Deck 2: Thinking Like an Economist

Question 1

In conducting their research,economists often substitute historical events and historical episodes for

A)theories and observations.
B)laboratory experiments.
C)models.
D)assumptions.

Answer 1

B

Question 2

The art in scientific thinking -- whether in chemistry,economics,or psychology -- is

A)the design and implementation of laboratory experiments.
B)knowing when to stop collecting data and when to start analyzing the data.
C)deciding which assumptions to make.
D)being able to mathematically model natural phenomena.

Answer 2

C

Question 3

With respect to how economists study the economy,which of the following statements is most accurate?

A)Economists study the past, but they do not try to predict the future.
B)Economists use "rules of thumb" to predict the future.
C)Economists devise theories, collect data, and analyze the data to test the theories.
D)Economists use controlled experiments in much the same way that biologists and physicists do.

Answer 3

C

Question 4

The most common data for testing economic theories come from

A)carefully controlled and conducted laboratory experiments.
B)traditional economies.
C)historical episodes of economic change.
D)centrally planned economies.

Question 5

Which of the following statements is true?

A)Economists almost always find it easy to conduct experiments in order to test their theories.
B)Economics is not a true science because economists are not usually allowed to conduct experiments to test their theories.
C)Economics is a social science rather than a true science because it cannot employ the scientific method.
D)Economists are usually not allowed to conduct experiments, and so they must rely on natural experiments offered by history.

Question 6

In conducting their research,economists face an obstacle that not all scientists face;specifically,in economics,it is difficult to

A)make use of theory and observation.
B)rely upon the scientific method.
C)conduct laboratory experiments.
D)find articles or books that were written before 1900.

Question 7

Because it is difficult for economists to use experiments to generate data,they generally must

A)do without data.
B)substitute assumptions for data when data are unavailable.
C)rely upon hypothetical data that were previously concocted by other economists.
D)use whatever data the world gives them.

Question 8

The use of theory and observation is more difficult in economics than in sciences such as physics due to the difficulty in

A)performing an experiment in an economic system.
B)applying mathematical methods to economic analysis.
C)analyzing available data.
D)formulating theories about economic events.

Question 9

Sir Isaac Newton's development of the theory of gravity after observing an apple fall from a tree is an example of

A)controlled experiments that lead to the formulation of scientific theories.
B)being in the right place at the right time.
C)an idea whose time had come.
D)the interplay between observation and theory in science.

Question 10

Economists regard events from the past as

A)irrelevant, since history is unlikely to repeat itself.
B)of limited interest, since those events seldom provide any useful economic data.
C)interesting but not particularly valuable, since those events cannot be used to evaluate present-day economic theories.
D)interesting and valuable, because those events are capable of helping us to understand the past, the present, and the future.

Question 11

Economists,like mathematicians,physicists,and psychologists,

A)make use of the scientific method.
B)make use of their own language.
C)devise theories, and collect and analyze data.
D)All of the above are correct.

Question 12

By scientific method we mean

A)the use of modern electronic testing equipment to understand the world.
B)the dispassionate development and testing of theories about how the world works.
C)the use of controlled laboratory experiments to understand the way the world works.
D)finding evidence to support preconceived theories about how the world works.

Question 13

Which of the following statements is (are)correct?

A)Relative to other scientists, economists find it more difficult to generate useful data.
B)Theory and observation are important in economics as well as in other sciences.
C)To obtain data, economists often rely upon the natural experiments offered by history.
D)All of the above are correct.

Question 14

Which of the following statements applies to economics,as well as to other sciences such as physics?

A)Experiments are considered valid only when they are conducted in a laboratory.
B)Good theories do not need to be tested.
C)Real-world observations often lead to theories.
D)Economics, as well as other sciences, are concerned primarily with abstract concepts.

Question 15

Economists make assumptions in order to

A)mimic the methodologies employed by other scientists.
B)minimize the number of experiments that yield no useful data.
C)minimize the likelihood that some aspect of the problem at hand is being overlooked.
D)focus their thinking on the essence of the problem at hand.

Question 16

Which of the following terms are most closely associated with the study of economics?

A)force and acceleration
B)torts and venues
C)ego and cognitive dissonance
D)comparative advantage and deadweight loss

Question 17

For economists,substitutes for laboratory experiments often come in the form of

A)natural experiments offered by history.
B)untested theories.
C)"rules of thumb" and other such conveniences.
D)reliance upon the wisdom of elders in the economics profession.

Question 18

Who said,"The whole of science is nothing more than the refinement of everyday thinking?"

A)Isaac Newton
B)Albert Einstein
C)Sigmund Freud
D)Benjamin Franklin

Question 19

Albert Einstein once made the following observation about science:

A)"The whole of science is nothing more than the refinement of everyday thinking."
B)"The whole of science is nothing more than an interesting intellectual exercise."
C)"In order to understand science, one must rely solely on abstraction."
D)"In order to understand science, one must transcend everyday thinking."

