Lecture 2 - Introduction

Question 1

What is microeconomics?

Answer 1

Microeconomics is the study of how individuals and firms make themselves as well off as possible in a world of scarcity, and the consequences of those individuals

Question 2

What 3 questions must every society answer when allocating scarce resources?

Answer 2

1- Which goods and services should be produced?

2- How should they be produced?

3- Who gets the goods and services?

Question 3

Define opportunity cost

Answer 3

The opportunity cost is the cost of any activity/good in terms of the next best alternative that has been foregone

Question 4

What is a model?

Answer 4

A model is the description of the relationship between two or more variables

Question 5

How do economists use models?

Answer 5

Economists also use models to predict how a change in one variable will affect another variable

Question 6

What are the features of a good model?

Answer 6

It is clear: it helps us to better understand something important

• It predicts accurately: its predictions are consistent with evidence
• It improves communication: it helps us to understand what we agree and disagree about
• It is useful: we can use it to find ways to improve how the economy works
• A model should be simple but not too simple

Question 7

What should a model be judged based upon?

Answer 7

Models should be judged based on how well they explain/predict the phenomenon they were designed to answer

Question 8

What are positive statements?

Answer 8

Positive statements are factual statements that can be tested by referring to the available evidence

Question 9

What are normative statements?

Answer 9

Normative statements are subjective statements that contain a value judgement (they are essentially opinions)

Question 10

What is economics?

Answer 10

Economics is the study of the allocation of scarce resources to alternative uses