Question 1

Predicting the movement of the stock market on the basis of observed, historical correlations between sunspots and the stock market is to take the risk of predicting on the basis of a logically flawed procedure.

Accepted Answer

There is no known scientific explanation for how sunspots and the stock market could be correlated. Therefore, using observed correlations between these two variables to predict stock market movement is not a reliable or logical procedure.

Question 2

As society produces more and more of one good, the opportunity cost of doing so usually increases.

Accepted Answer

As society produces more of a good, it requires more resources, which increases its opportunity cost. This concept is known as the law of increasing opportunity cost.

Question 3

Leisure is an example of a free good.

Accepted Answer

Leisure is not a free good, as it requires time and resources to enjoy. It may be freely available, but it is not a free good in the economic sense.

Question 4

A system of prices is the primary determinant of what, how, and for whom in a capitalistic economy.

Accepted Answer

In a capitalistic economy, prices serve as the primary mechanism through which the allocation of resources and goods is determined. Prices determine what goods and services will be produced, how they will be produced, and for whom they will be produced. Producers respond to market signals provided by fluctuating prices to allocate resources, determine production levels, and make business decisions. Consumers, in turn, make purchasing decisions based on their ability and willingness to pay for goods and services at given prices. Thus, the system of prices plays a foundational role in the functioning of a capitalistic economy.

Question 5

Economists are now relying less on controlled experiments to explain economic behavior than in the past.

Accepted Answer

Economists are increasingly using controlled experiments, often referred to as randomized controlled trials (RCTs), to understand economic behavior and test theories. This approach has gained prominence, particularly in development economics, to evaluate the effectiveness of policies and interventions.

Question 6

If people act as if they maximize profits even though profits are not exactly what they have in mind as they decide what to do, then assuming that they do indeed try to maximize profits can support a sound economic analysis.

Accepted Answer

This statement is true as long as people's behavior can be reasonably approximated by profit maximization. Even if individuals have other motivations or constraints, assuming that they try to optimize their economic outcomes can be a useful simplification for understanding market behavior, predicting outcomes, and designing policies. However, it is important to acknowledge the potential limitations of profit maximization as a realistic or comprehensive model of human behavior.

Question 7

Hypotheses derived from economic analysis can be validated through empirical analysis, but hardly ever with absolute certainty.

Accepted Answer

Economic hypotheses are typically based on assumptions and simplifying assumptions that allow for mathematical and theoretical analysis. Empirical analysis involves testing these hypotheses against real-world data. While empirical analysis can support or refute economic hypotheses, there is always some degree of uncertainty involved, as economic data can be complex and subject to various interpretations. Therefore, hypotheses derived from economic analysis can be validated through empirical analysis, but not with absolute certainty.

Question 8

As society produces more and more of one good, more and more of the other goods must usually be given up.

Accepted Answer

This statement represents the concept of opportunity cost, which states that as more resources are dedicated to the production of one good, the production of other goods must be reduced or foregone. Therefore, the statement is true.

Question 9

College students that do well in economics courses always do better in business, get into the law school of their choice, and otherwise have superior lives compared to students who either fail to take economics or fail economics.

Accepted Answer

This statement is an oversimplification and cannot be universally applied to all college students. While economics knowledge can be helpful in certain career paths and life decisions, it is not the sole determinant of success in business or law school. There are many factors that contribute to an individual's success, and success cannot be measured solely by academic performance in one particular subject.

Question 10

Ruthless price competition is essentially anarchy.

Accepted Answer

Ruthless price competition refers to aggressive pricing strategies among competitors aiming to undercut each other's prices, but it operates within the framework of market competition and is not synonymous with anarchy, which implies a lack of order or government.

Question 11

Economists like to think of themselves as scientists because they glean most of their insight from controlled experiments.

Accepted Answer

Economists primarily rely on observational data and statistical analyses rather than controlled experiments, which are more commonly used in natural sciences such as physics or biology. While economists may design experiments to test certain hypotheses, these are relatively rare in the field and usually involve a limited number of subjects or scenarios.

Question 12

Positive economics deals with policies aimed at improving the economy.

Accepted Answer

Positive economics is the study of economic phenomena, such as how the economy works, without making value judgments or prescribing specific policies. It focuses on describing and explaining economic behaviors and outcomes. On the other hand, normative economics is concerned with recommending policies to improve the economy, which involves making value judgments about what should or should not be done.

Question 13

It is scarcity that makes goods economic goods.

Accepted Answer

Economic goods are goods that are scarce, meaning that their supply is limited, and they have a positive economic value. The concept of scarcity is what makes goods economic because if a good is abundant and freely available, there is no economic value attached to it.

Question 14

The scientific method is not applicable to the study of economics because economics is not a true science.

Accepted Answer

Economics is a social science and the scientific method can be applied to it. The scientific method involves observing, formulating hypotheses, testing these hypotheses, and then formulating theories based on the results. Economic theories can be tested through empirical analysis and economic models can be used to make predictions and test hypotheses, just like in any other scientific field.

Question 15

If empirical testing shows that a conclusion that follows logically from economic analysis is not true, then serious doubt is cast on the validity of the theoretical approach.

Accepted Answer

If empirical testing contradicts a conclusion reached through economic analysis, it suggests that the theoretical approach may have flaws or assumptions that do not align with the real world. Therefore, this indicates that the validity of the theoretical approach may be questionable.

Question 16

Economic analysis plays an integral role in helping us to better understand our society.

Accepted Answer

Economic analysis helps us to understand how resources are allocated, how markets function, and how policies can impact individuals and society. Through economic analysis, we can gain insights into a wide range of social issues, from income inequality and poverty to environmental sustainability and healthcare. In this way, economic analysis is an essential tool for policymakers, businesses, and individuals alike in making informed decisions that can improve our lives and our world.

Question 17

What, how, and for whom are central questions for any economic system.

Accepted Answer

These are indeed the central questions for any economic system. "What" refers to what goods and services are produced, "how" refers to the methods and technologies used to produce them, and "for whom" refers to the distribution of those goods and services among individuals and groups in the economy.

Question 18

If empirical testing verifies a hypothetical implication of a given analysis, then the theoretical approach is verified, as well.

Accepted Answer

Empirical testing verifying a hypothetical implication supports the validity of the theoretical approach but does not fully verify it, as other implications must also be tested and alternative explanations ruled out.

Question 19

Normative economics deals with economic programs that have been in place for five or more years.

Accepted Answer

Normative economics is a branch of economics that deals with economic activities in terms of what ought to be as opposed to what is. It involves value judgments, opinions, and analysis of economic policies and outcomes. It is not specifically focused on programs that have been in place for a particular duration of time.

Question 20

Socialism faces different economic problems than does capitalism.

Accepted Answer

The answer of Socialism faces different economic problems than does...

Quiz 1: The Central Concepts of Economics