Question 1

An economic forecast:
A) will always be true.
B) is more reliable than a weather forecast.
C) will never provide valuable information.
D) should not be relied upon to predict economic events.
E) is always based upon a Ceteris paribus condition.

Accepted Answer

The answer of An economic forecast:
A) will always be true.
B)...

Question 2

Ceteris paribus means:
A) an association of variables.
B) all other things remain constant.
C) a cause and effect relationship.
D) considering the influences of other variables.

Accepted Answer

Ceteris paribus is a Latin phrase that means "all other things remain constant". It is commonly used in economics to hold certain variables constant while analyzing the effect of a change in one variable on another. Therefore, the correct choice is B - all other things remain constant.

Question 3

Which of the following is a statement of positive economics?
A) Too much government spending is the biggest problem facing the U.S. economy.
B) Creating jobs is the most serious problem facing the U.S. economy.
C) Raising taxes provides additional revenue that should be used to finance health care.
D) If taxes are over 50 percent of national income, job creation falls.

Accepted Answer

Option D is a statement of positive economics as it presents a cause-and-effect relationship between taxes and job creation. It is based on empirical evidence and seeks to explain how taxes affect job creation. The other options are normative statements as they express opinions and value judgments about what should be done or what is the biggest problem facing the economy.

Question 4

Which of the following represents a positive statement?
A) A higher income tax rate will reduce the amount of time that people spend working.
B) Teenage unemployment should be reduced.
C) We should raise the standard of living for the elderly.
D) A decrease in tax rates is needed to help the poor.

Accepted Answer

A positive statement is a statement that is based on fact or evidence, rather than opinion or value judgments. Option A provides a cause-and-effect relationship between a higher income tax rate and a reduction in the amount of time people spend working, which can be empirically verified through data analysis.

Question 5

Which of the following is a statement of positive economics?
A) I hope unemployment comes down soon.
B) President X's way of dealing with unemployment is better than President Y's.
C) I think everyone should sacrifice to reduce the deficit.
D) If taxes are reduced, unemployment will drop.

Accepted Answer

A statement of positive economics is a factual statement that can be tested and proven right or wrong. Option D is a positive economic statement as it states a cause-and-effect relationship between tax reduction and unemployment reduction. The statement can be tested and proven to be right or wrong based on economic data. Options A, B, and C are normative economic statements as they express an opinion or a value judgment rather than a fact that can be tested.

Question 6

To abstract from reality in an economic model means that:
A) we include only a few of the essential aspects of reality.
B) the economic study surveys only a very limited period of time.
C) we include only those elements which support our hypothesis.
D) the model includes every aspect of the real world.
E) the model examines the actions of the consumers in the absence of producers and the government.

Accepted Answer

Abstraction from reality in an economic model means that we simplify the real-world situation by including only a few of the essential aspects of reality, and leave out some of the complexities and details of the real-world situation. This is done to make the model more manageable and easier to analyze.

Question 7

Which of the following is most likely to represent causality rather than association?
A) In years that fashion dictates wider lapels on men's jackets, the stock market grows by at least 5 percent.
B) Interest rates are higher in years ending with a 1 or a 6.
C) Unemployment falls when the AFC champion wins the Super Bowl.
D) Quantity demanded goes up when price falls because lower prices increase consumer purchasing power, ceteris paribus.

Accepted Answer

Choice D represents causality because it clearly states that a change in one variable (price) directly causes a change in another variable (quantity demanded) due to a specific mechanism (increased purchasing power). The other choices may show a correlation between variables, but there is no clear mechanism or evidence of a direct cause-and-effect relationship.

Question 8

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 that means "all other things being equal." In economics, this principle is used to isolate the effect of one specific factor on an outcome by assuming that all other factors are held constant. This allows economists to analyze the relationship between the two factors without the interference of other variables.

Question 9

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.
E) the bookstore no longer accepts used book trade-ins.

Accepted Answer

In order for an economic model to show a cause-and-effect relationship between the rise in textbook prices and the decrease in textbook purchases, everything else must be held constant. This means that no other factors (such as changes in students' incomes, tuition, or the number of students) can be affecting the relationship between price and quantity demanded. Therefore, choice D is the best answer.

Question 10

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 11

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

The person has assumed that sunspots cause recessions based on a correlation between the two. However, correlation does not imply causation, and there may be other factors causing both sunspot activity and recessions.

