Question 1

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Let demand be a function of price and income, Qd (P, I). A change in income level is represented by a movement along the demand curve.

Accepted Answer

A change in income level causes a shift in the demand curve, not a movement along it. Movements along the demand curve are caused by changes in the price of the good itself.

Question 2

Normative analysis, because it is based on opinion, rarely employs any positive analysis when prescribing a solution to a given problem.

Accepted Answer

Normative analysis does not necessarily exclude positive analysis, but relies on ethical or moral principles to recommend a course of action. Therefore, positive analysis might be employed when prescribing a solution to a given problem in normative analysis.

Question 3

While normative analysis can be wrong, since it is often based on someone's opinion, positive analysis is always accurate.

Accepted Answer

Positive analysis seeks to understand how things are in reality, while normative analysis deals with how things ought to be based on values and judgments. Positive analysis can still have limitations and potential errors, such as incomplete data or flawed methodology. Positive analysis deals with objective facts and data, but it may still be subject to errors such as incorrect assumptions or incomplete information. Therefore, it is not always accurate.

Question 4

Suppose that we illustrate demand and supply with quantity on the horizontal axis and income on the vertical axis. Let demand be a function of price and income, Qd (P, I). Price and income together must change in order to create a shift in the demand curve.

Accepted Answer

The demand curve is typically illustrated with quantity on the horizontal axis and price on the vertical axis. A shift in the demand curve can be caused by factors other than price and income, such as changes in consumer preferences, prices of related goods, or expectations of future prices. Changes in income can shift the demand curve, but it is not necessary for both price and income to change to cause a shift in the demand curve.

Question 5

Normative analysis typically cannot be trusted because it is only someone's opinion.

Accepted Answer

While normative analysis is based on subjective opinions and values, it can still be useful and valuable in guiding decision-making and policy development. It is important to consider multiple perspectives and sources of information when making decisions.

Question 6

Positive analysis prescribes the best solution to an economic problem.

Accepted Answer

Positive analysis describes what is happening in the economy, while normative analysis prescribes the best solution to a problem based on values and opinions. Positive analysis describes and explains economic phenomena as they are and does not prescribe solutions. It is descriptive rather than prescriptive.

Question 7

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. A change in price will cause a shift in the demand curve.

Accepted Answer

A change in price would cause a movement along the demand curve, not a shift in the curve itself. Factors such as changes in consumer income or preferences, changes in the price of related goods, and changes in market size or demographics would cause a shift in the demand curve. A change in price would cause a movement along the demand curve, not a shift. Shifts in the demand curve are caused by changes in factors such as consumer income, preferences, or number of consumers.

Question 8

Suppose that we illustrate demand and supply with quantity on the horizontal axis and income on the vertical axis. Let demand be a function of price and income, Qd (P, I). Income is treated as an exogenous variable in the graphical analysis.

Accepted Answer

In the given scenario, income is treated as an endogenous variable, not exogenous. This is because income is directly affecting the demand for a product and is a variable that can change due to market factors.

Question 9

Suppose that we illustrate demand and supply with quantity on the horizontal axis and income on the vertical axis. Let demand be a function of price and income, Qd (P, I). A change in income level is represented by a movement along the demand curve.

Accepted Answer

A change in income level is represented by a movement along the demand curve.

Question 10

Since positive analysis is based on a model, and not the real world, it is mostly irrelevant.

Accepted Answer

While positive analysis is based on a model, it is not irrelevant. Positive analysis provides valuable insights into how an economic system works and how individuals and firms make decisions. These insights can inform policies or strategies that can improve outcomes in the real world. While positive analysis is based on a model, it is not irrelevant as the models are designed to explain real-world phenomena and can provide insight into how the world works. Positive analysis is often used in economics and other social sciences to understand and predict human behavior.

Question 11

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Let demand be a function of price and income, Qd (P, I). A change in income will cause a shift in the supply curve.

Accepted Answer

A change in income will cause a shift in the demand curve, not the supply curve.

Question 12

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Let demand be a function of price and income, Qd (P, I). Income is not represented on one of the axes, and so is treated as an exogenous variable in the graphical analysis.

Accepted Answer

Demand is affected by both price and income, but only price is represented on the vertical axis. Therefore, income is treated as an exogenous variable in the graphical analysis.

Question 13

Positive analysis predicts how an economic system will change over time.

Accepted Answer

Positive analysis is a method of analyzing economic systems that involves predicting how they will change or behave over time based on existing data and facts. It is focused on describing what is likely to happen, rather than making value judgments or recommendations for how things should be. Positive analysis is concerned with explaining how the economy works, predicting how it will change over time based on past trends and data. It does not necessarily make value judgments, but aims to describe economic phenomena objectively.

Question 14

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Let demand be a function of price and income, Qd (P, I). Price and income together must change in order to create a shift in the demand curve.

Accepted Answer

A change in income alone can shift the demand curve, as it affects consumers' purchasing power, leading to a change in the quantity demanded at every price level without the need for a change in price.

Question 15

Normative analysis typically focuses on issues of social welfare.

Accepted Answer

Normative analysis is concerned with what ought to be or what is desirable, and social welfare is often a key consideration in discussions of normative economic policy. Normative analysis aims to evaluate and prescribe what ought to be done in a particular situation, often in terms of maximizing social welfare or achieving some ethical or moral goal.

Question 16

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. When a shift in demand or supply occurs, a comparative statics analysis compares the old and the new equilibrium points.

Accepted Answer

This is correct as a comparative statics analysis involves analyzing the changes in the equilibrium point (quantity and price) after a shift in demand or supply. By comparing the old and new equilibrium points, we can see the effects of the change in the market. This statement is true. A comparative statics analysis compares the old and new equilibrium points after a shift in demand or supply. Quantity is typically on the horizontal axis, and price is on the vertical axis in typical demand and supply diagrams.

Question 17

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. The equilibrium is represented as the intersection of supply and demand curves.

Accepted Answer

This is a correct description of how demand and supply curves are usually illustrated and how equilibrium is typically represented.

Question 18

Normative analysis ignores exogenous variables when making predictions.

Accepted Answer

Normative analysis considers exogenous variables and their potential impact on predictions.

Question 19

Suppose that we illustrate demand and supply with quantity on the horizontal axis and income on the vertical axis. Let demand be a function of price and income, Qd (P, I). A change in income will cause a shift in the demand curve.

Accepted Answer

The answer of Suppose that we illustrate demand and supply...

Quiz 1: Analyzing Economic Problems