Chapter 2

Question 1

What are normative statements?

Answer 1

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

Question 2

What is a positive statement?

Answer 2

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

Question 3

Why do economists disagree with each other in public discussions?

Answer 3

Because of their assumptions on the matters they are discussing

Question 4

What are many disagreements based on?

Answer 4

Positive and normative distinction

Question 5

Where do economists work?

Answer 5

They work in governments, private businesses, crown corporations (government organizations), non-profit organizations, and post-secondary schools

Question 6

What do economists do?

Answer 6

They design methods to analyze and evaluate government politics, examine global economic risks to economic growth, etc.

Question 7

What are theories?

Answer 7

A theory is an abstraction from reality

Question 8

What does a theory consist of?

Answer 8

• 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

Question 9

How can we test theories?

Answer 9

We can test them by confronting these predictions with evidence

Question 10

What occurs when a theory conflicts with facts?

Answer 10

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

Question 11

What is central to the study of economics (specifically to the testing of theories)?

Answer 11

The scientific approach

Question 12

When is statistical analysis used?

Answer 12

It is used to test a hypothesis such as “if X occurs, then Y will also happen”

Question 13

What are the variables that interest economists?

Answer 13

The variables that interest economists are generally influenced by many forces that vary simultaneously

Question 14

What is positive correlation?

Answer 14

It is when x and y move together, in the same direction

Question 15

What is negative correlation?

Answer 15

It is when x and y move in opposite directions

Question 16

Is finding that X and Y are correlated direct evidence of a causal relationship?

Answer 16

No

Question 17

What do most economic predictions involve?

Answer 17

Causality, but establishing causality usually requires advanced statistical techniques

Question 18

Can economists design controlled experiments to test their theories?

Answer 18

Yes they can, but it is very difficult

Question 19

What is a technique that economists have begun adopting that have been used in the medical field?

Answer 19

Randomized controlled trials (RCT) which have helped determine underlying causality among economic variables

Question 20

What are index numbers?

Answer 20

An index number is a measure of some variable, conventionally expressed relative to a base period, which is assigned the value 100 (%)

Question 21

What is the most common index number?

Answer 21

It is the Consumer Price Index (CPI) which is the price of the average price paid by consumers for typical “basket” goods and services

Question 22

What is the “Value of index in given period” equation?

Answer 22

Value of index in given period = (Absolute value in given period ÷ Absolute value in base period) x 100

Question 23

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)

Answer 23

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)

Question 24

What diagram is most commonly used to represent data?

Answer 24

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

Question 25

When is Y a function of X: Y=f(x) ?

Answer 25

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

Question 26

How can a function be expressed?

Answer 26

In a verbal statement, a numerical schedule (a table), a mathematical equation, or in a graph

Question 27

What kind of relation do two variables have when they move together?

Answer 27

They are positively related (increasing)

Question 28

What kind of relation do two variables have when they move in opposite directions?

Answer 28

They are negatively related (decreasing)

Question 29

What is the relation when these relationships are straight lines?

Answer 29

The variables are linearly related to each other

Question 30

What is a function that is not graphed as a straight line?

Answer 30

A non-linear function

Question 31

How is the slope of a straight line calculated?

Answer 31

ΔP/ΔE (rise over run equation)

Question 32

When does the slope of the curve change for non-linear functions?

Answer 32

When X changes, meaning that the marginal response of Y to a change in X depends on the value of X

Question 33

What is an example of a positive explanation for increasing marginal cost?

Answer 33

Scarcity of resources or having to pay workers overtime to produce the last hockey sticks

Question 34

Why are Maximums and Minimums important?

Answer 34

Because they allow us to represent the optimal amount of whatever we are observing