Economics - Foundations of economic analyses (CHAPTER 2)
What is the basic assumption in economics that individuals act rationally to maximize their own self-interest?
Economic rationality
Which of the following is an example of a positive economic statement?
Unemployment rate is rising steadily.
What does the law of demand state?
As price increases, quantity demanded decreases
What is the difference between a positive and normative economic statement?
Positive statements are based on facts, while normative statements express value judgments.
What is the law of supply?
As price increases, quantity supplied increases
What is the study of how individuals and societies allocate their limited resources to satisfy their unlimited wants?
Microeconomics
What is the difference between economic growth and development?
Economic growth refers to an increase in the quantity of goods and services produced, while development refers to an improvement in the standard of living.
What are some tools that can be used to understand economics?
Empirical investigation (data and observations, trends, positive or negative relation between two variables,...) and rationalism (theory and logic) to make deductions.
What is ceteris paribus?
The assumption that all other variables are held constant and remain equal.
What are the two models used for economic theories?
The circular flow diagram.
The social and environmental contexts of economic activity.
Why is the basic neoclassical model insufficient?
It only looks at the small picture and does not represent the global economy.
What are the three components of the social and environmental model of economic activity?
The social context (legal order, ethics, politics,...).
The environnemental context (externalites, natural ressources,...).
Economic activity.
What are the three components economic activity in the social and environmental contexts model?
The core sphere (households, families, and community groups that organize the economic activities to sustain human life).
The business sphere (firms producing goods and services for profit).
The public purpose sphere (governments and NGO's regulating economic activities and providing public goods).
What is a market?
Place where buyers and sellers meet and engage in exchange.
Does a perfectly competitive market exist?
No.
What are the characteristics of a perfectly competitive market?
Many buyers and sellers.
The goods are homogeneous.
Firms can enter and leave the market freely.
Firms are price takers and the market determines the price.
What is a market failure?
The situation in which there is an inefficient distribution of goods and services in the free market.
Which of the following are market failures?
Public goods and the free rider problem.
Externalities (pollution,...).
Markets not being necessarily perfectly competitive.