Microeconomics Chapter 1 Homework Answers

Microeconomics/Macroeconomics Chapter 1 Questions and Answers

5717 WordsApr 28th, 201323 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…show more content…

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Choice Requires Time and Information: Time and information are scarce and therefore valuable. Rational decision makers acquire information as long as the expected additional benefit from the information is greater than its expected additional cost.

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Economic Analysis Is Marginal Analysis • Economic choice is based on a comparison of the expected marginal cost and the expected marginal benefit of the action under consideration. • Marginal means incremental, additional, or extra. • A rational decision maker changes the status quo if the expected marginal benefit is greater than the expected marginal cost.

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Microeconomics and Macroeconomics • Microeconomics: The study of individual economic choices (e.g., your economic behavior). • Macroeconomics: The study of the performance of the economy as a whole, as measured, for example, by total production and employment. • Economic fluctuations: The rise and fall of economic activity relative to the long-term growth trend of the economy; also called business cycles.

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The Science of Economic Analysis

The Role of Theory: An economic theory is a simplification of economic reality that is used to make predictions about the real world. An economic theory captures the important

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Presentation on theme: "Homework – Day 1 Read all of Chapter 1. As you read, answer the following questions. 1. Define economics. 2. Explain the “economic way of thinking,” including."— Presentation transcript:

1 Homework – Day 1Read all of Chapter 1. As you read, answer the following questions.1. Define economics.2. Explain the “economic way of thinking,” including definitions of scarcity, opportunity cost, rational self-interest, utility, marginal benefits, marginal costs, marginal analysis, and the ways these concepts are used to understand decision-making.3. Describe how economists use the scientific method to create models of complex economic behaviors.4. Explain the ceteris paribus assumption and its importance in economics.5. List 8 widely accepted economic goals in the United States.6. Explain the difference between microeconomics and macroeconomics.7. Explain the difference between positive economics and normative economics.

2 What is economics?The study of how we use resources to achieve the maximum satisfaction of economic wants.So what’s the problem?Resources are scarce.Economic wants are unlimited – we can’t have it all.

3 Scarcity and ChoiceBecause resources are limited and have alternate uses, economists say that they are scarce, that is, we must make choices on how to use them.Choosing to use them for one thing means we cannot use them for another.Are there any resources that are not scarce?

4 Scarcity and ChoiceThe cost of making theses choices (sacrificing the alternative use of the resources) is known as the opportunity cost of making that choice. It is the cost of the next best thing that you could have done with the same resources.Opportunity costs include the actual monetary cost of a choice, but they also include time and forgone opportunities.

5 Scarcity and Choice Questions?
What is your opportunity cost for taking this class?What is the opportunity cost of going to college?What if you were Lebron James?

6 Rational BehaviorIndividuals seek to maximize their utility (satisfaction, well-being, etc.)In doing so they behave rationally rather than randomly.Does this mean that we are all selfish?No!Why not?

7 Marginalism Economists focus on activity on the margins.
Marginal analysis is the comparison of marginal benefits and marginal costs.Marginal benefits and costs: the benefit (utility gained) or cost of consuming or producing one more of something.

8 MarginalismMarginal benefit always involves the marginal cost of forgoing something else.We consume or produce too much of something when its marginal cost is greater than its marginal benefit.

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10 Economic Methodology Economics relies on the scientific method.
Observation of factsFormulation of hypothesesTesting hypothesesHypothesis >>> theory >>> law (or principle).Theories and laws are then combined to create models.Models are intentionally simplified explanations of how the real world works that makes it easier for us to understand.

11 Usually, when it seems like there’s something wrong with the theory (or the model), it’s because we don’t understand the theory fully, or we are lacking some information about it. Very occasionally, you have stumbled on an unresolved question in the theory. Once in a generation, it’s because the theory is incorrect. (These are your Einsteins.)

12 Ceteris Paribus Key assumption in economics.
“All other things unchanged.”Key assumption in economics.For example, the law of demand states that, as the price for a product goes up, the quantity of it that people will buy will go down.“All other things unchanged” is assumed.

13 GeneralizationsEconomic theories and principles enable us to predict the probable effects of certain actions or events.Generalizations mean that these principles hold true when applied to a large group of consumers or producers, even if they are not true for every individual.It turns out the same thing is true in quantum physics!

14 Macroeconomics vs. Microeconomics
Macroeconomics examines the economy as a whole or large sectors of it:Total outputTotal employmentThe general level of pricesEtc.

15 Macroeconomics vs. Microeconomics
Microeconomics examines specific economic units or small parts of the economyIndividualsFirmsIndustriesEtc.

16 Positive vs. Normative Economics
Positive: Statements about the way things are.Normative: Statements about the way things should be.

17 Homework Answer Chapter 1 Study Questions #1, 2, 4, 10, & 11.
Read the Chapter 1 Appendix and answer Appendix Study Questions #2, 3, 4, 7, & 8.

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