Deck 2: Thinking Like an Economist

Question 1

Which of the following is not correct?

A) Economists use some familiar words in specialised ways.
B) Economics has its own language and its own way of thinking, but few other fields of study do.
C) Supply, demand, elasticity, comparative advantage, consumer surplus, and deadweight loss are all terms that are part of the economist's language.
D) The value of the economist's language lies in its ability to provide you with a new and useful way of thinking about the world in which you live.

Answer 1

Economics has its own language and its own way of thinking, but few other fields of study do.

Question 2

While the scientific method is applicable to studying natural sciences, it is not applicable to studying a nation's economy.

Answer 2

False

Question 3

Economists devise theories, collect data, and then analyse these data in an attempt to verify or refute their theories.

Answer 3

True

Question 4

With respect to how economists study the economy, which of the following statements is most accurate?

A) Economists study the past, but they do not try to predict the future.
B) Economists use "rules of thumb" to predict the future.
C) Economists devise theories, collect data, and analyse the data to test the theories.
D) Economists use controlled experiments in much the same way that biologists and physicists do.

Question 5

When economists are trying to explain the world, they are scientists, and when they are trying to help improve the world, they are policy advisers.

Question 6

Economists make assumptions in order to

A) mimic the methodologies employed by other scientists.
B) minimise the number of experiments that yield no useful data.
C) minimise the likelihood that some aspect of the problem at hand is being overlooked.
D) focus their thinking on the essence of the problem at hand.

Question 7

An endogenous variable

A) is a variable whose value is determined outside the model.
B) is a variable whose value is determined within the model.
C) is a variable from another country.
D) cannot be proven wrong.

Question 8

Good assumptions simplify a problem without substantially affecting the answer.

Question 9

Which of the following statements about models is correct?

A) The more details a model includes, the better the model.
B) Models assume away irrelevant details.
C) Models cannot be used to explain how the economy functions.
D) Models cannot be used to make predictions.

Question 10

Economists try to address their subject with a scientist's objectivity.

Question 11

Instead of conducting laboratory experiments to generate data to test their theories, economists often

A) ask winners of the Nobel Prize in Economics to evaluate their theories.
B) argue that data is impossible to collect in economics.
C) gather data from historical episodes of economic change.
D) assume that data would support their theories.

Question 12

The ultimate purpose of an economic model is to

A) explain reality as completely as possible.
B) establish assumptions that closely resemble reality.
C) help us to understand economic behaviour.
D) guide government policy decisions.

Question 13

Economists often find it worthwhile to make assumptions that do not necessarily describe the real world.

Question 14

A simplifying assumption

A) affects the important conclusions of an economic model.
B) increases the level of detail in an economic model.
C) limits the validity of an economic model's conclusion.
D) eliminates unnecessary details from an economic model.

Question 15

Economic models omit many details to allow us to see what is truly important.

Question 16

An economic model

A) uses equations to understand normative economic phenomena.
B) often omits crucial elements.
C) simplifies reality in order to focus on crucial elements.
D) cannot be proven wrong.

Question 17

Normative statements describe how the world is, while positive statements prescribe how the world should be.

Question 18

Economists regard events from the past as

A) irrelevant, since history is unlikely to repeat itself.
B) of limited interest, since those events seldom provide any useful economic data.
C) interesting but not particularly valuable, since those events cannot be used to evaluate present-day economic theories.
D) interesting and valuable, since those events are capable of helping us to understand the past, the present, and the future.

Question 19

Economists, like mathematicians, physicists and biologists,

A) make use of the scientific method.
B) try to address their subject with a scientist's objectivity.
C) devise theories, collect data, and then analyse these data in an attempt to verify or refute their theories.
D) All of the above are correct.

Question 20

The goal of an economist who formulates new theories is to

A) provide an interesting framework of analysis, whether or not the framework turns out to be of much use in understanding how the world works.
B) provoke stimulating debate in scientific journals.
C) contribute to an understanding of how the world works.
D) demonstrate that economists, like other scientists, can formulate testable theories.

Question 21

Normative conclusions

A) come from positive analysis alone.
B) are based on ignorance of positive analysis.
C) involve value judgments.
D) reflect the economist's role as scientist.

Question 22

If two variables tend to increase and decrease together, they are

A) positively correlated.
B) negatively correlated.
C) uncorrelated.
D) quasi-correlated.

Question 23

Models are also inherently unstable when they extend to

A) long time periods.
B) short time periods.
C) no time periods.
D) micro periods of time.

Question 24

Which of the following is an example of a normative, as opposed to positive, statement?

A) If the price of a product decreases, people's willingness to buy that product will increase.
B) Reducing tax rates on the wealthy would benefit the nation.
C) If the national saving rate were to increase, so would the rate of economic growth.
D) The elimination of trade restrictions would increase an economy's standard of living.

Question 25

Because economics is a science that is centred on _________, it is not always possible to conduct experiments in the same way in which as the physical sciences do.

A) human behaviour
B) consumer behaviour
C) organisational behaviour
D) conjoint analysis

Question 26

Which of the following is an example of a normative, as opposed to positive, statement?

A) Petrol prices ought to be lower than they are now.
B) The government should raise taxes on wealthy people.
C) The social security system is a good system and it deserves to be preserved as it is.
D) All of the above are normative statements.

Question 27

Which of the following activities would occur in a market for goods and services?

A) Stefan mows his grass.
B) Toyota hires additional workers to run a third shift at a car factory.
C) Mafusi bakes biscuits for her son's birthday party.
D) Kudzai buys a ticket to a rugby match.

