Self-Check Questions

1.2 Microeconomics and Macroeconomics

Microeconomics and macroeconomics are two different perspectives on the economy. The microeconomic perspective focuses on parts of the economy: individuals, firms, and industries. The macroeconomic perspective looks at the economy as a whole, focusing on goals like growth in the standard of living, unemployment, and inflation. Macroeconomics has two types of policies for pursuing these goals: monetary policy and fiscal policy.

1.3 How Economists Use Theories and Models to Understand Economic Issues

Economists analyze problems differently than do other disciplinary experts. The main tools economists use are economic theories or models. A theory is not an illustration of the answer to a problem. Rather, a theory is a tool for determining the answer.

1.4 How To Organize Economies: An Overview of Economic Systems

We can organize societies as traditional, command, or market-oriented economies. Most societies are a mix. The last few decades have seen globalization evolve as a result of growth in commercial and financial networks that cross national borders, making businesses and workers from different economies increasingly interdependent.

Self-Check Questions

1 . What is scarcity? Can you think of two causes of scarcity? 2 . Residents of the town of Smithfield like to consume hams, but each ham requires 10 people to produce it and takes a month. If the town has a total of 100 people, what is the maximum amount of ham the residents can consume in a month? 3 . A consultant works for $200 per hour. She likes to eat vegetables, but is not very good at growing them. Why does it make more economic sense for her to spend her time at the consulting job and shop for her vegetables? 4 . A computer systems engineer could paint her house, but it makes more sense for her to hire a painter to do it. Explain why. 5 . What would be another example of a “system” in the real world that could serve as a metaphor for micro and macroeconomics? 6 . Suppose we extend the circular flow model to add imports and exports. Copy the circular flow diagram onto a sheet of paper and then add a foreign country as a third agent. Draw a rough sketch of the flows of imports, exports, and the payments for each on your diagram. 7 . What is an example of a problem in the world today, not mentioned in the chapter, that has an economic dimension? 8 . The chapter defines private enterprise as a characteristic of market-oriented economies. What would public enterprise be? Hint: It is a characteristic of command economies. 9 . Why might Belgium, France, Italy, and Sweden have a higher export to GDP ratio than the United States?

Review Questions

10 . Give the three reasons that explain why the division of labor increases an economy’s level of production. 11 . What are three reasons to study economics? 12 . What is the difference between microeconomics and macroeconomics? 13 . What are examples of individual economic agents?