chapter 1

Question 1

what is positive and normative analysis?

Answer 1

• positive analysis → make a claim about how the world works (descriptive) that may be confirmed or refuted by examining evidence → “what it is”
• normative analysis → make a claim about how the world should work (prescriptive), which cannot be judged using data alone… it depends on an opinion on a subjective → “what it should be”

Question 2

what is economics?

Answer 2

the social science that studies the chooices that individuals, businesses, governments and entire societies maske as tey cope with scarcity and the incentives that influence and reconcile those choices

Question 3

What is macroeconomics and microeconomics?

Answer 3

-Micro→ deals with individuals and businesses choices, the way they interact in specific markets and how they are influenced by government policy
→ Consumer behaviour; industrial organization
→Labour economics; public economics
- Macro→ deals with aggregate phenomena (not a particular market or sector), what explains their performance and how policy influences them:
→ National output
→ Consumption, Investment
→ Unemployment
→ Inflation
→ Monetary policy
→ Fiscal policy
→ External accounts

Question 4

there are 2 types of economic variables. What is the difference between a stock and a flow?

Answer 4

• flow → measured over a certain period of time
• stock → measured in one instant in time (evrything that accumulates)
  → corresponds to the accumulative of flow variables

Question 5

which are 3 fundamental models in economics? Explain each of them

Answer 5

Three fundamental tools (“models”) in economics:
1. Production possibilities frontier
MB=MC
2. Market: supply and demand
Market → any arrangement that enables buyers and sellers to get
information and do business with each other (S=D)
Price → information device that adjusts in order to guarantee
market equilibrium
3. Circular-flow diagram
illustrates how households and firms interact in the
market economy
→ goods and services flow in one
direction.
→ Money flows in the opposite
direction.

Question 6

What is the law of supply and the law of demand?

Answer 6

• law of supply → the higher the price of a good, the smaller the quantity demanded - inverse relation
• law of demand→ the higher the price of a good, the greater the quantity supplied - direct relation