Deck 2: Thinking Like an Economist

Question 1

A production possibilities frontier is a graph that shows the various combinations of outputs the economy can possibly produce, given its factors of production and technology.

Answer 1

True

Question 2

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Table 3-4

In a simple circular-flow diagram, firms have to hire or purchase factors of production from households in order to produce goods and services.

Answer 2

True

Question 3

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Table 3-4

The single most important purpose of an Economics Principles text and course is to help students learn the economist's way of thinking.

Answer 3

True

Question 4

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Table 3-4

All scientific models, including economic models, simplify reality in order to improve our understanding of it.

Question 5

In the circular-flow diagram, the only return households get from supplying factors of production to firms are wages.

Question 6

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Table 3-4

Understanding how an economic system works is aided by the use of many complex and rigorous, true assumptions.

Question 7

The production possibilities frontier illustrates that it is not feasible for an economy to produce an output that is outside the frontier.

Question 8

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Table 3-4

Factors of production are factors like labour, land and capital.

Question 9

In a circular-flow diagram, one loop shows the flow of real goods and services and the other loop shows the corresponding flow of dollars.

Question 10

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Table 3-4

Most economic theories have been developed and tested by using controlled experiments.

Question 11

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Table 3-4

Economic models always attempt to include as many real life factors as possible.

Question 12

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Table 3-4

The art in scientific thinking is in deciding which assumptions to make.

Question 13

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The difference between natural scientists and economists is that natural scientists do not use simplifying assumptions in their models.

Question 14

Any point inside the production possibilities frontier is an efficient one.

Question 15

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Table 3-4

Both scientists and economists make assumptions to simplify their analysis.

Question 16

In a circular-flow diagram, spending on goods and services flows from households to firms and income flows from firms to households.

Question 17

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Table 3-4

A circular-flow diagram is a simple, equation-based model of how an economy is organised.

Question 18

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Table 3-4

Scientific models are designed to simplify reality because they are built with simplifying assumptions.

Question 19

In a simple circular-flow diagram, the two types of markets in which households and firms interact are the markets for goods and services and the markets for factors of production.

Question 20

In the markets for goods and services, as in the markets for the factors of production, households are buyers and firms are sellers.

Question 21

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Graph 2-1
Microeconomics is the study of decision making at the level of the individual household and firm, while macroeconomics is the study of the economy as a whole.

Question 22

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Graph 2-1
The circular-flow diagram and the production possibilities frontier both illustrate such concepts as opportunity cost, economic growth and efficiency.

Question 23

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Graph 2-1
Refer to Graph 2-1.In the graph shown, points A, B and D represent efficient outcomes for society.

Question 24

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Graph 2-1
Australia harvests five to seven million kangaroos a year.Consider the statement 'Australia would be better off if the harvest of kangaroos was banned'.This is an example of a normative statement.

Question 25

An economy is being efficient if it is impossible to produce more of one good without producing less of another.

Question 26

The efficient production points for the production possibilities frontier, all lie on the actual frontier itself.

Question 27

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Graph 2-1
Governments hire economic advisers because they know they will give them positive advice.

Question 28

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Graph 2-1
An economy will always operate at some point on its production possibilities curve.

Question 29

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Graph 2-1
Refer to Graph 2-1.In the graph shown, the opportunity cost of more art increases as more art is produced.

Question 30

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Graph 2-1
Refer to Graph 2-1.In the graph shown, points A, B and C represent feasible or attainable outcomes for society.

Question 31

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Graph 2-1
Refer to Graph 2-1.In the graph shown, the opportunity cost of moving from point D to point B is 20 pieces of art.

Question 32

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Graph 2-1
Given a two-good production possibilities frontier, an increase in the economy's productivity will cause the frontier to shift outward.

Question 33

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Graph 2-1
Consider the statement 'banning the export of live parrots from Australia has resulted in the black market price for cockatoos rising and an increase in poaching'.This is an example of a normative statement.

Question 34

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Graph 2-1
Normative statements are essentially value judgements about the issue being considered.

Question 35

Points outside the production possibilities frontier represent inefficient outcomes for the economy.

