ECON Micro

Question 1

Define economics

Answer 1

-The study of how people make choices with their limited resources to satisfy wants.

Question 2

What is the difference between microeconomic and macroeconomics?

Answer 2

Microeconomics:
The study of decision making by individual households and individual firms.

-focus on the smaller parts of the economy:
-effects of changes in the price of gasoline relative to other energy sources
-effects of new taxes on a specific product or industry
-if the government establishes new health regulations, how individual firms and consumers will react to those regulations

Macroeconomics:
The study of nationwide phenomena, aggregates, or totals—such as:

-inflation and unemployment levels.
-the behaviour of the economy as a whole
-Total output in an economy
-The general price level
-The national income

Question 3

Define economics

Answer 3

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

-examines situations in which individuals choose how to do things, when to do things, and with whom to do them.

Question 4

Explain why economics is a science

Answer 4

-employs the same kinds of methods used in other sciences, such as biology, physics or chemistry.
-uses models or theories to explain economic phenomena in the real world

Question 5

What is the difference between positive and normative economics?

Answer 5

Positive economics:
-Purely descriptive statements or scientific predictions, such as “If A, then B”
-A statement of what is

Normative economics:
-Analysis involving value judgments; relates to whether things are good or bad
-A statement of what ought to be

Question 6

Define incentives

Answer 6

-Rewards for engaging in a particular activity
-The nature of self-interested responses to incentives is the starting point for economic analysis

Question 7

What is the economic way of thinking?

Answer 7

A way of thinking about all decisions:
-Your education, career, finances, how you vote etc
-How much time to study
-Choosing which courses to take
-Whether the Canadian government should provide more grants to universities or raise taxes

Question 8

Whats the difference between resources and wants:

Answer 8

Resources:
-Things that have value and are used to produce goods and services that satisfy people’s wants
Wants:
-What people would buy if they had unlimited income

Question 9

How are Artificial intelligence (AI) technologies used in economics?

Answer 9

The development and use of automated data-analytics techniques, machine learning, and virtual or augmented reality help consumers, businesses, and governments make decisions. These methods often handle large volumes of information, known as big data, to uncover previously hidden relationships.

Question 10

What is the economic system?

Answer 10

The institutional mechanism that determines the way scarce resources are utilized to satisfy human wants

Question 11

The Three Basic Economic Questions

Answer 11

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

Question 12

Two Opposing Sets of Answers to the Three Basic Economic Questions

Answer 12

The two sets of answers are provided by the type of economic system:
1. Centralized command and control (central planning): Authority that makes all economic decisions
2. Price system (market system): Decentralized decision-making process, in which prices are terms (signals) under which people agree to make exchanges

Question 13

What are mixed systems?

Answer 13

incorporate aspects of both centralized command and control and a decentralized price system.

Question 14

Explain Systematic Decisions

Answer 14

Economists assume that individuals act as if motivated by self-interest and respond predictably to opportunities for gain.

Question 15

What is the Rationality assumption?

Answer 15

The assumption that people do not intentionally make decisions that would leave them worse off
-they are motivated mainly by self-interest.

Question 16

Define self interest?

Answer 16

The pursuit of one’s goals:
Prestige
Friendship
Love
Does not always mean increasing one’s wealth

Question 17

What are economic models or theories?

Answer 17

Simplified representations of the real world used as the basis for predictions or explanations
-capture only the essential relationships that are sufficient to analyze a problem

Question 18

What are assumptions?

Answer 18

The set of circumstances in which a model is applicable
Every model or theory must be based on a set of assumptions

Question 19

What is the Ceteris paribus [KAY-ter-us PEAR-uh-bus] assumption

Answer 19

-Nothing changes except the factor or factors being studied
-“Other things constant”
-“Other things equal

Question 20

Why is Economics an empirical science?

Answer 20

-Economists use models, or theories, that are simplified representations of the real world evidence (data) to analyze and make predictions about the real world.

Question 21

What are economic models of behavior?

Answer 21

-predict economic phenomena
-how people react, (not how they think)
-People’s declared preferences are generally of little use in testing economic theories

Question 22

Define Behavioural economics

Answer 22

An approach to the study of consumer behaviour:
Emphasizes psychological limitations and complications that may interfere with rational decision making

Question 23

What is Bounded rationality?

Answer 23

Hypothesis that people are nearly, not fully, rational:

-They cannot examine every choice available to them
-They appear to use rules of thumb to sort alternatives
-believe that it is “unrealistic” to assume:
Unbounded selfishness
Unbounded willpower
Unbounded rationality

Question 24

Define Rules of Thumb

Answer 24

A key implication of bounded rationality
Because every possible choice cannot be considered, an individual will tend to fall back on methods of making decisions that are simpler than trying to sort through every possibility

Question 25

Working with graphs - what is the difference between an Independent and Dependent variable?

Answer 25

Independent variable
A variable whose value is determined independently of, or outside, the equation under study

Dependent variable
A variable whose value changes according to changes in the value of one or more independent variables

Question 26

What is the difference between Direct and Inverse Relationships?

Answer 26

Direct relationship
A relationship between two variables that is positive, meaning that an increase in one variable is associated with an increase in the other, and a decrease in one variable is associated with a decrease in the other
On a graph this looks like a line from the bottom left to top right.

Inverse relationship
A relationship between two variables that is negative, meaning that an increase in one variable is associated with a decrease in the other, and a decrease in one variable is associated with an increase in the other
On a graph this looks like a line from the top left to bottom right

Question 27

When constructing a graph what is the y and x axis?

Answer 27

y axis
The vertical axis in a graph - price
x axis
The horizontal axis in a graph
Origin
The intersection of the y axis and the x axis in a graph

Question 28

What is: The Slope of a Line (A Linear Curve)

Answer 28

The change in the y value divided by the corresponding change in the x value of a curve
The “incline” of the curve
“Rise” over “run”

Question 29

How you do you figure a postive slope?

Answer 29

Slope = rise/run = +/+

Question 30

How do you figure a negative slope?

Answer 30

Slope = rise/run = -/+

Question 31

What does the slop of a non-linear curve look like?

Answer 31

The slope begins positive, is zero (the top of the hill) at max profit, and then slopes down to negative

Question 33

When we draw a graph showing the relationship between two economic variables what are we holding?

Answer 33

we are holding all other things constant (ceteris paribus)

Question 34

How do you obtain a set of coordinates?

Answer 34

by putting vertical and horizontal number lines together.
The vertical line is called the y axis; the horizontal line, the x axis.