Question 1

Select the normative statement that completes the following sentence: If the minimum wage is raised:
A) cost per unit of output will rise.
B) workers will gain their rightful share of total income.
C) the rate of inflation will increase.
D) profits will fall.

Accepted Answer

The statement "workers will gain their rightful share of total income" is normative because it makes a value judgement about what should happen if the minimum wage is raised. It implies a belief about what is fair or just. The other options (A, C, and D) are all positive statements that make predictions about what will happen if the minimum wage is raised, but they do not make value judgements.

Question 2

If the price of a textbook rises and then students purchase fewer textbooks, an economic model can show a cause-and-effect relationship only if which of the following conditions holds:
A) students' incomes fall.
B) tuition decreases.
C) the number of students increases.
D) everything else is constant.

Accepted Answer

In order for an economic model to show a cause-and-effect relationship between the price of a textbook and the number of textbooks purchased, all other factors must remain constant. This means that students' incomes, tuition, and the number of students cannot change in order to isolate the effect of the change in textbook price. Therefore, choice D is the best answer.

Question 3

The Latin expression Ceteris paribus means:
A) everything else being equal.
B) economic model.
C) economists are partly right.
D) partial scarcity is certain.

Accepted Answer

Ceteris paribus means "everything else being equal" in Latin, and is often used in economics to isolate the effect of one variable on an outcome while holding all other relevant variables constant.

Question 4

Which of the following is an example of a positive economic statement?
A) The economy's real output increased at about 3 percent last year and the unemployment rate decreased.
B) A central bank should not print too much money because inflation could result.
C) Congress should stabilize the social security system by raising taxes now.
D) The government farm products surplus should be distributed to the needy.

Accepted Answer

Option A is a positive economic statement because it describes a fact that can be measured objectively (a 3% increase in real output and a decrease in unemployment). The other options are normative statements, expressing opinions or values rather than objective facts.

Question 5

Suppose an economist tests the theory that when the price of leather increases, fewer pairs of shoes are produced. He observes more shoes being produced when the price of leather increases. At the same time, a new production technology allowed for more shoes to be produced in less time. He has
A) confused association and causation.
B) misunderstood the Ceteris paribus assumption.
C) used normative economics to answer a positive question.
D) built an untestable model.

Accepted Answer

The economist has misunderstood the Ceteris paribus assumption, which means "all other things being equal." In this scenario, the introduction of new production technology is an external factor that wasn't accounted for, affecting the outcome of the observation.

Question 6

If individuals who sit in the back of the classroom receive lower grades on average than the rest of the class, does that mean that sitting in the back of a classroom causes one to perform poorly on exams?
A) Not necessarily. The reoccurrence of a certain relationship between two variables does not necessarily imply causation.
B) It is not possible for an economist to determine causation between variables.
C) The reoccurrence of such a relationship is sufficient evidence that sitting in the back of a classroom will lead to lower grades.
D) The reoccurrence of such a relationship is sufficient evidence that students who receive low grades prefer to keep a low profile and always sit in the back of the classroom.

Accepted Answer

Just because there is a relationship between sitting in the back of the classroom and receiving lower grades does not mean that one causes the other. There could be other factors at play, such as the students who choose to sit in the back may already be struggling academically. Additionally, correlation does not equal causation in any field, including economics. There needs to be additional evidence to establish causation.

Question 7

Which of the following statements is an example of confusing association and causation?
A) Senator Jones believes that more tax revenue should be distributed to the poor.
B) A map includes roads, but not every restaurant, telephone pole, and
C) Interest rates rise when it rains, all other factors constant.
D) When the price of Coca-Cola increases, consumers buy more Pepsi, all other factors constant.

Accepted Answer

Statement C is an example of confusing association (correlation) and causation. It suggests a direct causal relationship between rain and rising interest rates, which is unlikely to be causally related. Instead, this could be an example of a spurious correlation, where two variables appear to be related but are actually influenced by other factors or are coincidentally occurring at the same time.

