Macroeconomics Problem Set # 1
Laughlin
Answer the following questions completely. Be sure to define you economic terms and use graph when appropriate.
What is the fundamental problem in economics? How does that problem drive the choices that societies make? Given this problem, what economic systems have developed? Explain in an essay. Be sure to define your economic terms.
Given the market for Teslas, illustrate (that means graph!) how the following events would affect the supply ordemand for Teslas. Which non-price determinant caused the shift of demand or supply? What happens to price and quantity after the change?
a. The price of gas (a substitute) goes up significantly.
b. The Consumer safety board issues a statement that Teslas have the tendency to explode.
c. There is a automotive workers labor strike and half of the Tesla workers walk off the job.
d. There is a large tax increase that affects American consumers (assume that Teslas are normal goods).
e. The price of plastic increases significantly.
What is the argument for government intervention in pollution abatement? Use the theory of negative externalities and graph to explain your answer.
In what way is the GDP measurement important? What are the strengths and weaknesses of National income accounting?
Use a Production Possibility Frontier model to illustrate a student's limited time for study. Suppose a student has 10 hours to study and her study possibilities are as follows:
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Economics (pages of text read)
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0
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10
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20
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30
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40
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Math (problems solved)
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80
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60
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40
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20
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0
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Construct a Production Possibility Frontier, be sure to label your axes. What is the opportunity cost of one math problem in terms of reading pages of the econ text? What happens to the graph if the student gets a calculator that makes her twice as fast in solving math problems, but it does not affect econ. How is economic growth represented on a Production Possibility Frontier graph?