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Summary Introduction to Economics and Business Economics exam notes + papers

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Universiteit Utrecht (UU)

This document outlines different papers and their details needed to know for the end exam. It also gives example exam questions and answers for the introduction to economics and business economics, also known as IEBE, from the UU course of 2020/2021. Note that the course content could have changed ...

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Introduction to Economics and Business Economics

[Theme: What is Economics?]

Multidisciplinary economics – “A real world perspective”
e.g.) IMF crisis -> get a broader perspective by different fields of economics.

Reading: Samuelson (1980)

What is Economics?
Economics is the study of how people and society end up choosing with or without the use of
money, to employ scarce productive resources that could have alternative uses- to produce
various commodities and distribute them for consumption, now or in the future, among various
persons and groups in society. Economics analyses the costs and the benefits of improving
patterns of resource use.

Positive science vs. Normative science
“Positive Science” a body of systematized knowledge concerning what is
Normative is how we think the world should look like or how we believe the world should look like
“Normative or regulative science” a body of systematized knowledge relating to criteria of what
ought to be and concerned therefore with the ideal as distinguished from the actual
“Art” a system of rules for the attainment of a given end
Samuelson sees Economics as both positive and normative science. People cannot always be
objective.
“tool based discipline” meaning mathematics or statistics

Is according to Samuelson economics multidisciplinary?
Yes, Samuelson recognizes economics as the “Queen of Social Sciences”
“Economics borders on other important academic disciplines. Sociology, political science,
psychology, and anthropology are all social sciences whose studies overlap those of economics.”

In what ways is economics a science?
Economics uses both deductive methods and inductive methods.
Deductive is certain whereas inductive is not certain.
Deductive: I start with theory, I confirm a hypothesis, I tend to do quantitative research
Inductive: I start with data, I infirm conclusions from my data, I tend to do qualitative research

Tutorial Exam prep:

Why is economics the queen of social sciences? – it uses a lot of mathematical and statistical
modelling, (deductive and inductive) – in answer, explain how it is deductive and how it is
inductive!!

[Exam 2017]

a) In his Introduction to Economics, Samuelson (1980) writes the following: “Economics
cannot stand content merely to describe the truths of life. Political economy finds itself

, called on to help public opinion do something toward improving manifest evils.” Based on
this quote, how did Samuelson look upon economics? As a positive science, a normative
science, or an art? Or did he see economics as a combination of two or three of these?
Explain your answer. [5 points]
Answer model: The first part of the quotation shows that Samuelson saw economics as a
positive science, but the second part shows that he emphasized that it is also a normative
science. Moreover, the reference of “helping to do something to improve” indicates that he
also considered economics to be an art.

b) In this same Introduction, Samuelson writes: “Economics is part of both these cultures, a
subject that can combine the attractive features of both the humanities and the sciences.”
Please address these attractive features: describe one attractive features of the
humanities and one of the sciences. Explain what makes these features attractive for
Economics. [5 points]
Answer model: Humanities such as history provides a broader understanding of economic
phenomena, science – according to Samuelson – ensures rigor.

[Exam 2016]
Paul Samuelson called economics the Queen of the Social Sciences. Give two arguments why
economics could be called in this way. [max 5 points for each argument]
Answer: Economics is the queen of social science since it integrates
 economic theory and;  statistics (empirics);  mathematics (formal reasoning).
Although economics can be seen as a moral science, proponents of the use of mathematics in
economics originally understood mathematics to be the most truthful way to express economic
realities. The theory of modelling was introduced in the 1930s and in the next decade
econometric methods became fully dominant. By the end of the 20th century, economics was a
modeling science: “economics became, in effect, a tool based discipline”.

Note: students should explain the importance of mathematics and empirics.
Mentioning the multidisciplinarity of economics is max. 1 point.

[Theme: The Economy; What is the subject of economics?]

Reading: CORE Chapter 1, Chapter 2 (2.1- 2.2)

What is the economic explanation of the Industrial revolution?
A wave of technological advances and organizational changes starting in Britain in the 18 th century,
which transformed an agrarian and craft-based economy into a commercial and industrial
economy.

Why did the Industrial Revolution start in the eighteenth century?
In the eighteenth century, the technological progress took place in which in economics means
that it reduces the amount of resources (labour, machines, land, energy, time) required to
produce a given amount of the output. The technological progress was due to coal in this case,
which boosted the economy and hence the wave of technological advances started the Industrial
Revolution.
Also, the high cost of labour and the low cost of energy boosted the Industrial Revolution.

Why did the Industrial Revolution first occur in Britain only?

, In 1700s, wages relative to the cost of energy were high in England. These wages were higher
compared to other countries and also the abundance of coal was high. Protestant ethics.

What kind of economic conditions contributed to or caused the Industrial Revolution?
Based on the arguments of Robert Allen, an economic historian, the Industrial Revolution started
due to the relatively high cost of labour, coupled with the low cost of local energy sources.

What kind of non-economic conditions contributed to or caused the Industrial Revolution?
The European take-off was probably a result of a combination of scientific, demographic, political,
geographic and military factors. Several scholars argue that it was partly due to interactions
between Europe and the rest of the world too, not just due to changes within Europe.

What makes a model a good model?
A model that is clear with what to leave out and what to include – a model that is justified. A
simplified version where the sense of the model being unrealistic – is a feature of the model, not a
bug. It does not have to be too descriptive as it can predict the future hence to be useful.

[Theme: Microeconomics and Mathematics]

Reading: Chiang (1974)

What kind of approach is mathematical economics to economic analysis?
Mathematical economics is the approach to economic analysis in which the economist makes use
of mathematical symbols in the statement of his problem and also draws upon known
mathematical theorems to aid in his reasoning.

What is the main difference between mathematical economics and literary economics?
The assumptions and conclusions are started in mathematical symbols rather than words and in
equations rather than sentences; moreover, in place of literary logic, use is made of mathematical
theorems – of which there exists and abundance to draw upon – the reasoning process.

What are the (four) advantages of the use of mathematics instead of words in economic analysis?
1. The “language” used is more concise and precise
2. There exists a wealth of mathematical theorems at our service
3. In forcing us to state explicitly all our assumptions as a prerequisite to the use of the
mathematical theorems, it keeps us from the pitfall of an unintentional adoption of
unwanted implicit assumptions
4. It allows us to treat the general n-variable case

What are the (two) disadvantages of the use of mathematics in economic analysis?
1. The language of mathematics is not the vernacular of all economists, and as a result there
exist difficulties of communication between mathematical and nonmathematical
economists.
2. An economist with mathematical training is subject to the dual temptations of 1) limiting
himself to problems that can be solved mathematically and 2) adopting inappropriate
economic assumptions for the sake of mathematical convenience.

What is the difference between mathematical economics and econometrics?
Econometrics is a general term encompassing both theoretical and statistical aspects of economic
analysis. In more recent usage, however, this word has acquired a narrower connotation and it

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