Chapter 1

Question 1

Economics is considered to be part of the ____ sciences.

Answer 1

Social

Question 2

Define “Economics.”

Answer 2

Economics is the study of how individuals make choices to satisfy wants.

Question 3

Define “Resources.”

Answer 3

Things that produce goods and services that satisfy people’s wants.

Question 4

Define “wants.”

Answer 4

All of the items people would purchase if they had unlimited income.

Question 5

What are the two types of economic analysis?

Answer 5

1. Microeconomics

2. Macroeconomics

Question 6

Define “Microeconomics.”

Answer 6

The study of decision-making at the level of individuals, households, and firms.

Question 7

Define “macroeconomics.”

Answer 7

The study of economic phenomena on a national scale.

Examples include national inflation and unemployment.

Question 8

Macroeconomics looks at the ________.

Answer 8

Totals or aggregates.

Question 9

What new technology is being used to assist in macroeconomics study as well as micro?

Answer 9

Artificial Intelligence

Question 10

State the three basic economic questions.

Answer 10

1. What and how much will be produced?
2. How will items be produced?
3. For whom will the items will be produced for?

Question 11

What answers the three basic economic questions?

Answer 11

The type of economic system used.

Question 12

What are the main three types of economic systems?

Answer 12

1. Centralized command and control
2. The price system
3. Mixed

Question 13

State the “rationality assumption.”

Answer 13

Individuals do not intentionally make decisions that would leave them worse off.

Question 14

Economics looks at what people ___, not what they ____.

Answer 14

Do

Think

Question 15

People change their actions due to ____.

Answer 15

Changes in either incentives or self-interest.

Question 16

True or False

Self-interest from an economic study standpoint, only includes the desire to accrue wealth over time.

Answer 16

False. Self-interest assumptions in economic models are not limited to wealth building.

Question 17

What is the difference between an economic model and a physical model?

Answer 17

An economic model tests its validity based on what has already happened while a physical model is tested by repeated experiments.

Question 18

True or False

To date, some physical models are complete but not all economic models are.

Answer 18

False.

No model, regardless of field is ever complete.

Question 19

A model, by definition, is an _______.

Answer 19

Abstraction from reality.

Question 20

State the Ceteris Paribus Assumption.

Answer 20

All things being equal… x = y… etc

Question 21

True or False

Economics is considered an empirical science.

Answer 21

True

Question 22

True or False

Economic models do not predict what people think, only how they make act with a given amount of resources.

Answer 22

True

Question 23

True or False

Declared preferences will always match revealed preferences.

Answer 23

False.

Example: Netflix may plan to raise prices at a certain time. To gauge reaction, they will likely poll their users. Many will likely report that they will cancel service but in reality, few will.

Question 24

What three criticisms of the rationality assumption do proponents of behavioral economics offer?

Answer 24

1. Unblunded Selfishness
2. Unbounded willpower
3. Unbounded rationality

Question 25

Rather than considering every available variable, behavioral economics stipulates that people often use ____ in place of complex analysis.

Answer 25

Heuristics (rules of thumb)

Question 26

Define “Positive Economics.”

Answer 26

Economic analysis without regard to people’s feelings, morals, or belief systems.

Question 27

Define “Normative Economics.”

Answer 27

Economic analysis that takes into account (whether intentionally or unintentionally) people’s feelings, morals, or belief systems.

Question 28

True or False

An empirical study is concerned primarily with quality evidence and logic.

Answer 28

True