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Do you use facebook?

Photo of a smartphone with the Facebook application open
Economics is greatly impacted by how well information travels through society. Today, social media giants Twitter, Facebook, and Instagram are major forces on the information super highway. (Credit: Johan Larsson/Flickr)

Decisions ... decisions in the social media age

To post or not to post? Every day we are faced with a myriad of decisions, from what to have for breakfast, to which route to take to class, to the more complex—“Should I double major and add possibly another semester of study to my education?” Our response to these choices depends on the information we have available at any given moment; information economists call “imperfect” because we rarely have all the data we need to make perfect decisions. Despite the lack of perfect information, we still make hundreds of decisions a day.

And now, we have another avenue in which to gather information—social media. Outlets like Facebook and Twitter are altering the process by which we make choices, how we spend our time, which movies we see, which products we buy, and more. How many of you chose a university without checking out its Facebook page or Twitter stream first for information and feedback?

As you will see in this course, what happens in economics is affected by how well and how fast information is disseminated through a society, such as how quickly information travels through Facebook. “Economists love nothing better than when deep and liquid markets operate under conditions of perfect information,” says Jessica Irvine, National Economics Editor for News Corp Australia.

This leads us to the topic of this chapter, an introduction to the world of making decisions, processing information, and understanding behavior in markets —the world of economics. Each chapter in this book will start with a discussion about current (or sometimes past) events and revisit it at chapter’s end—to “bring home” the concepts in play.

Introduction

In this chapter, you will learn about:

  • What Is Economics, and Why Is It Important?
  • Microeconomics and Macroeconomics
  • How Economists Use Theories and Models to Understand Economic Issues
  • How Economies Can Be Organized: An Overview of Economic Systems

What is economics and why should you spend your time learning it? After all, there are other disciplines you could be studying, and other ways you could be spending your time. As the Bring it Home feature just mentioned, making choices is at the heart of what economists study, and your decision to take this course is as much as economic decision as anything else.

Economics is probably not what you think. It is not primarily about money or finance. It is not primarily about business. It is not mathematics. What is it then? It is both a subject area and a way of viewing the world.

Test PDF eBook: 
NET JRF Mock Test #1: Microeconomics
Download Microeconomics Test PDF eBook
11 Pages
2014
English US
Educational Materials



Sample Questions from the NET JRF Mock Test #1: Microeconomics Test

Question: An 'Indifference curve' shows the combination of commodities that

Choices:

can be produced with a given set of resources and technology.

yield the same total of utility

can be purchased with a given budget at given prices

equate the marginal utilities of these goods and, therefore, make the consumer indifferent between them

Question: If a consumer’s marginal rate of substitution equals 2 eggs for 1 mango, Which of the following statements must be necessarily true ?

Choices:

the consumer’s indifference curve must be positively sloped

the consumer’s indifference curve must be convex with respect to the origin

the ratio of the consumer’s marginal utility of 1 egg to that of 1 mango must equal ½.

all of the above are true

Question: Indifference curves that intersect would be illogical constructs because

Choices:

more is better than less.

of diminishing marginal utility

of the transivity property of indifference theory

of both a and c above.

Question: Cardinal utility theory assumes that consumers can

Choices:

rank baskets of goods as to their preference.

determine the number of utils that can be derived from consuming all goods.

determine the marginal rate of substitution between goods.

avoid the law of diminishing marginal utility.

Question: As long as all prices remain constant, an increase in money income results in

Choices:

an increase in the slope of the budget line.

a decrease in the slope of the budget line.

an increase in the intercept of the budget line.

a decrease in the intercept of the budget line.

Question: The ' Principle of diminishing marginal utility' implies that an increased consumption of a commodity

Choices:

produces negative total utility

lowers marginal utility and, therefore, total utility

lowers marginal utility, but may raise total utility

lowers total utility

Question: The budget allocation rule states that

Choices:

the marginal utility of x equals the marginal utility of y at maximum utility

the marginal utility of x divided by its price be equal to marginal utility of all other goods divided by their prices

the marginal utility of x equals the marginal rate of substitution of x for y

the ratio of prices of x to y be greater than the ratio of marginal utility of x to the marginal utility of y.

Question: Suppose, a consumer can buy a set of commodities. Which set will be bought by the consumer in order to maximize the utility?

Choices:

The bundle that maximizes the marginal utilities per Rupee of each good

The bundle that maximizes the marginal utilities per Rupee (or other physical unit) of each good

The bundle that equates the marginal utilities per Rupee of each good

The bundle that equates the marginal utilities per Rupee (or other physical unit) of each good.

Question: If the prices of both goods increase by the same percent, the budget line will

Choices:

shift parallel to the left

. shift parallel to the right.

pivot about the x axis.

pivot about the y axis.

Question: In the presence of declining marginal rates of substitution, consumers who again and again sacrifice a unit of one good cannot remain on their original consumption-indifference curves (that is, they cannot maintain their original levels of welfare) unless they receive as compensation

Choices:

again and again equal units of another good.

ever smaller units of another good.

ever larger units of another good

either (a), (b), or (c), depending on the tastes of the consumer involved

Question: Which of the following is not an assumption of ordinal utility analysis?

Choices:

Consumers are consistent in their preference

Consumers can measure the total utility received from any given basket of good.

Consumers are non-satiated with respect to the goods they confront.

All are necessary

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