Solutions Manual for ECON Micro 7th Edition by William A. McEachern (Ch 1 to 22) A+
Test Bank For ECON MICRO, 7th Edition by William A. McEachern, Veronika Dolar Chapter 1-21
Solution Manual For ECON MICRO, 7th Edition by William A. McEachern, Veronika Dolar
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Solution Manual
William McEachern and Veronika Dolar, ECON Micro, 7e, 2025, 9780357902004;
Chapter 1: The Art and Science of Economic Analysis
TABLE OF CONTENTS
Purpose and Perspective of the Chapter…................................................................. 2
Chapter Objectives ....................................................................................................... 2
Key Terms ...................................................................................................................... 2
Chapter Outline ............................................................................................................. 5
Answers to End of Chapter Questions...................................................................... 10
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PURPOSE AND PERSPECTIVE OF THE CHAPTER
This chapter has two purposes: to introduce students to some of the basic language of
economics and to stimulate student interest in the subject. It conveys to students that
economics not only is found on financial news websites, but also is very much a part of
their everyday lives. Beginning with the economic problem of scarce resources but
unlimited wants, this chapter provides an overview of the field and the analytical
techniques used. Concepts introduced include resources, goods and services, the
economic decision makers in the economy, and marginal analysis. Two models for
analysis, the circular flow model and steps of the scientific method, are introduced. The
appendix introduces the use of graphs.
CHAPTER OBJECTIVES
The following objectives are addressed in this chapter:
1.1 Explain how scarcity drives economic decision-making for individuals, businesses,
and governments.
1.2 Contrast macroeconomic concepts versus microeconomic concepts.
1.3 Explain the importance of the other things constant (ceteris paribus) assumption in
economic theory and models.
1.4 Distinguish between positive and normative economic analysis.
1.5 Using the circular flow model, illustrate how real-world economic transactions and
interactions are represented within the model.
1.6 Identify pitfalls of economic analysis in real-life instances such as the fallacy of
association-is causation, the fallacy of composition, and the mistake of disregarding
secondary effects.
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KEY TERMS
Scarcity: A condition that arises from the conflict between unlimited human wants and
the limited resources available to fulfill those wants.
Economics: A social science that studies how individuals, businesses, governments,
and societies allocate scarce resources to satisfy unlimited wants and needs.
Microeconomics: The study of the economic behavior in individual markets, industries,
or sectors, such as that for computers or unskilled labor.
Macroeconomics: The study of the economic behavior of entire economies, as
measured, for example, by total production and employment.
Economic theory or economic model: A simplification of reality used to make
conjectures about cause and effect in the real world.
Scientific method: A systematic approach scientists use to study and understand the
world through observation, hypothesis formulation, experimentation, data analysis, and
conclusion drawing.
Variable: A measure or a quantity that can take on different values or levels and is used
to represent economic concepts or phenomena.
Other-things-constant assumption: The assumption, when focusing on the relation
among key economic variables, that other variables remain unchanged; in Latin, ceteris
paribus.
Behavioral assumptions: An assumption that describes the expected behavior of
economic decision makers—what motivates them.
Hypothesis: A theory about how key variables relate.
Positive economic statement: A statement that can be proved or disproved by
reference to facts.
Normative economic statement: A statement that reflects an opinion, which cannot be
proved or disproved by reference to the facts.
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Circular flow model: A diagram that traces the flow of resources, products, income,
and revenue among economic decision makers.
Resources: The inputs, or factors of production, used to produce the goods and
services that people want; consists of labor, capital, human capital, and material
resources.
Labor: The physical and mental effort used to produce goods and services.
Capital: The buildings, equipment, tools, utensils, appliances, and machinery used to
produce goods and services.
Human capital: The knowledge, skills, abilities, and other attributes that individuals
possess, which can be used to produce goods and services and generate economic
value.
Entrepreneurial ability: The imagination required to develop a new product or process,
the skill needed to organize production, and the willingness to take the risk of profit or
loss.
Entrepreneur:
A profit-seeking decision maker who starts with an idea, organizes an enterprise to
bring that idea to life, and assumes the risk of the operation.
Natural resources: All gifts of nature used to produce goods and services; includes
renewable and exhaustible resources.
Good: A tangible product used to satisfy human wants.
Service: An activity, or intangible product, used to satisfy human wants.
Wages: Payment to resource owners for their labor.
Interest: Payment to resource owners for the use of their capital.
Rent: Payment to resource owners for the use of their natural resources.
Profit: Reward for entrepreneurial ability; sales revenue minus resource cost.
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