Chapter 2 Methods

Question 1

What is Empiricism?

Answer 1

AKA Scientific method that consists of two steps

• developing models that explain some part of the world
• testing those models using data to see how closely the model matches what we actually observe

Question 2

Definition of Endogenous and Exogenous Variable and the relation to Models

1.
2.
3.

Answer 2

• endogenous - a variable determined within the model
• exogenous - a variable determined outside the model

Models are more unstable the longer the time period beinf considered and the forecast.

Question 3

What is Ceteris paribus?

Answer 3

“Other things equal” - used to note when other factors that might affect outcomes are assumed to be constant

Question 4

What is The PPC?

Answer 4

• graph that shows the combinations of output that economy can possibly produce given the available factors of production and the available technology

Question 5

Definition of Causation

Answer 5

one thing directly affects another

Question 6

Definition of Correlation

1.
2.
3.

Answer 6

• two things are related
• positive correlation: changing in same direction
• negative correlation- chaning in opposite directions

Question 7

What are omitted variables?

Answer 7

• If we ignore something that contributes to cause and effect, then that something is an omitted variable. A correlation might not make sense until the omitted variable is added

 e.g. the more people swim, the more they get heat strokes
 BUT you forgot that another cause might be hot days!!!

Question 8

What is reverse causality?

Answer 8

when there is a cause and effect, but it goes in opposite directions as we thought
 gambling and healthier older people – you cannot go out when u sick, so you cant go gambling

Question 9

What is a Controlled Experiment?

1.
2.
3.
4.

Answer 9

• subjects randomly put into treatment and control groups by the researcher
• data that already exists is being used here
• difficult to do with economic studies
• e.g. drug testing, learning vs grades

Question 10

What is the difference between comparative and absolute advantage?

Answer 10

• comparative: volumne or quality does not count, but having lower opportunity costs than the competitor
• absolute advantage: ability to produce more or better goods than be competitor