ECON 2150 MIDTERM 1 QUESTIONS AND CORRECT
ANSWERS
3 Critical Economic Questions - Answers - 1. What goods/services will produced & in
what quantities
2. Who will produce these services and how will they produce them?
3. Who will receive these goods and services and how will they get them?
How are microeconomic issues studied? - Answers - with models - models are like
maps, they process and facilitate understanding of complex concepts
Microeconomic models need to: - Answers - -Resemble reality
-Be understandable
-Be an appropriate scale
Endogenous variable - Answers - a variable that is explained by an economic model
example: What is the minimum level of expenditure that the consumer must receive in
order to reach a subsistence level of satisfaction?
Is this Endogenous or Exogenous: "How would a manager minimize the cost of hiring
three workers?" - Answers - exogenous
exogenous variable - Answers - Variables that have values taken as given in the
analysis
example: ""How would a manager hire the most possible workers on a budget of $100?"
3 key economic tools in microeconomic models - Answers - 1. Constrained optimization
2. Equilibrium analysis
3. Comparative statics
Constrained Optimization - Answers - An analytical tool for making the best (optimal)
choice, taking into account any possible limitations or restrictions on the choice
2 parts to optimization problems:
1. Objective function
2. Constraints
What is an objective function? - Answers - It specifies what the agent cares about
ANSWERS
3 Critical Economic Questions - Answers - 1. What goods/services will produced & in
what quantities
2. Who will produce these services and how will they produce them?
3. Who will receive these goods and services and how will they get them?
How are microeconomic issues studied? - Answers - with models - models are like
maps, they process and facilitate understanding of complex concepts
Microeconomic models need to: - Answers - -Resemble reality
-Be understandable
-Be an appropriate scale
Endogenous variable - Answers - a variable that is explained by an economic model
example: What is the minimum level of expenditure that the consumer must receive in
order to reach a subsistence level of satisfaction?
Is this Endogenous or Exogenous: "How would a manager minimize the cost of hiring
three workers?" - Answers - exogenous
exogenous variable - Answers - Variables that have values taken as given in the
analysis
example: ""How would a manager hire the most possible workers on a budget of $100?"
3 key economic tools in microeconomic models - Answers - 1. Constrained optimization
2. Equilibrium analysis
3. Comparative statics
Constrained Optimization - Answers - An analytical tool for making the best (optimal)
choice, taking into account any possible limitations or restrictions on the choice
2 parts to optimization problems:
1. Objective function
2. Constraints
What is an objective function? - Answers - It specifies what the agent cares about
