Question 1

Economic models
A)cannot be useful if they are based on false assumptions.
B)were once thought to be useful, but that is no longer true.
C)must incorporate all aspects of the economy if they are to be useful.
D)can be useful, even if they are not particularly realistic.

Accepted Answer

Economic models can be useful even if they are not particularly realistic because they can provide insights and predictions about economic behavior and outcomes. While it is preferable for economic models to be based on accurate assumptions and to incorporate all relevant factors, practical limitations often make this difficult or impossible. As long as economists and policymakers exercise caution and acknowledge the limitations of the models they use, they can still provide valuable guidance for decision-making.

Question 2

Economists make assumptions to
A)provide issues for political discussion.
B)make a complex world easier to understand.
C)make it easier to teach economic concepts and analysis.
D)create policy alternatives that are incomplete or subject to criticism.

Accepted Answer

Economists make assumptions to simplify the complexities of the real world and make it easier to develop models and analyze economic behavior. This allows for better understanding and communication of economic concepts. While assumptions may be subject to criticism, they are necessary in order to make economic analysis and prediction possible.

Question 3

When studying the effects of public policy changes, economists
A)always refrain from making assumptions.
B)sometimes make different assumptions about the short run and the long run.
C)consider only the direct effects of those policy changes and not the indirect effects.
D)consider only the short-run effects of those policy changes and not the long-run effects.

Accepted Answer

Economists sometimes make different assumptions about the short run and the long run when studying the effects of public policy changes. This is because policy changes may have different effects in the short run and the long run, and economists need to take this into account when analyzing their impact.

Question 4

An example of a price that changes only infrequently is the price of
A)stocks on the New York Stock Exchange.
B)crude oil.
C)residential real estate.
D)magazines sold at newsstands.

Accepted Answer

The answer of An example of a price that changes...

Question 5

Economic models
A)are constructed to mirror reality as closely as possible, and in this respect economic models are no different from other scientific models.
B)are constructed to mirror reality as closely as possible, and in this respect economic models are very different from other scientific models.
C)are simplifications of reality, and in this respect economic models are no different from other scientific models.
D)are simplifications of reality, and in this respect economic models are very different from other scientific models.

Accepted Answer

Economic models are simplifications of reality, which is also true for other scientific models. However, economic models are not constructed to mirror reality as closely as possible, as there are various assumptions and limitations that come with economic modeling. Therefore, choice A and B are incorrect. Choice D is also incorrect as it suggests that economic models are very different from other scientific models, which is not true.

Question 6

The decision of which assumptions to make is
A)an easy decision for an economist, but a difficult decision for a physicist or a chemist.
B)not a particularly important decision for an economist.
C)usually regarded as an art in scientific thinking.
D)usually regarded as the easiest part of the scientific method.

Accepted Answer

The process of choosing assumptions in economics is regarded as an art in scientific thinking because there is often no clear best choice and the chosen assumptions can significantly affect the outcome of the analysis. Therefore, it requires careful consideration and judgement.

Question 7

When studying the effects of changes in public policy, economists believe that
A)it is important to distinguish between the short run and the long run.
B)the assumptions used in studying those effects should be the same for the short run as for the long run.
C)the short-run effects of those changes are always more beneficial to society than are the long-run effects.
D)the long-run effects of those changes are always more beneficial to society than are the short-run effects.

Accepted Answer

Economists believe that studying the effects of public policy changes should consider both the short run and long run because the impacts are usually different in these timeframes. Therefore, it is important to distinguish between the short run and the long run.

Question 8

Economic models
A)are not useful because they omit many real-world details.
B)are usually composed of diagrams and equations.
C)are useful because they do not omit any real-world details.
D)are usually plastic representations of the economy.

Accepted Answer

Economic models are usually composed of diagrams and equations, which help to simplify complex economic concepts and relationships. While they do omit some real-world details for the sake of clarity and simplicity, they are still useful tools for analyzing and understanding economic phenomena.

Question 9

Which of the following is not correct about most economic models?
A)They are composed of equations and diagrams.
B)They contribute very little to economists' understanding of the real world.
C)They omit many features of the real-world economy.
D)In constructing models, economists make assumptions.

Accepted Answer

Economic models are a crucial tool for economists to understand and analyze the real-world economy. They provide a simplified representation of the complex economic reality, helping economists to isolate and study specific relationships and behaviors. While it is true that economic models omit many features of the real-world economy and are based on assumptions, they still contribute significantly to economists' understanding of the real world.

Question 10

Which of the following statements about models is correct?
A)The more details a model includes, the better the model.
B)Models assume away irrelevant details.
C)Models cannot be used to explain how the economy functions.
D)Models cannot be used to make predictions.

Accepted Answer

Models are simplified representations of reality that assume away irrelevant details in order to focus on the key factors driving the phenomenon being studied. By doing so, models make it easier to understand complex relationships and make predictions about how the system being modeled will behave in different circumstances. Therefore, B is the correct statement. A, C, and D are incorrect because the detail level of a model depends on its purpose, models are commonly used to explain and predict economic outcomes, and models are frequently used to make predictions.