Question 36

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Graph 2-1
If computers become easier to produce because of technological improvements, then producing more computers will mean a larger trade-off in the production of other goods.

Question 37

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Graph 2-1
Refer to Graph 2-1.In the graph shown, the opportunity cost to the economy of moving from point A to point B is 20 units of concrete.

Question 38

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Graph 2-1
Normative statements describe how the world is, while positive statements prescribe how the world should be.

Question 39

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Graph 2-1
A normative statement describes what people usually do.

Question 40

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Graph 2-1
Inflation is a microeconomic issue because it affects what households decide to buy.

Question 41

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Graph 2-1
An economist who says that all policy decisions are easy is an economist not to be trusted.

Question 42

In constructing models, economists must:

A)employ simplifying assumptions
B)include as much detail as possible
C)use very complex mathematical equations
D)use very large datasets

Question 43

Economics differs from some of the natural sciences like physics because:

A)experimentation is difficult to perform on an economic system where the researcher is unable to control for the influence of many of the variables
B)it is difficult to evaluate the results of an economic experiment
C)physicists get much larger research grants than economists
D)economists don't have economic laws to test

Question 44

Economic models:

A)are of limited use because they cannot be tested empirically
B)are limited to variables that are positively related to one another
C)emphasise basic economic relationships by abstracting from the complexities of the real world
D)are unrealistic and therefore of no practical consequence

Question 45

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Graph 2-1
Sometimes economists who have the same positive views about how the economy works give conflicting advice on policy because they have different values.

Question 46

The parameters chosen by economists may be a reason why differences of judgements result from the same issue.

Question 47

Treating everyone equitably is a common value shared by all economists.

Question 48

If an economist develops a theory about international trade based on the assumption that there are only two countries and two goods:

A)the theory can be useful only in situations involving two countries and two goods
B)it is a total waste of time, since the actual world has many countries trading many goods
C)the theory can be useful in helping economists understand the complex world of international trade involving many countries and many goods
D)the theory can be useful in the classroom, but has no use in the real world

Question 49

The rationale for using assumptions in economics is:

A)it avoids having to collect any data
B)it is a useful way to ensure models are as realistic as possible
C)because economics is not a science
D)that it makes the world easier to understand

Question 50

Which of the following does economics NOT attempt to do?

A)Study the past to learn lessons for the future
B)Devise theories, collect data, then analyse the data to test the theories
C)Use assumptions to make the world easier to understand
D)Conduct laboratory experiments that exactly replicate the real world

Question 51

A survey of business, government and academic economists revealed widespread disagreement on ten propositions about economic policy.

Question 52

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Graph 2-1
Economists try to avoid looking at history in case it will unduly influence their judgment.

Question 53

Assumptions are sometimes necessary because:

A)controlled experiments need to reflect the way things actually happen in real life
B)there are often many factors in an analysis and it helps to focus our thinking
C)every model is different and that must be explained clearly
D)short-term effects differ from long-term effects

Question 54

Economists mostly agree that their role in public policy formation is to analyse proposals and inform public debate.

Question 55

According to John Maynard Keynes, an economist should only give advice based on disinterested observations.

Question 56

The art of scientific thinking involves:

A)deciding which assumptions to make
B)understanding every scientific field: physics, biology and economics
C)knowing how the major organs of the human body work
D)being able to mathematically express natural forces

Question 57

The scientific method can best be defined as:

A)the use of modern laboratory equipment to discover scientific laws
B)the careful design of controlled experiments to test theories about how the world works
C)the unbiased development of and testing of theories about how the world works
D)the selective and deliberate search for evidence that supports preconceived theories of how the world works

Question 58

Because it is difficult for economists to use experiments to generate economic data, they:

A)do without them
B)use whatever data the world gives them
C)make up the data
D)ask policymakers to conduct experiments for them

Question 59

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Graph 2-1
Economists may disagree on how the government can reduce unemployment.

