HOW TO DO THE PROBLEMS:
HINTS AND TIPS

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General information:

Problems in Microeconomics will help you practice using many of the important ideas in a course in microeconomics. Each problem set deals with one topic, such as demand curves, market equilibrium, monopoly pricing, discounted present value, and so on.

Each problem set has two parts:

1) a printed description of what the problem set is about. The printed copy explains a bit about the economic theory you need to know to answer the questions, gives hints and tips for that particular problem set, and has a printed version of the questions.

2) an Excel spreadsheet that contains the questions, an interactive, graphical model, and an answer sheet that will tell you instantly whether you've got the correct answer to a question.

The problem sets need Microsoft Excel 97 or higher already running on your computer. Each interactive screen is designed to fit on your computer screen so that you will not need to scroll to see all parts of the display. Use the Excel menu item View/Zoom and choose the custom size that is right for your monitor.

When you are finished answering the questions, you can print your answer sheet by clicking on the appropriate button on the Answer Sheet. You can also save your answer sheet as a file that you can then send to others electronically. To leave a problem set, choose Close from the File menu.


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Nifty features of these problems:

1) The problem sets are created to operate in two different modes:

practice, and

test-taking.

In the practice mode the computer randomly assigns you a spreadsheet that will assure that the correct answers to the problems are unique to that session. If you choose to do practice problems, then each time you open a problem set the answers will be different.

In test-taking mode you enter your name and an identifying number such as a student number or other ID your instructor wants you to use. If you choose this mode your answers to the questions will be the same every time you use the same ID number. That means that while the questions are usually the same for successive "plays", the correct numerical answers will vary. In the test mode, you enter your name and a student number that must end with at least four digits. In test mode you will get exactly the same test every time - questions and answers.

This system creates lots of opportunities for practice, and encourages you to collaborate with other students on how to attack particular problems. It will also allow you to get help from an instructor on your particular version of the problem set at test time. But in the test-taking mode, knowing another person's answers will do you no good, as yours will be different.

2) The questions for each problem set appear from a drop-down list on the main worksheet for a problem set. To make your work easier, the questions appear in printed form at the end of each problem set description.

3) The Excel files run in Excel 97 or higher, and will run on either a Mac or PC. (There is no way to use these problem sets without first having a compatible version of Excel already running on your computer.) You may need to alter the display of a particular spreadsheet to look good and be convenient to use on some computer monitors. If you can't see all of the area on a worksheet, use the Zoom item on the View menu to make it all visible. On many monitors, zooming down to 75 or 80 percent works well.

4) Multiple tries, instant feedback. When you think you know the answer to a question, go to the Answer Sheet and enter it in the space provided. You will get immediate feedback on whether your answer is right or wrong. Most of the numerical answers have an allowable margin of error of about one percent on either side of the correct value. Sometimes, for example, for a large number with many significant digits, the allowable margin will be less than plus or minus one percent. If an answer you enter is incorrect, you can change it as many times as you want until you get it right. You can go back and forth between the graphical problem display and the Answer Sheet by using the buttons on the screen. Or you can click on the sheet tabs at the bottom of the display to move from one sheet to another.

If your answer is a word or phrase, instead of a number, try using lower case letters. If you still have trouble, then consult the Answer Bin, which has a long list of words and phrases that includes the correct answer. You can Copy and Paste the answer from the Answer Bin to the appropriate spot on the Answer Sheet.

5) In this latest version you can save your answer sheet as a file. This is particularly useful if your college or university has a system in place allowing students to submit work (e.g., files) electronically. The answer file is a separate Excel spreadsheet that can then be read and graded.


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Some tips and tricks

1) Many students find it convenient to jot their answers in the margin of the printed version of the questions, then enter the answers on the Answer Sheet all at once.

2) Most of the questions tell you to initialize the spreadsheet by setting values of many to the variables to their "baseline" values. Most of the spreadsheets have a button to help you do this easily. It is usually labeled "Set baseline values". Failure to set variables to baseline values will almost always lead to wrong answers.

