Chapter 2 Economics

Which of the following is a property of a good economic question? A) A good economic question can be answered. B) A good economic question should always have a single solution. C) A good economic question always addresses topics that are important to the whole society and not to an individual economic agent. D) A good economic question should never incorporate elements from disciplines other than economics.

A) A good economic question can be answered.

Which of the following is a key property of models? A) All economic models begin with assumptions. B) Empiricism is not essential for testing models. C) All models can be used for a limited time period only. D) All models are consistent and do not make incorrect predictions.

A) All economic models begin with assumptions.

Which of the following is a positive question? A) Does free trade cause job losses? B) What is the value of a human life? C) What is the optimal size of the government? D) Can markets composed of only self-interested people maximize the overall well-being of society?

A) Does free trade cause job losses?

Which of the following pairs of variables are likely to be positively correlated? A) Income and consumption B) Price and consumption C) Education and unemployment D) Availability of health care and death rate

A) Income and consumption

Which of the following statements is true of the scientific method? A) The scientific method may not reveal a "true" model of the world. B) The scientific method does not require the models to be tested with data. C) The scientific method used by economists and scientists is independent of empiricism. D) The scientific method can help develop accurate models even when data are unavailable.

A) The scientific method may not reveal a "true" model of the world.

Which of the following is a positive question? A) What are the returns to education? B) Can a monopoly ever be good for society? C) Is there value in putting yourself in someone else's shoes? D) Are companies like Nike exploiting workers in the developing world?

A) What are the returns to education?

1) Empiricism refers to using ________ to analyze the world. A) data B) beliefs C) traditions D) value judgments

A) data

Facts, measurements, or statistics that describe the world are referred to as: A) data. B) models. C) hypothesis. D) empiricism.

A) data.

If a number greater than the mean (average) of a series of observations is added to the series, the new mean is: A) greater than the original mean. B) smaller than the original mean. C) same as the original mean. D) either greater or smaller than the original mean depending on the number of observations in the series.

A) greater than the original mean.

A model: A) is often based on simplifying assumptions that are not necessarily true. B) can be tested without data or statistics. C) is a more complex representation of reality than a theory. D) can never be used to predict the future but helps explain the past.

A) is often based on simplifying assumptions that are not necessarily true.

The average (mean) price of ten commodities is $330. If an eleventh commodity whose price is $600 is included in the calculation, the new average is: A) $254.54. B) $354.54. C) $330.35. D) $450.25.

B) $354.54

The mean (average) income of 25 employees working in a firm is $1,754 per month. What is the total income of all the employees? A) $40,000 B) $43,850 C) $56,225 D) $63,950

B) $43,850

In country X, the average yearly salary of 50-year-olds with 16 years of education is $50,275, while the average yearly salary of 50-year-olds with 12 years of education is $36,265. According to this data, four additional years of education are likely to be correlated with higher future wages of about: A) 24 percent. B) 38 percent. C) 50 percent. D) 88 percent.

B) 38 percent.

Which of the following is most likely to be an example of causation? A) The crime rate is high in a country. The literacy rate is high as well. B) A firm producing CFLs installs new machinery. The per-day production of CFLs increases. C) A soccer player scores 4 goals when he wears red socks. He concludes that the red socks helped him score the goals. D) A student wins money by scratching a ticket with a particular coin. He decides to scratch all tickets with the same coin in the future.

B) A firm producing CFLs installs new machinery. The per-day production of CFLs increases.

Which of the following graphical representations can be used most appropriately to show the distribution of a household's income, in terms of percentages, among the various categories of expenses? A) A bar chart B) A pie chart C) A histogram chart D) A time-series graph

B) A pie chart

Which of the following statements is true about data? A) Empiricism does not necessarily involve data. B) Consistency of models can be checked using data. C) Facts that describe the world are not considered data. D) Convincing data analysis in economics relies on using a small sample.

B) Consistency of models can be checked using data.

Which of the following statements identifies a difference between correlation and causation? A) Correlation occurs when one thing directly affects another, whereas causation implies a mutual relationship between two things. B) Correlation implies a mutual relationship between two things, whereas causation occurs when one thing directly affects another. C) A causal relationship exists between two variables when they are correlated, but correlation does not necessarily exist if there's a causal relationship between two variables. D) Causation cannot arise when correlation is present, and correlation cannot arise when causation is present.

B) Correlation implies a mutual relationship between two things, whereas causation occurs when one thing directly affects another.

Which of the following statements is true of the scientific method? A) Arguments based on a few anecdotes are mostly true. B) Empirical arguments are more credible when they are based on a large data set. C) The larger the size of the data set, the greater the scope of inaccuracy in an analysis. D) When a researcher looks at a large data set, she is more likely to jump to the wrong conclusions.

