Question 1

Which is an example of a positive statement?
A) There should be one price for gasoline throughout Canada.
B) The higher the price for gasoline, the less of it will be consumed.
C) Substitutes for fossil fuels should be developed.
D) Canada should reduce its imports of consumer goods.
E) Corporations in Canada should pay more taxes.

Accepted Answer

Option B is a positive statement because it explains the cause and effect relationship between the price of gasoline and its consumption. It doesn't express any opinion or judgment on whether the higher or lower price of gasoline is better, but instead provides a straightforward explanation of the likely outcome of a change in price.

Question 2

Choose the statement that best describes how endogenous variables differ from exogenous variables.
A) An endogenous variable is explained within the theory, while an exogenous variable influences the endogenous variables but is determined outside the theory.
B) An endogenous variable is a flow, while an exogenous variable is a stock.
C) An endogenous variable is explained outside the theory and influences an exogenous variable while an exogenous variable is explained within the theory.
D) An exogenous variable is a function of the endogenous variable, and both are flow variables.
E) An endogenous variable is a function of the exogenous variable, and both are stock variables.

Accepted Answer

Endogenous variables are explained within the theory and are influenced by other endogenous variables in the theory, while exogenous variables are determined outside of the theory and influence the endogenous variables but are not themselves influenced by the theory.

Question 3

An assertion about the desirability of reducing unemployment by lowering payroll taxes is most likely
A) a theory.
B) a testable proposition.
C) a hypothesis.
D) a normative statement.
E) a positive statement.

Accepted Answer

This assertion about the desirability of reducing unemployment by lowering payroll taxes is a normative statement, as it expresses a value judgment rather than a factual claim that can be tested or proved true or false.

Question 4

Which of the following is a normative statement?
A) The sun rises in the west and sets in the east.
B) A government deficit will reduce unemployment and cause an increase in prices.
C) Reducing unemployment is more important than reducing inflation.
D) Queen Elizabeth II is the wealthiest woman in the world.
E) An increase in the price of lumber is followed by a decrease in the construction of new houses.

Accepted Answer

Option C expresses a value judgement or opinion about what is considered more important, therefore it is a normative statement. The other options are either descriptive or factual statements.

Question 5

Suppose an economist tells you that, on average, people in Canada have too much personal debt. This is an
Example of an)
A) autonomous
B) positive
C) normative
D) independent
E) induced

Accepted Answer

The statement is subjective and involves a value judgment about what is an appropriate level of personal debt for individuals in Canada. Therefore, it is a normative statement.

Question 6

Which of the following statements belongs more properly in the field of normative economics than positive economics?
A) An increase in the minimum wage leads to more unemployment.
B) The price of one Canadian dollar is $0.85 U.S.
C) When a drought occurs, the price of vegetables tends to rise.
D) Canadian governments should provide assistance to the auto industry.
E) Technological change has reduced the cost of cell phone service.

Accepted Answer

Normative economics involves making value judgments and prescribing what should be done rather than describing what is happening or predicting what will happen. Statement D expresses a normative judgment about what government should do regarding the auto industry, while the other statements are positive economic statements describing what is happening in the economy.

Question 7

A theory
A) enables one to predict the future with certainty.
B) is designed to explain and predict what we observe.
C) is used to impose order on the world.
D) can only be tested with a controlled experiment.
E) assumes definitions for variables.

Accepted Answer

A theory is designed to explain and predict what we observe, but it cannot predict the future with certainty. It is used to provide a framework for understanding and interpreting the world around us, and to help us make predictions based on evidence and empirical research. Theories also make assumptions about variables, but these assumptions can be revised and refined based on further testing and experimentation. Theories do not impose order on the world, but rather help us make sense of it by providing a logical, coherent explanation for phenomena. While controlled experiments are one way to test theories, they are not the only way- observational studies, surveys, and other research methods can also be used to evaluate theories.

Question 8

A positive statement is one that states
A) what is, was, or will be.
B) what is and what should be.
C) what should be but is not.
D) what is desirable.
E) non-negative numbers.

