Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 1 The Nature of Economics 41
3) Economics is an empirical science, which means that economists
A) must use laboratory experiments to test their theories.
B) evaluate a model or theory by whether its assumptions are consistent with the real world.
C) try to prove their models are true by referring to logic.
D) look for evidence to determine whether the model is useful or not.
4) Both the social sciences and the natural sciences employ ________ to help them understand the
world around them.
A) models B) designs
C) traditional thinking D) implications
5) Which is NOT true about the use of economic models?
A) Economic models are simplified representations of the real world.
B) Economists sometimes use laboratory experiments to test their theories.
C) Economists use what has already happened in the real world to test their theories.
D) Economists are employed to explain economic phenomena but are never used to predict
what might happen next.
6) Which of the following statements is FALSE?
A) Economists empirically test their models.
B) Economic models are not used to forecast.
C) An economic model should capture only the essential relationships that are sufficient to
analyze the particular problem being studied.
D) Economic models relate to behavior rather than to individual thought processes.
7) Economists develop models to
A) capture every detail of the real world.
B) make their arguments more realistic.
C)
j
ustify the assumptions they make about people s behavior.
D) help us understand economic phenomena in the real world.
8) Which of the following statements concerning economic models is FALSE?
A) Economic models must provide usable predictions.
B) Economic models are based on pure fact and no assumptions.
C) Economic models are tested empirically.
D) Economic models relate to how people behave.
9) Which of the following statements about economic models is true?
A) Economic models are not empirically testable.
B) The predictive power of models is not important.
C) Economic models are designed so that every detail of the real world can be analyzed.
D) Every economic model is based on a set of assumptions.
10) Economic models
A) are used to explain how people think.
B) are used to explain how people behave.
C) are essential representations of the real world.
D) are never used for making economic projections or predictions.
11) One reason why economists often use models in their analysis is that
A) a model helps us to understand, explain, and predict economic phenomena in the real
world.
B) a model accurately pictures every detail of the real world economy.
C) a model relates to individual thought processes rather than behavior.
D) it is relatively easy to perfectly specify a model.
12) An economic model should capture
A) the essential relationships that help to analyze the problem.
B) all possible variables that apply to the problem.
C) only social value related variables.
D) all of the above.
13) One problem with constructing a perfectly complete realistic economic model is that
A) it would be too simplistic to have any value.
B) it would be far too complicated to analyze.
C) politicians see little value in such a model.
D) None of the above is true.
14) Which of the following statements is true?
A) No economic model captures every detail that affects a problem.
B) Economic models always make accurate predictions about behaviors.
C) Economic models must fully reflect reality.
D) Economic models use economists opinions with no use of data.
15) A map is an example of a model because a map
A) realistically describes an area.
B) is always as complex as space will permit.
C) is two dimensional.
D) is a simplified representation of reality.
16) Holding all variables constant but one and assessing the impact of the one variable that has
changed is an example of using
A) the ceteris paribus assumption.
B) an economic model based on unrealistic assumptions.
C) a flawed economic model.
D) an untestable proposition.
17) The term ceteris paribus means
A) the greatest good for all.
B) the study of scarcity and choice.
C) all other things remaining constant or equal.
D) value free and testable.
18) In order to study how changing price affects consumer decisions, we must assume all other
factors, such as income and the prices of other goods are constant. This assumption is best
know as
A) rationality. B) ceteris paribus.
C) normative economics. D)
b
ehavioral economics.
19) Which of the following is an example of an application of the ceteris paribus assumption?
A) An analysis of how price changes affect how much of a good people will purchase when
all other factors are held constant
B) An analysis of how people purchase more goods when prices decline and income
increases
C) After reading an article on the dangers of high fat diets, an individual buys less red meat
when prices increase
D) An analysis of how worker productivity increases when a firm invests in new machines
and training programs
20) Ceteris paribus means
A) making all the necessary changes. B) other things constant.
C) for certain parameters. D) let the buyer beware.
21) The ceteris paribus assumption is important in economics because
A) all empirical data are equal.
B) it would be impossible to relate the effects of changes in one variable on another without
holding some variables constant.
C) economic data move very slowly over time and so they can always be considered constant.
D) models are always complex and require as many variables as possible.
22) The assumption that other things are constant is also known as the
A) ceteris paribus assumption.
B) rational self interest assumption.
C) distinguishing characteristic of economics as a science.
D) relationships assumption.
23) Mary says she plans to return to college next semester assuming her car keeps running, tuition
fees don t go up, and her daycare provider continues to be dependable. An economist would say
that Mary plans to return to college next semester, ________.
