Econ 10233
Introduction to Macroeconomics
John Lovett
Answers to Selected End of Text Study Questions
Chapter 3: Supply and Demand – How Markets Work (pp 321 – 324)
1.
A
e. equilibrium price Decreases
2.
D
(A is only a change in quantity
demanded, not a change in demand. TCU’s
demand curve does not shift in A. Instead,
in reaction to a lower price for TCU, the
market slides along the same demand curve.
A does not represent a change in peoples’
“what if” list. Before, more people were
willing to come to TCU if tuition had been
lower. It just wasn’t lower until now.)
f. equilibrium quantity Decreases
g. ΔD (a change in demand)
h. Only ΔQS (only a change in qty supplied)
5.
3.
e. equilibrium price Decreases
f. equilibrium quantity Decreases
g. ΔD (a change in demand)
h. Only ΔQS (only a change in qty supplied)
e. equilibrium price Increases
f. equilibrium quantity Decreases
6.
C [Try drawing a few shifts. If both prices
and quantity fall, it must be (primarily) a
decrease in quantity supplied rather than a
change in supply. A decrease in supply
causes quantity to fall, but prices to rise. An
increase in supply causes prices to fall, but
quantity to rise. Demand is another story.
Demand fell (shifted left) which caused the
decrease in quantity supplied.]
7.
C (Cool. Markets can work even if none of
the participants understands how and why
they are working.)
8.
D (Supply increased between 1999 and
2000.)
g. Only ΔQD (only a change in qty demand)
h. ΔS (a change in supply)
4.
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Econ 10233
9.
Introduction to Macroeconomics
D (Since a substitute, cotton, is now cheap,
the demand for wool clothing decreases.)
John Lovett
15. B (The “?” should not be in options B and
C)
10. B
16. C
11. D (It’s still a big bummer for sellers.
Nonetheless, it is only a decrease in quantity
supplied, not a decrease in supply.)
17. A
18. C (The decrease in supply tends to drive
price up. The decrease in demand tends to
drive price down.)
12. B.
19. B (Both the decrease in supply and the
decrease in demand drive quantity down.)
13. B
14. D
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Econ 10233
Introduction to Macroeconomics
John Lovett
Chapter 4: What’s Good (and Bad) About Markets? (pp 325 – 328)
1.
C
8.
B
2.
A
9.
A
3.
D
10. B
4.
C
5.
B Although I wish I had written options b,
c, and d as follows:
11. D (But Marx would argue that the ifs are
not true in the real world.)
12. C
a. a “market failure.” $ votes will not
accurately reflect the costs and benefits to
society of producing the good.
b. An classic example of the “invisible
hand” concept in action. People are
being harmed, even though they are likely
unaware of it.
c. An classic example of the “invisible
hand” concept in action. It appears that
the cement manufacturers are wholly
responsible for the harm when the majority
of the blame lies with cement buyers.
6.
7.
13. A
14. A
Darn those “?” marks again. # 14
should read as follows: _____ Economists
often use the price a good sells for as a proxy for
how much people and society value it (at the
margin). By this method, a fancy $8,000 crystal
vase is worth 1,000?× an $8 can of infant
formula. Now, consider two countries. Country
A has a very equal distribution of income.
Country B has a very unequal distribution of
income. In which country is a good price likely
the better measure of a good’s value to people?
B (The buyers still have some choice in the
matter. They are not external to the
decision on whether they bear the costs and
benefits from participating in the market.)
15. A
16. D
A (Many people affected by the pesticide
even though they are not active decision
makers in the market. The market ignores
the costs they bear.)
17. A
18. C
Chapter 5: Time Horizons in Macroeconomics (pp 329 – 332)
1.
D
3.
D
11. A
2.
A
(There are few/no
unemployed resources one
can use for increased
military production when
the economy is at normal
capacity.
Instead,
resources have to shifted
from
private
sector
production to make more
military goods.)
4.
B
12. B
5.
E
13. B
6.
E
14. C
7.
E
15. C
8.
D
16. A
9.
A
17. C
10. C
18. A
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Econ 10233
Introduction to Macroeconomics
19. E
23. A
20. B
24. C
(There is less
unemployment than the
normal rate of 6%.
However,
the
21. B
22. D
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John Lovett
unemployment rate will
never
fall
to
0%.
Therefore, 0% < UActual <
6%.)