Chapter 2 — Quiz

Multiple choice

Q1. A model is best described as: a) A literal description of reality b) A theory that has been disproven c) A deliberate simplification of reality designed to clarify a particular question d) A list of empirical facts

Q2. Ceteris paribus means: a) "All things equal" b) "Other things being equal" (or "holding everything else constant") c) "Compared to what" d) "For example"

Q3. A point inside the production possibilities frontier represents: a) An infeasible production combination b) An efficient production combination c) A feasible but inefficient production combination (resources being wasted) d) The maximum possible output

Q4. A point outside the production possibilities frontier represents: a) An efficient production combination b) An infeasible production combination (cannot currently be reached) c) A combination that involves negative quantities d) An equilibrium

Q5. The bowed-out (concave) shape of a typical PPF reflects: a) Constant opportunity cost b) Decreasing returns to scale c) Increasing opportunity cost — resources are not perfectly substitutable across uses d) The presence of inflation

Q6. In the simple circular flow diagram, households: a) Buy labor from firms b) Sell goods to firms c) Sell labor (and other factors) to firms in exchange for wages, then buy goods from firms with that income d) Are passive

Q7. The fundamental insight of the circular flow diagram is that: a) The economy has many actors b) One person's spending is another person's income c) Government spending crowds out private spending d) Markets are always efficient

Q8. A positive economic statement: a) Always presents economics in a favorable light b) Makes a claim about what is (and can in principle be checked against evidence) c) Makes a claim about what should be (and depends on values) d) Cannot be tested

Q9. A normative economic statement: a) Is about what is normal or average b) Makes a claim about what should be (and depends on values) c) Makes a claim about what is (and can be tested) d) Cannot be evaluated

Q10. Two economists who agree on all positive facts about a policy: a) Must agree on whether the policy is desirable b) Must use the same model c) Can still disagree on whether the policy is desirable, because they may weight values differently d) Are not really economists

Q11. Which is NOT one of the four reasons economists disagree (per the chapter)? a) Disagreement about facts b) Disagreement about which model to use c) Disagreement about values d) Disagreement about who should win the next election

Q12. The Card and Krueger 1994 study and the Neumark and Wascher response to it primarily illustrate: a) Disagreement about values b) Disagreement about the data and methodology c) Disagreement about time horizons d) Disagreement about whether economics should exist

Short answer

SA1. In one sentence, explain why economists use models even though models are not literally true.

SA2. Distinguish, in one or two sentences each, between an "efficient" point and an "inefficient" point on a PPF. Give an example of what could cause an economy to operate at an inefficient point.

SA3. Write one positive statement and one normative statement about the same economic topic of your choice.

SA4. Two economists are debating whether a stimulus package would help the economy recover from a recession. What information would help you tell whether their disagreement is about facts, about models, about values, or about time horizons?

SA5. Why does it matter whether an assumption in a model is honestly stated rather than hidden?

True / False

TF1. Every economic model leaves things out. (True / False)

TF2. A useful model is one that includes everything about reality. (True / False)

TF3. Ceteris paribus is a Latin phrase meaning "other things equal." (True / False)

TF4. Disagreement among economists is always a sign that the field is broken. (True / False)

TF5. A normative claim can be derived purely from positive claims with no value premises. (True / False)

TF6. Economic growth (in the simplest sense) corresponds to an outward shift of the production possibilities frontier. (True / False)

Selected answers and explanations are in appendices/answers-to-selected.md.