1 What is the difference between the study of microeconomics

1. What is the difference between the study of microeconomics and the study of macroeconomics? Provide two examples of each form of economics analysis.

2. Evaluate the following statement…”In order for a model to be useful, all assumptions used to create the model must be completely realistic”.

3. Can rational behavior be applied to gambling? What is the difference between gambling and the selling or buying life insurance?

4. Identify which of the statements below use positive economic analysis and which use normative economic analysis.

a. The government should not regulate the education system because recent problems have demonstrated that it does not know what it is doing?

b. The elimination of barriers to the free movement of individuals across European boarders has caused wages to become more equal in many industries.

c. Paying members of Congress more provides them with less incentive to commit wrongful acts.

d. We need more restrictions on companies that pollute because air pollution is destroying our way of life.

5. Distinguish between scarcity and shortage. Provide an example for scarcity and shortage.

6. It is not uncommon for someone to say something like “if we can put a man on the moon we should be able to… ”, followed by the person’s favorite project. What response can an economist make to this person?

8. What can a nation do to increase its economic growth? Why is economic growth among the major economic goals of all countries?

9. Discuss the fundamental questions that all nations’ economies must address?

Solution

Ans.1

Economics is a study of various economic variables so that various micro and macro economic level problems get solved. These problem arises because of two things. One thing is that there exist scarcity of resources and another one is that human wants are unlimited. Thus it is necesaary to prioritize various human wants so that efficient and optimum allocation and use of these resources could become possible.

Micro refers to individual whereas Macro refers to at a whole.

When we study an economy at individual level, we are studying micro economics. It is done to understand what are various wants of individual level units of an economy and how resources can be allocated to these resources to get maximum satisfaction or result. For example we study consumer behaviour where we want to get ways through which maximum satisfaction can be acquired through allocation of a comsuner\'s limited income (limited resource) to various wants or desires of the consumer. Or in studying producer behavior we study and try to find out how various limited inputs can be used in order to get maximum profits. Thus in micro economics we study individual variables like individual demand, market demand of a particular good, individual producer equilibrium etc.

When we are talking about macro economics we are referring to the whole economy. We study how all cosnumers behave together in a aprticular situation to get equilibrium or how all produecers of the economy behave. Main objective of this study is to acheive maximum welfare of the economy, we study, in this discipline, variables like aggregate demand, aggregate supply, employment etc.