1. 10 Principles of Economics. Gregory Mankiw

Solution to the exercises of Chapter 1. 10 Principles of Economics. Gregory Mankiw. 9. Your roommate is better cook than you are, but you can clean more quickly than your roommate can. If your roommate did all of the cooking and you did all of the cleaning, would your chores take you more or less time than if you divided each task evenly? Give a similar example of how specialization and trade can make two countries better off. 10. Suppose the United States adopted central planning for its economy, and you became the chief planner. Among the millions of decisions that you need to make for next year are how many compact discs to produce, what artists to record, and who should receive the discs. a. To make these decisions intelligently, what information would you need about each of the people in the United States? b. How would your decisions about CDs affect some of your other decisions, such as how many CD players to make or cassette tapes to produce? How might some of your other decisions about the economy change your views about CDs? 11. Explain whether each of the following government activities is motivated by a concern acount equity or a concern about efficiency. In the case of efficiency, discuss the type of market failure involved. a. Regulating cable-TV prices. b. Providing some poor people with vouchers that can be used to buy food c. Prohibiting smoking in public spaces. d. Breaking up Standard Oil(which once owned 90 percent of all oil refineries) into several smaller companies. e. Imposing higher personal income tax rates on people with higher incomes. f. Instituting laws against driving while intoxicated. 12. Discuss each of the following statements from the standpoints of equity and efficiency. a. “Everyone in society, should be guaranteed the best health care possible” b. “When workers are laid off, they should be able to collect unemployment benefits until they find a job” 13. In what ways is your standard of living different from that your parents or grandparents when they were your age? Why have these changes occurred. 14. Suppose Americans decide to save more of their incomes. If banks lend this extra saving to businesses, which use the funds to build new factories, how might this lead to faster growth in productivity? Who do you suppose benefits from higher productivity? Is society getting a free lunch? 15. Suppose that when everyone wakes up tomorrow, they discover that the government has given them an additional amount of money equal to the amount they already had. Explain what effect this doubling of the money supply will likely have on the following: a. The total amount spent on goods and services. b. The quantity of goods and services purchased if prices are sticky. c. The prices of goods and services if prices can adjust. 16. Imagine that you are a policymaker trying to decide whether to reduce the rate of inflation. To make an intelligent decision, what would you need to know about inflation, unemployment, and trade off between them.