Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
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
3
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