3) The Answer Sheet cells in which you enter your answers will do arithmetic. For example, if a question asks you to compute the product of 5 and a number that appears in the spreadsheet you can have the answer sheet do the arithmetic instead of using a calculator. In the answer sheet cell enter =5* and then go to the cell that contains the number and click on it. Finally, hit Enter. The answer will appear in the answer sheet cell as a number.

3) More learning takes place if you first use a little trial and error to answer a question before you resort to using Goal Seek. For information on Goal Seek, see below.

4) For verbal, as opposed to numerical answers, use the Answer Bin, and copy and paste the correct option.


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Using Goal Seek

All of the questions in these problem sets can be answered using trial and error and a hand calculator, along with the interactive spreadsheets. Trial and error is, in fact, an excellent way to get a handle on how an economic theory and analysis works. You can get a lot of intuition about some economic models using trial and error to experiment, and I highly recommend it.

But too much trial and error, just like too much of anything, can become tedious, boring, and sometimes frustrating. To help you do many of the problems Excel includes a feature called Goal Seek that is really a computer program that works by trial and error to solve problems for you. It is worth the effort to learn how to use Goal Seek. By doing so you'll save lots of time getting answers, and also improve your accuracy.

You can think of Goal Seek as a special kind of equation solver. Suppose you know the equation of the demand curve for vanilla ice cream cones to be Q = 50 - 2(P). Here Q is the quantity demanded, and P is the price. What price would make the demand for vanilla ice cream cones equal to 40? This is a pretty simple problem (the answer is $5 per ice cream cone). Goal Seek can solve this problem by trial and error, taking different values for P and then searching for the one that makes quantity very close to 40.

To use Goal Seek, select it from the Tools menu in Excel. You will see a dialog box with three areas to enter data. The first box must contain the Excel cell address of the equation you want to solve. The second box must contain the numerical value you want the equation to attain (e.g., 40). The third box must contain the cell address of the variable you want to change to make the equation equal to the numerical value. When you have entered this information just click on OK and watch Goal Seek search for the answer.

Here's an example of how you can use Goal Seek to find the price of a good that will put its market in equilibrium. Open the Excel workbook neweq.xls. This workbook is the subject of problem set 4, Equilibrium Prices. To find the equilibrium price, you want to have excess demand equal to zero. After the workbook opens, follow these steps exactly:

1) Select the cell that contains the value for excess demand, F35. [Cell F35 actually contains the equation for excess demand.]
2) From the Tools menu, choose Goal Seek.
3) The "Set cell:" box should contain $F$35. If it doesn't, click on the cell F35.
4) Using the mouse pointer, click on the "To value:" box, and enter 0 (the number zero). Don't hit the Return key or click on OK at this point.
5) Using the mouse pointer, click on the "By changing cell:" box. Then click on the cell containing the value for the price, cell F32. $F$32 should appear in the box.
6) Click on OK. If everything goes properly, Goal Seek will announce that it has found the answer. Clicking on OK again will update the graph of the supply and demand curves showing the equilibrium price.

You can leave the Excel problem by choosing Close from the File menu.

Summary: Goal Seek will solve any equation for a particular value (the goal) by changing any one of the equation's variables. The entry in the "Set cell:" box must contain the equation whose value you seek. The entry in the "To value:" box is a number that is the goal. The entry in the "By changing cell:" box is the cell that contains the value of the variable you want to change.


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When trouble strikes

a) You may need to seek help with a problem, and you've already answered many of the questions. You don't want to lose the work you've already done, but you know you will if you log off. To save what you're working on do this:

From the File menu choose Save As… and save the file to your AFS space or another disk drive under a new name. When you open the saved file later, use the File menu Open option and single click on the file name you used to save the file. Hold down the Shift key when you click on OK, and keep holding the Shift key until the file starts to open. If you don't hold down the Shift key your work will probably be lost forever.

b) You have trouble printing. Follow the instructions above for saving a file intact until later. Then try printing again at a different location or different time.

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