Microeconomics

Assignment I

2. Why isn’t money considered capital in economics?

Money is not considered capital in economics because we use money to buy capital. Capital consists of physical plants, machinery, and equipment used to produce other goods.

4. Explain the difference between macroeconomics and microeconomics. Give examples of the areas of concern to each branch of economics.

Macroeconomics is the branch of economics that studies decision making for the economy as a whole. Examples of the areas of concern to Macroeconomics are by examining economywide variables, such as inflation, unemployment, growth of the economy, the money supply, and the national incomes of developing countries.

Microeconomics is the branch of economics that studies decision making by a single individual, household, firm, industry, or level of government. Examples of the areas of concern to Microeconomics are by focusing on small economic units, such as economic decisions of particular groups of consumers and businesses.

6. A model is defined as a

Simplified description of reality used to understand the way variables are related.

8. Explain the importance of the ceteris paribus assumption for an economic model.

The importance is to make assumption when we are testing a model.

10. Which of the following is an example of a proposition from positive economics?

b. The average rate of inflation was higher during George W. Bush’s residency than during Bill Clinton’s presidency.

12. Analyze the positive versus normative arguments in the following case (Should the Government Require Air Bags). What statements of positive economics are used to support requiring air bags? What normative reasoning is used?

Positive Economics – 2nd and 4th sentences.

Normative Economics – 1st, 3rd, 5th, and 6th sentences.

Appendix Chapter I

1. Draw a graph without specific data for the expected relationship between the following variables

a) The probability of living and...