A) caveat emptor B) ceteris paribus C) laissez faire D) ipso facto
24) Professor s economics students are constructing models for how gasoline prices change. Maria s
model has very realistic assumptions and is quite complex. Anna s model is less complicated
and less realistic. Maria s model correctly predicts gas price increases 5% of the time. Anna s
model predicts correctly 15% of the time. On the basis of usefulness or goodness, Professor
will give which student s model the higher grade and why?
A) Maria s model gets the higher grade because it is more complex.
B) Anna s model gets the higher grade because it is simpler.
C) Maria s model gets the higher grade because it is more realistic.
D) Anna s model gets the higher grade because it predicts accurately more often.
25) Why is economics called an empirical science?
A)
b
ecause economics has been used to both create and destroy empires
B)
b
ecause economics uses impressions to evaluate the usefulness of its models
C)
b
ecause economics relies on real world data to determine the usefulness of a model
D)
b
ecause economics utilizes intuition rather than data to evaluate a model s worth
26) An appropriate test of the effectiveness of an economic model is
A) the number of variables contained within the model.
B) the model s ability to predict future economic activity.
C) the number of economists who have worked on the model.
D) the number of assumptions which the economist has made.
27) A good economic model
A) utilizes only the two most important factors to analyze the problem under consideration.
B) generates statements that are incapable of refutation.
C) represents every detail of the real world.
D) yields usable predictions and implications for the real world.
28) The usefulness of a model is determined by
A) whether it helps to explain or predict real world phenomena.
B) whether it possesses realistic assumptions.
C) how well it uses the ceteris paribus assumption.
D) how many of the possible relationships that exist are included in the model.
29) The use of data in economic models is important because
A) the model s predictive value rests on supportive evidence from real world data.
B) the models are always complex in nature.
C) models must analyze every possible angle of the problem.
D) social problems analyzed by economists require long streams of data.
30) If two competing models are offered to explain a certain economic phenomenon, the better
model is the one
A) that is the newest since newer models are better than old models.
B) with the fewest unrealistic assumptions.
C) that more often predicts with most accuracy.
D) that is not subject to empirical verification.
31) To be useful, a model must
A) predict accurately all of the time.
B) predict more accurately than other models that have been developed.
C) have assumptions that have been verified by empirical testing.
D) explain and predict the behavior of every individual.
32) Economics is called an empirical science because
A) economists study real world evidence to test their models.
B) economists use assumptions in their models.
C) economic models have no predictive power.
D) economic analysis is only useful in a capitalistic society.
33) Which of these social sciences deals most with models of behavior rather than with thought
processes?
A) Psychology B) Sociology C) Psychiatry D) Economics
34) Which of the following best describes how economists test the empirical predictions of economic
models?
A) Economists survey individuals to learn about how people think through decisions about
how much to purchase or to produce.
B) Economists collect and analyze real world observations of people s actions to discern if
those actions accord with theories predictions.
C) Based on theories about thought processes, economists seek to determine which thought
processes predominate in determining how a person decides what actions to take.
D) Recognizing that people always do what they say they will do, economists rely exclusively
on information gleaned from polls and surveys conducted by poll takers and market
researchers.
35) When constructing economic models, economists are more concerned with
A) what people say than what they do.
B) what people think than what they say.
C) what people do than what they say.
D) what people say than what they do or think.
36) Behavioral economics is an approach to the study of consumer behavior
A) that emphasizes psychological limitations and complications that potentially interfere with
rational decision making.
B) that emphasizes the capabilities of individuals to succeed in attaining all their unlimited
wants utilizing limited resources.
C) that, in contrast to standard approaches in economics, utilizes the ceteris paribus
assumption.
D) that, in contrast to standard approaches in economics, relies on real world data to evaluate
the usefulness of economic models.
37) The hypothesis that people are nearly, but not fully rational, cannot possibly fully examine
every available choice, and utilize simple rules of thumb in making decisions is known as the
A) irrationality hypothesis. B) ceteris paribus hypothesis.
C) individual aggregation hypothesis. D)
b
ounded rationality hypothesis.
38) According to the bounded rationality hypothesis, an individual confronting a large number of
complicated choices is most likely to respond by
A) using a simple rule of thumb to choose among a subset of easiest to evaluate options.
B) using the ceteris paribus assumption to assist in simplifying and examining each of the
possible options.
C) utilizing readily available empirical evidence to assist in evaluating every option.
D) assessing every available choice by developing sophisticated theories regarding each
option.
39) An economic theory is also known as an economic
A) model or principle. B) design.
C) miracle. D) assumption.
40) Economic models are
A) always based on laboratory methods similar to natural sciences.
B) a simplified representations of the real world.
C) used only in microeconomic analysis by households.
D) used only in macroeconomic analysis by business firms.
41) Economic models are NOT used to
A) explain economic phenomena.
B) predict economic phenomena.
