Question 1

The simple circular-flow model for households and firms is an economic model that focuses on the interaction between households and firms. Which of the following statements regarding the model is correct?​
A)The model is missing the interaction between firms and the resource market. Therefore, it cannot predict well.
B)The model is missing the interaction between households and the product market. Therefore, it cannot predict well.
C)The model has too many simplifying assumptions, and it cannot be used to make predictions about the real world.
D)The model is a simplification of the real world, and it can be used to make predictions about the real world.
E)The model is missing the interaction between firms and the product market. Therefore, it cannot predict well.

Accepted Answer

The model is a simplification of the real world, and it can be used to make predictions about the real world. While it is true that the model has simplifying assumptions and does not include all interactions between households and firms, it still provides a useful starting point for understanding economic behavior and can be used to make predictions about the real world.

Question 2

Economic theories are:​
A)useful because they are as exact as theories in the physical sciences.
B)useless because they are based on abstractions.
C)useful because they allow us to make predictions.
D)too complex to understand because they include all of reality.
E)useful in predicting events only if their assumptions are realistic.

Accepted Answer

Economic theories are useful because they allow us to make predictions about future events. While they may not be as exact as theories in the physical sciences and are based on abstractions, their usefulness lies in their ability to provide insights and predictions about economic phenomena. However, these predictions are dependent on the realism of the assumptions used in the economic models.

Question 3

Economic theory:​
A)expresses normative values.
B)invents imaginative and interesting stories.
C)predicts the behavior of a specific economic decision maker after an economic change.
D)predicts the average behavior of a group of similar economic decision makers after an economic change.
E)uses only perfect and complete information.

Accepted Answer

Economic theory predicts the average behavior of a group of similar economic decision makers after an economic change. It does not express normative values, invent imaginative and interesting stories or use only perfect and complete information. Additionally, while economic theory can make predictions about the behavior of a specific economic decision maker, its main focus is on the behavior of groups of decision makers.

Question 4

Which of the following is an accurate list, in order, of the steps of the scientific method?​
A)Define variables; state assumptions; form a hypothesis; test
B)State assumptions; define variables; form a hypothesis; test
C)Identify variables; state assumptions; test; form a hypothesis
D)Identify variables; form a hypothesis; form behavioral assumptions; test
E)Define assumptions; form behavioral assumptions; form hypothesis; test

Accepted Answer

The answer of Which of the following is an accurate...

Question 5

The economic behavior of individual decision makers and the determination of price and output in specific markets are both studied in:​
A)disequilibrium economics.
B)normative economics.
C)positive economics.
D)microeconomics.
E)macroeconomics.

Accepted Answer

Microeconomics is the branch of economics that deals with the study of individual economic behavior of agents such as households, firms, and markets. It focuses on the determination of price and output in specific markets.

Question 6

The other-things-constant assumption:​
A)allows the economist to make useful predictions.
B)is a prediction.
C)applies only to consumers' decisions and not to those of firms.
D)forces the economist to ignore reality, where things are constantly changing.
E)implies rational self-interest on the part of all economic actors.

Accepted Answer

The other-things-constant assumption is a method used by economists to isolate the relationship between two variables. It assumes that all other factors remain constant besides the two being studied. This assumption allows economists to make useful predictions because they can isolate the impact of a specific variable on an outcome.

Question 7

Economists employ the scientific method. In part, this means that:​
A)there is a single economic theory accepted by all economists.
B)economic hypotheses are tested to determine their validity.
C)all economic laws have been proven true by laboratory tests.
D)personal values never enter into economic policy recommendations.
E)assumptions are not necessary in economic science.

Accepted Answer

The scientific method involves creating hypotheses and testing them through empirical evidence, which is precisely how economists work. Economic hypotheses are tested to determine their validity, and economists must use empirical data to support their conclusions.

Question 8

All economic models must involve simplifications because:​
A)economists would be unable to command high salaries if their models were so simple that anyone could understand them.
B)human behavior is very erratic and unpredictable.
C)reality is too complex to understand in its entirety, so we must reduce the complexity to a level that we can understand.
D)they always try to duplicate all possible information and cover all possible variables that might influence decision making.
E)we must rely on value judgments and ignore reality.