Accepted Answer

A positive statement is a factual statement that can be verified and is either true or false based on evidence. It describes what is, was or will be, without expressing any value judgments or opinions.

Question 9

Choose the statement that best characterizes an economic theory. A valid theory
A) allows one to deduce a normative statement.
B) appeals to the law of large numbers.
C) generates a hypothesis that can predict future events.
D) extrapolates from the past behaviour of a variable to predict its future course.
E) allows one to prove irrefutably oneʹs hypothesis.

Accepted Answer

An economic theory generates a hypothesis that can predict future events. This is the essence of scientific reasoning whereby theory is developed and tested by making testable predictions that can be validated or invalidated by empirical evidence. Theories do not prove irrefutably hypotheses, but rather provide a framework for understanding and explaining phenomena in a way that is consistent with empirical evidence. They are also descriptive, rather than normative, in nature, and do not appeal to statistical laws. While past behaviour of a variable may inform future expectations, this is not the same as extrapolation, which implies a deterministic relationship between past and future.

Question 10

Which is the best description of a normative statement? A normative statement
A) can be derived logically from facts.
B) concerns what is provable.
C) is a statement that is empirically testable.
D) is one that involves a value judgment.
E) has no place in the study and practice of economics.

Accepted Answer

A normative statement is a value judgment or opinion, rather than a factual statement that can be proven or tested. Normative statements express what "ought" to be, rather than what is.

Question 11

Which is the best description of positive statements? Positive statements
A) have been verified by appeal to factual evidence.
B) form the basis of all normative arguments.
C) are falsifiable in principle by appeal to factual evidence.
D) are seldom employed in social sciences like economics.
E) have no place in economics because economics deals only with value judgments.

Accepted Answer

Positive statements are characterized by their ability to be tested and falsified through empirical evidence, distinguishing them from normative statements that involve value judgments.

Question 12

Which of the following is a normative statement?
A) The higher is the level of taxes, the lower is consumption spending.
B) The higher is the level of taxes, the higher are wage demands.
C) A reduction in export taxes on petroleum would result in higher wages.
D) Tuition fees should be waived for low-income students.
E) A free-trade agreement between two countries will result in an increase in trade.

Accepted Answer

A normative statement is a statement that expresses a value judgment about whether a situation is desirable or undesirable. Option D expresses a value judgment that tuition fees should be waived for low-income students, making it a normative statement. The other options are positive statements that describe how variables are related to each other, but not whether those relationships are desirable or not.

Question 13

Suppose an economist tells you that the unemployment rate in Canada last year was 7.8%. This is an example
Of an) statement.
A) autonomous
B) positive
C) normative
D) induced
E) imputed

Accepted Answer

The statement about the unemployment rate in Canada is factual and objective, lacking any value judgement or opinion, making it a positive statement.

Question 14

The statement that introducing a policy of legislated rent controls will lead to a housing shortage is an example of an)
A) assumption.
B) prediction.
C) theory.
D) normative statement.
E) model.

Accepted Answer

The statement is a prediction because it is suggesting a potential outcome of introducing a specific policy. It is not an assumption, theory, normative statement, or model as it is not making any value-based judgments or presenting a framework for understanding a phenomenon.

Question 15

Which of the following best describes the relationship between positive and normative statements in economics?
A) Normative statements are those with which all economists agree; positive statements may give rise to some disagreement.
B) Positive and normative statements are alternate ways of describing the desirability of certain economic policies.
C) Normative statements evaluate the desirability of certain economic changes; positive statements do not.
D) Neither positive nor normative statements are concerned with the desirability of certain economic changes.
E) Economists generally agree with each other regardless of whether a question is positive or normative.

Accepted Answer

Positive statements are statements that can be objectively tested and verified, such as "an increase in the minimum wage will lead to an increase in unemployment." Normative statements, on the other hand, express a value judgment or opinion, such as "the minimum wage should be increased to help low-income workers." While positive statements are about what is or what will be, normative statements are concerned with what ought to be. Therefore, choice C correctly explains the relationship between positive and normative statements in economics.

Question 16

The statement that a 2% increase in the money supply leads to a 2% increase in the price level is an example of an)
A) prediction.
B) assumption.
C) normative statement.
D) variable.
E) model.

