2302 Micro Econ Chapter 1

Economic analysis is used
in all decision making

Economic analysis is
a tool that can aid all decision making

The basic economic problem is
scarcity

Economics is the study of how people make
choices

Economics is a
social science

Economics is a study of
the allocation of scarce resources to satisfy unlimited wants

Scarcity exists in the world because
human wants are unlimited

Scarcity
requires individuals to make choices

Resources are
used to produce goods and services to satisfy peoples’s wants

_are the things that are used to produce things that satisfy peoples wants
Resources

Economics is most precisely defined as
the study of how people make choices

Economics
social science, concerned with limited resources, concerned with unlimited wants

Economics does NOT concern itself with
what people think

Because resources are scarce relative to wants, the study of economics concerns
how individuals, business, and governments make choices

In the definition of economics
resources are limited and wants are unlimited

Deciding whether to go to the beach or to go to school is
an economic decision

which of the following is NOT studied in microeconomics?
the impact of an increase in the unemployment rate on economic production

Macroeconomics is concerned primarily with
the entire economy

Microeconomic studies
decisions made by individual consumers and firms

The study of economics can be divided into two areas, which are
macroeconomics and microeconomics

Which of the following would likely be considered as falling into the domain of microeconomics?
the prices of apples

Macroeconomics might study which of the following?
the causes of domestic unemployment

Microeconomics is concerned primarily with
smaller units of the economy such as firms and households

Which of the following is a microeconomic concern?
consumer behavior

Which of the following is a microeconomic concern?
the national output of the United States

The study of how a particular firm might choose to maximize its profits would fall into what type of analysis?
microeconomics

What type of economics would most typically deal with aggregates?
macroeconomics

Which of the following is a microeconomic topic?
the advertising strategy of a particular company

Which of the following article topics is a macroeconomic subject?
the unemployment rate of the Untied States economy as a whole

Which of the following is an aggregate?
the total production of all goods and services

The impact of an increase in the gasoline tax on SUV sales is
a microeconomics topic because it deals with one industry

Which of the following would be most likely be apart of the study of microeconomics?
how General Motors makes decisions regarding their production goals

Individual decision making by consumers and producers is the focus of
microeconomics

aggregate measures are
a total measure of a variable across the economy

microeconomics is the study of
individual decision making

An example of a microeconomic decision is a situation in which
a firm evaluates how much to reduce the prices of its product in an effort to influence sales and boosts its profits

When the Board of Governors of the Federal Reserve Bank, chaired by Ben Bernanke, determines the discount rate, it is using
macroeconomic theories

Charitable donations to the Red Cross
can be explained by the rational self-interest theory

If a teacher tells a student that those who attend the study session typically score higher on the final exam,
the student has a positive incentive to attend the study session because she may get a higher grade

Consider the case of a teacher who tells students that those who miss more than three classes for any reason will automatically receive a lower grade
This is an example of a negative incentive for students to attend class

If the government offers to reduce your property taxes by 10 percent if you install solar heating for your home, this would be an example of
incentives

Economists assume that people are motivated by
self-interest

When we say that an individual behaves according to “rational self-interest,” we mean that this individual
is making choices that they believe will leave him/her better off

Rational behavior for an economist means that individuals
are motivated by self-interest

According to economists, when two people make exactly the opposite decision,
each person evaluates the situation according to his/her individual self interest

It is assumed in economics that people make decisions based upon
rational self-interest

An incentive is a
reward for desired behavior

The author of the book An Inquiry into the Nature and Causes of the Wealth of Nations is
Adam Smith

Rational self-interest means
pursuing what makes you better off

The rationality assumption states that
people do not intentionally make decisions that would leave them worse off

Economic theory predicts that people make choices in a manner that
makes them better off

How could Adam Smith’s comment about the butcher, the brewer, and the baker be accurately rephrased in modern terms?
The butcher, the brewer, and the baker give us our dinner because they each earn a living by doing so

According to economic theory, how do people make decisions?
they make decisions based on their own self-interest

Underlying economic theory is the idea that
choices are affected by both positive and negative incentives

The idea that people will not consciously make decisions that make them worse off is known as
rationality assumption

A theory or model
is a simplified, abstract view of reality

Ceteris paribus means
“other things being equal”

The ceteris paribus assumption means
other things be equal

In constructing models, economists
make simplifying

Economics may be referred to as _ science, meaning that data is looked at to see whether assertions are correct.
empirical

The value of the model is determined by
the usefulness of its predictions in the real world

Assumptions in models tend to make
the model more applicable to specific circumstances

What is meant by saying economics is an empirical science?
Economic theories will be tested by seeing how well they correspond to real-world phenomena

The combination of psychology and economics to determine individual decision making is known as
behavioral economics

How does the science of economics deal with the fact that we all have different values?
by using positive analysis

Which of the following is a positive statement?
the unemployment rate is 5.8 percent

The difference between positive statements and normative statements is that
a positive statement is a statement of fact and a normative statement involves value judgments

Normative economics
involves value judgments

The Presidents statement that “to encourage economic growth, taxes should be cut,”
would be an example of a normative statement

Positive economics
is objective

Economists seeks to use only positive analysis to
provide a value-free analysis

Normative statements
are statements of “what ought to be”

Positive analysis can be described as
a value-free approach to inquiry

A positive economic statement is one that
can be refuted

A relationship between two variable in which one variable increases at the same time as the other decreases is called
inverse

A direct relationship occurs when
the two variables being compared change in the same direction, or when one goes up the other also goes up

If a decrease in one variable causes a decrease in another variable there is
an inverse relationship

A relationship between two variables in which one variable increases at the same time that the other increases is called
direct

When two variables have an inverse relationship, the slope is called
negative

When two variables have a direct relationship, the slope is
positive

An inverse relationship will be graphed as
a line that is downward sloping

In an inverse relationship,
one variable rises while the other falls

Which of the following is an example of an inverse relationship
beers consumed while studying and test grade

Consider the statement, “The number of beers consumed the night before a test affects the grade.” In this statement
beer is the independent variable and test grade is the dependent variable

The “paired observation” of (14,6) means
x =14, y = 6

The intersection of the x axis and the y axis is called the
origin

IF the slope of a curve is 1/5, we know that
the relationship is linear, and the line moves from lower left to upper right

A negative slope
represents an inverse relationship, such as beers consumed and test score

The slope of a nonlinear curve
changes along the various points of the curve

The slope of a nonlinear curve is _ when the curve is rising, and _ when the curve is falling.
positive, negative

If a straight line crosses the Y-axis at 5 and crosses the X-axis at 10, we can conclude that the slope of the line is
negative

The slope of a line is the
change in the values along the y-axis divided by the change in the values along the x-axis