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Economics 11th Edition Michael Parkin Solutions Manual
C h a p t e r
2 THE ECONOMIC
PROBLEM
output for a large decrease in DVD output, creating a relatively high opportunity cost reflected in the steep
slope of the PPF over this range of output. The opportunity cost of pizza production increases with the
quantity of pizza produced as the slope of the PPF becomes ever steeper. This effect creates the bowed out
effect (the concavity of the PPF function) and means that as more of a good is produced, the opportunity
cost of producing additional units increases.
Page 37
1. What is marginal cost? How is it measured?
Marginal cost is the opportunity cost of producing one more unit of a good or service. Along a PPF
marginal cost is reflected in the absolute value of the slope of the PPF. In particular, the magnitude of the
slope of the PPF is the marginal cost of a unit of the good measured along the x-axis. As the magnitude of
the slope changes moving along the PPF, the marginal cost changes.
2. What is marginal benefit? How is it measured?
The marginal benefit from a good or service is the benefit received from consuming one more unit of it. It
is measured by what an individual is willing to give up (or pay) for an additional that last unit.
3. How does the marginal benefit from a good change as the quantity produced of that good
increases?
As the more of a good is consumed, the marginal benefit received from each unit is smaller than the
marginal benefit received from the unit consumed immediately before it, and is larger than the marginal
benefit from the unit consumed immediately after it. This set of results is known as the principle of
decreasing marginal benefit and is often assumed by economists to be a common characteristic of an
individual’s preferences over most goods and services in the economy.
4. What is allocative efficiency and how does it relate to the production possibilities frontier?
Production efficiency occurs when production takes place at a point on the PPF. This indicates that all
available resources are being used for production and society cannot produce additional units of one good
or service without reducing the output of another good or service. Allocative efficiency, however, requires
that the goods and services produced are those that provide the greatest possible benefit. This definition
means that the allocative efficient level of output is the point on the PPF (and hence is a production
efficient point) for which the marginal benefit equals the marginal cost.
5. What conditions must be satisfied if resources are used efficiently?
Resources are used efficiently when more of one good or service cannot be produced without producing
less of some of another good or service that is valued more highly. This is known as allocative efficiency and
it occurs when: 1) production efficiency is achieved, and 2) the marginal benefit received from the last unit
produced is equal to the marginal cost of producing the last unit.
Page 39
1. What generates economic growth?
The two key factors that generate economic growth are technological change and capital accumulation.
Technological change allows an economy to produce more with the same amount of limited resources,
Capital accumulation, the growth of capital resources including human capital, means that an economy
has increased its available resources for production.
2. How does economic growth influence the production possibilities frontier?
Economic growth shifts the PPF outward. Persistent outward shifts in the production possibility
frontier—economic growth—are caused by the accumulation of resources, such as more capital equipment
or by the development of new technology.
Page 43
1. What gives a person a comparative advantage?
A person has a comparative advantage in an activity if that person can perform the activity at a lower
opportunity cost than anyone else, If the person gives up the least amount of other goods and services to
produce a particular good or service, the person has the lowest opportunity cost of producing that good or
service.
2. Distinguish between comparative advantage and absolute advantage.
A person has a comparative advantage in producing a good when he or she has the lowest opportunity cost
of producing it. Comparative advantage is based on the output forgone. A person has an absolute advantage in
production when he or she uses the least amount of time or resources to produce one unit of that particular
good or service. Absolute advantage is a measure of productivity in using inputs.
3. Why do people specialize and trade?
People can compare consumption possibilities from producing all goods and services through self-
sufficiency against specializing in producing only those goods and services that reflect their comparative
advantage and trading their output with others who do the same. People can then see that the
consumption possibilities from specialization and trade are greater than under self-sufficiency. Therefore it
is in people’s own self-interest to specialize. It was Adam Smith who first pointed out in the Wealth of
Nations how individuals voluntarily engage in this socially beneficial and cooperative activity through the
pursuit of their own self-interest, rather than for society’s best interests.
4. What are the gains from specialization and trade?
From society’s standpoint, the total output of goods and services available for consumption is greater with
specialization and trade. From an individual’s perspective, each person who specializes enjoys being able to
consume a larger bundle of goods and services after trading with others who have also specialized, than
would otherwise be possible under self-sufficiency. These increases are the gains from specialization and
trade for society and for individuals.
5. What is the source of the gains from trade?
As long as people have different opportunity costs of producing goods or services, total output is higher
with specialization and trade than if each individual produced goods and services under self-sufficiency.