Question 20

An economic theory about international trade that is based on the assumption that there are only two countries and two goods

A)can be useful in helping economists understand the complex world of international trade involving many countries and many goods.
B)is useless, since the real world has many countries trading many goods.
C)can be useful only in situations involving two countries and two goods.
D)can be useful in the classroom, but is useless in the real world.

Question 21

An example of a price that changes only infrequently is the price of

A)stocks on the New York Stock Exchange.
B)crude oil.
C)residential real estate.
D)magazines sold at newsstands.

Question 22

Economists make use of assumptions,some of which are unrealistic,for the purpose of

A)teaching economics to people who have never before studied economics.
B)advancing their political agendas.
C)developing models when the scientific method cannot be used.
D)focusing their thinking.

Question 23

The art in scientific thinking is

A)finding the right problem to study.
B)deciding which assumptions to make.
C)the ability to make an abstract subject easy to understand.
D)not something in which economists have to be skilled.

Question 24

When studying the effects of public policy changes,economists

A)always refrain from making assumptions.
B)sometimes make different assumptions about the short run and the long run.
C)consider only the direct effects of those policy changes and not the indirect effects.
D)consider only the short-run effects of those policy changes and not the long-run effects.

Question 25

For an economist,the idea of making assumptions is regarded generally as a

A)bad idea, since doing so leads to the omission of important ideas and variables from economic models.
B)bad idea, since doing so invariably leads to data-collection problems.
C)good idea, since doing so helps to simplify the complex world and make it easier to understand.
D)good idea, since economic analysis without assumptions leads to complicated results that the general public finds hard to understand.

Question 26

One thing economists do to help them understand how the real world works is as follows:

A)They make assumptions.
B)They ignore the past.
C)They try to capture every aspect of the real world in the models they construct.
D)All of the above are correct.

Question 27

The decision of which assumptions to make is

A)an easy decision for an economist, but a difficult decision for a physicist or a chemist.
B)not a particularly important decision for an economist.
C)usually regarded as an art in scientific thinking.
D)usually regarded as the easiest part of the scientific method.

Question 28

Which of the following statements is true?

A)Few economic models incorporate assumptions.
B)Different economic models employ different sets of assumptions.
C)Good economic models should attempt to mimic reality as closely as possible.
D)Economic models, to be accepted, must be tested by conducting experiments.

Question 29

Historical episodes are

A)valuable to economists, primarily because they allow economists to see how the science of economics has evolved.
B)valuable to economists, primarily because they allow economists to evaluate economic theories of the present.
C)not of concern to economists, since economics is about predicting the future; economics is not about dwelling on the past.
D)not of concern to economists, since the exact circumstances of historical episodes are unlikely to be observed again.

Question 30

Which of the following is not true about most economic models?

A)They are composed of equations and diagrams.
B)They contribute very little to economists' understanding of the real world.
C)They omit many features of the real-world economy.
D)In constructing models, economists make assumptions.

Question 31

Which of the following statements about models is correct?

A)The more details a model includes, the better the model.
B)Models assume away irrelevant details.
C)Models cannot be used to explain how the economy functions.
D)Models cannot be used to make predictions.

Question 32

In building economic models,economists often omit

A)assumptions.
B)theories.
C)details.
D)equations.

Question 33

When studying the effects of changes in public policy,economists believe that

A)it is important to distinguish between the short run and the long run.
B)the assumptions used in studying those effects should be the same for the short run as for the long run.
C)the short-run effects of those changes are always more beneficial to society than are the long-run effects.
D)the long-run effects of those changes are always more beneficial to society than are the short-run effects.

Question 34

The goal of an economist who formulates new theories is to

A)provide an interesting framework of analysis, whether or not the framework turns out to be of much use in understanding how the world works.
B)provoke stimulating debate in scientific journals.
C)demonstrate that economists, like other scientists, can formulate testable theories.
D)contribute to an understanding of how the world works.

Question 35

Economic models

A)cannot be useful if they are based on false assumptions.
B)were once thought to be useful, but that is no longer true.
C)must incorporate all aspects of the economy if those models are to be useful.
D)can be useful, even if they are not particularly realistic.

Question 36

Which types of models are built with assumptions?

A)economic models, but not models in other disciplines such as physics and sociology
B)economic models as well as models in other disciplines such as physics and sociology
C)models that are built for teaching purposes but not for research purposes
D)No models are built with assumptions.

Question 37

Economists build economic models by

A)generating data.
B)conducting controlled experiments in a lab.
C)making assumptions.
D)reviewing statistical forecasts.

Question 38

A model can be accurately described as a

A)theoretical abstraction with very little value.
B)device that is useful only to the persons who created it.
C)realistic and carefully constructed theory.
D)simplification of reality.

