Chapter 1: The Why and Who of Economics

Question 1

Economics Definition

Answer 1

Economics is the study of how individuals, businesses and institutions make choices, to optimize their level of satisfaction under conditions of scarcity.

Question 2

economic perspective definition

Answer 2

A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions.

Question 3

What 3 elements does the economic perspective consist of?

Answer 3

Purposeful behaviour
scarcity and choice
marginal analysis

Question 4

marginal analysis

Answer 4

The comparison of marginal benefits and marginal costs, usually for decision making.

Question 5

opportunity cost

Answer 5

The amount of other products that must be forgone or sacrificed to produce a unit of a product.

Question 6

economic resources

Answer 6

The land, labour, capital and entrepreneurial ability that are used in the production of goods and services; productive agents; factors of production.

Question 7

What does economists often assume about human behaviour and interest?

Answer 7

That they reflect rational self-interest.

Question 8

Explain what it means for consumers to reflect rational self interest.

Answer 8

Consumers have the desire to maximize utility. These decisions however are not free from mistakes unaffected by emotions or feelings.

Question 9

Define utility

Answer 9

The want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services).

Question 10

Elements of optimal behaviour

Answer 10

• calculation
• negotiation
• expenditure

Question 11

Define a rational producer

Answer 11

Producer who seeks to maximise profit of the firm they happen to run.

Question 12

What does marginal mean to economists?

Answer 12

Extra, additional, or a change in

Question 13

Define the scientific method

Answer 13

The procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation and testing of hypotheses to obtain theories, principles and laws.

Question 14

Describe theories, principle and models in 3 words.

Answer 14

rational simplifications

Question 15

Define economic principle

Answer 15

A widely accepted generalization about the economic behaviour of individuals or institutions.

Question 16

What makes economic principles and models useful?

Answer 16

• They are useful in analysing economic behaviour and understnding how the economy operates.
• They are tools for ascerting casue and effect within the economic system.
• Good theories do a good job of explaining and predicting.

Question 17

What 3 aspects are commonly found in economic principles?

Answer 17

• Generalizations
• Other-thins-equal assumption
• Graphical expression

Question 18

Describe generalizations with regards to economic principles.

Answer 18

• Economic principles are generalizations relating to economic behaviour or to the economy itself.
• Economic principler are expressed as the tendencies of typical or average consumers, worker, of buseniss firms.

Question 19

Describe other-things-equal assumptions with regards to economic principles.

Answer 19

• In constructing thier theories economists use other thing equal assumption- the assumption is that factors other than those being considered do not change.
• They assume all variable except those under immediate consideration are held constant for a particular analysis.

Question 20

What is another term for Other thing equal assumption

Answer 20

ceteris paribus.

Question 21

Describe other-things-equal assumptions with regards to economic principles.

Answer 21

Many economic models are expressed graphically.

Question 22

Define macroeconomics

Answer 22

The part of economics concerned with the economy as a whole; with such major aggregates as the household, business and government sectors; and with measures of the total economy.

Question 23

Define microeconomics

Answer 23

The part of economics concerned with decision making by individual units such as a household, a firm or an industry and with individual markets, specific goods and services, and product and resource prices.

Question 24

Define aggregate

Answer 24

A collection of specific economic units treated as if they were one.

Question 25

Mention examples of economic measures within macroeconomics.

Answer 25

• Total output
• total employment
• total income
• aggregate expenditures
• general leve of prices in analysing various economic problems.

Question 26

Mention examples of decision making microecomics is concerned with

Answer 26

Decision making by:
* Individual customers
* workers
* households
* business firms

Question 27

Define positive economics

Answer 27

The analysis of facts or data to establish scientific generalizations about economic behaviour.

Question 28

Define normative economics

Answer 28

The part of economics involving value judgements about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics.