Homework #1

Which type of experiment is likely to yield more accurate results?

Randomized, because a natural experiment may not be completely randomized.

An economist makes an assumption that each additional year of education causes future wages to rise by 8 percent. In this model, if a person with 12 years of education make $23,500 per year, then a person with 4-year college degree would earn ? per year.

$31,960

Suppose 2,168 people bought popsicles on a hot summer day. If the average number of popsicles that each person bought is 7, the number of popsicles sold that day is ?.

15,176

You should collect ? amount of data to create ? to test the ? indicated by the economic model.

A large; Empirical Evidence; Hypothesis

How does a natural experiment differ from a randomized one?

A natural experiment uses existing variation, while a randomized experiment generates variation.

Economists study ?; therefore, the underlying in a feature of economics is a focus on ?.

All human behavior; choice

Examples of Empiricism:

Analyzing theories about optimization, determining causation, and analyzing theories about equilibrium

Since the inputs used to produce goods are scarce, the total amount produced of most good is ? the amount that consumers would like to buy. To allocate the goods produced to the people who value them the most, we use the ?.

Below; Price mechanism

Policy decisions made by the government are analyzed by ?.

Both micro- and macro-

Suppose the market price of corn is $5.50 per bushel. Which of the following is NOT one of the 3 conditions that will need to be satisfied for the corn market to be in equilibrium at this price?

Both the buyers and sellers of corn could benefit by making small changes to their market behaviors.

You are trying to decide now to spend $40 you earned last night. You could buy a new shirt or go out to dinner and a movie with a friend. You could also go to the movie, not have popcorn, and buy a less expensive shirt. Taken together these things form your ?.

Budget constraint

An experiment would be conducted to determine ? among the chosen variables. Subjects should be assigned ? to either a test or control group in order to get the most unbiased comparison.

Causation; Randomly

Which of the following could be considered an economic agent?

Consumers, Parents, Firms, Criminals

Debbie, a member of your team, advocated finding random people, and then breaking hem 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 ? and Troy's method is a ?. Group is the ? and Group B is the ?.

Controlled experiment; Natural experiment; Treatment group; Control group

You decide to run an experiment. You invite 20 friends to a party. You randomly select 10 friends and tell them that there will be free food: most of them show up to your party. For the other 10 friends you do not mention the free food: none of these friends show up. Based on the correlation in your data and also assuming that the correlation is not spurious, you conclude that free food cause people to come to parties. Given this information, it can be concluded that ?.

Correlation implies causation

Comparing a set of feasible alternatives and picking the best one is an optimization process called ?.

Cost-benefit analysis

If you have a given budget, if you increase the amount of one good that you buy, you must ? the amount of the other good. Therefore, a budget constraint implies that the consumer faces ?.

Decrease; Trade-offs

Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline assists service stations. Your client would like your team to perform a study on customer's gasoline purchasing habits when they notice price increases. You suggest that the team ?.

Design and execute an experiment

What tool would you employ to analyze the relationship between gasoline prices and consumer behavior?

Economic Models

Which of the following is not an item studies under microeconomics?

Economic output

Empiricism describes a situation where

Economists use data to analyze what is happening in the world

When economists test their theories using evidence-based analysis, they are most likely using

Empiricism through the use of data

For a market to be in equilibrium, 3 conditions must hold. The amount produced by sellers must be ? the amount purchsed by buyers. The costs of making a product must be ? the final price at which the product sells. Buyers must place a value on the use of the product that is ? the cost of buying the product.

Equal to; Less than; Greater than

Micro- is concerned with:

Externalities arising from production and consumption

The following data gives the respective salaries of the two top managers, two middle managers, and two first-line managers at a particular firm: $200,000 , $190,000 , $75,000 , $60,000 , $45,000 , $40,000. We can conclude that the mean is ? the median. Thus, the mean salary of all the managers ? by the salary of the top managers.

Greater than; is impacted

Which of the following would be considered a scare resource for producers?

High-skill Labor, land, machinery

Which of the following examples do you provide as a positive question?

How much is the national debt?

Which statements is true in the case of an anecdotal argument?

It can lead to skeptical and misleading conclusions, and it is appropriate when contradicting a blanket statement.

