Chapter 2 Flashcards
What are normative statements?
They are statements that depend on value judgements and cannot be evaluated solely by a recourse to facts
It is about what it ought to be
What is a positive statement?
They are statements that do not involve value judgments. They are statements about matters of fact
A positive statement is about what it actually is, was, or will be
Why do economists disagree with each other in public discussions?
Because of their assumptions on the matters they are discussing
What are many disagreements based on?
Positive and normative distinction
Where do economists work?
They work in governments, private businesses, crown corporations (government organizations), non-profit organizations, and post-secondary schools
What do economists do?
They design methods to analyze and evaluate government politics, examine global economic risks to economic growth, etc.
What are theories?
A theory is an abstraction from reality
What does a theory consist of?
• Variables - can take on various specific values
◦ Endogenous or dependent variables can be explained within a theory
◦ Exogenous or independent variables are outside the theory.
• Assumptions - What do I take for granted/my pre-conception of the world
• Predictions - Outcome of the model/what the theory believes will occur as shown by the model
How can we test theories?
We can test them by confronting these predictions with evidence
What occurs when a theory conflicts with facts?
The theory will usually be amended to make it consistent with those facts or it will be discarded to be replaced by a superior theory
What is central to the study of economics (specifically to the testing of theories)?
The scientific approach
When is statistical analysis used?
It is used to test a hypothesis such as “if X occurs, then Y will also happen”
What are the variables that interest economists?
The variables that interest economists are generally influenced by many forces that vary simultaneously
What is positive correlation?
It is when x and y move together, in the same direction
What is negative correlation?
It is when x and y move in opposite directions
Is finding that X and Y are correlated direct evidence of a causal relationship?
No
What do most economic predictions involve?
Causality, but establishing causality usually requires advanced statistical techniques
Can economists design controlled experiments to test their theories?
Yes they can, but it is very difficult
What is a technique that economists have begun adopting that have been used in the medical field?
Randomized controlled trials (RCT) which have helped determine underlying causality among economic variables
What are index numbers?
An index number is a measure of some variable, conventionally expressed relative to a base period, which is assigned the value 100 (%)
What is the most common index number?
It is the Consumer Price Index (CPI) which is the price of the average price paid by consumers for typical “basket” goods and services
What is the “Value of index in given period” equation?
Value of index in given period = (Absolute value in given period ÷ Absolute value in base period) x 100
How can a single economic variable, such as unemployment, national income, or the average price of a house be
shown on a graph? (two basic forms + a third form)
Cross-sectional data (often used in micro) and Time series data (often used in macro) and Panel data (both cross-sectional and time-series data)
What diagram is most commonly used to represent data?
The scatter diagram which is a graph showing two variables, one measured on each axis, where each point represents the values of the variables for a particular unit of observation
When is Y a function of X: Y=f(x) ?
When one variable, X, is related to another variable, Y, in such a way that to every value of X there is only one possible value of Y
How can a function be expressed?
In a verbal statement, a numerical schedule (a table), a mathematical equation, or in a graph
What kind of relation do two variables have when they move together?
They are positively related (increasing)
What kind of relation do two variables have when they move in opposite directions?
They are negatively related (decreasing)
What is the relation when these relationships are straight lines?
The variables are linearly related to each other
What is a function that is not graphed as a straight line?
A non-linear function
How is the slope of a straight line calculated?
ΔP/ΔE (rise over run equation)
When does the slope of the curve change for non-linear functions?
When X changes, meaning that the marginal response of Y to a change in X depends on the value of X
What is an example of a positive explanation for increasing marginal cost?
Scarcity of resources or having to pay workers overtime to produce the last hockey sticks
Why are Maximums and Minimums important?
Because they allow us to represent the optimal amount of whatever we are observing
