Question 1

Economic models

Accepted Answer

Economic models are simplified representations of the real world. It is impossible to capture every detail or interrelationship that exists, and laboratory experiments are not always necessary or feasible for every economic model. Therefore, option B is the best choice.

Question 2

What would lead an economist to conclude that Theory A is superior to Theory B?

Accepted Answer

The superiority of a theory is based on its ability to accurately predict real-world events. Therefore, if Theory A can do a better job of predicting events than Theory B, economists would conclude that Theory A is superior.

Question 3

Ceteris paribus means

Accepted Answer

Ceteris paribus is a Latin phrase that means "all other things being equal." In economics, it is used to isolate one or two variables while assuming that all other variables are held constant in order to analyze human decisions or events. Therefore, the correct answer is D - economists isolate one or two factors that change when analyzing human decisions.

Question 4

Behavioral economics deals with

Accepted Answer

Behavioral economics deals with the concept of bounded rationality, which suggests that people are not always able to make fully rational decisions due to constraints such as limited information and cognitive biases. It also takes into account the fact that people's behavior can be influenced by social and psychological factors, and may not always reflect perfect rationality or self-interest. Unbounded willpower is not a central concept in behavioral economics, and while empirical evidence is important in this field, it also draws on theoretical insights and models.

Question 5

The value of a model is determined by

Accepted Answer

The primary value of a model lies in its ability to make accurate predictions about the real world. If a model's predictions can be put to use in practical applications, such as optimizing business processes or improving medical treatments, it is considered useful and valuable. While assumptions and attention to detail are important factors in model development, their impact on the model's overall value is secondary to its predictive power. Profit earned may be a useful measure of a model's success but it is not the primary determinant of its value.

Question 6

Assumptions in models tend to make

Accepted Answer

Assumptions in models are made to simplify the real world and make the model more applicable to specific circumstances by focusing on certain variables while ignoring others. This helps in understanding, analyzing, and making predictions within a defined scope.

Question 7

Which of the following is a behavioral implication of bounded rationality?

Accepted Answer

Bounded rationality is the concept that people make decisions based on limited information and cognitive capacity. As a result, individuals often rely on heuristics or rules of thumb rather than fully rational decision-making. Therefore, choice B, a rule of thumb, is the best behavioral implication of bounded rationality. Choices A, C, and D are not necessarily associated with bounded rationality.

Question 8

The combination of psychology and economics to determine individual decision making is known as

Accepted Answer

The combination of psychology and economics to determine individual decision making is known as behavioral economics. Option B is not a commonly used term, and Option C and D are not accurate descriptions of this field.

Question 9

What is meant by saying that economics is an empirical science?

Accepted Answer

Saying that economics is an empirical science means that economic theories are tested by looking at real-world phenomena. This is because economics relies heavily on data and observation to support or disprove its theories. Option A is not completely accurate because people's declared preferences may not always correspond to their actual behavior. Option B is not correct because there are various methods to measure economic variables, although precision may vary. Option C is incorrect because economic variables do change quickly, but this does not necessarily render economic theories untestable.

Question 10

Which of the expressions below best describes the aim of economic theory?

Accepted Answer

The aim of economic theory is to predict the choices people will make. Economic theories aim to understand how people make decisions when faced with scarcity and limited resources. By predicting these choices, economic theories can be used to guide policy decisions and improve economic outcomes. Option A is too narrow in scope, as economic theory is concerned with more than just how people think about money. Option B is also too specific, as economic theory seeks to understand human behavior in general, not just why some people are more motivated by money than others. Option D focuses on unrealistic wants, which is not necessarily the main focus of economic theory.

Question 11

By using the ceteris paribus assumption in conjunction with a model, economists can

Accepted Answer

By using the ceteris paribus assumption, economists can hold certain factors constant while analyzing the relationship between two variables in a model. This allows them to isolate the effect of one variable on another without being influenced by other factors.

Question 12

Which of the following describes that people cannot examine every possible choice available to them but instead use simple rules of thumb to sort among the alternatives that happen to occur to them?

Accepted Answer

Bounded rationality refers to the idea that individuals have limited cognitive abilities and cannot examine every possible option before making a decision. Instead, they use simple rules of thumb, or heuristics, to quickly sort through the available options and make a decision based on incomplete information.

Question 13

Economics may be referred to as a(n) ________ science, meaning that data is looked at to see whether assertions are correct.

Accepted Answer

Economics is an empirical science, which means it relies on data and evidence to test theories and assertions.

Question 14

Based on your understanding of your roommate's preferences, you predict that he will select the spaghetti for his lunch at the cafeteria, but instead he chooses the gyros. How do you describe this event in terms of economic theory?

Accepted Answer

The situation is explained by economic theory in the context of a model that you constructed to predict your roommate's lunch choice based on his preferences. The fact that he chose a different option than predicted means that the model was refuted or was not accurate enough to capture his actual preference in this particular instance. This does not necessarily imply that your roommate is irrational or does not know his own preferences.

Question 15

Assumptions are necessary to

Accepted Answer

Assumptions are necessary to define a set of circumstances where a model is most likely to apply. Without assumptions, it is difficult to establish a clear relationship between the variables being studied. Assumptions also allow economists to simplify complex situations and make them more manageable to analyze. However, it is important to recognize that all assumptions are based on certain limitations and may not capture the full complexities of real-world situations.

Question 16

The term ceteris paribus is an economic assumption that means

Accepted Answer

Ceteris paribus means "other things being equal or held constant." It is often used in economic analysis to isolate the effect of a specific variable on an outcome by assuming that all other factors remain unchanged.

Question 17

Which of the following statements about economic models is TRUE?

Accepted Answer

All economic models are based on a set of assumptions, as these models simplify the real world to make it possible to analyze and understand economic concepts. While complexity can be a factor in a model's validity, it is not necessarily indicative of its quality or accuracy. A good model will also rely on realistic assumptions and be able to explain and predict real-world economic phenomena. Economic models are not designed to explain what people need, but rather to understand how they behave in relation to economic choices and incentives.

Question 18

A common approach that economists use to understand, explain and predict economic phenomena is to

Accepted Answer

Economists commonly form theories or models to understand, explain and predict economic phenomena. This involves developing a set of assumptions and using logical deductions to create a simplified representation of economic behavior. This allows economists to make predictions and test their assumptions against real-world data to see if they hold up. Other approaches such as conducting experiments, asking people what they think, or examining people's thought processes may be used in certain circumstances, but they are not the primary approach used by economists.

Question 19

Economic models are used to

Accepted Answer

Economic models are designed to simplify complex economic systems to make predictions about how they will behave in the future. While they are not exact replicas of reality, they can help us to understand how different factors and variables can impact economic outcomes. Economic models do not aim to predict all possible outcomes of a study, nor can they determine the thoughts of individuals.

Question 20

Why do economists test their hypotheses?

Accepted Answer

Economists test their hypotheses to see whether their models predict the choices people will make. By testing their predictions against real-world data, economists can refine their models and improve their understanding of how the economy works.

Quiz 1: The Nature of Economics