Question 1

An economic theory
A) will be useful only if all human behaviour is rational.
B) will be useful as long as it is logically consistent.
C) is only useful if its underlying assumptions are realistic.
D) will predict more accurately if it contains a greater number of mathematical equations.
E) must be judged on its ability to explain and predict real- world phenomena.

Accepted Answer

E

Question 2

FIGURE 2- 4
-Refer to Figure 2- 4. The slope of the non- linear function changes as we move along the curve. The slope is
A) negative and decreasing, indicating a diminishing marginal response.
B) constant at all points, indicating a constant marginal response.
C) negative and increasing, indicating an increasing marginal response.
D) positive and increasing, indicating an increasing marginal response.
E) positive and decreasing, indicating a diminishing marginal response.

Accepted Answer

As we move along the curve, the slope is positive but decreasing, which indicates a diminishing marginal response.

Question 3

Of the following, which is the most important characteristic of a successful theory?
A) the theory could never be refuted.
B) the theory allows us to predict behaviour reasonably accurately.
C) all assumptions on which the theory is based are true.
D) the theory adequately explains all economic behaviour.
E) the theory provides a basis for facts about economic behaviour.

Accepted Answer

While all of the characteristics listed are important, the most important characteristic of a successful theory is that it allows us to predict behaviour reasonably accurately. This means that the theory can be tested and confirmed through empirical evidence, and can therefore be useful in informing economic policy and decision-making. The ability to predict behaviour is essential in order for a theory to be useful and relevant in practical applications.

Question 4

Choose the answer that best explains why economists build models that abstract from the complexities of reality.
A) Because the complexities of reality are unimportant.
B) Because economists are not interested in reality.
C) Because this allows economists to conduct controlled experiments to test their theories.
D) Because they believe they gain a greater understanding of reality.
E) Because economics deals only in the abstract.

Accepted Answer

Economists build models that abstract from the complexities of reality because they believe they can gain a greater understanding of reality by creating simplified models that can help identify key factors or patterns that are more easily observable than in the real world. By abstracting from reality, economists can focus on specific relationships or phenomena and apply analytical tools and methodologies that would be difficult to use in messy, real-world settings. This does not mean that economists disregard reality or do not strive to apply their models to real-world problems, but rather that they recognize the limitations and trade-offs in their approach.

Question 5

The table below shows hypothetical tuition costs at a Canadian university. $$\begin{array}{l}
\begin{array} { | l | l | } 
\hline \text { Year } & \text { Tuition } \
\hline 2005 & \$ 5000 \
\hline 2006 & \$ 5050 \
\hline 2007 & \$ 5100 \
\hline 2008 & \$ 5150 \
\hline 2009 & \$ 5200 \
\hline
\end{array}\
\text { TABLE 2- } 1
\end{array}$$
-Refer to Table 2- 1. Assume that 2005 is used as the base year, with the index number = 100. The value of the index number in 2007 is calculated as follows:
A) (5000/5100) × 100 = 98
B) (5100/5000) × 100 = 102
C) 5100/5000 = 1.02
D) 5100/5100 = 100
E) 5000/5100 = 0.98

Accepted Answer

The index number is calculated by dividing the current year's tuition by the base year's tuition and multiplying by 100. In this case, the index number for 2007 is (5100/5000) × 100 = 102.

Question 6

Suppose there is a theory that several things influence the price of fish in Halifax, one of which is the weather during the fishing season. When examining the determinants of the price of fish, the weather is
A) a stock, as it influences the quantity of fish caught.
B) an endogenous variable, as it influences the price of fish.
C) an endogenous variable, as it is determined within the theory.
D) an exogenous variable, as it is determined outside the theory.
E) an act of God and, therefore, has no legitimate connection with the theory.

Accepted Answer

The answer of Suppose there is a theory that several...

Question 7

An index number is used to
A) compare the same variable in two different situations.
B) compare two different variables in two different situations.
C) designate a specific value for further reference.
D) compare two different variables in the same situation.
E) measure the absolute value of a variable.

