Chapter 1

Question 1

What kind of statement is: August is the hottest month of the year. Why?

Answer 1

This is a positive statement because it can be tested. Wether it’s true or not does not matter.

Question 2

What kind of statement is: A Universal basic income is required for a society to be just. Why?

Answer 2

This is a normative statement because what is “just” can’t be tested. It’s an opinion.

Question 3

What kind of statement is: An increase in interest rate will lead to an increase in saving. Why?

Answer 3

This is a positive statement because it’s verifiable. When interest rates go up, do people save more? Wether it’s true or not, it’s a positive statement.

Question 4

What’s a good question to ask yourself to see if somethings a positive or normative statement?

Answer 4

Can I test this? If the answer is yes, then it’s a positive statement because it’s verifiable.

Question 5

What kind of statement is: High tax rates leads to more tax evasion. Why?

Answer 5

This is a positive statement because it can be tested. When tax rates are increased do more people evade taxes? While it’s hard to test, it’s still a positive statement because it can be tested.

Question 6

What kind of statement is: If vaccine hesitancy is above
10%, herd immunity will never be
attained. Why?

Answer 6

This is a positive statement because it can be tested. If vaccine hesitancy is above 10%, will herd immunity will never be attained? Wether it’s true or not, it’s a positive statement.

Question 7

What kind of statement is: Most economists believe that the government ought to act on climate change?

Answer 7

This is a positive statement because it’s a verifiable statement about an untestable (normative) statement.

Question 8

Why is: What kind of statement is: Most economists believe that the government ought to act on climate change? a tricky question? How can you avoid tripping up on this question in an exam?

Answer 8

This is a tricky question because it’s a verifiable statement about other people’s normative statements. To answer this question well, you have to ask yourself: Can i test this statement?

Question 9

What kind of statement is: Vaccines cause autism. Why?

Answer 9

This is a positive statement because it can be verified.

Question 10

What kind of statement is: People should save more. Why?

Answer 10

While we can test what happens when people save more, we can’t test for a “true” or “false” answer so, this is a normative statement.

Question 11

What is a mnemonic for remembering the difference between positive and normative statements?

Answer 11

POSI = personal opinion subject (to) investigation. (For a true or false answer)

Question 12

What kind of statement is: Citizens should pay their taxes. Why?

Answer 12

This is a normative statement because it’s untestable. there is no “true” or “false” answers.

Question 13

Explain correlation vs causation:

Answer 13

Just because two variables move together (Like facebook users and the amount of debt that greek is in) or against each other (like American’s weight with ice cream sales.) Does not mean that one thing is causing the other.

Question 14

What does correlation mean?

Answer 14

Correlation means that two variables move together, wether or not one is causing the other.

Question 15

What does causation mean?

Answer 15

Causation means that one variable is causing another to move in a certain direction.

Question 16

What is economics?

Answer 16

Economics is a science where tests are run on societies or individuals to see how a limited amount of resources are used with an unlimited amount of wants and needs.

Question 17

What is Positive Correlation?

Answer 17

Two variables (𝑥 and 𝑦) move together.
– When 𝑥 increases, 𝑦 increases and vice versa.

Question 18

What is Negative Correlation?

Answer 18

Two variables (𝑥 and 𝑦) move in opposite directions.

Question 19

What is Reverse Causation?

Answer 19

When we assume that 𝑥 causes 𝑦 to change while in fact, 𝑦 causes 𝑥 to change.

Question 20

What is the treatment effect?

Answer 20

The treatment effect is the actual causal impact of a treatment on a given individual. This is not measurable as we cannot observe the same individual with and without the treatment.

Question 21

What are the three types of experiments in economics?

Answer 21

Natural experiment, Field experiment and lab experiment.

Question 22

What are the three types of experiments in economics?

Answer 22

Natural experiment, Field experiment and lab experiment.

Question 23

In economics, what is a natural experiment?

Answer 23

A natural experiment is an experiment that happens in the real world. For example, when the government changes laws we get to see what happened before and after the law changed.

Question 24

In economics, what is a field experiment?

Answer 24

A field experiment is also a real world experiment, but you have to set it up, it does not just naturally occur. Instead, you have to test it, for example testing to see if teachers will take a 20$ bribe in return for an A+ on a paper. The people don’t know they are part of an experiment. This is a real world test that you can set up.

Question 25

In economics, what is a lab experiment?

Answer 25

lab experiments are generally seen as less reliable because they are often done on broke young 20 year olds (undergraduates.)

Question 26

What concepts is the opportunity set a representation of?

Answer 26

The opportunity set is a representation of choice, limited resources and opportunity cost.

Question 27

What is the opportunity set?

Answer 27

The set of all possible bundles of goods
that a consumer, firm or society can purchase (or produce produce) with a given amount of resources.

Question 28

What is the frontier of an opportunity set?

Answer 28

The frontier of an opportunity set are the options for maximising your limited resources.

Question 29

Where is the frontier of the opportunity set located on a graph? Why?

Answer 29

The frontier of the opportunity set connected between the maximum that y can be and the maximum that x can be.

Question 30

Why are frontier costs the best options?

Answer 30

Frontier costs are the best options because they maximise the amount of value you can obtain with the resources (money) that you have. (At least in a world where all you can buy is wine and cheese)

Question 31

Why is the opportunity set a graphical representation of choice?

Answer 31

The opportunity set is a graphical representation of choice because it shows all the options that you can make, represented on a graph but you can only choose one.

Question 32

What are frontier costs called for consumers?

Answer 32

frontier costs for consumers are called budget constraints.

Question 33

What are frontier costs called for firms and societies?

Answer 33

For firms and societies , the frontier cost is called a production possibility frontier.

Question 34

Why does the opportunity set graphically represent the
concepts of Limited Resources?

Answer 34

The opportunity set graphically represents the concepts of limited Limited Resources because it shows what is attainable and what is not.

Question 35

Why does the opportunity set graphically represent the
concepts of Opportunity Cost?

Answer 35

The opportunity set graphically represents the concept of opportunity cost… (get ans from teacher)

Question 36

A _________ is the graphical representation of the different bundles a consumer could decide to purchase with a given amount of money.

Answer 36

A Budget Constraint is the graphical representation of the different bundles a consumer could decide to purchase with a given amount of money.

Question 37

What is a budget constraint?

Answer 37

The budget constraint is a type of opportunity cost. It is the frontier of the opportunity set for consumers.

Question 38

What is WTP?

Answer 38

Willingness to pay.

Question 39

What is MC? What does it mean?

Answer 39

MC stands for marginal costs. It is the cost to produce one more good.

Question 40

What is PPF? What does it mean?

Answer 40

PPF stands for production possibility frontier. This is the frontier (Most efficient) of the opportunity set for firms/societies.

Question 41

Payments for capital and land are called:

Answer 41

Profit

Question 42

Payments for labour is called:

Answer 42

wage