1.3 Economic Models Macroeconomics Hubbard 6th Edition
Which of the following statements about normative analysis is correct?
Normative analysis is concerned with what ought to be.
Which of the following statements about a hypothesis is correct?
A hypothesis is a statement that could in principle turn out to be incorrect.
Which of the following is not a step that economists use in developing a useful economic model?
A: Make a value judgement about the merits of the hypothesis. However to develop a useful economic model: In arriving at a useful economic model, these five steps are followed: 1) decide on the assumptions to be used; 2) formulate a testable hypothesis; 3) use economic data to test the hypothesis; 4) revise the model if it fails to explain the economic data; and 5) retain the revised model to help answer similar economic questions.
Which of the following statements about an economic variable is correct?
An economic variable is something measurable that can have different values.
The Making the Connection explains that there are both positive and normative elements to the debate over whether medical schools should charge tuition and whether hospitals should continue to pay residents who pursue primary care but not residents who specialize. Which of the following economic statistics would be the most useful in evaluating the positive elements in this debate?
Answer: E A. Physician incomes by specialty and geographic region. B. Poverty rates by geographic region. C. Age distribution characteristics of the population by geographic region. D. Med school tuition rates, applications, and enrollments. E. All of the above.
Why are models based on assumptions?
Because models have to be simplified to be useful.
Which of the following statements about economics as a social science is correct?
Economics studies the actions of individuals.
Dr. Strangelove's theory is that the price of mushrooms is determined by the activity of subatomic particles that exist in another universe parallel to ours. When the subatomic particles are emitted in profusion, the price of mushrooms is high. When subatomic particle emissions are low, the price of mushrooms also is low. Is it Possible to Test this theory?
No
What type of economic analysis is concerned with the way things ought to be?
Normative Analysis
Which of the following statements about positive analysis is correct?
Positive analysis is concerned with what is.
Suppose economists develop an economic model and find that "it works great in theory, but it fails in practice." Which of the following should the economists do next?
They should revise the model in light of its failure to explain or predict real world events.
[Related to Don't Let This Happen to You] Warren Buffet is the Chief Executive Officer of the investment firm Berkshire Hathaway and one of the wealthiest people in the world. In an editorial in the Wall Street Journal, Buffet argued that economic policies in the United States should be designed so that people who are willing to work receive enough income to live a "decent lifestyle." He argued that an expansion of the Earned Income Tax Credit (EITC) would be superior to an increase in the minimum wage as a means to reach this goal. The EITC is a program under which the federal government makes payments to low-income workers. Is Buffet correct that it is the role of the federal government to make sure people who work will have enough income to live a "decent lifestyle"?
This is a normative economic question, so the answer is a matter of the norms or values of the person answering.
Economists use models
To answer questions and analyze issues.
[Related to Don't Let This Happen to You] Indicate which of the following statements represent positive analysis and which represent normative analysis
a. A 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents A:Positive Analysis b. The federal government should spend more on AIDS research. This represents A: Normative Analysis c. Rising paper prices will increase textbook prices. This represents A: Positive Analysis d. The price of coffee at Starbucks is too high. This represents A: Normative Analysis
In the United States, to receive a medical license, a doctor must complete a residency program at a hospital. Hospitals are not free to expand their residency programs in a particular medical specialty without approval from a Residency Review Committee (RRC), which is made up of physicians in that specialty. A hospital that does not abide by the rulings of the RRC runs the risk of losing its accreditation from the Accreditation Council for Graduate Medical Education (ACGME). The ACGME and the RRCs argue that this system makes it possible to ensure that residency programs do not expand to the point where they are not providing residents with high-quality training. This system may help protect consumers by ensuring that
future doctors receive high-quality training.
A news story discussing Sanadu's prospects for success selling its home medical devices observes, "Another challenge will be getting doctors on board with the idea of patients bringing them information from home." Source: Timothy Hay, "Gadgets Bring Diagnostics into the Home," Wall Street Journal, February 18, 2015. An economic incentive for doctors to accept information supplied by their patients is that it would
reduce the amount of time spent testing and evaluating the patients' condition in the office or hospital where they were treated.
When it comes to assessing how this system affects the financial interests of doctors and the well being of consumers, it may be that the former gain more simply because
there are far fewer of them, hence each stands to gain much from supply restrictions.
An incentive that doctors would have to NOT accept the patient-provided information is that
they may doubt the accuracy of information provided directly by patients.
Economics data is used
to test models
Assuming that these statistics are available or could be gathered, are they likely to resolve the normative issues in this debate?
No, because normative issues involve value judgments that incorporate an individual's full range of experiences, beliefs, and emotions.
Suppose you were building an economic model forecasting the number of physicians and physicians assistants likely to be needed in 2020. Should your model take into account the growth of the home medical device industry?
Yes, because the greater the growth in the use of home medical devices, the less patients will require the services of physicians and physician assistants.