MACRO/MICRO: Chapter 1
Ceteris Paribus Assumption
" All other things being equal." The assumption that nothing changes except the factors being studied.
(a) normative economics (b) macroeconomics (c) self-interest (d) positive economics (e) microeconomics
(f) non-scientific value judgments (i) study of economic aggregates (j) rational behavior (g) objective, scientific hypotheses (h) study of individual behavior
Agregates
- Households - Business - Government - Foreign sector (His Blood Gives Faith)
As is true of a road map showing how a traveler can move about a geographic region, a model of economic behavior typically: A. omits trivial details and emphasizes factors most relevant to the problem under consideration. B. makes no simplifying assumptions, so that every feature of a problem is taken into account. C. must be rejected if it leaves out some information, even if it makes correct predictions. D. includes each and every element of a problem confronting an individual or gro
A
Which one of the following areas of study is concerned, primarily, with microeconomics? A. the personal computer industry B. inflation C. the national unemployment D. national income determination
A
According to the rationality assumption, people A. do not intentionally make decisions that would leave them worse off. B. do not ever take into account the interests or well-being of others. C. can never consider each of the most relevant alternatives. D. use rules of thumb to make choices.
A.
Economics A. is a natural science. B. is concerned with how people respond to incentives. C. is unconcerned with value judgments. D. deals with assumptions and therefore is unrealistic
B.
Economists maintain that Ms. Chung will usually make decisions that promote the interests of A. her colleagues at work. B. herself. C. her class. D. her race.
B.
Which one of the following is a positive economic statement? A. Full employment policies should be pursued. B. If minimum wage rates rise, then unemployment will rise. C. We should take from the rich and give to the poor. D. The government should help the homeless
B.
Which one of the following is a normative economic statement? A. If price rises, people will buy less. B. If price rises, people will buy more. C. If price rises, the poor will be injured; therefore, price should not be permitted to rise. D. If price rises, people will buy less; therefore, we ought to observe that quantity demanded falls
C
An economic model is justifiably criticized if A. its assumptions are not realistic. B. it cannot be tested in a controlled, laboratory experiment. C. it fails to predict. D. All of the above.
C.
Macroeconomic Analysis deals with A. the personal computer industry B. how individuals respond to an increase in the price of gasoline. C. inflation. d. how a change in the price of energy affects a fam D. how a change in the price of energy affects a family.
C.
Normative economic statements A. are testable hypotheses. B. are value-free. c. are subjective, value judgments. D. can be scientifically established.
C.
Economics is A. a natural science. B. nonscientific. C. a social science. D. usually studied through lab experiments
C. a social science
Economic models A. use unrealistic assumptions. B. are seldom tested in laboratories. C. are concerned with how people behave, not with how they think. D. All of the above.
D.
Which one of the following is a normative economic statement? A. When more death-penalty sentences are reduced to life imprisonment, the homicide rate increases. B. An increase in the rate of executions is associated with a fall in homicides. C. Improved prison conditions increase the disincentive effects of capital punishment. D. Capital punishment is a morally wrong way to try to deter homicides.
D.
Wants include desires for A. material possessions. B. love. C. power. D. All of the above.
D. All of the Above
Because economics is a science, economists do not make normative statements. (T/F)
False
Economics is the study of how people think about economic phenomena. (T/F)
False
Economists' definition of self-interest includes only the pursuit of material good (T/F)
False
Households cannot be thought of as producers (T/F)
False
It is justifiable to criticize theories on the realism of the assumptions employed. (T/F)
False
The rationality assumption is that individuals attempt, quite consciously, to make rational economic decisions, and will admit to it. (T/F)
False
When economists attempt to predict the number of Web servers that an Internet bank will utilize, they are studying macroeconomics. (T/F)
False
What is economics primarily concerned with?
Human Behavior
Macroeconomics, Microeconomics) studies the causes and effects of inflation.
Macroeconomics
A statement of fact is an example of a positive statement (T/F)
True
Economists maintain that people respond in a predictable way to economic incentives.(T/F)
True
Macroeconomics deals with aggregates, or totals, of economic variables. (T/F)
True
Economic Model/Theory
a simplified version of reality used to analyze real-world economic situations - abstract by design - focus on most common factors that are impactful
The rationality assumption is that individuals (believe, act as if ) they are rational.
act as if
Economists maintain that incentives (are, are not) important to decision making.
are
Economists define self-interest (narrowly, broadly)
broadly
Because it is impossible to have all that we want, people are forced to make _________ .
choices
Economics is the study of how people make ______________________________ to satisfy their __________________.
choices; unlimited wants
Behavioral Economics
examines consumer behavior in the face of psychological limitations interfering with decision making
Economists maintain that a member of a group usually attempts to make decisions that are in (her own, the group's) interest.
her own
Economics
how people decide to use scarce resources
Economists take the (individual, group) as the unit of analysis
individual
Microeconomics deals with (individual units, the whole economy).
individual units
Normative Economics
involves feelings and judgment about economic policies (good or bad) example: "If gas prices go up people will buy less, so we should not allow prices to go up." ("so we should not allow prices to go up." = normative economics)
Wants
items people would purchse if resources weren't limited - (ex. having unlimited income)
A nation's unemployment level is analyzed in (microeconomics, macroeconomics).
macroeconomics
Behavioral economics is an approach that assumes that individuals are (fully, nearly) rational
nearly
Positive Economics
no reference to our feelings or judgment - example: "If gas prices go up people will buy less" ("people will buy less" = positive economics)
Bounded Rationality
not having the ability to think through or examine every possible choice you confront
The ceteris paribus assumption permits us to consider (one thing at a time, everything at once).
one thing at a time
Economic statements that are testable and are of an "if/then" nature are (positive, normative)
positive
Economic models are (simplified, realistic) representations of the real world.
simplified
Economics is a (natural,social) science.
social
Macroeconomics
studies the behavior of the economy as a whole - examples: unemployment rate, the yearly output of goods and services, and inflation)
Microeconomics
studies the decision making of individuals or a group of people (households and firms) - examples: energy sources, taxation on products
Ceteris paribus, payment of bonuses to physicians for pushing preventive health care gives physicians an incentive to (treat only actual illnesses, suggest treatments to deter illness).
suggest treatments to deter illness
Economic System
the method used by a society to produce and distribute scarce resources
Aggregates
total amounts or quantities
Resources
used to produce services to meet/satisfy people's wants
Incentives
what motivates you to behave a certain way in positive or negative circumstances.
The Rationality Assumption
what people may think vs. what they do (predicts behavior based on the reality of decisions that have been made, not their thought process)