CHAPTER ONE –THE PRINCIPLE AND PRACTICE OF ECONOMICS

Question 1

Whats an economic agent?

Answer 1

An economic agent is an individual or a group that makes choices. (e.g. a consumer chooses to eat a bacon cheeseburger or tofu burgers). Note: it doesn’t have to be an individual, it can be a government, a firm, an university,..

Question 2

What are scarce ressources?

Answer 2

Scarce resources are things that people want, where the quantity that people want exceeds the quantity that is available. Scarcityis the situation of having unlimited wants in a world of limited resources

Question 3

What are positive economics?

Answer 3

Positive economics is the analysis that generates objective descriptions or predictions about the world that can be verified with date. It describes what people actually do, what has happened and predict what will happen

Question 4

What are normative economics?

Answer 4

Normative economics is the analysis that prescribes what an individual or society ought to do, it
generates advices both for individuals and society in general

Question 5

What are microeconomics?

Answer 5

Microeconomics is the study of how individuals, households, firms, and governments make choices, and
how these choices affect prices, the allocation of resources and the well-being of other agents.

Question 6

What are macroeconomics?

Answer 6

Macroeconomics is the study of the economy as a whole; it studies economy-wide phenomena, like the
growth rate of a country’s total economic output, the inflation rate, or the unemployment rate

Question 7

Name the three principles of economics:

Answer 7

1. Optimization
2. Equilibrium
3. Empiricism

Question 8

What is meant by optimization?

Answer 8

Optimization is trying to choose the best feasible option, given the available information (Feasible options
are those that are available and affordable to an economic agent). People calculate pros, benefits, and
cons, costs, before taking decisions

Question 9

What is meant by equilibrium?

Answer 9

Equilibrium is the special situation in which everyone is
simultaneously optimizing, so nobody would benefit personally by
changing his or her own behavior.

Question 10

What is meant by empiricism?

Answer 10

Empiricism is an analysis that uses data. Economists use data to test theories and to determine what is
causing things to happen in the world. They try to confirm that the theories they came up with are actually
what people do. They also try to research the causation of events