Deck 1: Economics and Economic Reasoning

Question 1

What are the three forces that control economic reality? Give an example of each.

Answer 1

The three forces are economic forces (the invisible hand),social and cultural forces,and political and legal forces.An example of an economic force is that,when there is an excess supply of some good,price tends to fall.Social and cultural forces include such things as churches,accepted norms or standards of behavior.Political and legal forces include such things as antitrust laws,and agricultural price supports.

Question 2

How are deduction,induction,and abduction related? Which approach was used by early economists? Which is used by modern economists?

Answer 2

Abduction is reasoning that involves both deduction and induction.Earlier economists used only deduction.Modern economists use abduction,because they have added induction to what has historically been a deductive science.

Question 3

What role does coercion play in an economy?

Answer 3

Coercion has historically been a part of all economies as they try to solve coordination problems.Specifically coercion involves limiting people's wants and desires and increasing the amount of work individuals are willing to do.

Question 4

Explain how the government might apply economic reasoning in deciding on which of many techniques it should employ to reduce or eliminate terrorist attacks on airlines.What problems can arise when using such an approach?

Question 5

How are the three central economic questions-What,How,and For Whom-related to the concept of scarcity?

Question 6

What are theorems? What are precepts? If two economists agree on a theorem,do they necessarily agree on precepts? If two economists agree on a precept,do they necessarily agree on theorems?

Question 7

What does the term efficiency mean?

Question 8

Explain how each of the following scenarios illustrates the interaction of economic forces,social and cultural forces,and political and legal forces.
(a)State officials are trying to move welfare recipients into jobs during a period of economic weakness,rising unemployment,and declining federal funding.
(b)The European Union is funding a massive program to explore ways of using hydrogen to replace fossil fuels both to increase energy availability and to protect the environment.
(c)In some states,many types of retail stores are prohibited from opening before noon on Sunday.
(d)In North Dakota,most colleges and universities are located in small towns.Despite shrinking student populations,state law mandates that all of these schools remain open.

Question 9

What is opportunity cost? Give an example.

Question 10

What is economic reasoning? Give an example.

Question 11

What is economics,and what are the three coordination problems an economy must solve?

Question 12

As newly elected President of your school's Economics Club,you must prepare the Club's annual budget of $5,000.Past budgets have included: 1)fees for guest speakers,2)tours of local businesses; 3)charges for downloading economic statistics; 4)an end-of-semester party,and 5)the Club President's salary.How would the central coordination problems faced by any economic system apply to your task of deciding how to allocate the $5,000?

Question 13

What is scarcity? Why is it so difficult to eliminate it?

Question 14

What is the economic decision rule?

Question 15

Explain the differences between positive economics,normative economics,and the art of economics.Explain why you would categorize each of the following three statements as belonging to positive economics,normative economics,or the art of economics.
(a)The unemployment rate is 6.5 percent.
(b)The unemployment rate is unacceptably high.
(c)If the government wants to reduce the unemployment rate,it should try cutting taxes.

Question 16

In the late 1970's,the U.S.mandated a maximum highway speed of 55 miles per hour to economize on fuel.Evidence showed that the lower 55-miles-per hour speed limit also significantly reduced traffic fatalities.Nevertheless,when the gas shortage eased,we have returned to the higher speed limits.Provide an economic rationale for not permanently lowering the speed limit to 55 miles per hour when we know that it will save lives.

Question 17

What is the difference between economic forces and market forces?

Question 18

In its earliest form,economics was primarily a deductive science closely related to philosophy.How does modern economics differ from this early form of economics? What has caused it to change? Is the field of economics better now because of these changes? Explain.

Question 19

What is the "invisible hand",and how does it work as a market force?

