Prof. Bryan Caplan

Econ 311

Fall, 1999

HW#1 (Please type all answers)

  1. Use the world-wide web or an encyclopedia to briefly (max 20 minutes) research the history of one invention. Then write a paragraph explaining (a) When the invention first appeared; (b) What previous technology, if any, it replaces; (c) The impact of the invention in living standards.
  2. Draw supply and demand curves for wheat. What happens to price and quantity if demand for wheat rises? Falls?
  3. Draw supply and demand curves for (a) the original Mona Lisa and (b) an original finger painting by Maggie Simpson (the baby on The Simpsons). Pay special attention to the shape of the supply curves. Then explain: What happens to price and quantity if the demand for these paintings falls? Rises?
  4. Draw supply and demand curves for Aggregate Demand and Aggregate Supply. Does the AS curve look like the supply curve for wheat, or like the supply curve for the Mona Lisa? Why?
  5. Using AS-AD curves, diagram each of the following cases:
    1. An increase in the money supply.
    2. A decrease in the money supply.
    3. The invention of the ATM.
    4. Easier bankruptcy laws makes banks unwilling to issue credit cards to bad credit risks.
    5. Workers get lazier.
    6. Scientists figure out how to make better computers.
    7. Consumers rent fewer videos and go to more movies instead.
  1. Using AS-AD curves, diagram the impact of economy-wide price maxima. In 2-3 sentences, explain what happens.
  2. Using AS-AD curves, show what happens if the government imposes an economy-wide price maxima at the equilibrium price level. (Hint: This part is easy). Then diagram and explain what happens if AD increases and the government leaves the legal price level unchanged. (2-3 sentences)
  3. Is a decline in AD inflationary or deflationary? What about an increase in AS? (2-3 sentences)
  4. Explain why and how AS shifts affect the production possibilities frontier, but AD shifts do not. (3-4 sentences)
  5. Suppose the money supply doubles. What happens to the price level and inflation? Does one, the other, both, or neither change permanently? (2-3 sentences)
  6. Fred has taken the classes in the table below. Compute his GPA:




    English comp


    B (3.0)



    C (2.0)



    B (3.0)

    intro econ


    A (4.0)

  8. The steel industry produces four kinds of steel. Compute the TSI (Total Steel Index):
  9. Product

    Quantity (million tons)

    Index Weight

    grade AAA steel



    grade AA steel



    grade A steel






  10. In one paragraph, explain a conceptual problem with GDP, and suggest a alternative definition that adjusts for the problem. If your alternative definition were used, would measured GDP be bigger or smaller?
  11. Provide a modernized example of one of the fallacies Bastiat critiques. What would Bastiat say about it? (1 paragraph)
  12. Use an AS-AD diagram to explain the effect of permitting free immigration from Mexico. Explain your answer (2-3 sentences)