Economic - Review 1

Economic - Review 1 - Chapter 1: Define economics....

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Chapter 1: Define economics. Distinguish between micro and macro econ. Give examples. Economics is the study of how people allocate their limited resources to satisfy unlimited wants. Microeconomics is the study of decision making undertaken by individuals (for household) and by firms Macroeconomics is the study of the behavior of the economy as a whole, including such economy wide phenomena as changes in unemployment, the general price level and national income Define self interest and incentives. Why are they important? Self-interest includes goals relating to prestige, friendship, love, power, helping others, creating work of art and many other matters. Individuals are assumed to want the right to further their goals by making decisions about how things around them are used. It is important because it acts as a goal that people will be willing to work towards to and therefore builds up a higher motivation. Why is Ceteris Paribus important in economic analysis? Is it easy to implement? Why? Ceteris Paribus is the assumption that nothing changes except the factor or factors being studied. (One thing changes while the rest remain equal) It is not easy to implement to the real world situations. It is hard to use the model to predict what will happen around us or about how things happen in our world. Even if it can predict real-world phenomena, economics is still an empirical science. This means that we always need to have proof and evidence of a theory and have to test their models. What is the difference between positive and normative economics? Give examples Positive economics is an analysis that is strictly limited to making either purely descriptive statements or scientific predictions. Ex: If the price of gas rises, people will buy less. Normative economics is an analysis involving value judgments about economic policies; related to whether things are good or bad. A statement of what ought to be. Ex: If the price of gas rises, people will buy less. So we should not allow the price to go up. Appendix: Using a two variable graph how would you show an inverse relationship between those variables? How about a positive relationship? Positive/Direct relationship: an increase in one variable is associated with an increase in the other and vice versa Inverse relationship: An increase in one variable is associated with a decrease in the other How would you measure the slope of a line? What does it reflect? Slope of the line is the change in the y value divided by the corresponding change in the x value of a curve. It reflects the “incline” of the curve.
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Chapter 2: Define factors of production. It is the resources used in production
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Economic - Review 1 - Chapter 1: Define economics....

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