1. When the price of CD increased from $10 to $11, the quantity of CDs demanded decreased from 100 to 87. Using the mid-point formula:
2. What is the price elasticity of demand for CDs?
3. Is demand elastic or inelastic?

• When the price of paper increases from $100 to $104 per ton, the quantity supplied increased from 200 to 220 tons per day. Using the mid-point formula:
• What is the price elasticity of supply for paper?
• Is the supply elastic of inelastic?

• If firm wants to increase its total revenue, should it raise or lower its prices? Explain your answer.

Chapter 6 – GDP and Economic Growth

1. Do increases in gross domestic product necessarily means into improvement in the standard of living of the citizens? Explain your answer.

• Someone said. “Trade deficits are good because we are buying more goods than we are producing.” What is the downside of trade deficits?

• What factors determine technological progress?

Chapter 7 – Unemployment and Inflation

1. What is unemployment? Why can’t it be driven down to zero?

• Supposed the government hires workers who are currently unemployed but does not give them any work to do.
• What will happen to the measured unemployment rate?
• Is this an accurate reflection of the underlying economic situation?

• Critically evaluate the following statement: “Hong Kong is an expensive place to live. They must have a high inflation rate in Japan.”

Chapter 12 – Money and Banking

1. Why do all societies have some form of money?

• If people never withdrew cash from banks,
• How much money could the banking system potentially create?
• Could this really happen?
• What might limit deposit creation in this case?

Chapter 13 – Monetary Policies

1. Refrigerators and clothing are, to some extent durable. Explain why the decision to buy a refrigerator is likely to be more sensitive to interest rates than the decision to buy clothing.

Chapter 15 – Globalization and Trade

1. Why do both rich and poor countries benefit from trade?

• If the dollar increases in values against the Japanese Yen, how will this affect the balance of trade between the United States and Japan?

• Consider two financial planners, Phil and Frances.
• In an hour, Phil can either produce one financial statement or answer 10 phone calls
• In an hour, Frances can either produce three financial statement or answer 12 phone calls?

1. Who has the absolute advantage?
2. Who has the comparative advantage?