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Unformatted text preview: Mini Exam 1 Name: _________________________________ Section: ________ Recitation Leader: __________________ Short Answer/Essay Questions (You do not have to use all of the space provided for each question.) 1. Why is wage and price flexibility crucial to the idea of the “invisible hand?” Wage and price flexibility is crucial because in a free-market system, changes in wages and prices are the signals that coordinate the actions of people and businesses in the economy. In order to receive a 10/10, you had to demonstrate a firm understanding of the concept of the invisible hand and discuss wage and prices as a signal or a method of coordination. This question was graded quite leniently. If we weren’t completely convinced that you understood the concept, you received an 8 or 9. The lowest score on this question was a 7. Even without wage and price flexibility, the market will eventually come into equilibrium, it will just take longer. Even if you mentioned that wage and price are a signal, you had to discuss how that relates to the invisible hand. Even though a market governed by the “invisible hand” leads to efficiency (negative externalities notwithstanding), if you talked about efficiency, you also needed to relate it to flexibility...
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This note was uploaded on 09/15/2009 for the course ECON 304 taught by Professor Stone,mistyriano,alejandro during the Fall '07 term at Penn State.
- Fall '07