Thinking Like An Economist

Question 0

10 principles of econ: how people make decisions (1-4)

Answer 0

1) people face trade-offs
2) cost of something is what you give up to get it
3) rational people think at the margins
4) people respond to incentives

Question 1

What are the 3 sections of the 10 principles of economics

Answer 1

How people make decisions
How people interact
How economy as a while works

Question 2

10 principles of econ: how people interact (5-7)

Answer 2

5) trade can make everyone better off
6) markers are usually a good way to organise economic activity
7) govs can sometimes improve market outcomes

Question 3

10 principles of econ: how economy as a whole works

Answer 3

8) country’s s.o.l depends on its ability to produce G+S
9) prices increase when gov prints too much money (MV=PT)
10) society faces short run trade off between inflation and unemployment

Question 4

Endogenous variable

Answer 4

Variable whose value is determined within the model (Qd)

Question 5

Exogenous variable

Answer 5

Variable whose value is determined outside the model (P)

Price is not dependent on Qd

Question 6

Circular flow diagram

Answer 6

Visual model of economy- shows how money and production inputs and outputs flow through markets among households and firms

Question 7

Why do economists disagree

Answer 7

Diff in scientific judgements- validity of theories/ size of important parameters
Diff in values- equity
Perception vs reality
Economists as decision makes- CB analysis