Question 8

If an economist finds that when consumer incomes increase, consumers buy more cars, Ceteris paribus , then
A) the price of cars must be decreasing.
B) all other things remain constant.
C) the price of gas must be decreasing.
D) the interest rate on car loans must be decreasing.

Accepted Answer

Ceteris paribus means that all other things remain constant, so the economist is assuming that the price of cars, the price of gas, and the interest rate on car loans are not changing. Therefore, the increase in consumer incomes is directly causing the increase in car purchases.

Question 9

"The government should provide health care for all citizens." This statement is an illustration of:
A) positive economic analysis.
B) correlation analysis.
C) fallacy of association analysis.
D) normative economic analysis.

Accepted Answer

The statement expresses a normative economic analysis, which involves making value judgments about what the government should or should not do. It implies that providing health care for all citizens is seen as a desirable or necessary goal, rather than just describing an objective fact or relationship (positive analysis) or looking at the association between two variables (correlation analysis). It also does not make a fallacious argument based on an unverified connection between two things (fallacy of association analysis).

Question 10

Someone notices that sunspot activity is high just prior to recessions and concludes that sunspots cause recessions. This person has:
A) confused association and causation.
B) misunderstood the Ceteris paribus assumption.
C) used normative economics to answer a positive question.
D) built an untestable model.

Accepted Answer

This person has confused association (two variables occurring together) with causation (one variable causing the other). Just because two variables occur together does not mean that one causes the other. There could be other factors at play that cause both variables to change at the same time.

Question 11

"An increase in the federal minimum wage causes an increase in unemployment among teenagers" is a:
A) statement of positive economics.
B) statement of normative economics.
C) testable value judgment.
D) fallacy of composition.

Accepted Answer

This statement is a statement of positive economics, as it makes a factual claim about the relationship between the federal minimum wage and teenage unemployment, which can be tested through empirical evidence. It does not make any value judgments or prescribe what should be done, making it different from normative economics. It is also not a testable value judgment, as it is not based on subjective preferences or opinions. Lastly, it is not a fallacy of composition, as it does not make the mistake of assuming that what is true for one part of the economy is true for the whole economy.

Question 12

When economists want to hold a number of factors constant, they are demonstrating which of the following expressions?
A) Positive economics model.
B) Consumer sovereignty.
C) Ceteris paribus .
D) Normative economics.

Accepted Answer

Ceteris paribus is a Latin phrase meaning "all other things being equal." It is used in economics to hold certain variables constant while analyzing the relationship between other variables. This allows economists to isolate and study the impact of specific variables on outcomes without other variables interfering.

Question 13

A positive economic statement is:
A) an opinion of an action that should be taken.
B) an action that will have a positive effect on the economy.
C) a statement testable by facts.
D) a claim that the speaker is positive will occur.

Accepted Answer

A positive economic statement is a statement that can be tested and verified by facts. It is a factual statement that reflects the current state of the economy, rather than an opinion or prediction of what should happen.

Question 14

Which of the following is a normative statement?
A) A decrease in price leads to an increase in quantity consumed.
B) Incomes grow more rapidly in high-tax states than low-tax states.
C) People would be better off if government expenditures were higher.
D) People will buy less butter at $1.50 per pound than they will at $1 per pound.

Accepted Answer

A normative statement is a statement that expresses a value judgment about whether a situation is desirable or undesirable. OptionC expresses a normative judgment about government expenditures - it is a statement about what people ought to prefer rather than what is necessarily true. Options A and D expresses positive statements, describing what will happen in response to certain conditions, while Option B is simply a factual statement without any normative judgment.

Question 15

The statement, "John buys more of good X as his income increases, Ceteris paribus ," means:
A) John's income is being held constant.
B) John's purchases of good X are being held constant.
C) John's income and purchases of this good are being held constant.
D) the price of this good is being allowed to change.

Accepted Answer

The answer of The statement, "John buys more of good...

