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Mid1ReviewCh1-6withanswers - 1 ECN 211 Review Sheet for...

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ECN 211 Review Sheet for Midterm 1 Spring Semester, 2011 Chapters 1-6 NOTE: QUESTIONS 61-69 RELATE TO CHAPTER 6 1. What is the basic economic problem? (Unlimited wants vs. limited resources) 2. How can the basic economic problem be solved? (It can never be solved in an absolute sense. However, the effects of the problem can be reduced if a country uses all resources; uses each in its most efficient way; uses the most appropriate level of technology; and engages in international specialization and trade.) 3. How are resources classified? (The non-human resources are either natural resources (land) or man-made resources (capital). The human resources may be divided by function, into labor – physical and mental efforts—and entrepreneurship—the ability to combine all resources with existing resource prices, resource productivities, technology, and market demands—to produce a good or service. 4. How do we classify the payments to the owners of economic resources? (Payments to land are rent; payments to capital are interest; payments to labor are wages and salaries; and payments to profits are entrepreneurship). 5. What is the difference between microeconomics and macroeconomics? (Microeconomics puts the economy “under the microscope” so that individual components of the economy (e.g., households and business firms) can be studied in detail. Macroeconomics studies the overall performance of the economy, including topics such as unemployment, inflation, and economic growth.) 6. Distinguish between positive and normative economics. (Positive economics encompasses both descriptive economics and economic theory. Positive economies focuses on how the economy actually functions. Normative economics involve value judgments (or “norms”) and involve economic policy and focuses on what “ought to be.” When economic policies are introduced, normative economics comes into play because someone is trying to change what is to conform or move to what the policy market believes “ought to be.”) 7. What is an economic model? (An economic model is a mathematical representation of the most fundamental workings or causal forces at work in the economy. Models may be expressed verbally, with algebra (or higher mathematics) or with graphs. In each case, the focus is on cause and effect. Typical models included “independent” variables and “dependent” variables. In Chapters 3 and 4, quantity demanded (the dependent variable) depends on product price (the independent variable) all other things equal.) 1
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8. For what purposes are economic models developed? (Models are developed to predict and explain economic behavior.) 9. How are economic models tested? (For the most part, economists cannot conduct controlled experiments as is done in the hard sciences.
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