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Unformatted text preview: Hints to Sample Essay Questions for Midterm 1 Chapter 1 (7) and (8) ask you to apply the cost-benefit analysis discussed in class. This determines rational behavior. Chapter 3 (2) The supply curve can never be downward sloping (in the extreme case it can be vertical as in the money supply curve). If one observes that price and quantity supplied are inversely related, then this could not have occurred because of price being a causal factor. You can observe a negative relationship if something happened to shift the supply curve which would in turn change price and quantity supplied. Your job is to figure out which way the supply curve should shift and think creatively of possible reasons for the shift. (8) This is something new. So I will give you the exact answer which is: (a) Relative Price of X in terms of Y = 10/14 (b) Relative Price of Y in terms of X = 14/10 (9) (a) Diagrammatically depict the effects of an adverse supply shock. When you are asked to find out the effect(s) on the market, you should describe what happens to price and quantity. We have discussed several times in class how to argue intuitively about and quantity....
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- Spring '08