Question 60

Data to test economic theories generally come from:

A)laboratory experiments undertaken in strict, controlled conditions
B)personal introspection
C)public opinion surveys
D)observations from previous episodes of economic change

Question 61

The circular-flow diagram is a type of simple model that:

A)illustrates the carbon-cycle in forestry economic models
B)illustrates how an economy is organised between key sectors
C)shows how fish stocks grow and replenish from harvest
D)shows the money flows that are managed by the banking system

Question 62

An economic outcome is said to be efficient if the economy is:

A)using all of the resources it has available, which means producing on the production possibilities frontier
B)conserving resources and not using all it has, which means producing on the production possibilities frontier
C)using all of the resources it has available, which means producing inside the production possibilities frontier
D)conserving resources and not using all it has, which means producing inside the production possibilities frontier

Question 63

Which of the following is the most accurate statement about economic models?

A)economic models attempt to mirror reality exactly
B)economic models are useful, but should not be used for policymaking
C)economic models cannot be used in the real world because they omit details
D)economic models omit many details to allow us to see what is truly important

Question 64

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Graph 2-2
Refer to Graph 2-2.In the circular-flow diagram shown, which arrow shows the flow of the inputs for production?

A)A
B)B
C)C
D)D

Question 65

The circular flow diagram illustrates the:

A)flow of goods and services from households to firms
B)flow of spending on goods and services from households to firms
C)flow of factors of production from firms to households
D)flow of spending on goods and services flows from firms to households

Question 66

Economists use models in order to:

A)develop insights into how the economy works
B)develop insights into mathematical theorems
C)make economics hard for students to understand
D)help businesses decide what investments will be profitable

Question 67

Economic models are generally constructed with:

A)tubes and valves
B)assumptions only
C)plastic pieces
D)diagrams and equations

Question 68

In a circular-flow diagram:

A)households sell goods and services to the factors of production
B)firms incur wages, rent and profit from households
C)the factors of production are bought by the firms and sold by households
D)firms sell goods and services as well as factors of production

Question 69

In the circular-flow diagram:

A)firms are sellers in the resource market and the product market
B)households are sellers in the resource market
C)firms are buyers in the product market
D)spending on goods and services flow from firms to households

Question 70

Which of the following is the most accurate statement about production possibilities?

A)an economy can produce only on the production possibilities frontier
B)an economy can produce at any point inside or outside a production possibilities frontier
C)an economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier
D)an economy can produce at any point inside the production possibilities frontier, but not on or outside the frontier

Question 71

The production possibilities frontier is a:

A)graph that shows the various combinations of output the economy can possibly produce, given the available resources and technology
B)graph that shows the various combinations of resources the economy can possibly produce, given the available output
C)graph that shows the various combinations of concrete the economy can possibly produce, given the available agricultural land
D)graph that shows the various combinations of wheat the economy can possibly produce, given the available cement

Question 72

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Graph 2-2
Refer to Graph 2-2.In the circular-flow diagram shown, which arrow shows the flow of spending by households?

A)A
B)B
C)C
D)D

Question 73

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Graph 2-2
Refer to Graph 2-2.In the circular-flow diagram shown, which arrow shows the flow of income payments?

A)A
B)B
C)C
D)D

Question 74

Factors of production are:

A)inputs into the production process
B)weather, social and political conditions that affect production
C)the physical relationships between economic inputs and outputs
D)the mathematical calculations firms make to determine production

Question 75

The revenue that households receive from selling the factors of production can be described as:

A)rent
B)wages
C)interest
D)profit

Question 76

The circular-flow diagram has two loops to illustrate the flows of:

A)goods and the flow of dollars
B)energy and wastes
C)dollars and the flow of services
D)dollars and the flow of goods and services

Question 77

If Lauren builds a circular-flow diagram including markets for goods and services, markets for factors of production and firms, will the model be able to accurately represent a simple economy?

A)No, it is missing the government
B)No, it is missing international trade
C)No, it is missing households
D)Yes

Question 78

On a production possibilities frontier, production is inefficient if the production point is:

A)inside the frontier
B)outside the frontier
C)on or outside the frontier
D)on the frontier

Question 79

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Graph 2-2
Refer to Graph 2-2.In the circular-flow diagram shown, which arrow shows the flow of goods and services?

A)A
B)B
C)C
D)D

Question 80

The foundation stones from which economic models are built are:

A)economic policies
B)the legal system
C)assumptions
D)statistical forecasts