Chapter 2; questions for review Flashcards
How is economics like a science?
economists use the scientific method. they devise theories, collect data and then analyze these data in an attempt to verify or refute their theories about how the world works. Economists use theory and observations like scientists, but they are limited in their ability to run controlled experiments. instead they must rely on natural experiments.
Why do economists make assumptions
to simply problems without substantially affecting the answer. assumptions can make the world easier to understand.
should an economic model describe reality exactly?
no, it cannot because it would be too complicated to understand. a model is a simplification that allows the economist to see what is truly important.
draw and explain a PPF for an economy that produces milk and cookies. what happens to this frontier if disease kills half of the economy’s cow population.
see answer for diagram
if a disease kills half of ht economy;’s cow population, less milk production is possible, so the PPF shifts inward. note that if the economy produces all cookies, so it doesn’t need any cows, then production is unaffected. but if the economy produces any milk at all, then there will be less production possible after the disease hits.
use a PPF to describe the idea of “efficiency”
an outcome is efficient if the economy is getting all it can from the scarce resources it has available. in terms of the PPF, an efficient point is a point on the frontier, such as point A in answer. a point inside the frontier, such as point b in answer, is inefficient since more of one good could be produced without reducing the production of another good.
What are the two sub-fields into which economics is divided? explain what each studies.
the two subfileds are Microeconomics and Macroeconomics. Microeconomics is the study of how households and firms make decisions and how they interact in specific markets. macroeconomics is the study of economy-wide phenomena.
What is the difference between a positive and a normative statement? give an example of each
Positive statement are descriptive and make a claim about how the world is, while normative statements are prescriptive and make a claim about how the world ought to be.
Positive example: a rapid growth rate of money is the cause of inflation
Normative example: the gov. should keep the growth rate of money low.
what is the bank of Canada
the bank of Canada sets Canada’s monetary policy. it employs more than 200 economists to analyze financial markets and macroeconomic developments
why do economists sometimes offer conflicting advice to policy makers?
- economists may disagree about the validity of alternative positive theories about how the world works
- economists may have different values and, therefore, different normative views about what public policy should try to accomplish.
