2302 Micro Econ Chapter 1 – Flashcards
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Economic analysis is used
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in all decision making
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Economic analysis is
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a tool that can aid all decision making
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The basic economic problem is
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scarcity
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Economics is the study of how people make
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choices
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Economics is a
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social science
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Economics is a study of
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the allocation of scarce resources to satisfy unlimited wants
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Scarcity exists in the world because
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human wants are unlimited
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Scarcity
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requires individuals to make choices
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Resources are
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used to produce goods and services to satisfy peoples's wants
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_are the things that are used to produce things that satisfy peoples wants
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Resources
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Economics is most precisely defined as
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the study of how people make choices
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Economics
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social science, concerned with limited resources, concerned with unlimited wants
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Economics does NOT concern itself with
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what people think
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Because resources are scarce relative to wants, the study of economics concerns
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how individuals, business, and governments make choices
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In the definition of economics
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resources are limited and wants are unlimited
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Deciding whether to go to the beach or to go to school is
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an economic decision
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which of the following is NOT studied in microeconomics?
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the impact of an increase in the unemployment rate on economic production
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Macroeconomics is concerned primarily with
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the entire economy
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Microeconomic studies
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decisions made by individual consumers and firms
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The study of economics can be divided into two areas, which are
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macroeconomics and microeconomics
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Which of the following would likely be considered as falling into the domain of microeconomics?
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the prices of apples
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Macroeconomics might study which of the following?
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the causes of domestic unemployment
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Microeconomics is concerned primarily with
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smaller units of the economy such as firms and households
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Which of the following is a microeconomic concern?
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consumer behavior
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Which of the following is a microeconomic concern?
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the national output of the United States
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The study of how a particular firm might choose to maximize its profits would fall into what type of analysis?
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microeconomics
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What type of economics would most typically deal with aggregates?
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macroeconomics
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Which of the following is a microeconomic topic?
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the advertising strategy of a particular company
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Which of the following article topics is a macroeconomic subject?
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the unemployment rate of the Untied States economy as a whole
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Which of the following is an aggregate?
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the total production of all goods and services
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The impact of an increase in the gasoline tax on SUV sales is
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a microeconomics topic because it deals with one industry
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Which of the following would be most likely be apart of the study of microeconomics?
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how General Motors makes decisions regarding their production goals
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Individual decision making by consumers and producers is the focus of
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microeconomics
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aggregate measures are
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a total measure of a variable across the economy
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microeconomics is the study of
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individual decision making
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An example of a microeconomic decision is a situation in which
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a firm evaluates how much to reduce the prices of its product in an effort to influence sales and boosts its profits
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When the Board of Governors of the Federal Reserve Bank, chaired by Ben Bernanke, determines the discount rate, it is using
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macroeconomic theories
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Charitable donations to the Red Cross
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can be explained by the rational self-interest theory
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If a teacher tells a student that those who attend the study session typically score higher on the final exam,
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the student has a positive incentive to attend the study session because she may get a higher grade
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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
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This is an example of a negative incentive for students to attend class
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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
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incentives
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Economists assume that people are motivated by
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self-interest
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When we say that an individual behaves according to "rational self-interest," we mean that this individual
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is making choices that they believe will leave him/her better off
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Rational behavior for an economist means that individuals
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are motivated by self-interest
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According to economists, when two people make exactly the opposite decision,
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each person evaluates the situation according to his/her individual self interest
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It is assumed in economics that people make decisions based upon
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rational self-interest
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An incentive is a
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reward for desired behavior
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The author of the book An Inquiry into the Nature and Causes of the Wealth of Nations is
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Adam Smith
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Rational self-interest means
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pursuing what makes you better off
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The rationality assumption states that
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people do not intentionally make decisions that would leave them worse off
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Economic theory predicts that people make choices in a manner that
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makes them better off
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How could Adam Smith's comment about the butcher, the brewer, and the baker be accurately rephrased in modern terms?
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The butcher, the brewer, and the baker give us our dinner because they each earn a living by doing so
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According to economic theory, how do people make decisions?
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they make decisions based on their own self-interest
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Underlying economic theory is the idea that
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choices are affected by both positive and negative incentives
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The idea that people will not consciously make decisions that make them worse off is known as
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rationality assumption
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A theory or model
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is a simplified, abstract view of reality
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Ceteris paribus means
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"other things being equal"
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The ceteris paribus assumption means
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other things be equal
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In constructing models, economists
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make simplifying
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Economics may be referred to as _ science, meaning that data is looked at to see whether assertions are correct.
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empirical
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The value of the model is determined by
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the usefulness of its predictions in the real world
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Assumptions in models tend to make
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the model more applicable to specific circumstances
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What is meant by saying economics is an empirical science?
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Economic theories will be tested by seeing how well they correspond to real-world phenomena
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The combination of psychology and economics to determine individual decision making is known as
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behavioral economics
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How does the science of economics deal with the fact that we all have different values?
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by using positive analysis
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Which of the following is a positive statement?
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the unemployment rate is 5.8 percent
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The difference between positive statements and normative statements is that
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a positive statement is a statement of fact and a normative statement involves value judgments
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Normative economics
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involves value judgments
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The Presidents statement that "to encourage economic growth, taxes should be cut,"
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would be an example of a normative statement
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Positive economics
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is objective
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Economists seeks to use only positive analysis to
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provide a value-free analysis
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Normative statements
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are statements of "what ought to be"
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Positive analysis can be described as
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a value-free approach to inquiry
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A positive economic statement is one that
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can be refuted
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A relationship between two variable in which one variable increases at the same time as the other decreases is called
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inverse
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A direct relationship occurs when
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the two variables being compared change in the same direction, or when one goes up the other also goes up
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If a decrease in one variable causes a decrease in another variable there is
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an inverse relationship
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A relationship between two variables in which one variable increases at the same time that the other increases is called
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direct
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When two variables have an inverse relationship, the slope is called
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negative
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When two variables have a direct relationship, the slope is
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positive
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An inverse relationship will be graphed as
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a line that is downward sloping
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In an inverse relationship,
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one variable rises while the other falls
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Which of the following is an example of an inverse relationship
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beers consumed while studying and test grade
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Consider the statement, "The number of beers consumed the night before a test affects the grade." In this statement
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beer is the independent variable and test grade is the dependent variable
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The "paired observation" of (14,6) means
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x =14, y = 6
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The intersection of the x axis and the y axis is called the
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origin
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IF the slope of a curve is 1/5, we know that
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the relationship is linear, and the line moves from lower left to upper right
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A negative slope
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represents an inverse relationship, such as beers consumed and test score
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The slope of a nonlinear curve
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changes along the various points of the curve
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The slope of a nonlinear curve is _ when the curve is rising, and _ when the curve is falling.
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positive, negative
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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
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negative
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The slope of a line is the
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change in the values along the y-axis divided by the change in the values along the x-axis
