sample essay questions ch 1-4

sample essay questions ch 1-4 - CHAPTER 1 1. The business...

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CHAPTER 1 1. The business cycle is the economist's metric for describing the current state of the economy: Ranging from economic boom to recession. How would you describe the U.S. economy's current position in the business cycle? ANSWER: See the following for the latest summary of economic conditions: a) National Bureau of Economic Research Business Cycle dating page ( ); b) The Wall Street Journal ( ); c) The New York Times, Business Section ( ). ------------------------------------------------- 2. How will a change in the price of steel affect the price of automobiles and quantity of automobiles sold on the market? Illustrate your answers with a graph of supply and demand in the automobile industry. What are the exogenous and endogenous variables in this question? ANSWER: An increase in the price of steel should lead to an inward shift of the supply curve for automobiles due to the high cost of steel in the production process. The new equilibrium will have a higher price and a lower quantity of cars. The price of steel is the exogenous variable in this question, while the price and quantity of automobiles are the endogenous variables. ------------------------------------------------- 3. Macroeconomic models often assume that all people are identical. Why might this not be a good assumption when analyzing the market for new computer sales? ANSWER: Consumers often purchase a computer with a specific functional use in mind, so they will request a product that is best equipped for their intended use. These differences in computer preferences cannot be captured in a model that does not allow for differences among individuals. For example, a model that assumes that all individuals are equal will not be able to make predictions about changes in demand from desktop to laptop computers because the simple model will state that one type of computer is preferred by all. ------------------------------------------------- 4. a. For each of the following markets, describe whether the market is better characterized as having sticky prices or as exhibiting market clearing behavior. i. a grocery store ii. a stock market iii. the personal computer market iv. a pizza delivery service b. What do you think causes the slow price adjustments in the sticky price markets you described above? ANSWER: a. i. Sticky prices. Grocery store prices often remain fixed for long intervals of time. ii. Market clearing behavior. The stock market is a type of auction market where the price of shares are constantly adjusting to changes in supply and demand. iii. Market clearing behavior. In recent years, computer manufacturers have changed prices more frequently in response to increased competition and the use of Internet sales.
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iv. Sticky prices. Pizza places change prices infrequently because they do not want to incur the costs associated with reprinting and redistributing their updated menus to customers. b.
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This note was uploaded on 10/13/2011 for the course ECO 3302 taught by Professor Avdjiev during the Spring '08 term at SMU.

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sample essay questions ch 1-4 - CHAPTER 1 1. The business...

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