Accepted Answer

Economic models are simplifications of reality to make them easier to understand and analyze. It is impossible to cover all possible variables that might influence decision making, so we must reduce the complexity of reality to a level that we can understand.

Question 9

An economic model:​
A)omits critical elements.
B)must be presented in mathematical terms.
C)simplifies reality in order to focus on its essential elements.
D)can never be proven wrong if its assumptions are realistic.
E)produces poor predictions if it includes an unrealistic assumption.

Accepted Answer

Economic models are an abstraction of reality since they cannot consider every detail of an economy at any given moment, and therefore they simplify reality in order to focus on its essential elements. This helps to identify the relationships between different variables and create predictions about how economic variables will behave.

Question 10

An economic model is useful if it:​
A)includes every detail of reality.
B)involves no unproven assumptions.
C)is expressed in equations.
D)makes accurate predictions.
E)is simple enough to be understood by a child.

Accepted Answer

While an economic model cannot include every detail of reality and typically involves some unproven assumptions, a useful economic model is one that is able to make accurate predictions about real-world phenomena.

Question 11

A good theory seeks to:​
A)distort reality in order to improve forecasting ability.
B)predict phenomena without explaining them.
C)explain phenomena without predicting them.
D)confront reality in all its complexity by focusing on the unique aspects of each phenomenon.
E)simplify a complex reality.

Accepted Answer

A good theory simplifies complex reality to make it understandable and manageable, without necessarily distorting it or ignoring its complexity.

Question 12

Macroeconomists analyze:​
A)the labor market.
B)the arrangements through which specific products are exchanged.
C)influences on the decision making of particular households.
D)the impact of unemployment on the economy.
E)the factors that affect the decisions of individual firms.

Accepted Answer

Macroeconomists analyze the overall performance and behavior of the economy, rather than individual agents or markets. This includes analyzing the impact of large scale phenomena such as unemployment, inflation, and economic growth on the economy as a whole.

Question 13

You currently subscribe to two magazines and are trying to decide whether you should subscribe to a third. What should determine your decision if you are economically rational?​
A)The total cost of the magazines compared to the total satisfaction you would receive
B)The total amount of satisfaction you would get from the magazines
C)The enjoyment you would get from the third magazine
D)The cost of the third magazine including the time it takes to read it
E)The cost of the third magazine compared to the additional enjoyment you would get from it

Accepted Answer

As an economically rational person, you should only subscribe to the third magazine if the additional enjoyment you would get from it is worth the cost of the subscription. Therefore, the cost of the third magazine compared to the additional enjoyment you would get from it should determine your decision. Option E is the best choice because it considers both the cost and the enjoyment factor.

Question 14

When constructing an economic model, economists:​
A)rely mostly on their own value judgments and ignore the far more complex world of facts.
B)always try to duplicate reality by including all available information.
C)use assumptions that are true for the individual but never true for the whole economy.
D)must rely on assumptions for the sake of simplification.
E)are primarily concerned with making realistic assumptions.

Accepted Answer

Economic models cannot include every detail of reality, so economists have to make simplifying assumptions in order to focus on the most important factors and relationships. However, economists aim to make these assumptions as realistic as possible within the boundaries of simplification.

Question 15

Microeconomics is the study of:​
A)marginal or inferior products.
B)how to use the fewest natural resources to produce goods and services.
C)the behavior of the economy as a whole.
D)the economic behavior of individual decision makers.
E)the government's role as a producer in the economy.

Accepted Answer

Microeconomics is the study of how individuals, households, and firms make decisions regarding the allocation of resources and the interaction of supply and demand in individual markets. It focuses on the behavior and decision-making process of individual economic agents, rather than the economy as a whole.

Question 16

The basic purpose of economic models is to:​
A)construct simplifying assumptions about the real world.
B)explain reality in all its complexity.
C)collect empirical data to support the facts.
D)construct situations where controlled experiments can be carried out.
E)explain and predict economic events.

