An economist at the University of Alaska at Anchorage has been asked to explain why the price of Alaskan crude oil has fallen recently. In order to assemble a scholarly answer, the professor should take which steps?
A)Develop a hypothesis, test the proposition by engaging in empirical analysis, and examine the data to see if it fits with the facts.
B)Gather data on crude oil prices and seemingly unrelated variables in order to look for associations, then formulate a hypothesis based on those unexpected associations.
C)Ask people in Alaska why they are not purchasing oil.
D)None of the above.The oil industry is controlled by a cartel; therefore price changes in the industry cannot be explained using economic theories.

Question

An economist at the University of Alaska at Anchorage has been asked to explain why the price of Alaskan crude oil has fallen recently. In order to assemble a scholarly answer, the professor should take which steps?
A)​Develop a hypothesis, test the proposition by engaging in empirical analysis, and examine the data to see if it fits with the facts.
B)​Gather data on crude oil prices and seemingly unrelated variables in order to look for associations, then formulate a hypothesis based on those unexpected associations.
C)​Ask people in Alaska why they are not purchasing oil.
D)​None of the above.The oil industry is controlled by a cartel; therefore price changes in the industry cannot be explained using economic theories.

Quizplus · Accepted Answer

The economist should develop a hypothesis and test it through empirical analysis using data to see if it fits with the facts. This is the standard scientific approach in economics. Option B, while not entirely wrong, carries the risk of forming a hypothesis based on spurious correlations. Option C is not relevant to understanding the global crude oil market, and Option D is incorrect because the oil industry is not completely controlled by a cartel and economic theories can explain price changes in the industry.

An Economist at the University of Alaska at Anchorage Has