Question 1

A spontaneous order emerges from individual decisions that cause something to "work" without anyone planning for it to "work".

Accepted Answer

A spontaneous order emerges without any central planning or coordination, but rather through the actions of individuals pursuing their own self-interest. Examples include the market economy, language, and traffic patterns.

Question 2

If medical patients are rational (in the way economists think of the term), they will do what medical experts believe is best for them.

Accepted Answer

Rationality, in economic terms, means individuals make decisions based on their own preferences and information to maximize their utility, which may not always align with what medical experts believe is best for them.

Question 3

To say that one policy is better than another because it is more efficient is a normative, not a positive, statement.

Accepted Answer

Efficiency is a value judgment and represents a normative statement, not a positive one. Positive statements describe what is, while normative statements describe what should be. Therefore, saying one policy is better than another because it is more efficient is a normative statement.

Question 4

One of the aims of positive economics is to rank policies under consideration from most desirable to least desirable.

Accepted Answer

Positive economics focuses on describing and explaining economic phenomena without making value judgments about them, unlike normative economics which involves ranking policies based on desirability.

Question 5

Positive economics can tell us which policies are efficient and which are not.

Accepted Answer

Positive economics is concerned with describing and explaining economic phenomena, without making value judgments about them. It can analyze the effects and outcomes of different policies, and based on empirical evidence, determine which ones are efficient or not.

Question 6

Suppose two economic models give the same predictions --- but one is simplistic and unrealistic in its assumptions while the other is rich in detail and resembles the real world more closely.If the sole goal of the economist is to predict, then the economist should use the simple and unrealistic model.

Accepted Answer

If the goal is solely to predict, then using the simple and unrealistic model would be more efficient as it requires less data and computation. However, if the goal is to understand the mechanisms and implications of the economic phenomenon, then the rich and realistic model would be more appropriate.

Question 7

When economists assume that people are rational, they are assuming that people generally agree what is good for human beings.

Accepted Answer

When economists assume that people are rational, they are not assuming that people generally agree on what is good for human beings. Rather, they are assuming that people make decisions based on a consistent set of preferences and that they weigh the costs and benefits of their choices in order to maximize their own well-being. This does not require agreement on what is good for human beings, but rather assumes that individuals have different subjective preferences and goals.

Question 8

In order to predict behavior, economic models must be realistic.

Accepted Answer

Economic models are simplifications of reality and do not need to be completely realistic to predict behavior; they need to capture key variables and relationships accurately enough to provide useful insights.

Question 9

When economists say that policy A is more efficient than policy B, they mean policy A is better than policy B.

Accepted Answer

Economists use the term "efficient" to mean that policy A achieves a goal using fewer resources or achieving a greater output with the same resources, not necessarily that it is better in all respects. "Better" is subjective and can depend on various factors including equity, preferences, and values that efficiency does not capture.

Question 10

Each economic model can be applied to many different real-world problems.

Accepted Answer

Economic models are general frameworks that can be used to analyze different situations and problems. They provide a theoretical basis for understanding how economic agents (such as individuals, firms, and governments) behave and interact with each other in different contexts. Therefore, economic models can be applied to a wide variety of real-world issues, such as inflation, unemployment, trade, taxation, market competition, and environmental regulation, among others. However, the specific assumptions, variables, and parameters of each model may need to be adjusted or calibrated to match the characteristics of a particular case or data set.

Question 11

Economists talk about trade-offs a lot because they have come to understand that whenever there is a winner from a policy or transaction, there must also be a loser.

Accepted Answer

Economists talk about trade-offs because they recognize that resources are limited, and choosing one option often means giving up another. It's about the cost of the next best alternative foregone, not necessarily about creating losers.

Question 12

If two individuals voluntarily agree to a transaction that only affects them (and no one else), it must be that the transaction is efficient.

Accepted Answer

If the two individuals voluntarily agree to a transaction, it means that they believe that it is beneficial for both parties. As the transaction only affects them, there are no externalities or third-party effects to consider, and as such, the transaction is efficient.

Quiz 1: Introduction