Question 39

The 1973 war in the Middle East provided economists with the opportunity to observe the negative relationship between

A)oil prices and living standards.
B)military buildups and government spending.
C)the flow of crude oil and living standards.
D)the flow of crude oil and political power.

Question 40

Just like models constructed in other areas of science,economic models

A)incorporate assumptions that contradict reality.
B)incorporate all details about the real world.
C)complicate reality.
D)All of the above are correct.

Question 41

In a circular-flow diagram,

A)taxes flow from households to firms, and transfer payments flow from firms to households.
B)income payments flow from firms to households, and sales revenue flows from households to firms.
C)resources flow from firms to households, and goods and services flow from households to firms.
D)inputs and outputs flow in the same direction as the flow of dollars, from firms to households.

Question 42

In the simple circular-flow diagram,the participants in the economy are

A)firms and government.
B)households and firms.
C)households and government.
D)elected officials and ordinary citizens.

Question 43

Which of these terms are used interchangeably?

A)"goods and services" and "inputs"
B)"goods and services" and "factors of production"
C)"inputs" and "factors of production"
D)"land, labor and capital" and "goods and services"

Question 44

Which of the following statements about economic models is valid?

A)Economic models are built to mirror reality exactly.
B)Economic models are useful, but they should not be used for the purpose of improving public policies.
C)Because economic models omit many details, they allow us to see what is truly important.
D)Economic models seldom incorporate equations or diagrams.

Question 45

Factors of production are

A)used to produce goods and services.
B)also called output.
C)abundant in most economies.
D)assumed to be owned by firms in the circular-flow diagram.

Question 46

Another name for goods and services produced by firms is

A)factors of production.
B)output.
C)inputs.
D)resources.

Question 47

In the simple circular-flow diagram,households

A)are represented, but firms are not represented.
B)own the factors of production.
C)are buyers of inputs.
D)directly receive revenue from the sale of goods and services.

Question 48

Another term for factors of production is

A)inputs.
B)output.
C)goods.
D)services.

Question 49

Factors of production are

A)the mathematical calculations firms make in determining their optimal production levels.
B)social and political conditions that affect production.
C)the physical relationships between economic inputs and outputs.
D)inputs into the production process.

Question 50

In the circular-flow diagram,

A)firms are buyers in the markets for goods and services.
B)households are sellers in the markets for the factors of production.
C)firms are sellers in the markets for factors of production and in the markets for goods and services.
D)dollars that are spent on goods and services flow directly from firms to households.

Question 51

In constructing models,economists

A)leave out equations, since equations and models tend to contradict one another.
B)ignore the long run, since models are useful only for short-run analysis.
C)make assumptions that are contrary to features of the real world.
D)try to include every feature of the economy.

Question 52

In the simple circular-flow diagram,

A)households own the factors of production.
B)households buy all the goods and services that firms produce.
C)land, labor, and capital flow from households to firms.
D)All of the above are correct.

Question 53

Which of the following items is not a factor of production?

A)labor
B)land
C)capital
D)money

Question 54

In the circular-flow diagram,

A)factors of production flow from government to firms.
B)goods and services flow from households to firms.
C)income paid to the factors of production flows from firms to households.
D)spending on goods and services flows from firms to households.

Question 55

The two loops in the circular-flow diagram represent

A)(i) the flow of goods and (ii) the flow of services.
B)(i) the flow of dollars and (ii) other financial flows.
C)(i) inputs into production processes and (ii) outputs from production processes.
D)(i) the flows of inputs and outputs and (ii) the flow of dollars.

Question 56

A circular-flow diagram is a model that

A)helps to explain how participants in the economy interact with one another.
B)helps to explain how the economy is organized.
C)incorporates the markets for the factors of production.
D)All of the above are correct.

Question 57

The circular-flow diagram is a

A)visual model of how the economy is organized.
B)visual model of the relationships among money, prices, and businesses.
C)model that shows the effects of government on the economy.
D)mathematical model of how the economy works.

Question 58

Which of these statements about economic models is correct?

A)For economists, economic models provide insights about the world.
B)Economic models are built with assumptions.
C)Economic models are often composed of equations and diagrams.
D)All of the above are correct.

Question 59

Economic models are built with

A)recommendations concerning public policies.
B)facts about the legal system.
C)assumptions.
D)statistical forecasts.

Question 60

Which two groups of decisionmakers are included in the simple circular-flow diagram?

A)markets and government
B)households and government
C)firms and government
D)households and firms

Question 61

Among economic models,the circular-flow diagram is unusual in that it

A)drastically simplifies the real world.
B)features more than one type of market.
C)features flows of dollars.
D)does not involve mathematics.

