Microeconomics/Macroeconomics Chapter 1 Questions and Answers

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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…
Use PowerPoint slide 18 for the following section 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. Use PowerPoint slide 19 for the following section 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. Use PowerPoint slides 20-21 for the following section 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. Use PowerPoint slide 22 for the following section 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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