Econ ch 2 questions
To say that economists use the scientific method means that they are using ___________.
an ongoing process to develop models of the world and then test and evaluate those models
Demonstrate causation or correlation with the following examples:
More police officers and lower crime rates is likely to be causation. More economic growth and higher employment levels is likely to be causation. The length of women's skirts and stock market performance is likely to be correlation.
How do economists distinguish between models that work and those that don't?
They test their models against real-world data.
What is meant by randomization in the context of an economic experiment?
Subjects are assigned by chance, rather than by choice, to a group.
Which of the following examples do you provide as a normative question?
Should welfare be repealed?
The mean and the median are closely related concepts. The median is the numerical value separating the higher half of your data from the lower half. You can find the median by arranging all of the observations from lowest value to highest value and picking the middle value (assuming you have an odd number of observations). Although the mean and median are closely related, the difference between the mean and the median is sometimes of interest. Suppose country A has five families. Their incomes are 10,000, 21,000, 31,000, 41,000, and 49,000. median? mean? Suppose country B also has five families. Their incomes are $10,000, $21,000, $31,000, $41 comma 00041,000, and $149,000.
Country A's median income is $ 31000 and its mean income is $ 30400. Country B's median income is $ 31000, and its mean income is $ 50400.
Your client becomes critical of your "sloppy" technique of using a model that does not include all factors. What is the most appropriate reply to this criticism?
Economic models are meant to be approximations that predict what happens in most circumstances.
Which of the following do you provide as a positive question?
How much is the national debt?
Which of the following is not an important property of an economic model?
It predicts actual results over half the time.
A simple economic model predicts that a fall in the price of bus tickets means that more people will take the bus. However, you observe that some people still do not take the bus even after the price of a ticket fell. Is the model incorrect? How would you test this model?
No, because it predicts the outcome of increased bus ridership on average. You should run a natural experiment by analyzing bus ridership and price changes.
This chapter stressed the importance of using appropriate samples for empirical studies. Consider the following two problems in that light. You are given a class assignment to find out if people's political leanings affect the newspaper or magazine that they choose to read. You survey two students taking a political science class and five people at a coffee shop. Almost all the people you have spoken to tell you that their political affiliations do not affect what they read. Based on the results of your study, you conclude that there is no relationship between political inclinations and the choice of a newspaper. Is this a valid conclusion? Why or why not?
No, because the newspapers hat people read could affect their political inclinations.
Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. During a meeting with your client, the CEO asks if your economic models include all factors that impact gasoline prices. What is your response to his question?
No, the model is a simplified representation of reality.
Your uncle tells you that the newspaper or magazine that people buy will depend on their age. He says that he believes this because, at home, his wife and his teenage children read different papers. Do you think his conclusion is accurate?
No, because the sample set is too small and the people surveyed were not selected randomly.
Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client wants to know what will happen to gasoline demand if it increases gasoline prices by one cent higher than its nearest competitors. One of the members of your consulting team, Debbie, shares that one time in college she stopped buying gasoline from a service station that was one cent more expensive. Based on this story, should you conclude that demand will fall to zero if the client raises gas prices by one cent?
No, since this is an argument by anecdote, which can lead to wrong conclusions.
Suppose you thought income inequality in the United States had increased over time. Based on your answers to this question, would you expect the ratio of the mean income in the United States to the median income has risen or fallen? Explain.
Risen, because means change more with extreme values
Oregon expanded its Medicaid coverage in 2008. Roughly 90,000 people applied but the state had funds to cover only an additional 30,000 people. The state used a lottery to determine who would receive this free health care insurance from Medicaid. How could you use the Oregon experience to estimate the impact of increased access to health care on health outcomes?
The Oregon experience is a natural experiment. One might analyze the data as follows: gather and analyze the data on the health care outcomes for the two groups to determine if free health care results in better health outcomes.
Calculate the percentage change in demand for each service station. (Round your responses to two decimal places. If the change is negative, be sure to include a minus sign.) Service Station Gasoline Sold (thousands of gallons) With No Price Increase Gasoline Sold (thousands of gallons) With 1-Cent Price Increase Percentage Change A 120120 7070 negative 41.67−41.67 B 150150 140140 negative 6.67−6.67 C 200200 180180 negative 10.00−10.00 D 320320 270270 negative 15.63 What is the average percentage change in gasoline sold for all four service stations analyzed above?
The average percentage change is negative 18.49−18.49 percent.
Which of the following is not true about economic models?
They are not useful, since they do not include all variables.
Suppose that you are on a date with an economics major, and you want to impress them by talking about economics. Your date challenges you to state your knowledge of positive and normative questions.
You say that positive questions ask what is or what will be and normative questions ask what ought to be.
Instead of relying on Debbie's college story to make a conclusion, you decide it is smarter to collect and analyze __________.
a large amount of empirical data.
As the text explains, it can sometimes be very difficult to sort out the direction of causality. Causation occurs when there is ____________.
a logical cause-and-effect relationship.
Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client would like your team to perform a study on customers' gasoline purchasing habits when they notice price increases. You suggest that the team _____________.
design and execute an experiment.
Debbie, a member of your team, advocates finding random people and then breaking them up into two groups. Group A would be shown an increase in the price of gas before taking the survey. Group B would be told there was no increase in the price of gas before taking the survey. Troy, another member of your team, recommends finding two groups of people already sorted by whether or not they have recently noticed an increase in the price of gas.
Debbie's method is a controlled experiment and Troy's method is a natural experiment. Group A is the treatment group and Group B is the control group.
Maimonides, a twelfth-century scholar, said ''Twenty-five children may be put in the charge of one teacher. If the number in the class exceeds twenty-five but is not more than forty, he should have an assistant to help with the instruction. If there are more than forty, two teachers must be appointed." Israel follows Maimonides' rule in determining the number of teachers for each class. How could you use Maimonides' rule to study the effect of class size on student achievement?
Maimonides' rule generates a natural experiment to study the effect of class size. One might perform the experiment as follows: 1. Collect a large, random data set of students' grades with and without the specified number of teachers based on class size. 2. Analyze the data to see if it supports the rules issued by Maimonides. 3. Make a determination if relationships in the data are correlation or causation by understanding if a logical, cause-and-effect relationship exists.
