Introduction To Economic Growth 1st Edition Charles I. Jones - Solutions

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How many cars can GM produce in China? (See World View, page 133.) How many cars will GM want to produce? LO1
Suppose all your friends offered to help wash your car.Would marginal physical product decline as more friends helped? Why or why not? LO2
What are the production costs of your economics class?What are the fixed costs? The variable costs? What’s the marginal cost of enrolling more students? LO1
How the various measures of cost are related.
The law of diminishing returns.
What the production function reveals.
Is the demand for iPhones price inelastic or elastic?Why? Is income elasticity high or low? LO2
What would happen to unit sales and total revenue for this textbook if the bookstore reduced its price? LO2
If the elasticity of demand for coffee is so low ( Table 5.1 ), why doesn’t Starbucks raise the price of coffee to $10 a cup? LO2
How has the Internet affected the price elasticity of demand for air travel? LO2
If you owned a movie theater, would you want the demand for movies to be elastic or inelastic? LO2
According to the News stories on pages 95 and 96, how does the price elasticity of demand differ for teenagers and adults? Why? LO2
Why are per capita advertising expenditures so high in the United States and so low in Brazil? (See World View, page 108.) LO1
Why is the demand for New York City cigarettes so much more elastic than the overall market demand for cigarettes? (See News, page 96.) LO1
Identify two goods each whose demand exhibits( a ) high income elasticity, ( b ) low income elasticity,( c ) high price elasticity, and ( d ) low price elasticity.What accounts for the differences in elasticity? LO2
If the price of gasoline doubled, how would consumption of ( a ) gasoline, ( b ) cars, and ( c ) public transportation be affected? How quickly would these adjustments be made? LO2
How does total and marginal utility change as you spend more time surfing the Net? LO3
If the marginal utility of pizza never diminished, how many pizzas would you eat? LO3
What does the demand for enrollments in your college look like? What is on the axes? Is the demand price-elastic? Income-elastic? How could you find out? LO1
What price and income elasticities of demand measure.
The basis for the law of demand.
Should the government be downsized? Which functions should be cut back? LO2
How does XM Satellite deter nonsubscribers from listening to its transmissions? Does this make radio programming a private good or a public good? LO1
What government actions might cause failures like points G1 , G2 , and G3 in Figure 4.7 ? Can you give examples? LO3
The government now spends over $500 billion a year on Social Security benefits. Why don’t we leave it to individuals to save for their own retirement? LO1
If smoking generates external costs, why shouldn’t smoking simply be outlawed? How about cars that pollute? LO1
What is the specific market-failure justification for government spending on ( a ) public universities, ( b )health care, ( c ) trash pickup, ( d ) highways, ( e ) police?Would a purely private economy produce any of these services? LO1
Why might Fourth of July fireworks be considered a public good? Who should pay for them? What about airport security? LO1
Could local fire departments be privately operated, with their services sold directly to customers? What problems would be involved in such a system? LO1
If everyone seeks a free ride, what mix of output will be produced in Figure 4.2 ? Why would anyone voluntarily contribute to the purchase of public goods like flood control or snow removal? LO1
Why should taxpayers subsidize public colleges and universities? What external benefits are generated by higher education? LO1
How government budgets are financed and spent.
Is there a shortage of on-campus parking at your school?How might the shortage be resolved? LO2
The World View on page 61 describes the use of prices to achieve an equilibrium in the kitchen. What happens to the food at more traditional restaurants? LO2
What would happen in the apple market if the government set a minimum price of $2.00 per apple? What might motivate such a policy? LO4
The shortage in the organ market (Figure 3.8) requires a nonmarket rationing scheme. Who should get the available (qa) organs? Is this fairer than the marketdriven distribution? LO4
In Figure 3.8, why is the organ demand curve downwardsloping rather than vertical? LO1
Why do Internet ticket resellers make so much money(News, p. 58)? How else might tickets be (re)distributed? LO2
Which determinants of pizza demand change when the White House is in crisis (page 49)? LO3
What would have happened to gasoline production and consumption if the government had prohibited postKatrina price increases (see News, page 55)? LO4
With respect to the demand for college enrollment, which of the following would cause (1) a movement along the demand curve or (2) a shift of the demand curve? LO3a. An increase in incomes.b. Lower tuition.c. More student loans.d. An increase in textbook prices.
