Chapter 2

Question 1

scientific method, similarities

Answer 1

construct theory, design test & test theory, collect data, revise or refute

Question 2

scientific method, differences

Answer 2

economists variables are firm, not always able to design studies, historical data often used

Question 3

positive statement

Answer 3

claim that can be tested T or F

Question 4

normative statement

Answer 4

statement of opinion

Question 5

economic models

Answer 5

considered “good” if they predict accurately

Question 6

ceteris paribus

Answer 6

“other things being equal”- examine change in one variable and hold others constant

Question 7

five foundations of economics

Answer 7

1. life is about trade-offs
2. incentives matter
3. opportunity costs
4. marginal thinking
5. trade creates value

Question 8

absolute advantage

Answer 8

goes to person that can produce most of everything under consideration

Question 9

comparative advantage

Answer 9

ability to make a good at lower opportunity cost than competitor

Question 10

terms of trade

Answer 10

must remain between opportunity costs of trading partners, trade will benefit both sides

Question 11

production possibilities curve (PPC)

Answer 11

shows all possibilities of production of products, combination of making K˚ for tomorrow and goods for today