B) Empirical arguments are more credible when they are based on a large data set.

Which of the following statements is true? A) Theories are statistics that describe the real world. B) Hypotheses are predictions that can be tested with data. C) Data are facts established by observation and measurement. D) Empirical evidences are facts, measurements, or statistics that describe the world.

B) Hypotheses are predictions that can be tested with data.

Which of the following is a feature of models? A) Models are the same as hypotheses. B) Models help making predictions for the future. C) Models are more complicated than real life phenomena. D) Models are as complex as the phenomenon being studied.

B) Models help making predictions for the future.

Which of the following claims is most likely to suffer from reverse causality? A) Higher income increases consumption. B) Relatively wealthy people tend to be relatively healthy. C) More hours of study is likely to lead to better results. D) Crime rate is seen to be lower in countries having a higher level of poverty.

B) Relatively wealthy people tend to be relatively healthy.

________ occurs when the direction of cause and effect is mixed up in a study. A) Adverse causality B) Reverse causality C) Omitted variable bias D) Limited information bias

B) Reverse causality

Which of the following statements is true about the mean of a series? A) The mean is equal to zero when all the values are identical. B) The mean is a commonly used technique for summarizing data. C) The mean is less than all the individual observations in the data set. D) The mean is calculated as the sum of all values multiplied by the number of values

B) The mean is a commonly used technique for summarizing data.

Which of the following is NOT a problem associated with randomized experiments? A) Experiments can sometimes get expensive for the researcher. B) The participants in the treatment group and control group are not identical in all respects. C) Getting immediate answers to some important questions may not be possible. D) Sometimes experiments are conducted poorly, which may lead to inaccurate results.

B) The participants in the treatment group and control group are not identical in all respects.

Which of the following relationships is likely to exhibit negative correlation? A) The relationship between amount saved with a bank and the interest earned B) The relationship between level of professional training and unemployment C) The relationship between inflation in the U.S. and traffic congestion in China D) The relationship between the amount of precipitation in a year and the number of umbrellas sold

B) The relationship between level of professional training and unemployment

Which of the following is a feature of the scientific method? A) The scientific method is not based on data, statistics, or measurements. B) The scientific method allows improvisation and correction of inconsistent models. C) The scientific method enables the creation of perfectly accurate models of the real world. D) The scientific method is used only for studying topics related to economics.

B) The scientific method allows improvisation and correction of inconsistent models.

Which of the following statements is true? A) Empirical arguments can be supported without the use of data. B) Using a large data set will strengthen the force of an empirical argument C) Using fewer observations will strengthen the force of an empirical argument. D) The number of observations used does not affect the strength of an empirical argument.

B) Using a large data set will strengthen the force of an empirical argument

Which of the following is a normative question? A) How often do banks fail? B) What is the value of a human life? C) How do we calculate the total value of activity in an economy? D) How much does government spending stimulate aggregate output?

B) What is the value of a human life?

The scientific method refers to the process by which economists and other scientists: A) collect data for further use in research. B) develop models of the world and test those models with data. C) develop models to explain the past but not to predict the future. D) plot graphs to illustrate relationships between different economic variables.

B) develop models of the world and test those models with data.

Economic models are often based on assumptions because they: A) help explain the past. B) help simplify complex real-world phenomena. C) help predict the future with higher accuracy. D) help test models even when relevant data are unavailable.

B) help simplify complex real-world phenomena.

Data on wages, education, and many other characteristics of the population that are available to anyone who wants to use it are called: A) private-use data. B) public-use data. C) primary data. D) secondary data.

B) public-use data.

The mean of a data set is the: A) product of all values divided by the number of values. B) sum of all different values divided by the number of values. C) sum of all different values multiplied by the number of values. D) difference between the highest value and the lowest value.

B) sum of all different values divided by the number of values.

Zero correlation between two variables implies that: A) both variables move in the same direction. B) the variables are not related to each other. C) both variables move in the opposite direction. D) change in one variable causes the other to change.

B) the variables are not related to each other.

As the number of advertisements of a firm increases from 100 to 500, its sales increases from $1,000 to $10,000. If this information is plotted on a line chart, the slope of the line equals: A) $20. B) $0.044. C) $22.5. D) $30.33.

C) $22.5.