This increase in output is the gains from trade.
£ (at 25·25).
I. Textiles 821,619
II. Foodstuffs 444,142
III. Hardware 341,942
IV. Machinery 65,091
V. Other oils (and stearin) 58,612
VI. Mineral oils 34,198
VII. Building materials and labour 15,187
VIII. Cement 12,816
IX. Coal 11,244
X. Railway materials 5,791
XI. Electrical apparatus 1,938
XII. General merchandise 430,620
Total 2,243,200
£ (at 25·25).
United States 730,560
Great Britain 589,700
Germany 422,234
Holland 153,725
France 148,930
Spain 109,173
Italy 58,953
Trinidad 13,821
Belgium 12,110
Austria 1,647
Curaçao 1,183
Other countries 1,164
Total 2,243,200
£ (at 25·25).
Coffee 1,469,476
Cocoa 689,954
Rubber (caoutchouc, sernambi, and balatá) 557,127
Hides (oxen, goats, and others) 320,571
Gold 65,738
Egret plumes 50,459
Cattle 40,374
Asphalt 36,598
Dye woods and tanning barks 23,101
Pearls 20,941
Sugar 20,080
Timber 16,215
Tonka-beans 7,792
Tobacco 5,737
Hellebore 2,806
Alpargatas (sandals) 2,570
Fish-bladders 2,383
Coco-palm products 2,361
Cotton 2,291
Horns 2,031
Tortoise-shell, mother-of-pearl, &c. 1,642
Fruit 600
Quinine 492
Arrowroot 221
Total 3,363,370
Great Porto
Holland. Italy. Portugal. Spain. Trinidad. United States.
Britain. Rico.
£ £ £ £ £ £ £ £
I. Textiles 417,614 54,397 29,748 47,682
193 77,715
II. Foodstuffs 17,028 29,606 10,909 34,606
2,673 214,360
III. Hardware 43,514 7,581[10] 1,831 1,262 206,075[10]
1,601
IV. Machinery 16,893 1,664 291 139 3,343 54 32,784
V. Other oils (and stearin) 493 35,558[11] 4,741 5,543
242 3,785
VI. Mineral oils 37 3 1,062 32,889
VII. Building materials and lumber 3,983 206 178 456 8,746
VIII. Cement 1,443 1,352 2,988 3,080
IX. Coal 8,146 908 820
X. Railway materials 1,100 528 297 3,061
XI. Electrical apparatus 51 243 19 1,506
XII. General merchandise 79,398 21,924 11,012 47 73 16,398 4,575 145,739
Totals 589,700 153,725 58,953 186 73 109,173 13,821 730,560
Copaiba
Coco-
Alpargalas —
Arrowroot. Asphalt. Cattle. Cocoa. palm Coffee. Copper. Cotton.
(sandals). Balsam
Products.
and Oil.
£ £ £ £ £ £ £ £ £ £
La Guaira 1,887 334,415 244,836 654 459
Puerto Cabello 582 16 785
96,884 594 441,161 7,019 605
Maracaibo 31 3,056 10,892 24 751,779 7,197 427
Ciudad Bolivar 34,550 374 1,664 2,041
Carúpano 47 27 151,545 5,556 31
Pampatar 54 299 61
La Vela 174 581 2,127 16 12
Guanta 2,865 950 556
Puerto Sucre 19,610
Cristobal Colón 270 1,566 91,070 1,743 1,482
Caño Colorado 33,272 4,774 12 85 11 232
Totals 2,570 221 36,598 40,374 689,954 2,361 1,469,476 9,323 7,792 2,291
D T
H .
M .
Egrets’ Fish
Fruit. Gold. Hellebore. Others,
Plumes. Bladders.
Barks. Divisive. Goats’. Oxen. chiefly
Deer.
£ £ £ £ £ £ £ £ £ £
La Guaira 77 674 2,806 2,900 45,355 3,990
Puerto Cabello 1,144 677 19 335 317 26,622 26,035 3,469
Maracaibo 1,884 14,621 2,346 8,063 30,459 296
Ciudad Bolivar 36 49,705 64,747 73 126,245 3,797
Carúpano 27 94 1,053
Pampatar 487 459 139
La Vela 4,134 34,681
Guanta 185 305 883 104
Puerto Sucre 444 684 2,029 45
Cristobal Colón 71 68 265 87 464
Caño Colorado 2,049 191
Totals 1,991 21,110 50,459 2,383 600 65,738 2,806 73,968 234,711 11,892
R . Tonka-
Quinine-
Horns. Pearls. Shells. Sugar. Timber. Tobacco. beans
bark. Caoutchouc. Sernambi. Balatá. (Sarrapia).
