Thinking Like An Economist

Question 1

What is an Economic Model

Answer 1

An economic model is a simplified description of reality, designed to yield hypotheses about the economic behaviour that can be tested.

Question 2

What is the Circular-flow diagram

Answer 2

The Circular-flow diagram is a visual model of the economy that shows how dollars flow through markets among households and firms

Question 3

What is the Production Possibility Frontier

Answer 3

The Production Possibility Frontier is a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.

Question 4

Decisions are made by households and firms.
A. True
B. False

Answer 4

True

Question 5

Households and firms interact in the markets for goods and services (where households are buyers and firms are sellers).
A. True
B. False

Answer 5

True

Question 6

In the markets for the factors of production (where firms are buyers and households are sellers).
A. True
B. False

Answer 6

True

Question 7

What is Microeconomics

Answer 7

Microeconomics is the study of how households and firms make decisions and how they interact in markets.

Question 8

What is Macroeconomics

Answer 8

Macroeconomics is the study of economy-wide phenomena, including inflation, unemployment, and economic growth.

Question 9

What is a positive statement

Answer 9

A positive statement is one that attempts to assess an objective reality without making a value judgement.

Question 10

What is a normative statement

Answer 10

A normative statement is one that states a value judgement or preference on one outcome over another.

Question 11

What are the examples of a positive statement

Answer 11

1. The average temperature in New York City in July is 77 degrees Fahrenheit.
2. The demand for petrol and diesel is inversely related to the price of petrol and diesel.
3. Minimum wage laws cause unemployment.

Question 12

What are the examples of a normative statement

Answer 12

1. Women should earn the same salary as men.
2. People should drive electric cars instead of consuming fossil fuels.
3. Companies should not use child labour.

Question 13

Normative statements are based on opinions or ethics—what someone believes should be. Positive statements, on the other hand, are testable, even if they may not necessarily be true.
A. True
B. False

Answer 13

True

Question 14

What are the reasons why economists disagree

Answer 14

1. They can disagree about the validity of alternative positive theories about how the world works.
2. They can have different values and, therefore, different normative views about what a policy should try to accomplish.
3. They may misinterpret the data, and others may give too much or not enough weight to certain factors.