Question 1

Why is the ceteris paribus assumption important?

Accepted Answer

The ceteris paribus assumption allows economists to isolate the relationship between two variables by holding all other variables constant. This is important because it helps to avoid the complexity of analyzing multiple variable interactions at once and allows for more accurate analysis and predictions.

Question 2

Why do economists need to develop abstractions?

Accepted Answer

Economists need to develop abstractions to understand and explain economic behavior. Abstractions simplify the complexity of the real world and allow economists to focus their analysis on specific aspects of economic behavior. This can lead to a better understanding of economic phenomena and the development of more effective policies.

Question 3

An economist might hypothesize that people will buy less gasoline at a price of $1.20 per litre than at $1.00 per litre.In order for the hypothesis to become a theory,it would have to be tested.Which of the following observations would seem to support this hypothesis?

Accepted Answer

This observation supports the hypothesis because it shows that individuals in each region are responding to an increase in price by buying less gasoline.

Question 4

How does an economist define a good economic theory?

Accepted Answer

A good economic theory is one that can explain and predict human behavior, which is the ultimate goal of economic analysis. Theories that are too simplistic or lacking in empirical evidence may not be reliable predictors of human behavior. Therefore, choice (D) is the best answer.

Question 5

What do economists use the term "ceteris paribus" to indicate?

Accepted Answer

"Ceteris paribus" is a Latin phrase meaning "all other things being equal." Economists use this term to indicate that they are making an assumption that all other relevant factors that could affect the outcome of their analysis are held constant or unchanged, except for the ones they specifically focus on. This allows them to isolate the effects of the specific factor they are analyzing and make more accurate predictions or conclusions about its impact.

Question 6

What is the definition of a theory?

Accepted Answer

A theory is a deliberate simplification of factual relationships that attempts to explain and predict how those relationships work. A theory is not an untestable assertion or statement of untestable fact (option A), nor is it a normative statement that can be tested empirically (option B). While a theory can be tested empirically, it cannot always be definitively proven to be true or false using empirical analysis (option C).

Question 7

What does the term "ceteris paribus" mean when used by an economist?

Accepted Answer

"Ceteris paribus" in economics means that all other variables except the ones specified are assumed to be constant. This allows economists to isolate the effects of a particular variable on an economic outcome without the interference of other variables.

Question 8

What is a hypothesis?

Accepted Answer

A hypothesis is a testable proposition, meaning that it can be subjected to empirical observation and evaluation. It is used in scientific research to provide a potential explanation or prediction for a phenomenon or relationship. A normative economic statement (choice A) is a statement about what should be done in a situation, while a hypothesis is a statement about what might be happening or why something is happening. A statement that cannot be evaluated using real-world data (choice C) would not be a hypothesis, as it could not be tested empirically. A model with no connection to the real world (choice D) would also not be a hypothesis, as hypotheses must be based on observable phenomena.

Question 9

Which of the following statements about testing an economic hypothesis is the most accurate?

Accepted Answer

An economic hypothesis can be tested using empirical analysis by examining data and finding evidence that supports or refutes the hypothesis. Normative analysis involves value judgments and cannot be used to test a hypothesis.

Question 10

What is the difference between a theory and a hypothesis?

Accepted Answer

A hypothesis is a testable proposition that is proposed as a possible explanation for a phenomenon, while a theory is an explanation that has been extensively tested and supported by a large body of evidence. A hypothesis can be tentatively accepted as a theory if it is supported by sufficient evidence, but it is not considered a theory until it has been rigorously tested and confirmed. Therefore, the main difference between a theory and a hypothesis is the level of evidence supporting them.

Question 11

Which of the following statements describing the relationship between theory and hypothesis is most accurate?

Accepted Answer

A hypothesis is a testable prediction or explanation for a phenomenon. It is usually formulated based on prior knowledge or observations, and it is tested through experimentation. If a hypothesis is consistently supported by evidence, it may become a theory, which is a larger, more comprehensive explanation or framework that can account for related phenomena. Therefore, a theory may result from a tested and confirmed hypothesis.

Question 12

An economist at the University of Alberta in Edmonton has been asked to explain why the price of Albertan crude oil has fallen recently.Which steps should the professor take in order to assemble a scholarly answer?

Accepted Answer

The best approach would be to develop a hypothesis, test it through empirical analysis, and examine data to see if it fits with the facts. This approach is grounded in the scientific method and will provide a sound scholarly answer. Gathering unrelated data, relying on conspiracy theories, or conducting a survey of residents are not scholarly approaches and may yield unreliable results.

Question 13

On what basis is the best test of an economic theory?

Accepted Answer

The ultimate test of an economic theory is its ability to explain and predict real-world phenomena. While assumptions and mathematical rigour are important, they are not sufficient to demonstrate the usefulness of a theory. The most valuable theories are those that capture real-world complexity and provide accurate predictions about how the economy will behave.

Question 14

Which of the following is NOT a reason that economists use theories?

Accepted Answer

The answer of Which of the following is NOT a...

Question 15

Which of the following describes the chain of events involved in creating a theory?

Accepted Answer

The correct chain of events involved in creating a theory is to formulate a hypothesis, gather data, evaluate the results, support or refute the hypothesis, and tentatively accept theory. This process involves a cyclical approach where the hypothesis is modified based on the results, and the theory is only tentatively accepted until it is further supported through additional evidence. Option A is close, but it misses the step of formulating the hypothesis. Option B is incorrect because it suggests selecting a theory before creating a hypothesis, which is not the proper order of events. Option D is incorrect because it skips the step of formulating a hypothesis.

Question 16

Why is economics different from a "hard" science like physics?

Accepted Answer

The answer of Why is economics different from a "hard"...

Question 17

A theory asserts that manufacturers are less willing to sell units of output as the price of goods decreases.However,as the price of computers fell throughout the 1990s,more computers were sold.Which of the following explanations of the apparent conflict between theory and data is most accurate?

Accepted Answer

Other variables, such as technological advancements and increased demand due to greater accessibility, could have influenced the increase in sales despite the decrease in price. Therefore, the apparent conflict between theory and data can be attributed to the presence of other variables.

Question 18

What does "ceteris paribus" mean?

Accepted Answer

"Ceteris paribus" means "all other things being equal" or "other things held constant." This phrase is often used in economics and other social sciences to isolate the effects of one factor while holding other factors constant.

Question 19

What does the term "ceteris paribus" mean?

Accepted Answer

"Ceteris paribus" is a Latin phrase that translates to "all other things being equal" or "other things held constant." This means that in a given situation or analysis, certain variables are assumed to be constant, while the focus is on the impact of a specific variable that is being studied. Therefore, choice C is the correct answer as it best reflects the meaning of the term.

Question 20

How is an economic theory tested?

Accepted Answer

Economic theories are tested by comparing their predictions with real-world observations. The ability of a theory to predict real-world economic events and trends is an important test of its validity. If a theory consistently fails to accurately predict economic outcomes, it may need to be revised or replaced with a more accurate theory. Assessing the realism of its assumptions and comparing its simplicity with related theories may be useful in the development and refinement of the theory, but ultimately, its predictive power is what determines its validity. Polling economists for consensus may provide some insight, but it is not necessarily a reliable indicator of whether a theory is valid or not.

Quiz 1: The Role and Method of Economics