Chat with AIExam 1: Economics and Economic Reasoning
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.
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Verified(a). Positive economics is the study of what is, and how the economy works without regard to the goals of an economy. Using economic reasoning to determine how tax revenue would change in response to a 5% income tax increase is an example of positive economics.
(b). Normative economics is the study of what the goals of the economy should be. Deciding whether government tax revenue should be used to build more tanks or to provide education grants is an example of normative economic analysis.
(c). The art of economics is the application of the knowledge learned in positive economics to the achievement of the goals in normative economics. Determining that a 5% income tax increase will generate $50 billion in tax revenue, which can be used to provide $10,000 grants to 5,000,000 students to help with college tuition is an example of the art of economics.
Which is best? There is no single "correct" answer here. It depends upon what questions you are addressing. If you are trying to understand how an economy functions, positive economics is the best approach. If you are trying to make policy recommendations, the art of economics is the best approach. Although one hopes that the art of economics receives the most votes.
What are the three forces that control economic reality? Give an example of each.
(86) VerifiedThe 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.
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?
(82) VerifiedTheorems are propositions that are logically True based on the assumptions of a model. A precept is policy rule in favor of a particular course of action. With a theorem, an economist can explain how the world may work. With a precept, an economist turns that explanation into a recommendation for action. Because precepts are based on theorems combined with empirical evidence and the goals of society, two economists who agree on a theorem may not necessarily agree on the precept; they might disagree on whether the assumptions of the model hold (which could be tested empirically), or they might disagree on what the goals of society should be. Two economists might also arrive at the same precepts, but based on altogether different theorems, empirical evidence and goals.
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 she/he pays)?
(83) 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?
(87) How did Adam Smith deal with the problem of moving from theorems in positive economics to policy precepts in the art of economics?
(83) How do you use the concept of scarcity to explain why a highly paid, star basketball player makes more money than the average player in the league?
(78) Observers have noted that people often vote against what is in their economic self-interest. It has been called the Kansas paradox because a famous article discussed the phenomenon in relation to the state of Kansas. Would Adam Smith see this as a paradox?
(72) Describe the difference between positive economics, normative economics, and the art of economics.
(89) 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?
(75) 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?
(84) Why does classroom attendance rise during exam days and fall during other days?
(73) 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 $1,000 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.
(64) 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?
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