Chapter 2 : Economic Theories, Data and Graphs

Question 1

Distinguish between positive and normative statements

Answer 1

Positive : unbiased, factual
Normative : value judgements and opinions

Question 2

What is the biggest source of public disagreements among economists?

Answer 2

Positive and normative statements

Question 3

What are theories?

Answer 3

Oversimplified abstractions from realities

Question 4

What are theories composed of?

Answer 4

1. The model we build (containing variables and their relationships)
2. Assumptions we make (about motives, conditions and directions of causation)
3. Predictions and conclusions that are drawn

Question 5

Two types of variables

Answer 5

Endogenous : within the problem (ex. qt supplied)
Exogenous : outside of the issue (ex. impact of weather on supply curve)

Question 6

How are theories tested?

Answer 6

By confronting predictions with evidence

Question 7

What happens to a theory that has a conflict with facts?

Answer 7

It is discarded and replaced with a superior theory

Question 8

Calculate the value index in a given period

Answer 8

absolute value in given period / absolute value in base period * 100

Question 9

Two forms of data

Answer 9

1. Cross sectional data : same variable, same moment, but evaluated across several different units (ex. house pricing across Canada)
2. Time series data : same variable but over different time periods

Question 10

How can functions be expressed?

Answer 10

1. In a verbal statement
2. In a numerical schedule (table)
3. In a mathematical equation
4. In a graph

Question 11

How is the slope calculated in a linear graph?

Answer 11

delta Y / delta X

Question 12

Positive non-linear graph?

Answer 12

Increasing marginal cost

Question 13

Negative non-linear graph?

Answer 13

Decreasing marginal cost