Question 16

"As soon as a mayor announced his/her 'get tough on crime' policy on New Year's day, criminals got scared and the crime rate went down." Suppose that the lower crime rate was actually caused by freezing cold temperatures in January ⎯ it was just too cold for anybody to be out robbing other people. Which fundamental hazard of the economic way of thinking did the mayor make?
A) believing that what's good for one person is good for the whole group (the fallacy of composition)
B) failing to take into account the benefits of crime (the payoff fallacy)
C) believing that association is the same as causation
D) failing to understand the difference between positive and normative economics.

Accepted Answer

The mayor made the fundamental hazard of believing that association is the same as causation. The crime rate may have gone down at the same time as the announcement, but it was not necessarily caused by the announcement. In this case, the lower crime rate was due to the cold temperatures, not the policy announcement.

Question 17

The Secretary of Labor states that wage rates in the country have risen by 2 percent this past year. The head of a local labor union states that wage gains have not kept pace with the 3 percent rate of inflation. The Secretary's statement is a (n) ____ economic statement, and the labor head's statement is a (n) ____ economic statement.
A) normative; normative
B) normative; positive
C) positive; normative
D) positive; positive

Accepted Answer

The Secretary of Labor's statement is positive because it describes an observable, factual situation regarding wage rates. The labor head's statement is also positive because it describes the factual situation of wage gains relative to inflation, without prescribing what should be done.

Question 18

The statement, "Violent crime has decreased in the last five years," is:
A) obviously wrong and, therefore, cannot be a positive statement.
B) normative since it can be answered by simply looking at the facts.
C) positive because it is testable.
D) not very interesting because all normative issues are of little importance.

Accepted Answer

The statement is positive because it is testable; it can be verified or falsified through data analysis.

Question 19

Select the positive statement that completes the sentence: If wages rise more rapidly than productivity:
A) profits will fall.
B) workers will earn 3/4 of GDP.
C) the rate of inflation increases.
D) policymakers should impose a wage ceiling.

Accepted Answer

The answer of Select the positive statement that completes the...

Question 20

Which one of the following is a positive economic statement?
A) An increase in the minimum wage will reduce employment for teenagers.
B) The minimum wage should be increased.
C) Social justice will be served by increasing the minimum wage.
D) Thoughtful people oppose an increase in the minimum wage.

Accepted Answer

A is a positive economic statement because it presents a factual statement about the impact of a policy on employment without expressing a value judgment or opinion. The other choices express opinions or value judgments about the policy.

Quiz 1: Introducing the Economic Way of Thinking

Select the normative statement that completes the following sentence: If the minimum wage is raised:

If the price of a textbook rises and then students purchase fewer textbooks, an economic model can show a cause-and-effect relationship only if which of the following conditions holds:

The Latin expression Ceteris paribus means:

Which of the following is an example of a positive economic statement?

Suppose an economist tests the theory that when the price of leather increases, fewer pairs of shoes are produced. He observes more shoes being produced when the price of leather increases. At the same time, a new production technology allowed for more shoes to be produced in less time. He has

If individuals who sit in the back of the classroom receive lower grades on average than the rest of the class, does that mean that sitting in the back of a classroom causes one to perform poorly on exams?

Which of the following statements is an example of confusing association and causation?

If an economist finds that when consumer incomes increase, consumers buy more cars, Ceteris paribus , then

"The government should provide health care for all citizens." This statement is an illustration of:

Someone notices that sunspot activity is high just prior to recessions and concludes that sunspots cause recessions. This person has:

"An increase in the federal minimum wage causes an increase in unemployment among teenagers" is a:

When economists want to hold a number of factors constant, they are demonstrating which of the following expressions?

A positive economic statement is:

Which of the following is a normative statement?

The statement, "John buys more of good X as his income increases, Ceteris paribus ," means:

The statement, "Violent crime has decreased in the last five years," is:

Select the positive statement that completes the sentence: If wages rise more rapidly than productivity:

Which one of the following is a positive economic statement?