Which of the following is Not a correct explanation of economics?

It is considered only with money and financial aspects of human behavior.

Which can be categorized as an anecdotal argument?

John and Tina, the brightest students in the class, ,are very poor. Therefore, the conclusion is drawn that every bright student is poor. & Alfred received a promotion when he became the farther of a baby girl. Marshall lost his job when he became the father of a baby boy. Therefore, the conclusion is drawn that the gender of a new born child is related to the fathers' job status.

Which of the following would not be considered one of the possible opportunity cods of a recent high school graduate backpacking across Europe for one year?

Joining the Peace Corps, starting college right away, and getting a full-time job

Economists conduct research on the "effects of global warming of the economy." This means they study the effects of global warming on the national income, international trade, etc. It is considered a ? study.

Macroeconomic

A policy such as passing an economic stimulus to spur the economy would be studied under ? since it deals with ?.

Macroeconomics; the economy as a whole

How does microeconomics differ from macroeconomics?

Micro- is the study of how individuals, households, firms, and governments make choices, while macro- is the study of the economy as a whole.

Equilibrium describes a situation where

No one would benefit from changing his/her behavior

3 principles of economics:

Optimization, Equilibrium, Empiricism

Optimization describes a situation where

People weigh costs and benefits when making a decision

Which of the following are considered scarce resources?

Pizzas, Gas, Gold, Time

A study was conducted examining diabetes rates by ethnicity. it was determining that Hispanics had the highest rate of diabetes. A conclusion might be made that people of Hispanic origin are the most inclined to be diabetic. However, that ? correlation could be the result of ?, given that other factors such as diet, that weren't considered.

Positive; Omitted Variables

Which of the following areas are addressed in the study of economics?

Prices, the costs associated with a decision, money, reduction policies, pollution

Suppose you had to find the effect of seat belt rules on road accident fatalities. Would you choose to run a randomized experiment or would it make sense to use natural experiments here? Explain.

Randomized, because seat belt rules may be influenced by road accident fatalities.

Economics is all about making choices. The reason we have to choose one thing over another is:

Resources are scarce

Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its stations. In your first presentation to management, how would you describe your planned methodology to perform the analysis?

Scientific Method

An experiment is to be conducted to find out whether participation in yoga leads to improved health. There are two yoga classes in a town, Neo Yoga Center and Union Yoga Center. Which of the following samples best describes randomization?

Selecting students from both of the centers and an equal number of people who are not participating in yoga using the lottery method.

Which of the following examples do you provide as a normative question?

Should welfare be repeated?

A budget constraint represents

The bundles of goods or activities that a consumer can choose given her limited budget

How is the mean calculated from a series of observations?

The mean is the sum values of the observations divided by the number of observations

Give an example of a pair of variables that have negative correlation:

The number of winter coats sold and the temperature outside

One reason free-riders exist could be that:

The private benefit exceeds the private cost

Which statement regarding economic question is NOT correct?

The questions must have implication on individuals' choices and their budget.

Not a study of micro-:

The stock market's response to an interest rate increase.

The concepts of opportunity costs is a measure of

The value of the best alternative use of a resource

Suppose the random sample of 500 people is drawn to conduct an experiment to find out whether participating in yoga leads to improved health. The group of people from the Neo Yoga Center and the Union Yoga Center constitutes a ?. The group of people not participating in Yoga constitutes a ?. identify which is a natural experiment.

Treatment groups; Control group; Suppose the public schools in Minnesota makes swimming lessons a mandatory course starting in 2012. A researchers studies its impact on physical stamping by selecting students admitted in school before and after 2012.

Scarcity is the situation of having ? wants in a world of ? resources.

Unlimited; Limited

Which question is NOT an example of an issue a researcher could study to contribute to the welfare of society?

What combination of colors can one use to paint his bedroom wall?

Suppose that you are on a date with an economics major, and you want to impress them by talking about economics. Your date challenged you to state your knowledge of positive and normative questions. You say that positive questions ask ? and normative questions as ?.

What is or what will be; What ought to be

Which of the following is least likely to be a question or study of economic concern?

What is the motivation of the Red Cross?