Microeconomics/Macroeconomics Chapter 1 Questions and Answers

5732 Words May 2nd, 2013 23 Pages
Chapter 1
The Art and Science of Economic Analysis

INTRODUCTION
THIS CHAPTER HAS TWO PURPOSES: TO INTRODUCE STUDENTS TO SOME OF THE BASIC LANGUAGE OF ECONOMICS AND TO STIMULATE STUDENT INTEREST IN THE SUBJECT. IT CONVEYS TO STUDENTS THAT ECONOMICS IS NOT ONLY FOUND IN THE FINANCIAL SECTION OF THE NEWSPAPER, BUT ALSO IS VERY MUCH A PART OF THEIR EVERYDAY LIVES. BEGINNING WITH THE ECONOMIC PROBLEM OF SCARCE RESOURCES BUT UNLIMITED WANTS, THIS CHAPTER PROVIDES AN OVERVIEW OF THE FIELD AND THE ANALYTICAL TECHNIQUES USED. CONCEPTS INTRODUCED INCLUDE: RESOURCES, GOODS AND SERVICES, THE ECONOMIC ACTORS IN THE ECONOMY, AND MARGINAL ANALYSIS. TWO MODELS FOR ANALYSIS, THE CIRCULAR FLOW MODEL AND STEPS OF THE SCIENTIFIC METHOD, ARE
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Identify the question and define relevant variables. 2. Specify assumptions: • Other-things-constant assumption: Focuses on the relationships between the variables of interest, assuming that nothing else important changes (i.e., ceteris paribus). • Behavioral assumptions: Focus on how people will behave (i.e., in their rational self-interest). 3. Formulate a hypothesis, a theory about how key variables relate to each other. 4. Test the hypothesis. Compare its predictions with evidence. The theory is then either rejected, accepted, or modified and retested.

Use PowerPoint slide 27 for the following section
Normative vs. Positive • A positive economic statement concerns what is; it can be supported or rejected by reference to facts. • A normative economic statement concerns what should be; it reflects an opinion and cannot be shown to be true or false by reference to the facts.
Economists Tell Stories

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CaseStudy: A Yen for Vending Machines

Use PowerPoint slide 29 for the following section
Predicting Average Behavior: The task of an economic theory is to predict the impact of an economic event on economic choices and, in turn, the effect of these choices on particular markets or on the economy as a whole. Economists focus on the average, or typical, behavior of people in groups.

Use PowerPoint slides 30-31 for the

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