C) understand economic phenomena.
D) describe all economic phenomena in minute detail.
42) To test their theories, economists usually have to
A) set up careful laboratory experiments with all variables controlled.
B) first examine theory and what has happened in the past in the real world.
C) use only models that have a proven record of success.
D) anticipate every factor with 100 percent accuracy.
43) A difference between biology and economics is that
A) economists use models and biologists use theories.
B)
b
iologists often use laboratory methods and economists do less often.
C) economics explains events while biology predict events.
D)
b
iologists use the scientific method while economists do not.
44) Models must
A)
b
e able to yield useable predictions.
B)
b
e totally realistic in every detail.
C)
b
e a complete reproduction of the real world.
D) include every relationship that exists.
45) A good economic model
A) cannot be refuted.
B) describes the real world completely and in detail.
C) captures the essential relationships of the problem under consideration.
D) captures all relationships about the problem under consideration.
46) Which of the following statements is NOT true?
A) Economics is a social science.
B) Economics is an empirical science.
C) Economics does not use theories.
D) Economics is the study of how people allocate their limited resources to satisfy their
unlimited wants.
47) A characteristic of a good model is that
A) its predictions can be tested using real world data.
B) it is useful for making irrefutable predictions.
C) it applies to all situations.
D) it predicts perfectly.
48) In an economic model, assumptions
A) must be applicable to all real world situations.
B) must be eliminated before being used to make sure the model is realistic.
C) are not important in determining the usefulness of the model.
D) define the set of circumstances in which the model is most likely to be applicable in the
real world.
49) A model is used to explain economic behavior. Therefore,
A) the assumptions must be complex while the model itself is simple.
B) the model must be complex.
C) the model must be simple.
D) the model can be either simple or complex so long as it explains economic behavior.
50) Ceteris paribus assumption means
A) the role of rational self interest in the economy.
B) that nothing else changes except the variables under consideration.
C) relying on real world data in evaluating the usefulness of a model.
D) analysis that is strictly limited to making either purely descriptive statements or scientific
predictions.
51) If economists are making the assumption that business people try to maximize profits, the best
way to determine whether this assumption is useful or not is to
A) see whether it generates accurate predictions about the choices of business people.
B) ask business people whether it is true or not.
C) find out whether U.S. businesses are more profitable than European businesses.
D) take a survey of people and see if they agree with this assumption.
52) The assumption that nothing changes except the factor being studied is
A) the ceteris paribus assumption. B) the rationality assumption.
C) positive economic analysis. D) normative economic analysis.
53) Ceteris paribus means
A) invisible hand. B) other things constant.
C) making all the necessary changes. D) individual.
54) A scientist who is studying earthquakes includes the impact of wind when performing some
tests of damages to structures. This is an example of
A) failing to understand how to do scientific methodology.
B) irrational behavior in noneconomic situations.
C) accounting for every possible phenomena that may effect the problem under examination.
D) failing to hold all other things constant.
55) Economics is an empirical science, which means that economists
A) look at evidence to see whether or not the model is applicable.
B) test their models by utilizing unknown variables.
C) do only laboratory experiments.
D) refuse to test their models since the usefulness of a model is determined by whether it is
logical or not.
56) Which expression below matches most closely the way economists go about testing their
models?
A) Consistency is the hobgoblin of small minds.
B) Seeing the results is the only way to know if you are right.
C) A bird in the hand is worth two in the bush.
D) In the long run we are all dead.
57) Economic models relate to
A) people s choices.
B) how people think about something.
C) group opinions.
D) the reasons people give for donating to charity.
58) A poll conducted by a national firm finds that most Americans say they care more about safety
when buying a car than about fuel efficiency. As a result, a car maker produces a car with many
safety features, but it doesn t sell well. This behavior
A) contradicts economic theory because the people didn t do what they said they would do.
B) contradicts economic theory because it is irrational not to purchase safer cars.
C) does not contradict economic theory because economists focus on what people do rather
than on what they say.
D) does not contradict economic theory because economic theory only relates to prices and
not to features such as safety.
59) According to proponents of behavioral economics, because every possible choice cannot be
considered, an individual will tend to fall back on methods of making decisions that are simpler
than trying to sort through every single possibility, known as
A) rules of thumb. B) rational options.
C) irrational choices. D) normative decisions.
60) Which of the following is NOT an alleged unrealistic assumption that proponents of
behavioral economics suggest are commonly utilized in traditional economic models based on
the rationality assumption?
A) unbounded selfishness B) unbounded rationality
C) unbounded will power D) unbounded resources
61) If psychological limitations and other complications cause people to be unable to examine and
think through every possible choice available to them and rely instead on rules of thumb, then
these individuals exhibit
A) unbounded rationality. B) normative thinking.
C)
b
ounded rationality. D) positive thinking.
62) A theory or a model
A) is a simplified, abstract view of reality.
B) is based on each economist s value judgments.
C) is a detailed analysis of what ought to be.
D) captures all aspects of the real world.
63) Ceteris paribus means
A) all variables are independent.
B) other things being equal.
C) some assumptions must be accepted without proof.
D) some theories are not rational.
64) The ceteris paribus assumption means
A) favors are returned in kind. B) this is the proof of the matter.
C) from many, one. D) other things are equal.
65) In building a model the assumption that allows economists to study only the factors being
analyzed is the
A) rationality assumption. B) ceteris paribus assumption.
C) the self interest assumption. D) the scarcity assumption.
66) Ceteris paribus means
A) other variables are held constant. B) almost certainly.
C) only if everything works just right. D) perhaps.
67) In constructing models, economists
A) include all independent variables. B) include all available information.
C) attempt to duplicate the real world. D) make simplifying assumptions.
68) In building a model to analyze economic situations, one of the important assumptions is
A) ceteris paribus. B) scarcity.
C) conversion abstraction. D) cognitive dissonance.
69) Assumptions are necessary to
A) make economics a social science.
B) define a set of circumstances where a model is most likely to apply.
C) define the relationship between wants and resources under all circumstances.
D) define the specific cause and effect relationship that is being explained by social sciences.
70) Ceteris paribus means
A) all men are created equal.
B) wage parity between men and women is a worthy goal.
C) there are an infinite number of factors affecting each human decision and they change all
the time.
D) economists isolate one or two factors that change when analyzing human decisions.
71) Economic models are used to
A) simplify reality to predict outcomes. B) exactly replicate reality.
C) predict all possible outcomes of a study. D) determine the thoughts of individuals.
72) Economic models
A) should be designed so as to capture every detail or interrelationship that exists.
B) are simplified representations of the real world.
C) must employ the use of laboratory methods.
D) All of the above are correct.
73) Economics may be referred to as a(n) ________ science, meaning that data is looked at to see
whether assertions are correct.
A) empirical B) exact C) assumptive D) soft
74) The term ceteris paribus is an economic assumption that means
A) let the buyer beware. B) common sense is reality.
C) the detail is in the interrelationship. D) other things being equal.
75) The value of a model is determined by
A) the usefulness of its predictions in the real world.
B) the extent of the profit earned by applying it.
C) the realism of its assumptions.
D) the model s attention to real world details.
76) Assumptions in models tend to make
A) the model predict what the scientist wants the results to be.
B) the model more complex.
C) the model more applicable to specific circumstances.
D) the model always predict the future accurately.
77) What would lead an economist to conclude that Theory A is superior to Theory B?
A) Theory A predicts real world events better than does Theory B.
B) The assumptions underlying Theory A are more realistic than are the assumptions
underlying Theory B.
C) Theory A explains how people think, whereas Theory B only explains what they do.
D) Theory A is based on the assumption that an individual typically cannot determine what is
in his or her own best interest, whereas Theory B assumes that each person knows what is
in his or her own best interest and acts accordingly.
78) Why do economists test their hypotheses?
A) to see whether people are motivated by self interest
B) to see whether their models predict the choices people will make
C) to determine whether government policies have effectively achieved their goals
D) to learn what people are thinking when they make the choices they do
79) Which of the expressions below best describes the aim of economic theory?
A) to predict how people think about money
B) to understand why money motivates some people more than others
C) to predict the choices people will make
D) to learn what we can do to prevent people from having unrealistic wants
80) 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?
A) Your roommate is irrational.
B) Your roommate does not know what is in his own best interests.
C) You roommate does not know his own preferences as well as you do.
D) You constructed a model that made a prediction, and the prediction was refuted.
81) Which of the following statements about economic models is true?
A) A good economic model is complex.
B) A good model does not rely on any assumptions.
C) Every model is based on a set of assumptions.
D) Economic models are designed to explain what people need.
82) The way economists understand, explain and predict economic phenomena is to
A) form a theory.
B) consider real world data only in rare cases.
C) utilize normative economics.
D) aggregate data and examine only the big picture.
83) By using the ceteris paribus assumption in conjunction with a model, economists can
A) suspend the rationality assumption.
B) avoid having their model depend on any additional assumptions.
C) hold certain factors constant.
D)
b
e sure that the model will predict correctly.
84) What is meant by saying that economics is an empirical science?
A) Economic theories do not need to be tested because they are based on true assumptions.
B) Economic theories cannot be tested because there is no means of measuring economic
variables with adequate precision.
C) Economic theories cannot be tested because economic variables change too quickly.
D) Economic theories will be tested by seeing how well they correspond to real world
phenomena.
