Professional Documents
Culture Documents
CHAPTER 6
APPLICATIONS OF MACROECONOMICS
THEORYAS A BASIS FOR UNDERSTANDING THE
KEY ECONOMIC VARIABLES AFFECTING THE BUSINESS
SUGGESTED ANSWERS TO THE REVIEW QUESTIONS
I. Questions
1. The four broad classification of factors of production are:
a) Labor (Effort and skill of a carpenter; The ability of an actor)
b) Land (Trees; Water)
c) Capital (Tractor; Factory building)
d) Business Know-How
2. A mixed economy involves reliance on both the market and command
mechanisms. Most coordination is carried through the market mechanism
but there are many economic decisions which are either made by or
regulated by the government.
3. Scarcity is the universal condition that human wants always exceed the
resources available to satisfy them. The fact that goods and services are
scarce means that individuals cannot have all of everything they want. It
is therefore necessary to choose among alternatives. Scarcity is a
problem of essentially infinite wants and limited resources. While
cooperation is one way to organize our activity or confront the problem
of scarcity, it cannot eliminate it and therefore cannot eliminate
economic problems.
4. Wants reflect our unlimited desires for goods and services without regard
to our ability or willingness to make the sacrifices necessary to obtain
them. The existence of scarcity means that many of those wants will not
be satisfied. On the other hand, demands refer to plans to buy and
therefore reflect decisions about which wants to satisfy.
5. Any three events that are consistent with the following will increase
the demand for peanut butter.
6-1
Chapter 6
Chapter 6
6-3
Chapter 6
D
A
D
D
D
C
D
D
C
D
B
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
A
C
D
B
B
A
D
B
C
A
D
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
6-4
B
D
C
D
C
A
C
D
D
C
D
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
B
A
C
D
C
B
D
A
B
D
A
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
A
B
B
C
A
D
B
C
C
B
C