Question 20

Explain how microeconomics differs from macroeconomics.Explain why the following headlines,taken from various issues of The Wall Street Journal,deal with either microeconomics or macroeconomics.
(a)"Microsoft posted a 26% increase in sales"
(b)"Housing starts soared 13.3% in September"
(c)"Honeywell Plans to Slash More Jobs"
(d)"Germany to Breach Key Deficit Target it Helped to Create"
(e)"China's Output Grew 8.1%"
(f)"Washington Is Urging Canada to Increase Military Spending"

Question 21

What is a natural experiment?

Question 22

Why does classroom attendance rise during exam days and fall during other days?

Question 23

What is the invisible hand theory?

Question 24

What is opportunity cost? What would be the opportunity cost of having a date on Saturday night? Alternatively,why is there no such thing as a free date (even if s/he pays)?

Question 25

You have just finished paying off the $10,000 loan on your car,and it stops working.Your mechanic tells you that it will cost $1,000 to repair it.Your car is quite old and you are hesitant to put another $1000 into it.Instead,you are contemplating purchasing a much newer car for $15,000.You want to get your wheels back.What should you do? How would your answer change if you took the expected life of the vehicle into consideration? NOTE: Answer this question by applying the economic decision rule.

Question 26

How do you use the concept of scarcity to explain why an NBA player like LeBron James makes more money than the average player in the league?

Question 27

What is an economic institution? Why is it important? Describe three economic institutions that regularly impact our daily lives.

Question 28

Consider the following statement: Keith purchased an entire week's groceries for his family of four for $200 while Jerry spent $250 for a week's groceries for his family of four.Can we conclude that Keith is more efficient than Jerry at grocery shopping? Why or why not?

Question 29

Comment on the following statement that appeared in a local newspaper: "Our junior high school serves a splendid hot meal for one dollar without costing the taxpayer anything,thanks in part to a government subsidy."

Question 30

You are trying to decide which professor to take for Economics.(You don't want to take it at all,but you have to.)Professor A is known to have great classes (fascinating lectures with lots of fun stuff thrown in),but she gives very challenging exams.Professor B's classes are quite dull,but his exams are quite easy.What are the marginal costs and benefits of taking Economics from Professor A rather than from Professor B? Who would you pick?

Question 31

How does microeconomics differ from macroeconomics?

Question 32

What is experimental economics?

Question 33

Suppose Mr.and Mrs.X have an ant problem in their home,but they do not know how the ants are entering the house.Mr.X attempts to figure out their entry point by considering what is known about ant behavior and about the house; Mrs.X attempts to figure out their entry point by collecting evidence about where she sees ants most commonly and looking for a pattern.How could you describe these two different approaches using the concepts from Chapter 1? What recommendation would you make to Mr.and Mrs.X?

Question 34

Your textbook distinguishes between earlier economics and modern economics and between traditional economics and behavioral economics.Briefly define each of these four terms.

Question 35

Three different ways (approaches)can be used to study economics: positive,normative,and their combination (the art of economics).Describe each approach and give an example of each.Which do you think is the best approach to study economic issues? Explain why you picked the approach you did.

Question 36

State the economic decision rule and apply it to the following situations:
(a)A personal computer costs about 2 cent per hour to operate.Every time it is turned on and off,there is a .00005 probability that the computer will fail,costing $700 to repair.Is it worthwhile to turn off your computer?
(b)Should you try out for the soccer or the baseball team?
(c)The date to withdraw from a course and get the $300 refund has passed.With 30 more classes left in the semester,should you drop the course?
(d)Your employer has offered you a 20% raise.Do you work more hours?
The economic decision rule is: 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.

Question 37

Explain how microeconomics differs from macroeconomics and then categorize the following questions as either microeconomic or macroeconomic questions:
(a)How will interest rates change when the Federal Reserve Bank increases money supply?
(b)How will Nike's market share change when Reebok increases their marketing expenditures?
(c)How does a tariff on imported steel affect the U.S.steel industry?
(d)Should Wal-Mart renovate its stores nationwide?
(e)Should the government lower income taxes to stimulate consumption?

Question 38

Describe the difference between positive economics,normative economics,and the art of economics.

Question 39

Why are empirical results in economics often subject to dispute?