Question 1

Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates

Accepted Answer

This example illustrates the concept of opportunity costs, as the university had to forego an option (expanding parking for students) to pursue another option (upgrading computers and scientific equipment for faculty). The cost of this decision is measured by the value of the next best alternative that had to be given up, which is the expansion of parking for students. Therefore, the opportunity cost of the upgrade is $1 million in parking. This implies that the university could have chosen to maximize the benefits to students if they went ahead with the expansion of parking.

Question 2

The term "other things equal" means that

Accepted Answer

"Other things equal" means that all other relevant variables are assumed to be constant. This allows for the analysis of the effect of a specific variable on the outcome without the influence of other factors.

Question 3

Which of the following terms implies the greatest degree of confidence in an economic generalization?

Accepted Answer

A theory is a well-substantiated explanation of some aspect of the natural world that is based on empirical evidence and has been repeatedly tested and confirmed through observation and experimentation. Thus, a theory implies the greatest degree of confidence in an economic generalization. A hypothesis is an educated guess that is used to explain a phenomenon or make predictions, but it may or may not be supported by evidence. A comparison is a way of evaluating the similarities and differences between two or more things, but it does not necessarily provide a generalization. An anomaly is a deviation from what is expected or normal, which may or may not be explained by a theory or hypothesis.

Question 4

Which of the following terms implies the least degree of confidence in an economic generalization?

Accepted Answer

A hypothesis suggests a possible explanation for a phenomenon but it has not yet been proven or tested extensively, therefore implying the least degree of confidence in an economic generalization. The other options (B) theory, (C) principle, and (D) law all imply increasing degrees of confidence as they require more evidence, testing, and support from empirical data.

Question 5

Kelly works at an ice cream shop and observes that the number of people buying ice cream varies greatly from day to day. For a couple of weeks, she has recorded the number of people at the shop each day, as well as the daily temperature. If Kelly is using the scientific method to better understand ice cream buying habits, her next step is to

Accepted Answer

The next step for Kelly is to use the observed data to form a hypothesis about ice cream buying behavior. This involves analyzing the data and looking for patterns or relationships between the number of people buying ice cream and the temperature. From this analysis, Kelly can develop a hypothesis, which can then be tested through further observation and experimentation. It is important to note that while Kelly has observed a relationship between temperature and ice cream buying habits, she cannot definitively conclude that this is a well-tested economic principle without further testing and analysis. Additionally, it would not be appropriate for her to throw out data that does not show a perfect relationship, as this could skew her results and lead to inaccurate conclusions.

Question 6

An economic hypothesis

Accepted Answer

An economic hypothesis is a possible explanation of cause and effect. It is a statement that suggests a relationship between two economic variables and proposes how one variable may affect the other. It is not the same as an economic principle or law, which are more established and widely accepted. A hypothesis can be either positive (descriptive) or normative (prescriptive), but it is not necessarily stronger than an economic law.

Question 7

In constructing models, economists

Accepted Answer

Economists make simplifying assumptions when constructing models in order to make the models more manageable and easier to understand. It is not always possible or necessary to include all available information or duplicate the real world. While mathematical equations are often used, they are not an absolute requirement for constructing models in economics.

Question 8

Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as

Accepted Answer

Alex is engaging in rational self-interest behavior by identifying a demand for lawn mowing services and offering his labor in exchange for a wage. It is natural for some neighbors to accept or refuse the offer based on their own needs and preferences, which does not make Alex's behavior irrational or selfish. The fact that Alex is asking for a wage that some neighbors can't afford does not necessarily mean he is being greedy, as setting a higher wage may reflect his perceived value of his labor and the opportunity cost of doing other activities.

Question 9

Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that

Accepted Answer

The statement is stating that "other things equal" or in other words, holding all other factors constant, the relationship between price and quantity demanded is inverse. This is the Law of Demand. Option A is incorrect because the statement is suggesting that price determines quantity demanded, not the other way around. Option C is incorrect because not everyone will buy more bananas when the price falls, only those who are price sensitive. Option D is incorrect because the statement itself is a generalization about the relationship between price and quantity demanded.