In our story of Tom, the student confronted with a Webdesign assignment, we emphasized the great urgency of his desire for Web tutoring. Many people would say that Tom had an “absolute need” for Web help and therefore was ready to “pay anything” to get it. If this were true, what shape
How market prices are established.
The meaning of market demand and supply.
How might free markets help reduce global poverty?How might they impede that goal? LO3
Why are incomes so much more unequal in poor nations than in rich ones? LO3
Should the government try to equalize incomes more by raising taxes on the rich and giving more money to the poor? How might such redistribution affect total output and growth? LO3
Why should the government regulate how goods are produced? Can regulation ever be excessive? LO1
How many people are employed by your local or state government? What do they produce? What is the opportunity cost of that output? LO1
How might the following government interventions affect a nation’s economic growth? LO2a. Mandatory school attendance.b. High income taxes.c. Copyright and patent protection.d. Political corruption.
The U.S. farm population has shrunk by over 25 million people since 1900. Where did all the people go? Why did they move? LO2
Why do people suggest that the United States needs to devote more output to investment goods? Why not produce just consumption goods? LO2
Why is per capita GDP so much higher in the United States than in Mexico? LO2
Americans already enjoy living standards that far exceed world averages. Do we have enough? Should we even try to produce more? LO1
How incomes are distributed in the U.S. and elsewhere.
How America is able to produce so much output.
The relative size and content of U.S. output (GDP).
What is the connection between North Korea’s missile program and its hunger problem? (World View, page 9) LO3
How many resources should we allocate to space exploration? How will we make this decision? LO2
How will the Chinese economy benefit from private property? (See World View, page 17.) Is there any downside to greater entrepreneurial freedom? LO3
How does government intervention affect college admissions? Who would go to college in a completely private(market) college system? LO3
Markets reward individuals according to their output;communism rewards people according to their needs.How might these different systems affect work effort? LO3
How might a nation’s production possibilities be affected by the following? LO2a. A decrease in taxes.b. An increase in government regulation.c. An increase in military spending.d. An increase in college tuition.e. Faster, more powerful electronic chips.
What’s the real cost of the food in the “free lunch” cartoon on page 5? LO1
How much time could you spend on homework in a day?How much do you spend? How do you decide? LO1
What opportunity costs did you incur in reading this chapter? If you read four more chapters of this book today, would your opportunity cost (per chapter) increase?Explain. LO1
How nations resolve these issues.
The core economic issues that nations must resolve.
The role scarcity plays in defining economic choices.
Assuming population growth and labor force growth are the same(why wouldn't they be?), use the results from the previous exercise together with the population growth rates from Appendix B to cal-culate the average annual growth rate of GDP for the same group of countries.
Using the data from Appendix B, pp. 180-83, on GDP per worker in 1960 and 1990, calculate the average annual growth rate of GDP per worker for the following countries: the United States, Canada, Argentina, Chad, Brazil, Thailand. Confirm that this matches the growth rates reported in Appendix B.
What is the economic justification for thinking that the production function for new ideas takes the form given in equation (8.6)? In particular, why might this production function exhibit increasing returns to scale?
Historical evidence suggests that growth rates have increased over the very long run. For example, growth was slow and intermittent prior to the Industrial Revolution. Sustained growth became possi- ble after the Industrial Revolution, with average growth rates of per capita income in the
Think about the market structure that underlies the Lucas model. Do we need perfect or imperfect competition? Do we need externalities? Discuss.
Does a permanent increase in sk have a growth effect or a level effect in the Lucas model? Why?
Consider the AK model in which we do not normalize the size of the labor force to one. (a) Using the production function in equation (8.5) and the stan- dard capital accumulation equation, show that the growth rate of output depends on L. (b) What happens if L is growing at some constant rate n?
Discuss the meaning of the quotation that began this chapter.
Infrastructure and the investment rate. Suppose that the marginal product of capital is equalized across countries because the world is an open economy, and suppose that all countries are on their balanced growth paths. Assume the production function looks like Y=IKL-, where I reflects differences
Can differences in the utilization of factors of production explain differences in TFP? Consider a production function of the form Y IK" (hL), where I denotes total factor productivity and the other notation is standard. Suppose I varies by a factor of 10 across countries, and assume = 1/3. (a)
Cost-benefit analysis. Suppose an investment project yields a profit of $100 every year, starting one year after the investment takes place. Assume the interest rate for computing present values is 5 percent. (a) If F $1000, is the investment worth undertaking? (b) What if F $5000? (c) What is the
(a) Construct a graph with h/h on the vertical axis and A/h on the horizontal axis. In the graph, plot two lines: and h h () h/h = g. (Note that we've assumed y = 1.) What do these two lines mean, and what is the significance of the point where they intersect? (b) Starting from steady state,
This problem considers the effect on an economy's technological sophistication of an increase in the openness of the economy to technology transfer. Specifically, it looks at the short-run and long- run effects on h of an increase in u. Hint: Look back at Figure 5.1 in Chapter
What values of guarantee that h/A is less than 1?
