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)