£ £ £ £ £ £ £ £ £ £ £
La Guaira 653 11,889 188 820 133 7,879 79 562
Puerto Cabello 1,052 279 1,787 11 1,443 392 58
Maracaibo 25 3,230 10,233 15,044
Ciudad Bolivar 197 116,305 32,089 401,093 1,676 12,429
Carúpano 4,305 239 149
Pampatar 4,752 1,498 92
La Vela 525
Guanta 112 19
Puerto Sucre 126
Cristobal Colón 539 440 11
Caño Colorado 17 899 3,488
Totals 2,031 20,941 492 121,322 32,089 403,716 1,642 20,080 16,215 5,737 12,487
APPENDIX C
POPULATION, ALTITUDE, MEAN ANNUAL TEMPERATURE
AND DEATH-RATE OF PRINCIPAL VENEZUELAN CITIES
(From the Anuario Estadístico, 1908, and the data for the military map,
1909)
Height, in
Range. Peak.
Feet.
Sierra Nevada of Mérida La Columna 16,523
La Concha 16,087
La Corona 15,609
El Leon 15,490
El Toro 15,490
Cordillera of the Andes (outer El Salado 13,949
range)
Los Conejos 13,761
Cordillera of the Coast Naiguatá 9,124
Silla de Carácas (eastern 8,702
peak)
Interior Range Turumiquiri 6,761
APPENDIX D
GOVERNMENT FINANCE, 1908-9
REVENUE 1908-9.
£ £
Taxes on foreign trade:—
Import duties 1,152,105
Export duty (live cattle) 3,371
Sundry port dues 20,204
Storage and warehousing 655
Consular fees 2,118
Other minor imposts 1,310 1,179,763
Internal taxation payable throughout the
Federation:—
Sale of stamps[13] 109,048
Stamped paper 5,134
Tax on mining properties 4,895
Tax on alcohol and tobacco 112,767
Tax on cigarettes, &c. 85,833
Tax on matches 10,335
Trademark and patent dues 160 328,172
Taxes payable in the Federal district and
territories:—
12% duty in territories 220,501
Public registry of property 3,097
Direct and local taxes in territories 876 224,474
Public services:—
Telegraphs and cables 10,566
Other Government enterprises 2,314 12,880
Revenue from national estate:—
National lands 632
Salt-pans 202,744
Pearl fisheries 494 203,870
Minor sources of revenue:—
Returns on sundry capital, securities, rights, 15,622
&c.
Other minor sources 31,660 47,282
Total 1,996,441
EXPENDITURE 1908-9.
£ £
Ministry of the Interior:—
Legislature 17,593
Ecclesiastical subsidy 7,264
Public health 2,577
Prisons 7,633
Subsidies to States 224,074
Charities 13,349
General 28,146 310,636
Ministry of Foreign Affairs:—
Consular Service 2,404
Legations and general 141,279 143,683
Ministry of Finance and Public Credit:—
Administrative Services 193,475
Diplomatic claims of 1903 126,404
Other branches of National Debt 261,667 581,546
Ministry of War and Marine:—
Army 259,003
Navy 22,003
Dockyard 24,699
Military map of Venezuela 4,566
General 50,661 360,932
Ministry of Public Instruction:—
Higher Education 28,465
Elementary Education 55,561
General 33,247 117,273
Ministry of National Development:—
Post Office 33,602
Telegraphs 80,847
General 8,634 123,183
Ministry of Public Works 78,928
“Emergencies” 171,693
Total 1,887,874
APPENDIX E
THE NATIONAL DEBT OF VENEZUELA
INTERNAL DEBT.
FOREIGN DEBT.
II. GEOGRAPHICAL.
III. GEOLOGICAL.
95. Ahrensburg, H. Erdbeben in Carácas. Mitt. Géogr. Ges. Jena, bd.
xix, pp. 56-8 [1901].
96. Attwood, G. A Contribution to South American Geology. Quart.
Journ. Geol. Soc., vol. xxxv, pp. 582-590, map [1879].
97. Bendrat, T. A. Geologic and Petrographic Notes on the Regions
about Caicara, Venezuela. Amer. Journ. Sci., ser. 4, vol. xxxi, pp.
443-52 [1911].
