Economics Chapter 1 Homework Scientists Examine Data Often Provided Controlled Experiments

Unlock access to all the studying documents.

View Full Document

Answers to Textbook Questions

and Problems

Questions for Review

1. Microeconomics is the study of how individual firms and households make decisions,

and how they interact with one another. Microeconomic models of firms and households

are based on principles of optimization—firms and households do the best they can

2. Economists build models as a means of summarizing the relationships among economic

variables. Models are useful because they abstract from the many details in the econo-

my and allow one to focus on the most important economic connections.

3. A market-clearing model is one in which prices adjust to equilibrate supply and

demand. Market-clearing models are useful in situations where prices are flexible. Yet

in many situations, flexible prices may not be a realistic assumption. For example,

Problems and Applications

1. Most of the macroeconomic issues that have been in the news lately (early 2009) are

related to the worsening recession that officially began in December of 2007. The econ-

2. Many philosophers of science believe that the defining characteristic of a science is the

use of the scientific method of inquiry to establish stable relationships. Scientists

3. We can use a simple variant of the supply-and-demand model for pizza to answer this

question. Assume that the quantity of ice cream demanded depends not only on the

price of ice cream and income, but also on the price of frozen yogurt:

Qd= D(PIC, PFY, Y).

We expect that demand for ice cream rises when the price of frozen yogurt rises,

because ice cream and frozen yogurt are substitutes. That is, when the price of frozen

CHAPTER 1The Science of Macroeconomics

4Chapter 1The Science of Macroeconomics

4. The price of haircuts changes rather infrequently. From casual observation, hairstylists

tend to charge the same price over a one- or two-year period irrespective of the demand

for haircuts or the supply of cutters. A market-clearing model for analyzing the market

for haircuts has the unrealistic assumption of flexible prices. Such an assumption is