Accepted Answer

This statement is an example of a prediction because it forecasts the outcome (a 2% increase in the price level) resulting from a specific action (a 2% increase in the money supply).

Question 17

An economic theory requires, among other things,
A) a set of definitions of the variables to be considered.
B) a controlled laboratory setting in which the theory can be tested.
C) that the set of predictions be correct.
D) a set of value judgments to interpret the empirical evidence.
E) the use of endogenous variables only.

Accepted Answer

A set of definitions of the variables to be considered is necessary in order to clearly define the concepts and relationships that the economic theory is proposing to explain. The other options are either not necessary or incorrect - B) a controlled laboratory setting is not always feasible or necessary for economic theories, C) while predictions should be accurate, a theory can still be useful even if it doesn't perfectly predict outcomes, D) value judgments are not part of the empirical evidence used to test economic theories, and E) endogenous variables are not the only types of variables used in economic theories.

Question 18

Disagreements over positive statements
A) cannot arise because positive statements are facts.
B) are best handled by an appeal to the facts.
C) arise from the failure to distinguish between a positive and a normative statement.
D) are basically devoid of any emotion.
E) never occur.

Accepted Answer

Disagreements over positive statements can arise when there is a disagreement over the interpretation of facts or the accuracy of data. In such cases, appealing to the facts and presenting evidence can help to resolve the disagreement. Option A is incorrect because positive statements are not always facts but can be claims or statements about reality that can be supported or refuted with evidence. Option C is incorrect because normative statements are based on values and opinions, while positive statements are based on empirical evidence. Option D is incorrect because disagreements can involve emotions, such as biases and preconceptions, that affect how individuals interpret and evaluate evidence. Option E is incorrect because disagreements can arise in any context, including positive statements.

Question 19

Suppose there is a theory that several things influence the price of fish in Halifax, one of which is the weather during the fishing season. When examining the determinants of the price of fish, the weather is
A) an endogenous variable, as it influences the price of fish.
B) an exogenous variable, as it is determined outside the theory.
C) a stock, as it influences the quantity of fish caught.
D) an act of God and, therefore, has no legitimate connection with the theory.
E) an endogenous variable, as it is determined within the theory.

Accepted Answer

The weather is an exogenous variable, as it is determined outside the theory. The theory is examining the determinants of the price of fish, and while the weather may influence the price, it is not directly determined within the theory itself.

Question 20

The statement that a countryʹs rate of economic growth is influenced by its firmsʹ investment behaviour is an example of an)
A) variable.
B) prediction.
C) normative statement.
D) theory.
E) economic law.

Accepted Answer

The statement suggests a causal relationship between firms' investment behavior and a country's economic growth, which is a theoretical proposition.

Quiz 2: Economic Theories, Data, and Graphs

Which is an example of a positive statement?

Choose the statement that best describes how endogenous variables differ from exogenous variables.

An assertion about the desirability of reducing unemployment by lowering payroll taxes is most likely

Which of the following is a normative statement?

Suppose an economist tells you that, on average, people in Canada have too much personal debt. This is an Example of an)

Which of the following statements belongs more properly in the field of normative economics than positive economics?

A theory

A positive statement is one that states

Choose the statement that best characterizes an economic theory. A valid theory

Which is the best description of a normative statement? A normative statement

Which is the best description of positive statements? Positive statements

Which of the following is a normative statement?

Suppose an economist tells you that the unemployment rate in Canada last year was 7.8%. This is an example Of an) statement.

The statement that introducing a policy of legislated rent controls will lead to a housing shortage is an example of an)

Which of the following best describes the relationship between positive and normative statements in economics?

The statement that a 2% increase in the money supply leads to a 2% increase in the price level is an example of an)

An economic theory requires, among other things,

Disagreements over positive statements

Suppose there is a theory that several things influence the price of fish in Halifax, one of which is the weather during the fishing season. When examining the determinants of the price of fish, the weather is

The statement that a countryʹs rate of economic growth is influenced by its firmsʹ investment behaviour is an example of an)