ECON 103 Final Exam Study Guide- Questions with Correct Answers

Assumptions of Economics: Scarcity (1/4) limited nature of society's resources Assumptions of Economics: Methodological Individualism (2/4) - only individuals act - choices are made based on an individuals needs Assumptions of Economics: Rational Choice (3/4) humans first allocate scarce goods to their highest needs Assumptions of Economics: Unlimited Wants (4/4) - GREEDY, GREEDY, GREEDY - infinite number of things to do and get in a lifetime Positive vs. Normative Questions: Positive - deals with causation - factual; cause/effect; what is likely to happen - ex: "If i raise minimum wage, will there be greater employment?" Positive vs. Normative Questions: Normative - deals with policy - what should be; opinion - ex: "should we raise minimum wage?" "Yes, because i'm a sadist" History of Price Theory: Aristotle 300 BC EQUALITY OF EXCHANGE - believed we exchange things because they have equal value - no incentive to trade, you come out no better than before History of Price Theory: Scholasticism: St. Thomas Aquinas (Catholic theologian) JUST PRICE DOCTRINE - believed that there was a certain just price to certain goods - normative theory, but we are trying to find a positive theory of price History of Price Theory: Mercantilism () -believed that gold and silver bullion were the wealth of nations - hoarded gold bullion, limited imports and increased exports - POLICY OF FRANCE: "The people may be poor, but the country is rich!" History of Price Theory: Physiocrats - First to consider that a spontaneous order may occur in a free market; a planned social not necessary - made no advancements to price theory History of Price Theory: Classicals - Adam Smith's "Wealth of Nations" (1776)