Deck 2: Thinking Like an Economist

Question 1

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

Answer 1

True

Question 2

While the scientific method is applicable to studying natural sciences, it is not useful in studying an economic system.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

An efficient outcome in economics is one in which the economy is conserving the largest possible amount of resources, while still meeting the needs of society.

Question 5

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

Question 6

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

Question 7

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

Question 8

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 9

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

Question 10

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 11

In a circular-flow diagram, the relationships shown are only those that involve the flow of real goods and services.

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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.

Question 19

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

Question 20

An economic model can accurately explain how the economy is organised because it is designed to include every feature of the real world.

Question 21

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

Question 22

The main objective of economic science is to develop policies for the government.

Question 23

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

Question 24

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

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 26

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 27

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 28

Normative statements are essentially value judgements about the issue being considered.

Question 29

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

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 31

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

Question 32

The effect of a pollution tax is an economic issue most likely to be analysed by a microeconomist.

Question 33

An economy will always operate at some point on its production possibilities curve.

Question 34

Given a two-good production possibilities frontier, a technological improvement in the production of one good will cause the frontier to pivot outward.

Question 35

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 36

Graph 2-1

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

Question 37

When economists are trying to explain the world they are acting as scientists and when they are trying to improve it, they are policymakers.

Question 38

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 10 units of concrete.

Question 39

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

Question 40

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

Question 41

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 42

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 43

Economists may disagree on how the government can reduce unemployment.

Question 44

Almost all economists oppose barriers to free trade.

Question 45

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 46

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

Question 47

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 48

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 49

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

Question 50

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

Question 51

The degree of agreement among economists on policy matters is usually greater than it appears to the public.

Question 52

Economists all agree that the government's carbon tax is the best way to reduce pollution emissions

Question 53

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 54

Sir Isaac Newton's development of the theory of gravity after observing an apple fall from a tree is an example of:

A) controlled experiments used to develop scientific theories
B) being in the right place at the right time
C) an idea whose time had come
D) the interplay between observation and theory in science

Question 55

Which is the best statement about the way economists study the economy?

A) they study the past but do not try to predict the future
B) they devise theories, collect data, then analyse the data to test the theories
C) they use a probability approach based on correlations between economic events
D) they use controlled experiments in much the same way a biologist or physicist does

Question 56

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 57

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

Question 58

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

Question 59

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 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 revenue from sales that firms have left after paying for the factors of production is:

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

Question 62

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 63

The foundation stones from which economic models are built are:

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

Question 64

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 65

Graph 2-2

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

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

Question 66

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 67

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

A) using all of the resources it has available
B) conserving resources and not using all it has
C) getting all it can from the scarce resources it has available
D) producing only the goods and services consumers need the most

Question 68

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 69

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 70

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 71

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 72

In a circular-flow diagram:

A) taxes flow from households to firms, and transfer payments flow from firms to households
B) income payments flow from firms to households, and sales revenue flows from households to firms
C) resources flow from households to firms, and goods and services flow from firms to households
D) both B and C occur

Question 73

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 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

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 76

Economic models are generally constructed with:

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

Question 77

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 78

A model:

A) simplifies reality
B) can explain how the economy is organised
C) assumes away irrelevant details
D) does all of the above

Question 79

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 80

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