Accepted Answer

Index numbers are used to compare the same variable in two different situations, such as the cost of living index, which compares the cost of living in different cities. They are not used to compare two different variables in different situations, designate a specific value for further reference, compare two different variables in the same situation, or measure the absolute value of a variable.

Question 8

Which of the following is a normative statement?
A) Tuition fees should be waived for low- income students.
B) A free- trade agreement between two countries will result in an increase in trade.
C) The higher is the level of taxes, the higher are wage demands.
D) A reduction in export taxes on petroleum would result in higher wages.
E) The higher is the level of taxes, the lower is consumption spending.

Accepted Answer

A normative statement expresses an opinion about what ought to be. Option A expresses a normative statement as it suggests what should be done to improve the situation of low-income students. The other options are descriptive statements, which describe what is or what might happen.

Question 9

A hypothesis (or a prediction) is a statement about
A) how assumptions affect theories.
B) what will happen in the future.
C) those things which we believe to be true, but cannot prove.
D) the relationship between facts explained by the hypothesis.
E) how two or more variables are related to each other.

Accepted Answer

A hypothesis is a statement that proposes a relationship between two or more variables. It is a testable prediction that can be used to explain certain facts or behaviors. Therefore, the best choice is E, which states that a hypothesis is a statement about how two or more variables are related to each other.

Question 10

The slope of a straight line is necessarily
A) negative.
B) zero.
C) positive.
D) constant.
E) increasing as one moves up the line.

Accepted Answer

The slope of a straight line is defined as the change in the y-coordinate (vertical change) over the change in the x-coordinate (horizontal change). Therefore, it represents the rate of change along the line, which is constant. This means that the slope does not vary along the line, so it is constant.

Question 11

FIGURE 2- 3
-Refer to Figure 2- 3. The slope of curve B is
A) negative from Y1 to Y2 and positive between Y2 and Y3.
B) undefined at X2.
C) always negative but variable.
D) zero at X2.
E) always positive but variable.

Accepted Answer

The slope of curve B is zero at X2, as it is a horizontal line at that point. Curve B does not have a consistent slope throughout its entirety.

Question 12

Suppose an individual wheat farmer's income is influenced by the region's average daily temperature. When examining the determinants of individual farmer income, the average daily temperature is a(n) variable.
A) flow
B) induced
C) dependent
D) endogenous
E) exogenous

Accepted Answer

The average daily temperature is an exogenous variable because it is external to the individual farmer's control and influences their income.

Question 13

FIGURE 2- 2
-Refer to Figure 2- 2. The slope of curve D is
A) positive and constant.
B) undefined.
C) negative and constant.
D) positive and changing.
E) negative and changing.

Accepted Answer

The answer of  FIGURE 2- 2
-Refer to Figure 2-...

Question 14

Economic theories
A) can be used to help explain and predict economic behaviour.
B) cannot be tested because we cannot do economic "experiments".
C) must apply to all economies to be true.
D) are not useful because of the unrealistic assumptions they contain.
E) cannot help to predict future behaviour.

Accepted Answer

Economic theories are developed to understand patterns and predict outcomes in economic behavior, and are therefore useful in analyzing and predicting economic phenomena.

Question 15

The table below shows hypothetical per- minute cell phone charges for "pay- and- talk" service over several years. $$\begin{array}{l}
\begin{array} { | l | l | } 
\hline 2005 & 0.55 \
\hline 2006 & 0.50 \
\hline 2007 & 0.40 \
\hline 2008 & 0.35 \
\hline 2009 & 0.25 \
\hline
\end{array}\
\text { TABLE 2- } 2
\end{array}$$
-Refer to Table 2- 2. Assume that 2005 is used as the base year, with the index number = 100. Which of the following series is the correct set of index numbers for the per- minute cell phone charges from 2005 to 2009?
A) 1.0; 0.91; 0.73; 0.64; 0.45
B) 100; 91; 73; 64; 45
C) 0.55; 0.50; 0.40; 0.35; 0.25
D) 100%; 91%; 73%; 64% 45%
E) 55; 50; 40; 35; 25

Accepted Answer

The answer of The table below shows hypothetical per- minute...

