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Chapter 1: Q 1.4 (page 1)
Explain why economics is a science.
Economics is considered a science because it considers the cause and effect relationship and is based on predictions and assumptions.
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For each of the following approaches that an economist might follow in examining a decision-making process, identify whether the approach relies on the rationality assumption or on the assumption of bounded rationality:
(a) An economic study of the number of online searches that individuals conduct before selecting a particular item to purchase online presumes that people are interested only in their own satisfaction, pursue their ultimate objectives, and consider every relevant option.
(b) An economist seeking to predict the effect that an increase in a state's sales tax rate will have on consumers' purchases of goods and services resumes that people are limited in their ability to process information about how the sales-tax-rate increase will influence the after-tax prices those consumers will pay.
(c) To evaluate the impact of an increase in the range of choices that an individual confronts when deciding among devices for accessing the Internet, an economic researcher makes the assumption that the individual is unable to take into account every new Internet-access option available to her.
In a single sentence, contrast microeconomics and macroeconomics. Next, categorize each of the following issues as either a microeconomic issue, a macroeconomic issue, or not an economic issue.
(a) The national unemployment rate.
(b) The decision of a worker to work overtime or not.
(c) A family鈥檚 choice to have a baby.
(d) The rate of growth of the money supply.
(e) The national government鈥檚 budget deficit.
(f) A student鈥檚 allocation of study time across two subjects.
Define economics. Explain briefly how the economic way of thinking鈥攊n terms of rational, self-interested people responding to incentives鈥攔elates to each of the following situations.
(a) A student deciding whether to purchase a textbook for a particular class.
(b) Government officials seeking more funding for mass transit through higher taxes.
(c) A municipality taxing hotel guests to obtain funding for a new sports stadium.
Explain which is the independent variable and which is the dependent variable for each of the following examples.
(a) Once you determine the price of a notebook at the college bookstore, you will decide how many notebooks to buy.
(b) You will decide how many credit hours to register for this semester once the university tells you how many work-study hours you will be assigned.
(c) You anticipate earning a higher grade on your next economics exam because you studied more hours in the weeks preceding the exam.
Based on your answer to Problems 1鈥�12, categorize each of the following conclusions as being the result of positive analysis or normative analysis.
(a) A higher minimum wage will reduce employment opportunities for minimum wage workers.
(b) Increasing the earnings of minimum wage employees is desirable, and raising the minimum wage is the best way to accomplish this.
(c) Everyone should enjoy open access to health care at no explicit charge.
(d) Heath care subsidies will increase the consumption of health care.
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