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Chapter 1: Q 2 (page 14)
Some people claim that the 鈥渆conomic way of thinking鈥� does not apply to issues such as health care. Explain how economics does apply to this issue by developing a 鈥渕odel鈥� of an individual鈥檚 choices.
We develop the model by considering both the economic and the social behaviors involved in it.
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Maneesha has completed an analysis of the market for prescription medication. She has determined that the policymaker should act to prevent an increase in the price of this drug on the grounds that the mainly elderly consumers of the medication already have spent their lives paying too much for pharmaceuticals. They ought not to have to pay higher prices, Maneesha has concluded, so the government should act to halt any further price increases in the market. Has Maneesha applied positive or normative economic analysis?
Discuss the difference between microeconomics and macroeconomics.
How do you suppose the higher taxes have affected the incentive for Greek residents to engage in tax avoidance, or legally reduce tax liabilities, including earning less income that is subjected to taxation?
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.
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.
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