Economics 1 Midterm Essay Questions

Economics 1 Midterm Essay Questions - 1. It is alleged that...

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1. It is alleged that “money is the root of all evil.” To the contrary, I assert. Money is one of the greatest technological innovations of all-time. Explain why. Money is generally accepted and widely used for purchase and of goods and services and in the settlement of debt. In a monetary economy people are willing to specialize in production, however where there is not a monetary economy, people do not specialize in production resulting in jack-of-all-trades and reduced production and efficiency. It also gets rid of the need for a double coincidence of wants, which reduces search costs and saves time. 2. Write an essay on the determinants of demand. The determinants of demand are: Price of the product Price of related commodities Substitutes and complements Incomes o Superior – When people’s incomes rise, they buy more of this (Caviar) o Inferior – When people’s incomes rise, they buy less of this (Bus rides) Tastes, Attitudes, and Preferences 3. Write an essay on the determinants of supply. The determinants of supply are: The price of the product o Higher price of the product, the more the firm is willing to supply Cost of the firms factors of production o When factor prices increase, it causes a decrease in supply o When factor prices decrease, it causes an increase in supply The state of technology o New technology increases efficiency which increases supply 4. Explain how markets operate as signaling mechanisms, information transmitters, and coordinating devices. When there is a rise in price it signals there is increased scarcity of the product. When there is an excess demand households value the good more. This means that it is more profitable for producers to make, which signals more producers to come into the market, which creates an increase in supply. With an increase in supply it can cause households to see that the good is no longer spent and scarce and they will no longer pay as high a price for it. 5. Why are those who advocate the abolition of advertising stupid beyond belief? Advertising is search cost reducing because it presents lots of valuable information to the consumer with very little cost to them. It saves the consumer time and energy that would have usually been spent in order to find different products that they desire. Advertising provides a quick and easy to look at way of finding the best price of a product and its substitutes and complements as well.
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6. The GDP per capita of Bangladesh is one-hundredth the GDP per capita of the U.S. Provide some explanation of this difference. The GDP has a high GDP because:
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Economics 1 Midterm Essay Questions - 1. It is alleged that...

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