Exam 2: Thinking Like an Economist

Which statement best describes the way economists study the economy?

-Refer to Table 2-1. What is the opportunity cost to Toyland of increasing the production of dolls from 300 to 400?

In the simple circular-flow diagram, who are the decision makers?

How did the great economist John Maynard Keynes explain his comment that although economics is an easy subject compared with the higher branches of philosophy or pure science, it is a subject at which few excel?

How do economists view normative statements?

Two economists, Adam and Joan, are discussing the possibility of substantially reforming the current federal tax system. Adam thinks the current system is fine, but Joan is in favour of reform. Which statement is the least likely explanation for the disagreement?

What does the art of scientific thinking include?

In a circular-flow diagram, which flows are involved?

Why do economists use models?

What is meant by scientific method?

If an economist develops a theory about international trade based on the assumption that there are only two countries and two goods, what is most likely?

In economics, what does capital refer to?

What would unemployment cause an economy to do?

The purpose of this exercise is to acquaint you with some simple mathematical relationships and how they translate into graphs. Economic models can come under the form of equations such as Y=F(L), where Y is sometimes called the "dependent variable" and L is the "independent variable." F, called "function," tells us what the precise relationship between Y and L is. Theoretical relationships (models) are those that can be described by an equation like this. When equations are sufficiently simple, they can be put under the form of a curve in a graph. Consider the equation Y=2×L, where Y is the number of apple pies that Jonathan can cook in L hours. This equation describes the process of producing apple pies. a. How many pies does Jonathan cook in 2, 3, 4, and 5 hours? b. Draw a vertical axis and label it Y; draw a horizontal axis and label it L. Show on this graph the four pairs (L, Y) you determined in parta. c. Draw a line connecting your four points and extend it to the left until it reaches the vertical axis. d. Identify a few assumptions that underlie your apple pie production model. e. Are your assumptions realistic? f. Can you identify a few limitations of your model? g. What could you use this model for?

What is another name for goods and services produced by firms?

Figure 2-4 -Refer to Figure 2-4. Suppose the economy is at point A. What is the opportunity cost of increasing the production of toothbrushes by 20 units?

Figure 2-4 -Refer to Figure 2-4. What is the opportunity cost to the economy of getting 30 additional toothbrushes by moving from point A to point D?

How did John Maynard Keynes refer to economics?

How would any economist who says all policy decisions are easy be best described?

According to a simple circular-flow diagram, how many markets do households and firms interact in?