Question 62

In the markets for goods and services,

A)households and firms are both buyers.
B)households and firms are both sellers.
C)households are buyers and firms are sellers.
D)households are sellers and firms are buyers.

Question 63

Figure 2-2

Refer to Figure 2-2.The figure represents a circular-flow diagram.If households are buyers in the markets represented by Box C,then

A)Box C must represent the markets for the factors of production.
B)Box D must represent the markets for goods and services.
C)firms are sellers in the markets represented by Box C.
D)All of the above are correct.

Question 64

Figure 2-1

Refer to Figure 2-1.Michelle completes her first week of employment working as a hairdresser at a salon.On Friday of that week she receives her first paycheck.To which of the arrows does this activity contribute directly?

A)B only
B)A and B
C)C only
D)C and D

Question 65

In the markets for the factors of production,

A)households are sellers and firms are buyers.
B)households are buyers and firms are sellers.
C)households and firms are both buyers.
D)households and firms are both sellers.

Question 66

Figure 2-1

Refer to Figure 2-1.Which arrow shows the flow of income payments?

A)A
B)B
C)C
D)D

Question 67

Figure 2-2

Refer to Figure 2-2.The figure represents a circular-flow diagram.Marsha works as an attorney for a corporation and is paid a salary in exchange for the legal services she performs.James owns office buildings and rents his buildings to companies in exchange for rent payments.If Marsha's income is represented by a flow of dollars from Box D to Box B,then James's income is represented by a flow of dollars

A)from Box A to Box C.
B)from Box C to Box A.
C)from Box C to Box B.
D)from Box D to Box B.

Question 68

Which markets are represented in the simple circular-flow diagram?

A)markets for goods and services and markets for financial assets
B)markets for factors of production and markets for financial assets
C)markets for goods and services and markets for factors of production
D)markets for goods and services and markets for imports and exports

Question 69

Figure 2-2

Refer to Figure 2-2.The figure represents a circular-flow diagram.If the owners of land,labor,and capital are represented by Box B,then

A)the government is represented by Box a.
B)firms are represented by Box C.
C)firms are represented by Box A.
D)firms are sellers in Box B.

Question 70

Figure 2-2

Refer to Figure 2-2.The figure represents a circular-flow diagram.Boxes A and B represent

A)firms and households.
B)households and government.
C)the markets for goods and services and the financial markets.
D)the markets for goods and the markets for services.

Question 71

Figure 2-2

Refer to Figure 2-2.The figure represents a circular-flow diagram.If the flow of goods and services is part of what is represented by the inner loop,then

A)the flow of factors of production is also part of what is represented by the inner loop.
B)the flow of income paid to households is also part of what is represented by the inner loop.
C)Box C must represent households and Box D must represent firms.
D)households must be sellers of output.

Question 72

Figure 2-2

Refer to Figure 2-2.The figure represents a circular-flow diagram.Boxes C and D represent

A)households and government.
B)firms and government.
C)the markets for goods and services and the financial markets.
D)None of the above are correct.

Question 73

Which of the following statements about the circular-flow diagram is correct?

A)One must imagine that the economy operates without money in order to make sense of the diagram.
B)The diagram leaves out details that are not essential for understanding the economic transactions that occur between households and firms.
C)In the diagram, households use the factors of production to produce goods and services.
D)All of the above are correct.

Question 74

Figure 2-1

Refer to Figure 2-1.Juan buys a new pair of shoes at a shoe store.To which of the arrows does this purchase directly contribute?

A)A only
B)A and B
C)C only
D)C and D

Question 75

Figure 2-1

Refer to Figure 2-1.Which arrow shows the flow of land,labor,and capital?

A)A
B)B
C)C
D)D

Question 76

Figure 2-1

Refer to Figure 2-1.Which arrow represents the flow of goods and services?

A)A
B)B
C)C
D)D

Question 77

Figure 2-2

Refer to Figure 2-2.The figure represents a circular-flow diagram.If the outer loop represents flows of dollars,then the inner loop includes

A)flows of goods and services, of which households are sellers.
B)flows of inputs, of which firms are buyers.
C)flows of rent payments paid to owners of land.
D)flows of wages and salaries paid to workers.

Question 78

Figure 2-2

Refer to Figure 2-2.The figure represents a circular-flow diagram.If Box A represents firms,then which box represents households?

A)Box B
B)Box C
C)Box D
D)Any one of the other boxes (B, C, or D) could represent households.

Question 79

Figure 2-1

Refer to Figure 2-1.Which arrow represents the flow of spending by households?

A)A
B)B
C)C
D)D

Question 80

Figure 2-2

Refer to Figure 2-2.The figure represents a circular-flow diagram.If households are sellers in the markets represented by Box D,then

A)Box D must represent the markets for factors of production.
B)Box C must represent the markets for goods and services.
C)firms are buyers in the markets represented by Box D.
D)All of the above are correct.