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Chapter 1: The Nature of Economics

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Quiz 1

Quiz 1


This activity contains 10 questions.

	What is the difference between positive and normative economics?   Positive economics is about the good things in economics like consuming goods and making money while normative economics is about the bad things like unemployment and pollution. Positive economics deals with the development of theories while normative economics deals with the empirical testing of the theories. Positive economics deals with what is while normative economics deals with what ought to be. Positive economics is the study of microeconomics while normative economics is the study of macroeconomics.

	What is the difference between microeconomics and macroeconomics?   Microeconomics examines individual units while macroeconomics examines the big picture. Microeconomics lends itself to empirical analysis while macroeconomics uses the concept of incentives. Microeconomics deals with positive analysis while macroeconomics deals with normative analysis. Microeconomics focuses on the rationality principle while macroeconomics focuses on the use of incentives.

	Which of the following statements is true about whether economics is a science?   Economics is not a science since only natural sciences such as biology, physics and chemistry can be called a science. Economics is a science since the study of economics uses models and theories that are tested. Economics is not a science since the models developed are a simplification of the real world. Economics is a science since it is possible to set up laboratory experiments.

	What role does rational self-interest play in economic analysis?   It is assumed that individuals act as if they are motivated by self-interest and respond predictably to opportunities for gain. It is assumed that the rational self-interest assumption is much stronger than the incentive assumption. It is assumed that individuals act as if they are motivated by self-interest and this makes individuals unpredictable. Rational self-interest plays no role in economic analysis.

	Many people have faced persecution and even death for their religious beliefs. Such behavior is   inconsistent with the assumption of self-interest, but that doesn't affect the ability of economic analysis to explain market behavior. The assumption of self-interest cannot be used in nonmarket situations. inconsistent with the assumption of self-interest and demonstrates that economic analysis cannot be applied to many human situations. consistent with the assumption of self-interest. The people were just wrong about whether their religion would make them better off or not. consistent with the assumption of self-interest because the people believe that staying loyal to their religion is in their self-interest.

	The ceteris paribus assumption is used in economics because   people are self-interested and rational. it makes it easier to track the thought processes of people, which is necessary to develop good theories. the more complex a model is, the better it is. it is impossible to account for everything that might have an effect on behavior.

	If you intentionally did something to make yourself worse off, you would be violating the   the normative assumption. time consistency assumption. rationality assumption. the positive analysis assumption. ceteris paribus assumption.

	Things of value that are used to produce other things that satisfy people's wants are called   incentives aggregates resources models

	Microeconomics focuses on   aggregates or total economic quantities like overall unemployment. all households and firms grouped together and how they interact with the government. inflation and growth in our overall economy. decisions made by individual households and firms.

	Macroeconomics focuses on   decisions made by individual households and firms. individual firm decisions regarding product output and price. individual household reaction to tax change. aggregates or total economic quantities like overall unemployment.

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