The mean (average) of 5 numbers is 130. If one of the numbers is recorded incorrectly as 59 instead of 95, what would be the correct mean? A) 126.52 B) 130 C) 137.2 D) 140

C) 137.2

Which of the following is an example of a natural experiment? A) A laboratory research on the effectiveness of solar power as an alternative source of fuel B) A research on the effectiveness of a new medicine among some voluntary participants C) A research on the effect of air pollution on lung disorders by observing the health conditions of people who stay close to industrial areas and those who stay away from industries D) A study on the benefits of regular exercise by paying for the membership fees at fitness clubs for one-half of the participants

C) A research on the effect of air pollution on lung disorders by observing the health conditions of people who stay close to industrial areas and those who stay away from industries

Which of the following statements is true? A) Arguments based on anecdotes are always true. B) In the scientific method, anecdotes are more important than data. C) Arguments by example are appropriate when contradicting a blanket statement. D) It is easier for a researcher to jump to a wrong conclusion when she uses a large data set.

C) Arguments by example are appropriate when contradicting a blanket statement.

Which of the following statements is true? A) Correlation can only arise when causation is not present. B) Causation can only arise when correlation is not present. C) Correlation arises when there is causation and can also arise even when there is no causation. D) Causation arises when there is correlation between two variables, and can also arise even when there is no correlation.

C) Correlation arises when there is causation and can also arise even when there is no causation.

Which of the following is a feature of experiments? A) Experiments are restricted to laboratories. B) Experiments are carried out only in the study of economics. C) Experiments help determine cause and effect between variables. D) Experiments require the division of participants into a treatment group and a test group

C) Experiments help determine cause and effect between variables.

Which of the following implies that a model is an approximation? A) The model is not based on any assumption. B) The predictions of the model are mostly wrong. C) The predictions of the model will hold in most cases but not all. D) The predictions of the model cannot be tested with data.

C) The predictions of the model will hold in most cases but not all.

A researcher wants to test the effects of daily meditation on stress levels of individuals. She divides the participants randomly into a treatment group and into a control group and conducts an experiment. She pays for meditation classes for one-half of the subjects, and the other half does not join the class. Which of the following statements is true of the two groups in this experiment? A) The participants in the treatment group are assigned by chance, whereas the ones in the control group are assigned by choice. B) The participants in the control group are assigned by chance, whereas the participants in the treatment group are assigned by choice. C) The treatment group is the group of subjects that receives finance from the researcher for meditation classes; the control group is the group that does not. D) The control group is the group of subjects that receives finance from the researcher to join the meditation class; the treatment group is the group that does not.

C) The treatment group is the group of subjects that receives finance from the researcher for meditation classes; the control group is the group that does not.

Data show that in 2012, the college enrollment in Lithasia increased. In the same year, the sale of hotdogs in Lithasia also increased. The relationship between college enrollment and the sale of hotdogs exhibits: A) a zero correlation. B) a causal relationship. C) a positive correlation. D) a negative correlation.

C) a positive correlation.

Causation occurs when: A) two variables tend to move in the same direction. B) two variables tend to move in opposite directions. C) change in one variable is the reason for the change in another variable. D) change in one variable does not cause any change in another variable.

C) change in one variable is the reason for the change in another variable.

A variable that is potentially affected by an experimental treatment is referred to as a(n): A) omitted variable. B) independent variable. C) dependent variable. D) compulsory variable.

C) dependent variable.

A model's predictions are referred to as: A) statistics. B) theories. C) hypotheses. D) empirical evidences.

C) hypotheses.

An independent variable: A) cannot be measured. B) cannot be represented on a bar chart. C) is manipulated by the experimenter in an experiment. D) in an experiment is determined by the other variables.

C) is manipulated by the experimenter in an experiment.

When two variables move in opposite directions, they are said to be: A) uncorrelated. B) positively correlated. C) negatively correlated. D) directionally correlated.

C) negatively correlated.

When two variables move in the same direction, they are said to be: A) uncorrelated. B) unitary correlated. C) positively correlated. D) a negatively correlated.

C) positively correlated.

If a number equal to the mean (average) of a series of observations is added to the series, the new mean is: A) greater than the original mean. B) smaller than the original mean. C) same as the original mean. D) either greater or smaller than the original mean depending on the number of observations in the series.

C) same as the original mean.

A scatter plot: A) is the same as a pie chart. B) shows how a variable changes across time. C) shows the relationship between two variables at a point in time. D) represents the frequency of a variable being observed.

C) shows the relationship between two variables at a point in time.

The slope of the line on a line chart measures the rate of change in: A) only the independent variable. B) only the dependent variable. C) the dependent variable as the independent variable changes. D) the independent variable as the dependent variable changes.

C) the dependent variable as the independent variable changes.

A correlation between two variables implies that: A) there is a cause-effect relationship between the two variables. B) it is impossible to measure one variable without measuring the other. C) there is a mutual relationship between both the variables. D) when one variable changes, the other variable always changes by exactly the same amount.

C) there is a mutual relationship between both the variables.

