Skelton
Economics
1
THE NATURE AND METHODOLOGY OF ECONOMICS
I. Distinguishing Microeconomics and Macroeconomics
Two divisions of economics as an academic discipline:
Microeconomics
Macroeconomics
A. ________________ The study of the economy as a whole – national trends related to
income, output, and the price level.
B. ________________ The study of the individual economic units or parts of the economy
– pricing and output decisions in a particular industry.
II. Practice: Economics Issues: Mirco or Macro?
_____ 1. Have prices in the soft drink industry increased or decreased in the past five years?
_____ 2. Will rising the price of personal computers increases the profits of IBM?
_____ 3. Is the US economy experiencing high levels of inflation?
_____ 4. Will increased foreign imports causes Ford Motor Company to lay off workers during
the second quarter of the year?
_____ 5. If unemployment increases, will the US enter a recession?
_____ 6. Should the FED take action to decrease the money supply to ensure that inflation
does not occur?
III. Distinguishing Positive and Normative Analysis Statements
The economist is a scientist. As such, which one of the following does he or she deal with?
What is?
What was?
What will be?
What should be?
What ought to be?
How are these questions different?
_______________________________
_______________________________
When you deal with these kinds of questions in economics, you are engaging in:
__________________________analysis
__________________________analysis
Skelton
Economics
2
When economist engage in these types of analysis, the statements they are making are called:
_______________________statements
_______________________statements
When economists make these types of statements, they are speaking as:
_______________________________
_______________________________
IV. Ceteris Paribus Assumption
Ceteris Paribus: ______________________________________________________
V. More Practice: Micro vs. Macro
_____ 1. The unemployment rate is the US was 5.9% in September of 1994.
_____ 2. The Alpo dog food plant in Bowser, Iowa, laid off 15 workers last month.
_____ 3. An unexpected freeze in central Florida reduced the citrus crop and caused the price
of oranges to rise.
_____ 4. Our national output, adjusted for inflation, grew about 3.1% in 1993
_____ 5. Last week Manhattan Chemical bank lowered its interest rate on business loans by ½
of 1 percentage point.
_____ 6. The Consumer Price Index rose by 2.7% in 1993.
VI. Sample Test Questions
1. Which one of the following is associated with macroeconomics?
a. An examination of the incomes of Harvard Business School graduates.
b. An empirical investigation of the general price level and unemployment rates in the
1990s.
c. A study of the trend of wheat prices since World War II.
d. A case study of pricing and production in the textbook industry.