Question 10

The basic purpose of the other-things-equal assumption is to

Accepted Answer

The other-things-equal assumption, also known as ceteris paribus, allows one to isolate and examine the relationship between two variables (X and Y) by holding all other potential influencing factors (Z) constant. This allows for the identification of the causal relationship between X and Y, which may not be possible if other variables are not controlled for.

Question 11

Which of the following most closely relates to the idea of opportunity costs?

Accepted Answer

Opportunity costs refer to the choices that must be made when resources are limited (trade-offs). The other options are not directly related to opportunity costs. Economic growth refers to an increase in the production of goods and services, technological change refers to advancements in technology, and capitalism refers to an economic system characterized by private ownership of the means of production and the creation of goods and services for profit.

Question 12

Kara was out jogging and, despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara

Accepted Answer

Economists assume that individuals make decisions based on the marginal benefits and costs. Kara's decision to run one more mile indicates that the marginal benefit of running one more mile was greater than the marginal cost, despite her tiredness. Therefore, economists would conclude that Kara weighed the marginal benefits and costs of running one more mile and decided that it was worth it.

Question 13

Which of the following is a correct statement?

Accepted Answer

Economic laws are generalizations that are useful for predicting and adjusting to events, but they are not absolute or applicable in all situations. This is because economic conditions and factors are constantly changing, making it important for economists to continually analyze and update their models and theories. Option A is incorrect because economic concepts can vary depending on the economic climate, and what may be applicable during a recession may not be applicable during prosperity. Option C is incorrect because while economists use scientific methods, economic laws are not as quantitatively precise as the laws of physics or chemistry due to the complexity and unpredictability of the human behavior and market. Option D is incorrect because economics is a scientific field that uses quantitative analysis and empirical research to understand and explain economic phenomena. While ethical considerations may play a role in economic decision-making, economics is not primarily a branch of applied ethics.

Question 14

Economic theories

Accepted Answer

Economic theories are generalizations based on hypotheses tested and supported with observed facts. They provide a framework to understand and analyze economic trends and behavior. Although they may not perfectly apply to every individual situation, they provide valuable insights and guidance for decision-making in the real world.

Question 15

The scientific method is

Accepted Answer

The scientific method is a commonly used approach by economists and other social scientists, physical scientists, and life scientists to formulate and test hypotheses. It involves making observations, developing a hypothesis, collecting and analyzing data, and drawing conclusions. While the complexity of human behavior can make it difficult to apply the scientific method to economics, it is still a valuable tool for exploring economic phenomena.

Question 16

Economists contend that most economic decisions are

Accepted Answer

Economists believe that individuals and firms make purposeful decisions based on their own self-interest and the incentives they face.

Question 17

The Latin term "ceteris paribus" means

Accepted Answer

"Ceteris paribus" means "other things being equal" in Latin. This term is used in economics to refer to the assumption that all other factors that could affect a situation are held constant or unchanged. It allows economists to isolate the impact of a single variable on a situation, which can help in making predictions and analyzing cause-and-effect relationships.

Question 18

Which one of the following expressions best states the idea of opportunity cost?

Accepted Answer

The expression "there is no such thing as a free lunch" best states the idea of opportunity cost as it means that every choice we make has an opportunity cost, in that we have to give up something in order to get something else. In other words, there is no free lunch because everything that we receive has a cost, whether it be time, money, or resources.

Question 19

The process by which economists test hypotheses against facts to develop theories, principles, and models is called

Accepted Answer

The scientific method is a systematic approach used by economists to test hypotheses against empirical evidence in order to develop theories, principles, and models. This involves formulating a hypothesis, collecting relevant data, analyzing the data using statistical techniques and empirical methods, and drawing conclusions based on the results. It is a fundamental aspect of modern economics and helps to ensure that economic theories are based on solid empirical evidence rather than on conjecture or speculation.

Question 20

A well-tested economic theory is often called

Accepted Answer

A principle is a well-established and proven concept in economics. It is based on empirical evidence and is widely accepted as a reliable guide for economic decision-making. A hypothesis is a tentative assumption or explanation that has not been tested or confirmed, while a prototype is a preliminary version of a product or model. An anomaly is a deviation from the expected or normal pattern, and is usually considered to be outside the realm of established economic theory.

Quiz 1: Limits, Alternatives, and Choices