Chapter 2 - Economic Theories, Data, and Graphs

Question 1

What are normative statements?

Answer 1

Our own judgment/statement, what we desire/wish

Question 2

Give an example of a normative statement

Answer 2

The university should offer more majors in need with the industry

Question 3

What are positive statements?

Answer 3

Based on facts, no judgments

Question 4

Give an example of a positive statement

Answer 4

An effective way to reduce unemployment is to reduce unemployment insurance benefits

Question 5

What is a theory?

Answer 5

Explains causes and effects, events that have happened or might happen

Question 6

A theory consists of ,,_ (3)

Answer 6

Assumptions
Variables
Prediction

Question 7

Why make assumptions?

Answer 7

To simplify the theory

Ex. assume people are logical, etc.

Question 8

Give an example of an assumption - motive

Answer 8

Assume individuals are rational

Question 9

Give an example of an assumption - direction of causation

Answer 9

Assume supply of wheat increases when weather improves

Question 10

Give an example of an assumption - conditions of application

Answer 10

Assume no government or no trade

Question 11

Are assumptions unrealistic?

Answer 11

Yes, because most countries have govt but it’s okay to simplify the theory

Question 12

In the equation Y=f(X), which is exogenous, endogenous, independent, dependent?

Answer 12

Dependent=f(independent)

Endogenous=f(exogenous)

Question 13

Give examples of exo and endo variables

Answer 13

Price and quantity = endogenous (output)

Weather = exogenous (input)

Question 14

The amount of rainfall on the Canadian prairies determines the amount of wheat produced in Canada

Answer 14

Rainfall = exo
Wheat = endo

Question 15

When the world price of coffee increases, there is a change in the price of your cup of coffee at Tim Hortons

Answer 15

World price = exo

Price of cup = endo

Question 16

If student loans were no longer available, there would be fewer students attending uni

Answer 16

Loans = exo
Students = endo

Question 17

An increase in the tax on gasoline leads people to drive more fuel-efficient vehicles

Answer 17

Tax increase = exo

More fuel efficient = endo

Question 18

What is the difference between a linear function and a nonlinear function?

Answer 18

Linear: exponent is 1 (y=a+bx)
Nonlinear: exponent is more than 1

Question 19

Give an example of a prediction

Answer 19

If OPEC members decide to reduce their oil production, oil price in the world will increase

Question 20

When price increases, people demand _ and quantity _

Answer 20

Less, decreases

Question 21

What is the main way to testing theories?

Answer 21

Scientific approach

Question 22

What hypothesis does statistical analysis test?

Answer 22

If X increases, then Y will also increase

Question 23

What is the difference between positive and negative correlation?

Answer 23

Positive: X and Y move together
Negative: X and Y move in opposite directions

Question 24

How do you distinguish between correlation and causality?

Answer 24

Statistical tests

Question 25

What do economists use to test their theories?

Answer 25

Data from real-world observations

Question 26

When are index numbers used?

Answer 26

When variables are in different units

Question 27

What is the equation for index numbers?

Answer 27

(Abs value in give period/abs value in base period) x 100

Question 28

What are the two types of data?

Answer 28

Cross-sectional data

Time-series data

Question 29

What is the difference between time-series and cross-sectional?

Answer 29

Cross-section records different variables at a point in time

Question 30

What is panel data?

Answer 30

Combo of time and cross-sectional

Question 31

What is the difference between strong, weak, none and J-shaped correlation?

Answer 31

Strong: strong relationship (positive)
Weak: a bit scattered (positive)
None: very scattered
J-shaped: complex relationship

Question 32

How do you form the consumption equation?

Answer 32

C = y-int + (slope) Y

Question 33

Y=ax+b is _
Y=ax-b is _
Y=x is _

Answer 33

Positive
Negative
No correlations

Question 34

Describe the variables when they are positively, negatively, linearly and non-linear related

Answer 34

Pos: two var. move together
Neg: two var. move in opposite directions
Lin: two straight lines
Non-lin: everything else