Micro/Macro Economics
1. In March 2020 the US Energy Information Agency published a report with the headline “Oil market volatility is at an all-time high”. Using basic principles of demand and supply explain why oil prices tend to be so volatile and why it is not surprising that the EIA would predict that volatility will increase during the pandemic.
2.The global microchip shortage is causing significant price increases for both new and used vehicles . Does this necessarily mean that the revenues earned by chip manufacturers will be up? Why or why not? Explain.
3.Many concert promoters want to offer “VIP seating” at events. By paying a price that is at least double the cost of the next best tickets, the “VIP’S” get to sit somewhat closer to the stage. Some pop stars have pushed back on this pricing policy saying that they want the best seats to go to their best fans, not their richest fans. Two questions:
Is this an example of price discrimination?
Is it possible that this is not only good for generating more revenue but also for helping the lower income fans who can’t afford the VIP seating?
4.Both the Fed and the European Central Bank are worried about inflation. But suppose the ECB is more worried and so raises European interest rates faster and higher than the Fed raises US rates. How would this change exchange rates?
5. In November St Paul Minnesota passed one of the most restrictive rent controls in the US, claiming that this is necessary to support lower income households and especially members of minority groups that have historically suffered from discrimination that made it hard for them to secure affordable housing. However well intentioned, these laws may have the opposite effect. Explain.
Bobby McPherin is planning to release a new version of his old hit song, “Don’t worry. Be happy”. The new lyrics go like this: “Don’t worry ‘bout the inflation rate. You own a house now, so celebrate. Don’t worry. Be happy.”
Catchy, no? But is it good advice? Should we worry about inflation? If so, why? Hint: a very bad answer to this question will say something like, “Inflation is bad! Inflation means that stuff gets more expensive. We don’t like it when things get more expensive.” The first statement is true. The second is not. Explain.