Question 12

Positive economics:
A) will usually tell us which policy is best.
B) reveals "what ought to be" in economic matters.
C) is of little use to policy makers.
D) is the scientific study of "what is" among economic relationships.

Accepted Answer

Positive economics is concerned with describing and explaining economic phenomena and relationships as they exist in reality. It is a scientific approach to economics that seeks to objectively analyze the world as it is, rather than prescribing how it should be (which is the domain of normative economics). Policy makers often rely on positive economics to better understand the impact of existing policies or to assess the potential effectiveness of proposed policies. However, positive economics alone cannot tell us which policy is ethically or morally preferable, as that requires normative judgments.

Question 13

The term Ceteris paribus means that:
A) the model includes all important variables occurring in the real world.
B) all factors which influence the event are changing at the same time.
C) one influence is changing and everything else is being held constant.
D) the consumer is king.

Accepted Answer

Ceteris paribus means "all other things being equal". Therefore, when one influence is changing and everything else is being held constant, we are applying the ceteris paribus assumption. Options A, B, and D do not accurately define ceteris paribus.

Question 14

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. It is a common assumption in economics and other social sciences that when examining the relationship between two variables, all other factors remain constant or in equilibrium.

Question 15

To be valid, an economic model must:
A) include every activity which occurs in the real world.
B) include at least 85 percent of the activity which occurs in the real world.
C) be able to predict events occurring in the real world.
D) exclude any link to the real world.
E) not be based on an abstraction of the real world.

Accepted Answer

The validity of an economic model lies in its ability to predict actual events occurring in the real world. Hence, option C is the correct choice. Options A, B, D, and E are incorrect as they either include too much or too little of the real-world activities or are not linked to the real world or not based on an abstraction of the real world.

Question 16

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 correlation between sitting in the back of the classroom and receiving lower grades does not mean that sitting in the back causes one to perform poorly on exams. There may be other factors at play that contribute to this correlation. Therefore, it is important to be cautious about assuming causation based solely on observed correlations.

Question 17

"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 assumed that his/her policy caused the decrease in crime without considering alternative explanations. This is an example of the fundamental hazard of assuming that association is the same as causation.

Question 18

The term Ceteris paribus means that:
A) everything is changing.
B) all other things remain unchanged.
C) no one knows which variables will change and which will remain constant.
D) the basic principle of economics do not apply to the case being considered.

Accepted Answer

Ceteris paribus is a Latin phrase that means "all other things being equal." It is used in economics to explain the relationship between two variables while assuming that all other factors remain constant or unchanged. Therefore, the best choice is B, "all other things remain unchanged."

Question 19

When economists use the term Ceteris paribus , they are indicating that:
A) the relationship between two economic variables cannot be determined.
B) the analysis is true for the individual but not for the economy as a whole.
C) all other variables except the ones specified are assumed to be constant.
D) their conclusions are based on normative economics rather than positive economic analysis.

Accepted Answer

Ceteris paribus means "all other things being equal" or "holding all other variables constant." This allows economists to isolate the effects of a specific variable on an economic outcome. By assuming that all other variables are constant, economists can simplify their analysis and draw more accurate conclusions about the relationship between the two variables being studied.

Question 20

Which of the following represents positive economics?
A) Policy A is fair.
B) Outcome B is the best objective to achieve.
C) If policy A is followed, then outcome B results.
D) All of the above.

Accepted Answer

Positive economics is focused on describing facts and cause-and-effect relationships. Option C is a statement that describes a cause-and-effect relationship between Policy A and Outcome B, making it the only option that represents positive economics. Options A and B are normative statements, expressing opinions and judgments rather than objective facts.

Quiz 1: Introducing the Economic Way of Thinking

An economic forecast:

Ceteris paribus means:

Which of the following is a statement of positive economics?

Which of the following represents a positive statement?

Which of the following is a statement of positive economics?

To abstract from reality in an economic model means that:

Which of the following is most likely to represent causality rather than association?

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

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

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

Positive economics:

The term Ceteris paribus means that:

The Latin expression Ceteris paribus means:

To be valid, an economic model must:

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?

The term Ceteris paribus means that:

When economists use the term Ceteris paribus , they are indicating that:

Which of the following represents positive economics?