Chapter 2: Economic Theories, Data, and Graphs Flashcards
What is a positive statement?
A statement of fact
eg The sky is blue
What is a normative statement?
An opinion or belief
eg the government ought to try harder to reduce unemployment
What does an economic theory explain?
Cause and effect
Events that have happened (can be used to predict events that might happen)
What are the three components of economic theories?
Assumptions
Variables
Prediciton
What are some assumptions of an economic theory?
Motives (assume individuals are rational)
Direction of causation (wheat production increases when weather improves and not vice versa)
Conditions of application (no government/no trade)
Unrealistic?
What is an endogenous variable?
Dependent variable (Y)
What is an exogenous variable?
Independent variable (X)
How do you study an economic theory using the scientific approach?
Empirical observation leads to construction of theory
Theories generate predictions
Predictions are tested by more empirical observation
How do you study an economic theory using Statistical Analysis?
Used to test hypotheses such as “If X increases, Y will also increase”
Economists must use millions of uncontrolled experiments
Variables of interest are influenced by many other variables
Analysis requires statistical techniques
What is an index number and how is it calculated?
A comparative change from an arbitrary base period
Index number for base period X at period Y = (Absolute value in period Y)/(Absolute value in base period X) * 100%
What is the difference between cross sectional and time-series data?
Cross sectional - many variables measured independently of time
Time-Series - (typically) one variable over time
What is a scatter diagram?
A way to plot two variables over time (one variable on X axis one on Y, each point refers to a different measurement time)