Question 11

A model can be accurately described as a
A)theoretical abstraction with very little value.
B)device that is useful only to the people who created it.
C)realistic and carefully constructed theory.
D)simplification of reality.

Accepted Answer

A model is a simplification of reality that represents a system, process, or phenomenon. It is not a perfect representation of reality, but it can be useful in understanding, predicting, and explaining complex systems. Thus, choice D is the best answer.

Question 12

An economic theory about international trade that is based on the assumption that there are only two countries trading two goods
A)is useless, since the real world has many countries trading many goods.
B)can be useful only in situations involving two countries and two goods.
C)can be useful in the classroom, but is useless in the real world.
D)can be useful in helping economists understand the complex world of international trade involving many countries and many goods.

Accepted Answer

The answer of An economic theory about international trade that...

Question 13

The art in scientific thinking -- whether in chemistry, economics, or biology -- is
A)the design and implementation of laboratory experiments.
B)knowing when to stop collecting data and when to start analyzing the data.
C)deciding which assumptions to make.
D)being able to mathematically model natural phenomena.

Accepted Answer

Making assumptions is a crucial aspect of scientific thinking as it helps in simplifying complex natural phenomena and helps in drawing conclusions.

Question 14

In building economic models, economists often omit
A)assumptions.
B)theories.
C)details.
D)equations.

Accepted Answer

Economists often omit details in economic models as they aim to simplify the model to enhance its understandability and applicability.

Question 15

Which types of models are built with assumptions?
A)economic models, but not models in other disciplines such as physics and biology
B)economic models as well as models in other disciplines such as physics and biology
C)models that are built for teaching purposes but not for research purposes
D)bad models

Accepted Answer

Assumptions are an essential part of any model-building exercise, regardless of discipline, and help in simplifying complex phenomena. Therefore, both economic models and models in other disciplines such as physics and biology are built with assumptions. Option A is incorrect as it suggests that only economic models have assumptions, and Option C is incorrect as assumptions are equally important for both teaching and research purposes. Option D is irrelevant as the question is not about the quality of models.

Question 16

An assumption an economist might make while studying international trade is
A)there are only two countries.
B)countries only produce two goods.
C)technology does not change.
D)All of the above are possible assumptions.

Accepted Answer

While it is possible for an economist to make assumptions about only two countries, or only two goods, or no technological change, it is not necessary to do so. Therefore, all of the above options are possible assumptions an economist might make while studying international trade.

Question 17

Just like models constructed in other areas of science, economic models
A)incorporate assumptions that contradict reality.
B)incorporate all details of the real world.
C)complicate reality.
D)avoid the use of diagrams and equations.

Accepted Answer

Economic models rely on simplified assumptions that do not perfectly match the complexity of the real world. This is because models must make trade-offs between accuracy and clarity, and so assumptions are necessary to keep the model manageable.

Question 18

A circular-flow model and production possibilities frontier are similar in that
A)neither allows economic analysis to occur.
B)neither can be represented visually on a graph.
C)both make use of assumptions.
D)both make use of complex equations to arrive at solutions.

Accepted Answer

Both the circular-flow model and production possibilities frontier make use of assumptions in order to simplify and analyze economic activity. The circular-flow model assumes that households and firms interact in a simple and straightforward manner, while the production possibilities frontier assumes that resources are being used efficiently and that tradeoffs exist between different goods and services that can be produced. Both models are useful for analyzing the economy despite their simplifying assumptions.

Question 19

The art in scientific thinking is
A)finding the right problem to study.
B)deciding which assumptions to make.
C)the ability to make an abstract subject easy to understand.
D)not something in which economists have to be skilled.

Accepted Answer

The answer of The art in scientific thinking is
A)finding the...

Question 20

Which of the following statements about economic models is correct?
A)Economic models are built to mirror reality exactly.
B)Economic models are useful, but they should not be used for the purpose of improving public policies.
C)Because economic models omit many details, they allow us to see what is truly important.
D)Economic models seldom incorporate equations or diagrams.

Accepted Answer

Economic models are simplifications of complex real-world scenarios. They omit many details in order to focus on the most important relationships and variables. By doing so, they allow economists to identify cause-and-effect relationships and make predictions about the impact of various policies or events.

Quiz 2: Thinking Like an Economist

Economic models

Economists make assumptions to

When studying the effects of public policy changes, economists

An example of a price that changes only infrequently is the price of

Economic models

The decision of which assumptions to make is

When studying the effects of changes in public policy, economists believe that

Economic models

Which of the following is not correct about most economic models?

Which of the following statements about models is correct?

A model can be accurately described as a

An economic theory about international trade that is based on the assumption that there are only two countries trading two goods

The art in scientific thinking -- whether in chemistry, economics, or biology -- is

In building economic models, economists often omit

Which types of models are built with assumptions?

An assumption an economist might make while studying international trade is

Just like models constructed in other areas of science, economic models

A circular-flow model and production possibilities frontier are similar in that

The art in scientific thinking is

Which of the following statements about economic models is correct?