Microeconomics

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Chapter -1

1. The study of microeconomics includes the study of
- Output and employment growth as markets expand in reaction to a rising price level in the economy. - Business investment and government spending in the marketplace. - The number of new jobs and income created as the economy grows. - How firms, workers, consumers, and investors interact and make decisions in the marketplace. Microeconomics is the study of the behavior of individual economic units: consumers, firms, workers and investors.

2. Microeconomic models illustrate, amongst other things,
- The trade-offs that consumers, workers and firms face and how government can help maximize their well being and profits. - The trade-off between inflation and employment that exists in the economy. - The trade-offs that consumers, workers and firms face and how these trade offs are best made in the marketplace. - The trade-off between private and public investment that government faces when government raises taxes or sells bonds to finance deficit spending. Microeconomics studies the trade-offs and interactions of consumers, workers and firms face in the marketplace.
3. In microeconomics, consumer theory studies
- The amount of wages and salaries, profits, dividends and interest earnings that consumers have for making purchases in the marketplace. - How consumers maximize their well-being by choosing to purchase one basket of goods versus another, or by trading-off current for future consumption, given their limited budgets. - Total consumer expenditures on durable versus nondurable goods or services. - Total consumer expenditures and saving in the economy.

This is a broad economy-wide measure.

4. Prices in a competitive market
- Are set by consumers and are not influenced by prices of related goods or the cost of production. - Are set by government to ensure a minimum profit and income for businesses and workers. - Are set by businesses based on input costs regardless of the value consumers place on the goods and services. - Are determined by interactions of buyers and sellers in a market for a certain good or service. The competitive market price is the price that prevails when both buyers and sellers interact freely in a market and so seller costs must be considered.
5. Economic theory attempts to
- Explain all the intricate workings of the economy.
- Provide step-by-step analyses of the decision making processes of firms, workers, consumers and investors. - Use mathematical models to correctly explain the step by step processes workers, consumers, firms and investors use to make decisions regardless of the model's explanatory or predictive powers. - Explain observed events and make predictions using mathematical models of worker, consumer, firm and investor decision making processes. Economic theory simplifies the complex economy by using mathematical models that help explain and predict the results of the decision making process of firms, workers, consumers and investors.
6. Positive economic analysis
- Is based on observed cause and effect relationships in the economy. - Provides a framework within which we can study how some groups are better off than others. - Analyzes the sources of improvements in the standard of living that result from favorable government policies. - Compares the desirability of alternative government policy outcomes. Positive economic analysis observes and explains "what is."

7. Which of the following statements is an example of positive economic analysis? - The 2002 U.S. teen pregnancy rate fell ten percent from 2000 levels, to 76.4 pregnancies per 1,000 females aged 15-19 years, a historic low for the nation. - The U.S. teen pregnancy rate of 76.4 pregnancies per 1,000 females aged 15-19 years is a historic low but is...
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