Chapter 1

Question 1

Economics

Answer 1

A social science concerned with the efficient use of scarce resources to satisfy unlimited wants

Question 2

Economic Perspective

Answer 2

The economic way of thinking

Question 3

3 Components to Economic Perspective

Answer 3

1) It recognizes scarcity

2) Rational self-interest Theory: people make decisions based on what gives them the greatest amount of satisfaction

3) Comparing marginal benefits to marginal cost

Question 4

Two main reasons to study Economics

Answer 4

1) It is essential for a well-informed citizen for voting
2) Many practical applications to professional and personal decisions

Question 5

Induction (define)

Answer 5

Moves from facts to theory
ex.Sherlock Holmes gets the facts, then formulates a theory.

Question 6

Deduction (Define)

Answer 6

Moves from theory to facts
ex.Christopher Columbus first deduced the world was round then proved it.

Question 7

Theoretical Economics

Answer 7

1) Gather the facts
2) Analysis and interpret
3) Formulate a Theory or Economic Principles

Question 8

Policy Economics

Answer 8

Is the use of economic principles to help solve political, economic, and social problems
1) State the goal
2) Determine the policy option
3) Implement and evaluate the policy of selected and see how well the policy has worked

Question 9

Model/Theory

Answer 9

Simplifications of reality/Abstractions from reality. When used correctly they are helpful in explaining human behavior.

Question 10

Ceteris Paribus

Answer 10

Other things remain constant

Question 11

Two branches of Economics

Answer 11

Macroeconomics: is the study of the economy as a whole
Some issues include unemployment, GDP, the deficit, inflation, national income, etc.

Microeconomics: is the study of the economy at the individual level
Some issues include the effects of minimum wages, taxes, price supports, monopoly on individual markets, etc.

Question 12

Two types of analysis

Answer 12

Positive economic analysis: analysis based on facts, no value judgments
ex: 2 + 2 = 4

Normative economic analysis: analysis based on value judgments
ex: We should raise income taxes

Question 13

Fallacy of Composition

Answer 13

The mistaken assumption that what applies in the case of one, applies to the case of many.
ex: If a tax cut is good for me, it must be good for the whole economy!

Question 14

Association as Causation

Answer 14

The mistaken assumption because two events occur together, one event causes the other.
ex: When I wear my college shirt my team wins.