Exam 1: The Scope and Method of Economics

What is meant by the phrase, "There is no such thing as a free lunch"?

Should economics be considered a science? Why or why not?

Consider the following scenario. Assume the price of gold in London is selling for $1400 an ounce while in New York it is fetching a price of $1450 an ounce. What would an economist say about the efficiency of this market? What would an economist predict about what would happen next?

Assume that you have heard news that a local radio station is hosting a luncheon at your school by offering hot dogs, chips and cola at no expense to the student body. Why would economists say that this lunch is not truly free?

List the four criteria that are generally used to evaluate economic outcomes.

A globe is a model. However, it lacks much of the detail that one would find on a map. Does that make the globe an inferior model? Why not?

Explain what the fallacy of composition is and give an example.

Define the term economics.

Explain what a graph is and how it can be used.

What does the phrase "post hoc, ergo propter hoc" mean?

Explain what a model is.

Why would a company be more enthusiastic in providing more training to its workers during an economic downturn than during an economic boom (assuming that they do not layoff their workers and can keep them when the economy recovers)?

Use the Cartesian coordinate system (and putting income on the horizontal axis) to plot the following data:

List three key reasons to study economics.

If crime rates in the United States fall, can incumbent lawmakers rightfully claim credit? Why or why not?

If a good is scarce, does that imply that there is a shortage of it?

Explain how and why an all-volunteer army may actually be cheaper than an army staffed with drafted soldiers.

Examine the following function: Y = 3x + 2. What is the slope of this function and why?

Assume that you are the new CEO of a major corporation that has five major product lines each run as separate corporations. You discover that if you invested the company's money outside of the firm that it could earn a 15% rate of return on the investment. You tell all the presidents of each of these subsidiary companies that in order for them to remain with the company that their return on capital must equal to or exceed 15% rate of return. Use two economic principles discussed in chapter 1 to explain why the CEO's advice is sound.

It is widely known among baseball enthusiasts that Babe Ruth actually performed quite well as a pitcher before leaving the Boston Red Sox for the New York Yankees. He was also of course a famously successful hitter. Why do you believe the Yankees chose not to use him as a pitcher? Explain using economic reasoning. Hint: pitchers typically only play every third or fourth game whereas other players in other positions play in nearly every game. Baseball has a season of 162 games.