Chapter 1: Introduction to Microeconomics

Question 1

exogenous variable

Answer 1

A variable whose value is taken as given in the analysis of an economic system

Question 2

endogenous variable

Answer 2

A variable whose value is determined within the economic system being studied

Question 3

Equilibrium

Answer 3

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

Question 4

The three analytical tools of microeconomics

Answer 4

1) Constrained optimization
2) equilibrium analysis
3) comparative statics

Question 5

Constrained optimization

Answer 5

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

Question 6

Objective function

Answer 6

The relationship that a decision maker seeks to maximize or minimize

Question 7

Constraints

Answer 7

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

Question 8

Comparative statics

Answer 8

Analysis used to examine how a change in some exogenous variable will affect the level of some endogenous variables in an economic system

Question 9

Positive analysis

Answer 9

Analysis that attempts to explain how an economic system works or to predict how it will change over time

Question 10

Normative analysis

Answer 10

Analysis that typically focuses on issues of social welfare, examining what will enhance or detract from the common good