Podcast
Questions and Answers
What is a primary focus of economic analysis?
What is a primary focus of economic analysis?
Which of the following best defines 'resources' in economics?
Which of the following best defines 'resources' in economics?
Why do individuals and businesses have to make choices in economics?
Why do individuals and businesses have to make choices in economics?
The economic way of thinking can be applied to which of the following areas?
The economic way of thinking can be applied to which of the following areas?
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What is the relationship between 'wants' and 'income' in an economic context?
What is the relationship between 'wants' and 'income' in an economic context?
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What is the main purpose of an economic system?
What is the main purpose of an economic system?
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Which of the following is NOT one of the three basic economic questions?
Which of the following is NOT one of the three basic economic questions?
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Which economic system relies on centralized authority for decision making?
Which economic system relies on centralized authority for decision making?
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How do individuals generally behave in economic decisions according to economists?
How do individuals generally behave in economic decisions according to economists?
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What does the rationality assumption in economics imply?
What does the rationality assumption in economics imply?
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Which statement best describes a mixed economic system?
Which statement best describes a mixed economic system?
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Which of the following best exemplifies the price system?
Which of the following best exemplifies the price system?
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What was Adam Smith's perspective on the motivations behind economic exchanges?
What was Adam Smith's perspective on the motivations behind economic exchanges?
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What is the primary purpose of a model in economics?
What is the primary purpose of a model in economics?
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What does the ceteris paribus assumption imply?
What does the ceteris paribus assumption imply?
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Why are assumptions important in economic models?
Why are assumptions important in economic models?
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How do economists typically evaluate their models?
How do economists typically evaluate their models?
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How do economic models differ from psychological models?
How do economic models differ from psychological models?
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Which of the following best describes empirical science in economics?
Which of the following best describes empirical science in economics?
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What challenge arises when survey responses do not align with actual behavior?
What challenge arises when survey responses do not align with actual behavior?
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What analogy is used to describe an economic model?
What analogy is used to describe an economic model?
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What does the slope of a curve represent?
What does the slope of a curve represent?
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In a direct relationship, how does the dependent variable typically behave?
In a direct relationship, how does the dependent variable typically behave?
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What does a positive slope indicate about a curve?
What does a positive slope indicate about a curve?
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At what point does the slope of a curve equal zero?
At what point does the slope of a curve equal zero?
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What is the purpose of constructing a graph in economic analysis?
What is the purpose of constructing a graph in economic analysis?
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What occurs to the slope of a nonlinear curve as you move along it?
What occurs to the slope of a nonlinear curve as you move along it?
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What is the correct term for the vertical line in a graph?
What is the correct term for the vertical line in a graph?
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What does 'rise over run' refer to in the context of slope?
What does 'rise over run' refer to in the context of slope?
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What does bounded rationality suggest about people's decision-making abilities?
What does bounded rationality suggest about people's decision-making abilities?
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How does behavioral economics differ from traditional economic theories?
How does behavioral economics differ from traditional economic theories?
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What is the main characteristic of positive economics?
What is the main characteristic of positive economics?
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Which statement correctly reflects normative economics?
Which statement correctly reflects normative economics?
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What is a common response people might have towards a new fee on a service?
What is a common response people might have towards a new fee on a service?
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What role do 'rules of thumb' play in decision making under bounded rationality?
What role do 'rules of thumb' play in decision making under bounded rationality?
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Which of the following best exemplifies bounded rationality’s implications on consumer behavior?
Which of the following best exemplifies bounded rationality’s implications on consumer behavior?
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How might the study of economics apply to individual career choices?
How might the study of economics apply to individual career choices?
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What distinguishes positive economics from normative economics?
What distinguishes positive economics from normative economics?
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Which of the following best describes a dependent variable?
Which of the following best describes a dependent variable?
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What characterizes a direct relationship between two variables?
What characterizes a direct relationship between two variables?
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In terms of gas mileage related to driving speed, what relationship is illustrated?
In terms of gas mileage related to driving speed, what relationship is illustrated?
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Which of the following is an example of a positive statement?
Which of the following is an example of a positive statement?
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Which variable is considered independent in an equation?
Which variable is considered independent in an equation?
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What is the main purpose of using models in economics?
What is the main purpose of using models in economics?
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Which interpretation of a decrease in gas mileage with increased speed exemplifies an inverse relationship?
Which interpretation of a decrease in gas mileage with increased speed exemplifies an inverse relationship?
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Study Notes
Introduction
- The typical age of women getting married has risen from 20 in 1950 to 27 today.
- More women are choosing not to marry at all.
- The text asks what accounts for the delayed marriages and non-marriages today.
- Students will explore this question in this chapter.
Learning Objectives
- Define economics and differentiate between microeconomics and macroeconomics.
- Identify the three basic economic questions and the two opposing sets of answers.
- Evaluate the role of rational self-interest in economic analysis.
- Explain why economics is a science.
- Distinguish between positive and normative economics.
Chapter Outline
- The Power of Economic Analysis
- The Three Basic Economic Questions and Two Opposing Sets of Answers
- The Economic Approach: Systematic Decisions
- Economics as a Science
- Positive versus Normative Economics
- Appendix: Reading and Working with Graphs
Did You Know That...
- More than one in four vehicles in Russia have dashboard cameras.
- Russians have incentives to document accidents due to icy roads, police corruption, and faked accident claims.
- This chapter explores the nature of self-interested responses to incentives.
1.1 The Power of Economic Analysis
- Incentives are rewards for engaging in a particular activity.
- The nature of self-interested responses to incentives is the foundation of economic analysis.
- Economic thinking provides a framework to analyse how to spend time studying.