Question 28

Policymaking in a representative democracy

A) is straightforward and does not involve any disagreement.
B) benefits from the input of economists, even if their advice is not always followed.
C) is conducted without the input of economists.
D) is always based exclusively on the results of economic analysis.

Question 29

Which of the following is an example of a positive, as opposed to normative, statement?

A) Income tax rates should not have been cut as they were a few years ago.
B) The quantity of money has grown too slowly in recent years.
C) When the quantity of money grows rapidly, inflation is a predictable consequence.
D) All of the above are positive statements.

Question 30

Which of the following is most closely associated with positive economics?

A) Determining the impact of government spending on the actual level of unemployment.
B) Determining the best level of immigration into a country.
C) Determining whether too many luxury goods are being produced.
D) Determining whether or not the government should reduce poverty.

Question 31

The distinction between positive and normative economics

A) is that positive economics applies only to microeconomic problems.
B) is that normative economics applies only to microeconomic problems.
C) explains why economics is not a social science but a natural science.
D) helps us to understand why economists sometimes disagree with one another.

Question 32

A normative economic statement such as "The minimum wage should be abolished"

A) would likely be made by an economist acting as a scientist.
B) would require values and data in order to be evaluated.
C) would require data but not values in order to be evaluated.
D) could not be evaluated by economists acting as policy advisers.

Question 33

If money growth and inflation were strongly correlated in international data, the economist would become more ___________ in a theory linking the two.

A) doubtful
B) confident
C) anxious
D) concerned

Question 34

Economists have helped modify the debate over the environment

A) by pointing out that nature is invaluable.
B) by focusing discussion on issues of resource allocation.
C) by lobbying for pollution legislation.
D) by arguing against tradeable permits for pollution.

Question 35

"An increase in interest rates will lower economic growth." This statement is

A) a positive economic statement.
B) a normative economic statement.
C) untrue in every case.
D) controversial, and so not a valid economic issue.

Question 36

A government minister states that wage rates in the country have risen by 2 per cent in the past year. The head of a trade union states that wage increases should have been higher. The minister's statement is a __________ economic statement, and the union leader's statement is a __________ economic statement.

A) normative; normative
B) normative; positive
C) positive; normative
D) positive; positive

Question 37

When an economist evaluates a positive statement, he or she is primarily

A) examining evidence.
B) evaluating values as well as facts.
C) acting as a policy adviser.
D) concerned with making a sound decision on how the world ought to be.

Question 38

A statement describing how the world is now

A) is a normative statement.
B) is a positive statement.
C) would only be made by an economist speaking as a policy adviser.
D) would only be made by an economist employed by the government.

Question 39

In building economic models, economists often omit

A) assumptions.
B) theories.
C) details.
D) equations.

Question 40

_________ theory further tells us that even minor errors in measurements or assumptions can be amplified to a great extent, rendering forecasts useless.

A) Deterministic
B) Micro
C) Macro
D) Chaos

Question 41

What is Marxist economics?

Question 42

What is the difference between rational thought and empirical thought?

Question 43

Explain how economists can claim to act as scientists.

Question 44

Is it fair that people earning in excess of R1 500 000 a year should pay a much higher tax rate on income above this level? Explain your answer.

Question 45

The number of rainy days in the year and annual sales of sun tan lotion are probably

A) positively correlated.
B) negatively correlated.
C) uncorrelated.
D) quasi-correlated.

Question 46

Why do economists disagree?

Question 47

Which of the following statements are positive statements?
a. The minimum wage creates unemployment among young and unskilled workers.
b. The minimum wage ought to be abolished.
c. If the price of a product in a market decreases, then, other things equal, quantity demanded will increase.
d. A little bit of inflation is worse for society than a little bit of unemployment.
e. There is a trade-off between inflation and unemployment in the short run.
f. If consumer income increases, then, other things equal, the demand for cars will increase.
g. The South African income distribution is not fair.
h. South African workers deserve more liberal unemployment benefits.
i. If interest rates increase, then investment will decrease.
j. If welfare benefits were reduced, then the country would be better off.

Question 48

Which of the following are normative statements?
a. The minimum wage creates unemployment among young and unskilled workers.
b. The minimum wage ought to be abolished.
c. If the price of a product in a market decreases, then, other things equal, quantity demanded will increase.
d. A little bit of inflation is worse for society than a little bit of unemployment.
e. There is a trade-off between inflation and unemployment in the short run.
f. If consumer income increases, then, other things equal, the demand for cars will increase.
g. The South African income distribution is not fair.
h. South African workers deserve more liberal unemployment benefits.
i. If interest rates increase, then investment will decrease.
j. If welfare benefits were reduced, then the country would be better off.

Question 49

History shows us that there have always been __________ among scientists about truth and reality.

A) consistency
B) uniformity
C) agreements
D) disagreements

Question 50

Economists may have different values and, therefore, different ___________ about what policy should try to accomplish.

A) normative views
B) positive views
C) individual views
D) correlated views

Question 51

A student's final mark and amount of time spent studying for the module are generally

A) positively correlated.
B) negatively correlated.
C) uncorrelated.
D) quasi-correlated.

Question 52

Economists tend to disagree because of differences:

A) only in scientific judgments.
B) only in value judgments.
C) in both value and scientific judgments.
D) None of the above.

Question 53

What is feminist economics?

Question 54

If economic models have so many limitations, why do economists continue to use them?

Question 55

Economists often disagree about the validity of ______________ about how the world works.

A) alternative collections
B) alternative norms
C) alternative judgements
D) alternative positive theories

Question 56

Explain some of the underlying assumptions of the Austrian School of economics?