Which of the following statements is true? A) A bar chart has many limitations in comparison to pie charts. B) A bar chart does not allow for the comparison of a single variable across many segments. C) A bar chart can only be used to represent independent variables. D) A bar chart indicates the frequency of a variable by using rectangles of different heights or lengths.

D) A bar chart indicates the frequency of a variable by using rectangles of different heights or lengths.

Which of the following statements correctly indicates a property of good economic questions?

D) A good economic question addresses topics that are important to economic agents and/or to the society.

Which of the following statements correctly differentiates between a model and a hypothesis? A) Testing a hypothesis does not require data, whereas testing a model requires data. B) Testing a model requires data, whereas testing a hypothesis does not require data. C) A hypothesis can be used to make predictions for the future, whereas a model can only explain the past. D) A model is a simplified representation of reality, whereas a hypothesis is a model's predictions.

D) A model is a simplified representation of reality, whereas a hypothesis is a model's predictions.

Which of the following is a normative question? A) Do people care about fairness? B) How do prices vary geographically? C) Is there discrimination in the labor market? D) Can a monopoly ever be good for society?

D) Can a monopoly ever be good for society?

Which of the following statements is true of models? A) The predictions of a model are referred to as data. B) A model is formulated after developing a hypothesis. C) Models are always based on assumptions that are known to be true. D) It is more important for a model to be simple and useful than to be precisely accurate.

D) It is more important for a model to be simple and useful than to be precisely accurate.

Which of the following statements is true? A) Models that economists use are perfect replicas of reality. B) The scientific method used by economists is based on idealism and not empiricism. C) Models help economists to explain the past, but do not help in predicting the future. D) Testing with data enables economists to distinguish between good models and bad models

D) Testing with data enables economists to distinguish between good models and bad models

Which of the following relationships is most likely to exhibit zero correlation? A) The relationship between income and savings B) The relationship between education and income C) The relationship between wind velocity and rotational speed of wind turbines D) The relationship between the amount received as unemployment benefits in China and the unemployment rate in Canada

D) The relationship between the amount received as unemployment benefits in China and the unemployment rate in Canada

Which of the following statements is true? A) Randomization is not used in medical experiments. B) Randomization allows for classification of participants according to their choice. C) The subjects in the treatment group and the control group of an experiment are identical in all respects and they are treated identically. D) The subjects in the treatment group and the control group of an experiment are treated identically, except along a single dimension.

D) The subjects in the treatment group and the control group of an experiment are treated identically, except along a single dimension.

An experiment refers to: A) a simplified representation of some real life phenomenon. B) the process of collecting, measuring, and organizing data. C) validating the claims of a model using statistics and facts. D) a controlled method of investigating causal relationships among variables.

D) a controlled method of investigating causal relationships among variables.

Empirical evidence refers to: A) a simplified representation of reality. B) a proposed explanation for a phenomenon. C) the process of developing and testing models. D) a set of facts established by observation and measurement.

D) a set of facts established by observation and measurement.

Randomization is the assignment of subjects by ________ to a ________. A) chance, rather than by choice; treatment group or into a test group. B) choice, rather than by chance; treatment group or into a test group. C) choice, rather than by chance; treatment group or into a control group. D) chance, rather than by choice; treatment group or into a control group.

D) chance, rather than by choice; treatment group or into a control group.

On a line chart, the income of a consumer is measured along the horizontal axis, and his consumption is measured along the vertical axis. The slope of the line is equal to: A) change in consumption plus change in income. B) change in consumption minus change in income. C) change in consumption multiplied by change in income. D) change in consumption divided by change in income.

D) change in consumption divided by change in income.

An omitted variable is a variable that: A) is purposely left out as it does not aid an economic analysis. B) does not cause other variables in a study to change when it changes. C) is removed from a study as it can lead to the problem of reverse causality. D) has been left out, and if included, would explain why the variables considered in a study are correlated.

D) has been left out, and if included, would explain why the variables considered in a study are correlated.

A natural experiment is an empirical study: A) in which the predictions of the model are not required to be tested with data. B) that can only be used to understand natural phenomena and is widely used in subjects such as physics and biology. C) in which the researcher assigns subjects to control and treatment groups to verify a cause-effect relationship. D) in which some process, outside the control of the experimenter, has assigned subjects to control and treatment groups in a random or nearly random way.

D) in which some process, outside the control of the experimenter, has assigned subjects to control and treatment groups in a random or nearly random way.

A variable is a factor that: A) cannot be measured. B) is not affected by changes in other factors. C) is independent and cannot be determined. D) takes different values at different points of time.

D) takes different values at different points of time.

To conduct a randomized experiment, researchers usually classify the participants into a: A) study group and a control group. B) treatment group and a test group. C) study group and a treatment group. D) treatment group and a control group.

D) treatment group and a control group.