[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

4. Why might there be a trade-off between equity and
efficiency?
5. What is a mixed economy? Describe some of the roles
government might play, or not play, in a mixed economy.
6. Name the three main economic markets, and describe
how an individual might participate in each one as a
buyer or a seller.
7. Give two examples of economic issues that are primarily
microeconomic and two examples that are primarily
macroeconomic. What is the general difference between
microeconomics and macroeconomics?
8. What is a model? Why do economists use models?
9. Give two examples of variables that you would expect
to be positively correlated. For each example, explain
whether a causal relationship exists between the two
variables.
PROBLEMS
1. How does each of the following affect the incentive to go
to college?
(a) An increase in tuition costs
(b) A fall in the interest rate on student loans
(c) A rise in wages for unskilled jobs
(d) An increase in incomes of college graduates
2. Characterize the following events as microeconomic,
macroeconomic, or both.
(a) Unemployment increases this month.
(b) A drug company invents and begins to market a
new medicine.
(c) A bank lends money to a large company but turns
down a small business.
(d) Interest rates decline for all borrowers.
(e) A union negotiates for higher pay and better health
insurance.
(f) The price of oil increases.
3. Characterize the following events as part of the labor
market, the capital market, or the product market.
(a) An investor tries to decide which company to invest
in.
(b) With practice, the workers on an assembly line
become more efficient.
(c) The opening up of economies in eastern Europe
offers new markets for American products.
(d) A big company that is losing money decides to offer
its workers special incentives to retire early, hoping
to reduce its costs.
(e) A consumer roams around a shopping mall looking
for birthday gifts.
(f) The federal government uses a surplus to pay off
some of its debt.
4. The back of a bag of cat litter claims, “Cats that use cat
litter live three years longer than cats that don’t.” Do you
think that cat litter actually causes an increased life
expectancy for cats, or can you think of some other factors
to explain this correlation? What evidence might
you collect to test your explanation?
5. Life expectancy in Sweden is almost eighty years; life
expectancy in India is close to sixty years. Does this
prove that if an Indian moved to Sweden, he would live
longer? That is, does this prove that living in Sweden
causes an increase in life expectancy, or can you think
of some other factors to explain these facts? What
evidence might you collect to test your explanation?
6. During 2004, some economists argued that the Federal
Reserve should undertake policies to slow the economic
expansion in the United States in order to ensure low
inflation. Other economists opposed such policies,
arguing that the dangers of inflation were exaggerated
and attempts by the Federal Reserve to slow the economy
would lead to higher unemployment. Is this a
disagreement about positive economics, or about
normative economics? Explain.
22 ∂ CHAPTER 1 MODERN ECONOMICS