Deck 1: The Economic Approach

Question 1

*"Positive economics cannot tell us which agricultural policy is better, so it is useless to policy makers." Evaluate this statement.

Answer 1

Positive economics deals with "what is" of the economic policies and sheds light on the likely effects of various policies. It does not say whether a particular policy is correct or incorrect, and focuses rather on the policy being simply testable. This helps a great deal in choosing alternatives that have a lower probability of inefficient economic outcomes.
Hence, the statement is incorrect. Positive economics is indeed very useful for the policymakers.

Question 2

*"I examined the statistics for our basketball team's wins last year and found that, when the third team played more, the winning margin increased. If the coach played the third team more, we would win by a bigger margin." Evaluate this statement.

Answer 2

According to the statistics, whenever the third team played, the chances of winning increased. However, this does not mean that every time the third team plays, it will win too. It is likely that a huge lead at the end of the game caused the third team to play more. Hence, association cannot be said to be causation.

Question 3

*Which of the following are positive economic statements and which are normative
a. The speed limit should be lowered to 55 miles per hour on interstate highways.
b. Higher gasoline prices cause the quantity of gasoline that consumers buy to decrease.
c. A comparison of costs and benefits should not be used to assess environmental regulations.
d. Higher taxes on alcohol result in less drinking and driving.

Answer 3

a) The statement is a normative economic statement because it involves value-judgments. It might be a subjective assessment by some that lowering speed might result in a lesser number of deaths or some may argue that it might increase higher fuel efficiency. There is no available evidence to support this.
b) The given statement is a positive economic statement but a false one. The statement reflects the objective relationship between the price of gasoline and the quantity demanded of it that can be tested against the available evidence. Whether the statement is true or false depends upon the conformity of the statement with the available evidence.
c) It is a normative economic statement because the statement is not "value" free. The statement involves subjective bias of some people who think that a cost-benefit analysis of environment regulations is highly improbable and hence should not be done. But there might be others who think that a cost-benefit analysis is the best way to assess environmental regulations.
d) It is a positive economic statement because it can be tested against the available evidence. Imposing higher taxes by increasing the prices of alcohol will decrease the intensity of the people to drink and drive. Whether it will truly happen or not can only be said after it has been tested against available evidence.

Question 4

Why can't we consume as much of each good or service as we would like If we become richer in the future, do you think we will eventually be able to consume as much of everything as we would like Why or why not

Question 5

Suppose that in an effort to help low-skill workers the government raises the permissible minimum wage to $15 per hour. Can you think of any unintended secondary effects that will result from this action Will all low-skill workers be helped by the minimum wage law

Question 6

*Should the United States attempt to reduce air and water pollution to zero Why or why not *Asterisk denotes questions for which answers are given in Appendix B.

Question 7

Indicate how each of the following changes would influence the incentive of a decision-maker to undertake the action described.
a. A reduction in the temperature from 80° to 50° on one's decision to go swimming
b. A change in the meeting time of the introductory economics course from 11:00 A.M. to 7:30 A.M. on one's decision to attend the lectures
c. A reduction in the number of exam questions that relate directly to the text on the student's decision to read the text
d. An increase in the price of beef on one's decision to buy steak
e. An increase in the rental rates of apartments on one's decision to build additional rental housing units

Question 8

*"The government should provide such goods as health care, education, and highways because it can provide them for free." Is this statement true or false Explain your answer.

Question 9

What method is used to ration goods in a market economy How does this rationing method influence the incentive of individuals to supply goods, services, and resources to others
b. How are grades rationed in your economics class How does this rationing method influence student behavior Suppose the highest grades were rationed to those whom the teacher liked best. How would this method of rationing influence student behavior

Question 10

*In recent years, both the personal exemption and child tax credit have been increased in the United States. According to the basic principles of economics, how will the birthrate be affected by policies that reduce the taxes imposed on those with children

Question 11

*"The economic way of thinking stresses that good intentions lead to sound policy." Is this statement true or false Explain your answer.

Question 12

Self-interest is a powerful motivator. Does this necessarily imply that people are selfish and greedy Do self-interest and selfishness mean the same thing

Question 13

A restaurant offers an "all you can eat" lunch buffet for $10. Shawn has already eaten three servings, and is trying to decide whether to go back for a fourth. Describe how Shawn can use marginal analysis to make his decision.

Question 14

*"Individuals who economize are missing the point of life. Money is not so important that it should rule the way we live." Evaluate this statement.