SOLUTIONS TO TEXT PROBLEMS:
Quick Quizzes
1. Economics is like a science because economists devise theories, collect data, and
analyze the data in an attempt to verify or refute their theories. In other words,
economics is based on the scientic method.
Chapter 2/Thinking Like an Economist ❖ 14
Figure 2
2. An example of a positive statement is “a higher price of co(ee causes me to buy more
3. Economic advisers to the president might disagree about a question of policy because of
di(erences in scientic judgments or di(erences in values.
Chapter Quick Quiz
1. c
Questions for Review
1. Economics is a science because economists use the scientic method. They devise
theories, collect data, and then analyze these data in an attempt to verify or refute their
2. Economists make assumptions to simplify problems without substantially a(ecting the
3. An economic model cannot describe reality exactly because it would be too complicated
4. There are many possible answers.
5. There are many possible answers, including interactions involving government or
6. Figure 3 shows a production possibilities frontier between milk and cookies (PPF1). If a
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise
on a password-protected website or school-approved learning management system for classroom use.
Chapter 2/Thinking Like an Economist ❖ 15
Figure 3
7. An outcome is e”cient if the economy is getting all it can from the scarce resources it
Figure 4
8. The two subelds in economics are microeconomics and macroeconomics.
9. Positive statements are descriptive and make a claim about how the world is, while
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise
on a password-protected website or school-approved learning management system for classroom use.
Chapter 2/Thinking Like an Economist ❖ 16
10. Economists sometimes o(er con7icting advice to policymakers for two reasons: (1)
Problems and Applications
1. See Figure 5; the four transactions are shown.
Figure 5
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in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise
on a password-protected website or school-approved learning management system for classroom use.
Markets for
Goods and Services
Markets for
Factors of Production
HouseholdsFirms
a. $1
c. $40
a. quart of milk
c. haircut
a. quart of milk
c. haircut
a. $1
c. $40
b. $8.00
d. $20,000
b. $8.00
d.
$20,000
b. one hour of
work
d. Acme’s capital
b. one hour of
work
d. Acme’s capital
Chapter 2/Thinking Like an Economist ❖ 17
2. a. Figure 6 shows a production possibilities frontier between guns and butter. It is bowed
out because of the law of increasing opportunity costs. As the economy moves from
Figure 6
b. Point A is impossible for the economy to achieve; it is outside the production
c. The Hawks might choose a point like H, with many guns and not much butter. The
d. If both Hawks and Doves reduced their desired quantity of guns by the same amount,
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise
on a password-protected website or school-approved learning management system for classroom use.
Chapter 2/Thinking Like an Economist ❖ 18
3. See Figure 7. The shape and position of the frontier depend on how costly it is to
Figure 7 Figure 8
4. a. A: 40 lawns mowed; 0 washed cars
b. The production possibilities frontier is shown in Figure 8. Points A, B, and D are on the
c. Larry is equally productive at both tasks. Moe is more productive at washing cars,
d. Allocation C is ine”cient. More washed cars and mowed lawns can be produced by
5. a. A family’s decision about how much income to save is related to microeconomics.
6. a. The statement that society faces a short-run trade-o( between in7ation and
unemployment is a positive statement. It deals with how the economy is, not how it
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise
on a password-protected website or school-approved learning management system for classroom use.
Chapter 2/Thinking Like an Economist ❖ 19
b. The statement that a reduction in the rate of money growth will reduce the rate of
c. The statement that the Federal Reserve should reduce the rate of money growth is a
d. The statement that society ought to require welfare recipients to look for jobs is a
e. The statement that lower tax rates encourage more work and more saving is a
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise
on a password-protected website or school-approved learning management system for classroom use.