Question 16

What is the best way to display the unemployment rate in each of the world's developed economies in 2009?
A) a scatter diagram with two variables
B) a cross- sectional graph with time- series data
C) a cross- sectional bar chart graph
D) a scatter diagram
E) a time series line graph

Accepted Answer

A cross-sectional bar chart graph would be the best way to display the unemployment rate in each of the world's developed economies in 2009 because it allows for easy comparison between countries and their respective unemployment rates in a clear and concise manner. This method also does not require time-series data and is more visually appealing than a scatter diagram.

Question 17

FIGURE 2- 3
-Refer to Figure 2- 3. The slope of curve A is
A) positive and variable.
B) positive from X1 to X2 and negative from X2 to X3.
C) zero.
D) negative from X1 to X2 and positive from X2 to X3.
E) negative and variable.

Accepted Answer

The answer of  FIGURE 2- 3
-Refer to Figure 2-...

Question 18

FIGURE 2- 1
-Refer to Figure 2- 1. What is the slope of the line in part (ii) of the figure?
A) 12.5
B) 0.08
C) 0.05
D) 1
E) - 12.5

Accepted Answer

The slope of a line is defined as the change in y divided by the change in x. In part (ii) of the figure, the line goes from y = 10 to y = 20 as x increases from 200 to 400. Therefore, the change in y is 20 - 10 = 10, and the change in x is 400 - 200 = 200. Therefore, the slope is 10/200 = 0.05.

Question 19

FIGURE 2- 3
-Refer to Figure 2- 3. At X2 on curve A , the
A) minimum occurs at Y4.
B) slope is increasing.
C) maximum occurs at Y1.
D) slope of the curve is zero.
E) slope is decreasing.

Accepted Answer

At X2 on curve A, the slope of the curve is zero, indicating a point where the curve is neither increasing nor decreasing, typically a maximum or minimum point.

Question 20

An economic theory requires, among other things,
A) a set of value judgments to interpret the empirical evidence.
B) a controlled laboratory setting in which the theory can be tested.
C) that the set of predictions be correct.
D) a set of definitions of the variables to be considered.
E) the use of endogenous variables only.

Accepted Answer

Economic theories require a set of definitions of the variables to be considered, as it is necessary to establish a clear and agreed-upon understanding of the concepts and their relationships in order to formulate and test hypotheses. Value judgments may be involved in interpreting empirical evidence, but they are not essential to the theory itself. Controlled laboratory settings are not always possible or necessary in economics, and the accuracy of predictions is not the only criterion for evaluating a theory's usefulness. Endogenous variables are important in many economic analyses, but they need not be the only type of variable considered.

Quiz 2: Economic Theories, Data, and Graphs

An economic theory

FIGURE 2- 4 -Refer to Figure 2- 4. The slope of the non- linear function changes as we move along the curve. The slope is

Of the following, which is the most important characteristic of a successful theory?

Choose the answer that best explains why economists build models that abstract from the complexities of reality.

Suppose there is a theory that several things influence the price of fish in Halifax, one of which is the weather during the fishing season. When examining the determinants of the price of fish, the weather is

An index number is used to

Which of the following is a normative statement?

A hypothesis (or a prediction) is a statement about

The slope of a straight line is necessarily

FIGURE 2- 3 -Refer to Figure 2- 3. The slope of curve B is

Suppose an individual wheat farmer's income is influenced by the region's average daily temperature. When examining the determinants of individual farmer income, the average daily temperature is a(n) variable.

FIGURE 2- 2 -Refer to Figure 2- 2. The slope of curve D is

Economic theories

What is the best way to display the unemployment rate in each of the world's developed economies in 2009?

FIGURE 2- 3 -Refer to Figure 2- 3. The slope of curve A is

FIGURE 2- 1 -Refer to Figure 2- 1. What is the slope of the line in part (ii) of the figure?

FIGURE 2- 3 -Refer to Figure 2- 3. At X2 on curve A , the

An economic theory requires, among other things,