98. Bonssingault,—. Les Sources Thermales de la Chaîne du littoral du
Vénézuéla, Compt. Rend., t. xci, pp. 836-41 [1880].
99. Buch, L. v. Von Aptychus, und über die Anden von Venezuela.
Zeitschr. deutsch. geol. Ges., bd. ii, pp. 339-44, pl. x [1850].
100. Cortese, E. Escursioni geologiche al Venezuela. Boll. Soc. Geol.
Ital., vol. xx, pp. 447-69 [1901].
101. Drevermann, Fr. Ueber Untersilur in Venezuela. N. Jahrb., 1904,
vol. i, pp. 91-3, pl. [1904].
102. Foster, C. Le Neve. On the Caratal Goldfield. Quart. Journ. Geol.
Soc., vol. xxv, pp. 336-43 [1869].
103. Gerhardt, K. Beitrag zur Kenntniss der Kreideformation in
Venezuela und Peru. N. Jahrb., Beilage-Band xi, pp. 65-117 [1897].
104. Humboldt, F. H. A. v. Esquisse d’un Tableau Géologique de
l’Amérique méridionale. Journ. Phys., t. liii, pp. 30-59 [1801].
105. ⸺⸺. Account of the Earthquake which destroyed the Town of
Carácas on the 26th March, 1812. Edinb. Phil. Journ., vol. i, pp.
272-80 [1819].
106. Karsten, H. [Letter from Puerto Cabello on the Geology of Western
Venezuela.] Ber. Acad. Wiss. Berlin, 1849, pp. 197-200.
107. ⸺⸺. [On Neocomian Rocks near Trujillo.] Ibid., pp. 370-6.
108. ⸺⸺. [Tertiary and Cretaceous in Cumaná and Barcelona.] Zeitschr.
deutsch. geol. Ges., bd. ii, pp. 86-8 [1850].
109. ⸺⸺. Beitrag zur Kenntniss der Gesteine des nördlichen Venezuela.
Ibid., pp. 345-61.
110. ⸺⸺. Ueber die geognostische Verhältnisse des nördlichen
Venezuela. Archiv. Min. Geogn., bd. xxiv, pp. 440-79 [1851].
111. ⸺⸺. Geognostische Bemerkungen über die Umgebungen von
Maracaibo und über die Nordküste von Neu Granada. Ibid., bd. xxv,
pp. 567-73 [1853].
112. Karsten, H. Reise-notizen über die Provinz Cumaná in Venezuela.
Westermann’s Monatshefte, 1859.
113. ⸺⸺. Die geognostische Beschaffenheit der Gebirge der Provinz
Carácas. Zeitschr. deutsch. geol. Ges., bd. xiv, pp. 282-7 [1862].
114. ⸺⸺. Geologie de l’ancienne Colombie Bolivarienne. Pp. 62, map,
4to. Berlin, 1886.
115. Lorié, J. Fossile Mollusken von Curaçao, Aruba und der Küste von
Venezuela. Samml. geol. Reichs-Mus. Leyden, sér. 2, bd. i, pp. 111-
49, [1887].
116. Salomon, W. Ueber angebliches Untersilur in Venezuela. Monatsb.
deutsch. geol. Ges., 1909, pp. 193. [Shows that specimens described
by Drevermann (No. 101) were bought in U.S.A. and not from
Venezuela.]
117. Sievers, W. Das Erdbeben vom 26 März, 1812, an den Nordküste
Südamerikas. Mitt. Geogr. Ges. Hamburg, pp. 265-71.
118. ⸺⸺. Reiseberichte aus Venezuela. Ibid., pp. 272-87; 1885-6, pp. 1-
133.
119. ⸺⸺. Venezuela. Pp. viii, 359. Hamburg, 1888.
120. ⸺⸺. Karten zur physikalischen Geographie von Venezuela.
Petermann’s Mitt., bd. xlii, pp. 149-55, 197-201, 3 maps, 1:
3,000,000 [1896].
121. ⸺⸺. Das Erdbeben in Venezuela von 26 Okt., 1900. Jahrb.
Veroffnet. Geogr. Ver. Bonn, 1905, pp. 35-50.
122. Stevens, R. P. [Geology and Mineralogy of Venezuela.] Proc. Ac.
Nat. Sci. Philadelphia, 1868, pp. 303, 304.
123. Tate, R. Notes on the Geology of Guyana, in Venezuela. Quart.
Journ. Geol. Soc., vol. xxv, pp. 343-50 [1869].
See also Nos. 314, 319, 320, 342.