Macroeconomics-Ch. 1 & 2
The statement that the United States should legalize same-sex marriage is a _________ statement since it describes what people _________.
normative; ought to do.
A surge in cocoa prices is _________ and a pest attack on the cocoa crop is _________.
an effect; the cause
Identify the cause and effect in the following examples: Lower infant mortality is _________ and an improvement in nutrition is _________.
an effect; the cause
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.
When making your decision about which activity to choose, you should consider the monetary cost _________ the opportunity cost of the activities. The goal is to choose the option that offers the greatest _________ benefit.
as well as; net
Policy decisions made by the government are analyzed by _________.
both microeconomics and macroeconomics.
A policy such as pollution regulations would be studied under ________, since it deals with _________.
microeconomics; a small part of the overall economy.
Which of the following is subject to the free-rider problem?
neighborhood watch. Public libraries. National security. *All of the above.*
The three principles of economics include optimization, equilibrium, and empiricism. Equilibrium describes a situation where __________.
no one would benefit from changing his or her behavior.
The ethical implications of a hotly debated government policy would best be considered a _________.
normative question, since it deals with a subjective issue based on personal preferences.
Optimization describes a situation where _________.
people weigh costs and benefits when making a decision.
Which of the following is true regarding the concept of causation?
It describes how one event can bring about change in another.
Suppose that you allocate $20 each week for your entertainment budget. This money is spent on two items: either renting movies for $1 each at Redbox or downloading songs from iTunes at $1 each. Given this information, which of the following would represent your budget constraint for entertainment?
Amount spent on iTunes + Amount spent at Redbox = $20.
Country _________ has greater income inequality.
B
Suppose your New Year resolution is to get back in shape. You are considering various ways of doing this: you can sign up for a gym membership, walk to work, take the stairs instead of the elevator, or watch your diet. How would you evaluate these options and choose an optimal one?
Do a cost-benefit analysis to compare the alternatives.
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?
In which of the following areas will taking an economics course help benefit you throughout your life?
It will instill the concept that what activity is given up by a decision plays an important role when making choices. It will help you analyze and predict human behavior in a variety of situations. It will give you the logic behind using cost-benefit analysis when evaluating decisions. *All of the above.*
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?
No, because it predicts the outcome of increased bus ridership on average.
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.
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.
Which of the following examples do you provide as a normative question?
Should welfare be repealed?
What is meant by randomization in the context of an economic experiment?
Subjects are assigned by chance, rather than by choice, to a group.
How does the sample size affect the validity of an empirical argument?
The larger the sample size the better
How do economists distinguish between models that work and those that don't?
They test their models against real-world data.
Which of the following is more susceptible to the free-rider problem: government−funded symphonies or public roads?
Use of public roads is more susceptible since even those who don't pay taxes still benefit, while government−funded symphonies can charge for admission, so that everyone who goes pays their share.
Which of the following is not an example of causation?
Washing your car will lead to raining that day.
How would you test this model?
You should run a natural experiment by analyzing bus ridership and price changes.
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.
Economics is divided into two broad fields of study: microeconomics and macroeconomics. Microeconomics studies _________, while macroeconomics studies _________.
a small piece of the overall economy; the economy as a whole.
The definition of economics states that it is the study of how _________.
agents choose to allocate scarce resources and the impact of those choices on society.
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 _________ and Troy's method is a _________.
controlled experiment; natural experiment.
The length of women's skirts and stock market performance is likely to be _________.
correlation.
Comparing a set of feasible alternatives and picking the best one is an optimization process called _________.
cost-benefit analysis.
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.
More _________ and _________ employment levels is likely to be _________.
economic growth; higher; causation.
Empiricism describes a situation where __________.
economists use data to analyze what is happening in the world.
For a market to be in equilibrium, three conditions must hold. Fill in the blanks below to complete these conditions. The amount produced by sellers must be _________ the amount purchased by buyers.
equal to
Buyers must place a value on the uses of the product that is _________ the cost of buying the product.
greater than
The costs of making a product must be _________ the final price at which the product sells.
less than
Free riding occurs when _________ are out of sync with _________.
people's private benefits; the public interest.
Demonstrate causation or correlation with the following examples: More ________ and _________ crime rates is likely to be _________.
police officers; lower; causation.
The statement that the United States has a lower unemployment rate than Spain is a ________ statement since it describes what people ________.
positive; actually do.
In general people with more education earn higher salaries. Economists have offered two explanations of this relationship. The human capital argument says that high schools and colleges teach people valuable skills, and employers are willing to pay higher salaries to attract people with those skills. The signaling argument says that college graduates earn more because a college degree is a signal to employers that a job applicant is diligent, intelligent, and persevering. The _________ implies that a college student who drops out of school one month before graduation should earn much less than a student who graduates. The _________ implies that a college student who drops out of school one month before graduation should earn almost the same as a student who graduates.
signaling argument; human capital argument
He is still unconvinced about the reliability of using economic models to make business decisions. You can answer this concern by sharing that you will confirm the accuracy of the model by _________ with _________.
testing it's predictions; empirical data
Your budget constraint for entertainment illustrates the concept of __________, since as you increase your purchases of one item, you _________.
trade-offs, must decrease your purchases of the other item.
Group A is the _________ and Group B is the _________.
treatment group; control group.
The opportunity cost of an activity is a measure of _________ when you do that activity.
what is given up
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, $29,000, $40,000, and $49,000. Country A's median income is $________, and its mean income is $_________. (Round your responses to the nearest dollar.)
$29,000; $29,8000
Suppose country B also has five families. Their incomes are $10,000, $21,000, $29,000, $40,000, and $149,000. Country B's median income is $_________, and its mean income is $_________. (Round your responses to the nearest dollar.)
$29,000; $49,800
When deciding whether to install visible countdown timers for pedestrians at crosswalks, which of the following would be considered in the cost-benefit analysis? (Check all that apply.)
*The higher maintenance bill associated with fixing these more complex signals when they break down. The value of the pedestrians' lives saved by having the timers to assist in crossing the street. The cost in terms of dollars of installing these new timers all over the city. The value of the lives lost by drivers who watch the countdown timers and try to make it through a light.*
Let's say that you are trying to decide what to do on Friday at 11 a.m. You rank your possible options from the one you value the most to the one that you value the least in the following order: going to class, sleeping in late, going to work early, getting lunch, going to the gym to exercise, and watching television. If you decide to go to class, then what do we know about the opportunity cost of your decision?
The opportunity cost would be sleeping in late, since it was your next-best option.
Some people go to a new gym because it just happened to open upright next to where they live. People who live farther away do not go to this new gym as much.You compare fitness between these two groups. Using the concept of a natural experiment, which of the following statements is true about the scenario?
This is a good natural experiment.
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 _________ and normative questions ask _________.
what is or what will be; what ought to be.