Economics and Economic Reasoning

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Questions and Answers

Economics is the study of how human beings coordinate their ______ and desires.

wants

What are the three central coordination problems facing any economy?

What to produce, how to produce it, and for whom to produce it.

Scarcity arises because individuals want more than is available, given how much they're willing to work.

True

The quantity of goods, services, and usable resources depends on technology and human action.

True Signup and view all the answers

The answer to scarcity is ______.

coercion Signup and view all the answers

What are the two main branches of economics?

Microeconomics and macroeconomics. Signup and view all the answers

Which of the following topics is primarily macroeconomic?

The impact of a tax increase on aggregate output Signup and view all the answers

Why do economists use the term 'marginal' when referring to costs and benefits?

It refers to the additional or incremental costs and benefits that result from a decision. Signup and view all the answers

Sunk costs are relevant in the economic decision rule.

False Signup and view all the answers

What is opportunity cost?

The benefit that you might have gained from choosing the next-best alternative. Signup and view all the answers

What is the economic decision rule?

If the marginal benefits of doing something exceed the marginal costs, do it. If the marginal costs of doing something exceed the marginal benefits, don't do it. Signup and view all the answers

What does the acronym TANSTAAFL stand for?

There Ain't No Such Thing As A Free Lunch. Signup and view all the answers

Economic reasoning, once learned, is infectious.

True Signup and view all the answers

Economic reasoning is based on the premise that everything has a cost.

True Signup and view all the answers

What are implicit costs?

Costs associated with a decision that are not included in normal accounting costs. Signup and view all the answers

What are sunk costs?

Costs that have already been incurred and cannot be recovered. Signup and view all the answers

Economics is not boring.

True Signup and view all the answers

What is enrichment, in the context of economics?

Presenting economic analysis in a broader context, giving you an idea from whence the analysis sprang and its historical context. Signup and view all the answers

Economic insights are based on generalizations called ______

theories Signup and view all the answers

Theories are usually too abstract to apply in specific cases.

True Signup and view all the answers

What is an economic model?

A framework that places the generalized insights of a theory in a more specific contextual setting. Signup and view all the answers

What is the difference between theorems and precepts?

Theorems are statements logically true based on model assumptions, while precepts are policy rules derived from theorems and incorporate value judgments and real-world knowledge. Signup and view all the answers

Economic analysis is not impacted by technological advancements.

False Signup and view all the answers

What is the invisible hand theorem?

It describes how market forces, through a price mechanism, coordinate individual decisions and allocate scarce resources efficiently. Signup and view all the answers

What happens to the price of a good when the quantity supplied exceeds the quantity demanded?

It tends to fall. Signup and view all the answers

What is the invisible hand?

The price mechanism, the rise and fall of prices, which guides economic forces to coordinate individual actions and allocate scarce resources. Signup and view all the answers

The invisible hand always works perfectly.

False Signup and view all the answers

What is the efficiency theorem?

It states that markets are efficient under certain conditions, meaning they allocate scarce resources in a way that minimizes costs and maximizes gains. Signup and view all the answers

Economics is about the study of what is and how the economy works.

True Signup and view all the answers

The invisible hand theorem automatically implies that the government should not intervene in the economy.

False Signup and view all the answers

What is normative economics?

The study of what the goals of the economy should be. Signup and view all the answers

What is the art of economics?

The application of the knowledge learned in positive economics to achieve the goals one has determined in normative economics. Signup and view all the answers

What are economic institutions?

Laws, common practices, and organizations in a society that affect the economy. Signup and view all the answers

Economic institutions are always neutral.

False Signup and view all the answers

Economic policies represent actions or inaction taken by government to influence economic actions.

True Signup and view all the answers

Economic policies operate outside of economic institutions.

False Signup and view all the answers

Economic policies have no impact on existing economic institutions.

False Signup and view all the answers

Good economic policy analysis is objective.

True Signup and view all the answers

Positive economics is the study of what should be, and how the economy should work.

False Signup and view all the answers

Economic theory always provides definitive policy recommendations.

False Signup and view all the answers

Normative economics is the study of what the goals of the economy should be.

True Signup and view all the answers

Economists always agree on the best economic policies.

False Signup and view all the answers

The art of economics is the application of the knowledge learned in positive economics to solve problems.

True Signup and view all the answers

Market forces are always operative.

True Signup and view all the answers

The choice of policy depends solely on economic theory.

False Signup and view all the answers

Economic policies should focus on the largest gains.

False Signup and view all the answers

Maintaining objectivity is easiest in positive economics.

True Signup and view all the answers

Maintaining objectivity is hardest in the art of economics.

True Signup and view all the answers

Modern economists are more likely to let the data speak than are earlier economists.

True Signup and view all the answers

The art of economics involves making choices where no objective is possible.

False Signup and view all the answers

The art of economics involves making judgments about how non-economic forces work.

True Signup and view all the answers

Study Notes