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Sayre and Morris Principles of Microeconomics and Macroeconomics
Short Answer Questions
Macroeconomics
Chapter 1
1.
To what extent is the organization of the family household based on the four Cs?
Give examples of how each of the four Cs is used to assign household chores and
make decisions in a typical household. What blend of the four Cs do you think is
preferable and why?
2.
Explain how the “What, How and for Whom” questions are addressed in the case
of both a customary and a cooperative society.
Chapter 2
1.
Explain the difference between “scarcity” and “shortage”.
2.
Explain, in terms of demand and supply, why the price of maple syrup may be
different in London, Ontario, from that in London, England.
Chapter 3
1.
GDP statistics may not give an accurate reflection of a country’s total production.
Give three reasons why.
2.
It’s possible for savings to exceed investment and for imports to exceed exports
and yet the economy may still be in equilibrium. Explain how that is possible.
Chapter 4
1.
Explain how Canada’s official unemployment rate could understate the actual
amount of unemployment. Then explain how it could overstate it.
2.
“There is nothing bad about inflation as long as everyone’s nominal income
increases at the same rate ”. Is this true?
Chapter 5
1.
Is the nominal wage rate constant along the aggregate supply curve? Is the
nominal wage rate constant along the potential GDP curve? Is the real wage rate
constant along both curves?
2.
Explain why stagflation cannot be explained in terms of a change in aggregate
demand.
Chapter 6
1.
Canadians save a lot, are taxed a lot and buy a lot of imported goods. What effect
does this have on the size of the multiplier in this country?
2.
Since exports imply that products are leaving the country, while imports involve
products coming into the country, wouldn’t a trade deficit imply that we are
obtaining more goods than we produce? Wouldn’t our economic welfare be
enhanced as a result?
Chapter 7
1.
Can an economy have a money supply that is too large? Too small? What is the
right money supply an economy?
2.
What would happen if all depositors were to demand their cash back from a bank
at the same time? What security do depositors have against this possibility?
Chapter 8
1.
What happens to the level of equilibrium income if both the investment demand
curve and the money demand curves shifted right at the same time?
2.
Using the equation of exchange, explain what could cause an increase in the
demand for money, according to monetarists.
Chapter 9
1.
Why do some countries enjoy a cost advantage over others in the production of
certain products? To what extent do these advantages remain constant? How
may they disappear over time?
2.
In what way is a direct subsidy from the government preferable to a tariff or quota
as a way of assisting an infant industry?
Chapter 10
1.
Explain how a flexible exchange rate will ensure a balance in a nation’s ”Balance
of Payments” statement.
2.
What would be the advantages if Canada were to fix the value of the Canadian
dollar to the American dollar? What would be the disadvantages?
Chapter 11
1.
“We owe the national debt to ourselves. Therefore, it isn’t, and never will be, a
problem.” Discuss.
2.
For advocates of a balanced-budget fiscal policy, which economic problem would
be more serious – high unemployment or a budget surplus? Is it possible for
fiscal policy to address both of these problems at the same time?
Chapter 12
1.
If an economy is on a fixed exchange-rate system, what action, if any, must its
central bank take if foreign interest rates fall?
2.
Suppose that the government uses expansionary fiscal policy to combat a
recession. What action will a central bank need to take if it wants to prevent any
possible inflationary consequences?
Chapter 13
1.
If you were a Keynesian, how would you explain the effect of an increase in
savings? How would you explain it if you were a neoclassicist?
2.
Explain how a decrease in tax rates may in fact increase a government’s tax
revenue.
Microeconomics
Chapters 1 and 2 (same as Macro)
Chapter 3
1.
Explain clearly why a price ceiling imposed above the equilibrium price is as
ineffective as a price floor imposed below the equilibrium price.
2.
Who gains and who loses from the imposition of rent controls?
Chapter 4
1.
Do you think there is a big difference between the price elasticity for kitchen
stoves in the long run and in the short run? What about paper towels?
2.
What would be the effects of a war on drugs that targeted drug users rather than
drug suppliers?
Chapter 5
1.
Explain why the total utility derived from the consumption of a product is not
relevant as far as purchasing decisions are concerned.
2.
Explain why a higher elasticity of demand results in a smaller total consumer
surplus. Under what circumstances would consumer surplus be zero?
Chapter 6
1.
“To an economist, cost includes profit.” Discuss.
2.
Comment on the following statement: “If a firm wants to cut costs, it must first
increase productivity.”
Chapter 7
1.
If a firm can never operate in the long run, why do economists consider the long
run an important concept?
2.
What does it mean to suggest that a firm is the “right size”?
Chapter 8
1.
If a perfectly competitive market is in equilibrium, does this mean that the firms
in the industry are making economic profits? Does it mean they are breaking
even?
2.
“Strong competition requires weak competitors.” Discuss this statement.
Chapter 9
1.
A political observer once made the comment: “If the external benefits exceed the
external costs in the production of a private good, then it is better that the
government doesn’t interfere with the market”. Do you agree with the observer’s
comment? Why or why not?
2.
Although market failures can often be addressed by market solutions, it is the
government that must introduce such solutions. Discuss this statement.
Chapter 10
1.
Suppose that the average variable costs for a monopolist remained constant
regardless of how much it produced. What would then determine the profit
maximizing output of the monopolist?
2.
Suppose that there is a single monopoly fishing vessel in a small town. Once the
catch is landed for the day, the supply of fish cannot be adjusted. How is the
price of fish determined? What difference would it make if the industry was
competitive and there were many fishing boats?
Chapter 11
1.
Why is the idea of mutual interdependence so important in analyzing oligopoly
markets? Why is it irrelevant when studying the three other forms of
competition?
2.
How would your analysis of a monopolistically competitive industry be altered if
the government were to block the entry of new firms?
Chapter 12
1.
The owners of major sports team in North America could pay their players
considerably less and still get them to play. Discuss.
2.
“Since rent is a surplus and not a cost of production, a tax on land will have no
effect on the annual rent.” Comment on this statement.
Chapter 13
1.
Why do some countries enjoy a cost advantage over others in the production of
certain products? To what extent do these advantages remain constant? How
may they disappear over time?
2.
In what way is a direct subsidy from the government preferable to a tariff or quota
as a way of assisting an infant industry?