1. Analyzing economic problems

Question 1

Microeconomics

Answer 1

the economic behavior of INDIVIDUAL ECONOMIC decision makers, such as a consumer, a worker, a firm, or a manager.

Question 2

Macroeconomics

Answer 2

analyzes how an ENTIRE NATIONLA ECONOMY performs
examine AGGREGATE levels of income and employment, the levels of interest rates and prices, the rate of inflation,
and the nature of business cycles in a national economy

Question 3

economics is the science of constrained choice, why

Answer 3

we are constrained in the choices we can make about the goods and services we produce in the scarcity of resources

Question 4

Questions that microeconomic analysis must answer

Answer 4

• WHAT GOODS AND SERVICES will be produced, and in what QUANTITIES?
• WHO will PRODUCE the goods and services, and OW?
• WHO will RECEIVE the goods and services?

Question 5

exogenous variable

Answer 5

one whose value is taken as given in a model

OR determined by some process outside the model being examined

Question 6

endogenous variable

Answer 6

a variable whose value is determined within the model being studied

Question 7

microeconomics uses the same three analytical tools

Answer 7

• Constrained optimization
• Equilibrium analysis
• Comparative statics

Question 8

constrained optimization

Answer 8

An analytical tool for making the best (optimal) choice, taking into account any possible limitations or restrictions on the choice.

Question 9

constrained optimization problems as having two parts

Answer 9

an objective function and a set of constraints

Question 10

objective function

Answer 10

The relationship that a decision maker seeks to maximize or minimize.

Question 11

constraints

Answer 11

The restrictions or limits imposed on a decision maker in a constrained optimization problem

Question 12

Marginal cost measures

Answer 12

the incremental impact of the last unit of the independent variable (output) on the dependent variable (total cost)

Question 13

equilibrium

Answer 13

A state or condition that will continue indefinitely as long as factors exogenous to the system remain unchanged

Question 14

equilibrium price

Answer 14

At that price the market clears (the quantity supplied and the quantity demanded are equal)

Question 15

comparative statics

Answer 15

Analysis used to examine HOW A CHANGE in some
EXOGENOUS variable will AFFECT the LEVEL of some
ENDOGENOUS variable in an economic system

Question 16

Comparative statics analysis can be (*) to constrained optimization problems or to equilibrium analyses

Answer 16

applied

Question 17

Comparative statics allows us to do a (*) analysis by comparing two snapshots of an economic model.

Answer 17

“before-and-after”

Question 18

positive analysis

Answer 18

Analysis that attempts to EXPLAIN HOW an economic system WORKS or to PREDICT HOW it will CHANGE over time

Question 19

normative analysis

Answer 19

Analysis that typically focuses on ISSUES of SOCIAL WELFARE, examining what will INHANCE OR DETRACT from the COMMON GOOD

Question 20

it is important to do positive analysis (*) normative analysis

Answer 20

before