Purdue | Econ 252 | Dr. Vargas | Exam 1 Questions and Answers 100% Pass

Purdue | Econ 252 | Dr. Vargas | Exam 1 Questions and Answers 100% Pass Economic Agent Any group or individual that makes choices. What is Economics the study of? How agents make choices among scarce resources and how those choices affect society Scarcity A situation of having unlimited wants in a world of limited resources When are resources scarce? Resources are scarce when the quantity that people want exceeds the quantity that is available Positive Economics Describes what people actually do, or makes predictions about the world that can be verified with data. (Example: In July, the unemployment rate in Indiana was 4.6 percent) Normative Economics Recommends what an individual or society ought to do. It depends on subjective judgments. (Example: The government should increase the minimum wage to $15 per hour to reduce poverty.) Microeconomics The study of individuals, firms, and government Macroeconomics The study of the whole economy Three Principles of Economics: Optimization, Equilibrium, Empiricism Optimization Making the best choice possible with the given information Equilibrium When everyone is optimizing, no one would be better off with a different choice Empiricism Using data to test theories and determine what is causing things to happen in the world (testing ideas using data) When do Tradeoffs arise? When some benefits must be given up in order to gain others What do economists use to describe tradeoffs? Budget Constraints (Example: 5 hours of free time = Hours surfing the web + Hours working) Opportunity Cost The best alternative use of a resource The Scientific Method 1. Developing models that explain some part of the world 2. Testing those models using data to see how closely the model matches what we actually observe What is a Model? A simplified description of the world, also referred to as a Theory Two important features of models 1. They are not exact 2. They generate predictions that can be tested with data Hypothesis Predictions, typically generated by a model, that can be tested with data Causation When one thing directly affects another through a cause and effect relationship Correlation When two things are correlated, there is a mutual relationship between them Positive Correlation They both change in th