Accepted Answer

The basic purpose of economic models is to explain and predict economic events. Economic models are simplified representations of real world economic phenomena which help in understanding and forecasting economic behavior.

Question 17

A good economic theory:​
A)approaches reality in all its complexity.
B)involves so much distortion of reality that it is worthless.
C)focuses on the unique aspects of each situation.
D)involves some simplification of reality.
E)bears no relation to reality.

Accepted Answer

Good economic theories involve some simplification of reality, but still attempt to capture the key elements and relationships that govern economic behavior. However, if a theory involves too much distortion of reality (as in B), it may not be useful for understanding the workings of the actual economy. It is also important for economic theories to focus on the unique aspects of each situation (as in C), rather than trying to apply a one-size-fits-all approach to all economic phenomena. Finally, a good economic theory should bear some relation to reality (as in E), although it may not capture all the nuances of a particular situation.

Question 18

Macroeconomics is the study of:​
A)the behavior of large firms in the marketplace.
B)the economic behavior of individual decision makers.
C)the behavior of the economy as a whole.
D)how to use the fewest natural resources to produce goods and services.
E)the government's role as a stabilizing influence on the economy.

Accepted Answer

Macroeconomics focuses on the behavior of the economy as a whole, including the study of aggregate measures such as GDP, inflation, and unemployment. It examines the relationships between factors such as government policies, international trade, and economic growth.

Question 19

An economic model that sometimes makes incorrect predictions may be used by economic decision makers:​
A)under no circumstances.
B)only if its assumptions are detailed and realistic.
C)if it is mathematical and computerized.
D)if it is simple enough for a child to understand.
E)until a better model is developed.

Accepted Answer

Even if a model sometimes makes incorrect predictions, it can still be useful for economic decision makers until a better one is developed. It is important to continuously improve and update economic models based on new data and insights, but in the absence of a better alternative, decision makers may still rely on the best available model for their needs.

Question 20

A good economic theory:​
A)has realistic assumptions.
B)contains as much detail as possible.
C)cannot be proven false.
D)predicts well.
E)can only be presented in mathematical terms.

Accepted Answer

The answer of A good economic theory:​
A)has realistic assumptions.
B)contains as...

Quiz 1: The Art and Science of Economic Analysis

The simple circular-flow model for households and firms is an economic model that focuses on the interaction between households and firms. Which of the following statements regarding the model is correct?​

Economic theories are:​

Economic theory:​

Which of the following is an accurate list, in order, of the steps of the scientific method?​

The economic behavior of individual decision makers and the determination of price and output in specific markets are both studied in:​

The other-things-constant assumption:​

Economists employ the scientific method. In part, this means that:​

All economic models must involve simplifications because:​

An economic model:​

An economic model is useful if it:​

A good theory seeks to:​

Macroeconomists analyze:​

You currently subscribe to two magazines and are trying to decide whether you should subscribe to a third. What should determine your decision if you are economically rational?​

When constructing an economic model, economists:​

Microeconomics is the study of:​

The basic purpose of economic models is to:​

A good economic theory:​

Macroeconomics is the study of:​

An economic model that sometimes makes incorrect predictions may be used by economic decision makers:​

A good economic theory:​

The simple circular-flow model for households and firms is an economic model that focuses on the interaction between households and firms. Which of the following statements regarding the model is correct?

Economic theories are:

Economic theory:

Which of the following is an accurate list, in order, of the steps of the scientific method?

The economic behavior of individual decision makers and the determination of price and output in specific markets are both studied in:

The other-things-constant assumption:

Economists employ the scientific method. In part, this means that:

All economic models must involve simplifications because:

An economic model:

An economic model is useful if it:

A good theory seeks to:

Macroeconomists analyze:

You currently subscribe to two magazines and are trying to decide whether you should subscribe to a third. What should determine your decision if you are economically rational?

When constructing an economic model, economists:

Microeconomics is the study of:

The basic purpose of economic models is to:

A good economic theory:

Macroeconomics is the study of:

An economic model that sometimes makes incorrect predictions may be used by economic decision makers:

A good economic theory: