Questions and Answers
What does microeconomics analyze?
Individual agents and markets
What is the focus of macroeconomics?
Economy as a system with production, consumption, saving, and investment
What is the distinction between positive economics and normative economics?
Describing 'what is' vs advocating 'what ought to be'
Which agents may be included in microeconomic analysis?
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What does rational economics focus on?
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Study Notes
Microeconomics and Macroeconomics
- Microeconomics analyzes the behavior and decision-making of individual economic units, such as households, firms, and markets.
- Macroeconomics focuses on the economy as a whole, studying aggregate variables such as inflation, unemployment, and economic growth.
Positive Economics vs. Normative Economics
- Positive economics is concerned with describing and analyzing economic phenomena, aiming to understand how the economy works without making value judgments.
- Normative economics, on the other hand, involves making value judgments and recommendations about economic policies and outcomes.
Agents in Microeconomic Analysis
- Microeconomic analysis may include individual agents such as:
- Consumers or households
- Firms or producers
- Governments
- Markets
Rational Economics
- Rational economics focuses on the assumption that individuals and firms make decisions based on rational self-interest, maximizing their utility or profit.
- It assumes that agents have complete and consistent preferences, and that they make optimal choices given their constraints and available information.
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