- It helps decide what courses to take, and how government funding for universities should be allocated.
- Economic analysis helps make informed decisions.
- Examples include career choices, education, home finances, and voting.
- Economics concerns the study of how people allocate limited resources to satisfy unlimited wants.
1.1 The Power of Economic Analysis (continued)
- Resources are things with value used to produce goods and services satisfying wants.
- Wants are what people would buy with unlimited income.
- People make choices with limited income and resources.
- Individuals, businesses, and nations face alternatives and must make choices.
- Economics studies how these choices are made.
1.1 The Power of Economic Analysis (continued)
- Microeconomics focuses on individual decision-making by individuals and firms.
- It analyzes smaller parts of the economy like gasoline prices relative to other fuels, the effects of new taxes on a specific product, and consumer responses to government regulations.
- Macroeconomics considers the overall economy.
- It studies aggregate phenomena like unemployment, general price levels, and national income.
1.1 The Power of Economic Analysis (continued)
- Artificial intelligence (AI) technologies use data analytics, machine learning, and virtual/augmented reality to help consumers, businesses, and governments make decisions.
- AI methods process large datasets (big data) to reveal relationships that were previously hidden.
1.1 Application: Microeconomics and Macroeconomics
- Al technologies can be applied to micro and macroeconomic issues, for instance, at the company level, data analytics can be applied to vast amounts of information on product prices, and for central banks when evaluating macroeconomic data like price levels and employment rates.
1.2 The Three Basic Economic Questions and Two Opposing Sets of Answers
- What and how much will be produced?
- How will items be produced?
- For whom will items be produced?
- The answers differ by type of economic system.
- Centralized command and control systems have a single authority making all economic decisions.
- Price systems (market systems) are decentralized decision-making processes where prices act as signals for exchanges.
- Canada's economy is a mixed system.
1.3 The Economic Approach: Systematic Decisions
- Economists assume individuals act to maximise their self-interest, respond to incentives predictably.
- Self-interest is the pursuit of one's goals which doesn't always involve wealth and includes things like prestige, friendship, or love.
1.3 The Economic Approach: Systematic Decisions (continued)
- The text raises the question of if irrational choices invalidate the rationality assumption.
- It also asks if economic models can be applied when behaviour contradicts rational predictions.
- Responding to incentives is a key concept.
- Positive incentives provide rewards.
- Negative incentives use penalties.
- Individuals make choices that balance costs and benefits.
1.3 The Economic Approach: Systematic Decisions (continued)
- Examples of incentives include school children getting gold stars (positive), penalties for using credit cards to avoid cheque overdrafts (negative).
1.3 The Economic Approach: Systematic Decisions (continued)
- Educational incentives affect marital behaviour and choice, as the perceived economic value of partners with lower educational qualifications influence fewer women's marriage decisions.
1.4 Economics as a Science
- Economics is a social science, employing methods similar to biology, physics, and chemistry.
- It uses models and theories to explain economic phenomena.
- Models are simplified representations used for prediction and explanation.
- Models are not unrealistic because they do not encompass all aspects of the real world.
1.4 Economics as a Science (continued)
- Models require assumptions to function (i.e., a set of circumstances in which the model is applicable).
- Economics is also empirical; real-world data assesses model usefulness.
- Economic models predict reactions, not thought processes.
1.4 Economics as a Science (continued)
- Behavioural economics examines consumer behaviour and psychological factors influencing decisions.
- Bounded rationality assumes people are not perfectly rational.
- People use rules of thumb and cannot evaluate every possible option.
- People show bounded selfishness, will-power, and rationality.
- Rules of thumb arise because every choice is not immediately considered.
1.4 Economics as a Science (continued)
- Surveys on consumer behaviour from firms may not align with their stated preferences.
1.5 Positive versus Normative Economics
- Positive economics makes statements about what is, such as "if A, then B."
- Normative economics deals with value judgments and discusses what should be.
1. Application: Economics in Everyday Life
- Principles can be applied to career choices, managerial choices (if in business), future behaviour, and voting decisions.
1. Application: Government Incentives through Economics
- The government introduces incentives like financial programs.
- Examples include 2019's incentive program to stimulate zero-emission vehicle purchases, providing monetary rewards.
1. Application: Education and Financial Independence
- Marriage decisions involve personal and self-interested evaluations of a partner's economic contributions.
- Often, women value partners with higher education levels based on assessed economic contributions, resulting in fewer marriage decisions between women and less educated partners.
Summary Discussion of Learning Objectives
- Define economics and differentiate between microeconomics and macroeconomics.
- Identify the three basic economic questions and discuss how system types answer them.
- Evaluate the role of personal self-interest in economic analysis.
- Explain why economics is a science and how it employs simplified models.
- Distinguish between positive and normative statements in economics.
Appendix A: Reading and Working with Graphs
- Introduce independent and dependent variables.
- Explain direct and inverse relationships between variables.
- Provide examples of relationships presented in graphical form.
- Describe procedures for constructing a graph such as creating a number line.
Appendix A: Reading and Working with Graphs (continued)
- Introduce coordinates through a diagram.
Appendix A: The Slope of a Line (A Linear Curve)
- Define slope in a linear curve, such as in a line that trends upward versus a line that trends downward.
Appendix: Summary Discussion of Learning Objectives
- Describe direct and inverse relationships.
- Detail the procedure for constructing a graph.
- Detail the mechanics of graphing numbers and obtaining coordinates.
- Define the slopes of linear and non-linear curves.
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Description
Test your understanding of fundamental economic concepts with this quiz. It covers topics such as resource definition, decision-making in economics, and the relationship between wants and income. Perfect for beginners and those revising key principles of economics.
