Microeconomics Chapter 1

normative economics

- advises individuals and society on their choice and what they ought to do - always dependent on subjective judgement (personal taste, feelings, and opinions)

positive economics

- describes what people actually do - factual and can be confirmed with data - what has happened and what will happen - can be computed to future data and confirmed/disproved - testable

equilibrium

- everyone simultaneously optimizing, nobody benefit from changing his or her behavior - free-rider problem

empiricism

- uses data and analysis - use data to test theories and what is causing things to happen in the world - whether theories about human behavior (optimization and equilibrium) match up with actual human behavior

optimization

- weigh pros and cons and pick best one - if fail to optimize, normative economic analysis helps them realize mistakes and make better choice - trade offs - budget constraints - opportunity cost - cost benefit analysis (normative economic analysis)

Which of the following is an example of a positive economic statement? A) An increase in income causes an increase in savings. B) The government should ideally work as a welfare state. C) Economics is the most useful social science. D) Eliminating poverty is more important than reducing inflation.

A

Which of the following is an example of a positive economic statement? A) Pollution is one of the most serious economic problems B) Higher interest rates will encourage more savings C) The pricing policies of monopolies should be strictly supervised D) Unemployment is more harmful than inflation

B

Which of the following is an example of a topic studied by macroeconomists? A) Decision making by a producer B) Aggregate demand in an economy C) Appropriateness of nationwide ethanol subsidies D) Price determination by a firm

B

Which of the following statements is true? A) A rational economic agent is not likely to optimize. B) Cost-benefit analysis does not yield the same result as optimization analysis. C) Cost-benefit analysis can also be used for normative economic analysis. D) The net benefit of an option that costs $50 and provides a benefit of $100 is equal to $150.

C

Which of the following is an example of a normative economic statement? A) A cut in the tax rate will lead to an increase in consumption. B) An increase in subsidies to farmers will boost agricultural production. C) A relaxation in import duties will encourage imports. D) An increase in social security benefits will increase the welfare of all economic agents.

D

Which of the following is an example of a normative economic statement? A) An increase in income is accompanied by an increase in consumption. B) An increase in income is accompanied by an increase in savings. C) An increase in the money supply will lead to an increase in the inflation rate. D) An increase in government expenditure will lead to an increase in well-being.

D

Which of the following is an example of a topic studied by macroeconomists? A) Savings of a single household B) Price determination by a multinational corporation C) Productivity of an agricultural farm D) Total output of an economy

D

Which of the following is an example of a topic studied by microeconomists? A) Nationwide inflation rate B) Economic growth as a means to alleviate poverty C) Aggregate demand and aggregate supply in an economy D) Energy consumption by a firm

D

Which of the following statements is true? A) Macroeconomics studies how individuals make choices. B) The study of the inflation rate is covered under microeconomics. C) Microeconomics is the study of an economy as a whole. D) The study of the unemployment rate is covered under macroeconomics.

D

Which of the following will hold true if the market for cameras is in equilibrium at a price of $40? A) Buyers of cameras will want to buy fewer cameras than they are purchasing at equilibrium. B) Sellers of cameras will have an incentive to charge a price higher than $40. C) If the cost of producing cameras falls below $40 per camera, all sellers will stop supplying cameras. D) The quantity of cameras produced will equal the quantity of cameras bought in the market.

D

macroeconomics

economy as a whole, growth rate of total economic output, inflation, and unemployment rate

free-rider problem

equilibrium analysis predicts why this happens

in economics, scarcity refers to the situation of:

having more wants than the amount of available resources

microeconomics

how individuals, households, firms make choices and how those choices affect prices, allocation of resources, and well-being of other agents

The relationship between the unemployment rate and inflation is studied under:

macroeconomics

The relationship between a firm's advertising expenditure and its profit is studied under:

microeconomics

Understanding the impact of carbon taxes on the energy usage of individual households and firms is studied under:

microeconomics