Tutorial 1

Review Questions Page 18 & 19 (Besanko & Braeutigam)

No 1

Microeconomics studies the economic behavior of individual economic decision makers, such as consumer, a worker, a firm, @ a manager. It also analyzes the behavior of individual households, industries, markets, labor unions, @ trade associations.

Macroeconomics thus analyzes how an entire national economy performs. A course in macroeconomics would examine aggregate levels of income & employment, the levels of interest rates & prices, the rate of inflation, & the nature of business cycles in a national economy.


No 2

Economics often described as the science of constrained choice because every society are deciding how to allocate its scare resources by its own ways.

For example:
- A consumer might decide to allocate more time to work, but would then
..have less time available for leisure activities.
- A consumer could spend more income on consumption today, but would
..then save less for tomorrow.
- A manager might decide to spend more of a firm's resources on
..advertising, but this might leave less available for research &
..development.


No 3




No 4




No 5

Exogenous variable is one of whose value is taken as given in the analysis of an economic system.

Endogenous variable is a variable whose value is determined within the economic system being studied.

It would never be useful to construct a model that contained only exogenous variables & no endogenous variables.


No 6

Economist do comparative statics analysis because comparative statics allows us to do a 'before-and-after' analysis by comparing 2 snapshots of an economic model.

Comparative statics analysis is used to examine how a change in an exogenous variable will effect the level of an endogenous variable in an economic model. The first snapshot from 'before-and-after' analysis tells us the levels of the endogenous variables given a set of initial values of exogenous variables. The second snapshot tells us how an endogenous variable we care about has changed in response to an exogenous shock - that is, a change in the level of some exogenous variable.


No 7

Positive analysis is an analysis that attempts to explain how an economic system works @ to predict how it will change over the time.

Normative analysis is an analysis thattypically focuses on issues of social welfare, examining what will enhance @ detract from the common good.

a) Positive analysis
b) Normative analysis