How does the model explain the differences in growth rates that we observe across countries?
This model explains differences in the level of income across coun- tries by appealing to differences in sx and u. What is unsatisfying about this explanation?
The share of the surplus appropriated by inventors (from Kremer (1996)). In Figure 5.4, find the ratio of the profit captured by the monopolist to the total potential consumer surplus available if the good were priced at marginal cost. Assume that marginal cost is constant at c and the demand curve
The future of economic growth (from Jones (1997b)). Recall from Figure 4.6 and the discussion surrounding this figure in Chapter 4 that the number of scientists and engineers engaged in R&D has been growing faster than the rate of population growth in the advanced economies of the world. To take
Too much of a good thing? Consider the level of per capita income along a balanced growth path given by equation (5.11). Find the value for s that maximizes output per worker along a balanced growth path for this example. Why is it possible to do too much R&D according to this criterion?
An increase in the productivity of research. Suppose there is a one- time increase in the productivity of research, represented by an in- crease in 8 in Figure 5.1. What happens to the growth rate and the level of technology over time?
Consider the following production function (similar to that used earlier for WordTalk): Y=100 (L-F) where Y is output, L is labor input, and F is a fixed amount of labor that is required before the first unit of output can be produced (like a research cost). We assume that Y = 0 if L
Explain the role of the market and the government in providing each of the goods in the previous question.
Place the following goods on a chart like that in Figure 4.1-i.e., classify them as rivalrous or nonrivalrous and by the extent to which they are excludable: a chicken, the trade secret for Coca-Cola, music from a compact disc, tropical rainforests, clean air, and a lighthouse that guides ships
The Mankiw-Romer-Weil (1992) model. As mentioned in this chap-ter, the extended Solow model that we have considered differs slightly from that in Mankiw, Romer and Weil (1992). This problem asks you to solve their model. The key difference is the treatment of human capital. Mankiw, Romer and Weil
Reconsidering the Baumol results. J. Bradford De Long (1988), in a comment on Baumol's convergence result for the industrialized countries over the last century, pointed out that the result could be driven by the procedure through which the countries were se-lected. In particular, De Long noted two
Galton's fallacy (based on Quah, 1993). During the late 1800s, Sir Francis Galton, a famous statistician in England, studied the distri-bution of heights in the British population and how the distribution was evolving over time. In particular, Galton noticed that the sons of tall fathers tended to
What are state variables? The basic idea of solving dynamic models that contain a differential equation is to first write the model so that along a balanced growth path, some state variable is constant. In Chapter 2, we used y/A and k/A as state variables. In this chapter, we used y/Ah and k/Ah.
Where are these economies headed? Consider the following data:$y_{50}$$s_k$$u$$n$$A_{90}$U.S.A.1.00 0.210 11.8 0.009 1.00 Canada 0.93 0.253 10.4 0.010 1.05 Brazil 0.30 0.169 3.7 0.021 0.77 China 0.06 0.222 7.6 0.014 0.11 Kenya 0.05 0.126 4.5 0.037 0.16 Assume that $g + d = .075$ for all countries.
Solow (1956) versus Solow (1957). In the Solow model, with $$g = 0$$, consider a one-time improvement in the level of technology, A.Specifically, suppose that log A rises by one unit. (Notice that this means that the level of technology is roughly doubled; to be exact, it has increased by a factor
Can we save too much? Consumption is equal to output minus investment: $$c = (1 - s)y$$. In the context of the Solow model with no technological progress, what is the savings rate that maximizes steady-state consumption per worker? What is the marginal product of capital in this steady state? Show
An income tax. Suppose the U.S. Congress decides to levy an income tax on both wage income and capital income. Instead of receiving$wL + rK = Y$, consumers receive $(1 - \tau)wL + (1 - \tau)rK = (1 - \tau)Y$.Trace the consequences of this tax for output per worker in the short and long runs,

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