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Supply and Demand

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Answers to in-text Questions in Economics (5th edition)

Chapter 1

Page 4 ( Could production and consumption take place without money? If you think they could, give examples. Yes. People could produce things for their own consumption. For example, people could grow vegetables in their garden or allotment; they could do their own painting and decorating. Alternatively people could engage in barter: they could produce things and then swap them for goods that other people had produced.

( Before reading on, how would you define scarcity? Must goods be at least temporarily unattainable to be scarce? See page 2 of text for a definition of scarcity. Goods need not be unattainable to be scarce. Because people’s incomes are limited, they cannot have everything they want from shops, even though the shops are stocked full. If all items in shops were free, the shelves would soon be emptied!

( If we would all like more money, why does the government not print a lot more? Could it not thereby solve the problem of scarcity ‘at a stroke’? The problem of scarcity is one of a lack of production. Simply printing more money without producing more goods and services will merely lead to inflation. To the extent that firms cannot meet the extra demand (i.e. the extra consumer expenditure) by extra production, they will respond by putting up their prices. Without extra production, consumers will end up unable to buy any more than previously.

5 ( (Box 1.1) What is it that makes each one of the above news items an economics item? Each one of the items has something to do with production, consumption or exchange, and/or the money incomes and expenditures involved.

6 ( Which of the following are macroeconomic issues, which are microeconomic ones and which could be either depending on the context?...

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