Exam 2: Thinking Like an Economist

Who would be more likely to study the effects of rent control on housing in New York City, a macroeconomist or a microeconomist?

Figure 2-13 ​ Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two. ​ ​ ​ -Refer to Figure 2-13. What is the opportunity cost of moving from point T to point R?

Evaluating normative statements involves values as well as facts.

Table 2-1 ​ Production Possibilities Tennis Rackets Tennis Balls 150 9,000 300 7,500 450 ? -Refer to Table 2-1. If the production possibilities frontier is bowed outward, then which of the following could be the maximum number of tennis balls produced when 300 tennis rackets are produced?

Normative statements describe how the world is, while positive statements prescribe how the world should be.

Changes in one variable on a graph might be caused by the other variable on the graph or by a third omitted variable.

In the circular flow diagram, who owns the factors of production and consumes all of the goods and services produced?

Economists at the U.S. Department of the Treasury help design U.S. coins and paper money.

When two variables have a negative correlation,

Figure 2-10 ​ ​ ​ ​ ​ -Refer to Figure 2-10. Unemployment could cause this economy to produce at point B.

The prairie dog has always been considered a problem for American cattle ranchers. They dig holes that cattle and horses can step in, and they eat grass necessary for cattle. Recently, ranchers have discovered that there is a demand for prairie dogs as pets. In some areas, prairie dogs can sell for as high as $150 each. Cattlemen are now fencing off prairie dog towns on their land so these towns will not be disturbed by their cattle. Draw a rancher's production possibilities frontier showing increasing opportunity cost of cattle production in terms of prairie dog production. Using a separate graph for each situation, show what would happen to the initial production possibilities frontier in each of the following situations: a.The outcome is efficient, with ranchers choosing to produce equal numbers of cattle and prairie dogs. b.As a protest against the government introducing the gray wolf back into the wild in their state, ranchers decide to withhold 25 percent of the available grassland for grazing. c.The price of prairie dogs increases to $200 each, so ranchers decide to allot additional land for prairie dogs. d.The government grants new leases to ranchers, giving them 10,000 new acres of grassland each for grazing. e.A drought destroys most of the available grass for grazing of cattle, but not for prairie dogs since they also eat plant roots.

Figure 2-10 ​ ​ ​ ​ ​ -Refer to Figure 2-10. It is possible for this economy to produce 45 doghouses and 30 dishwashers.

Figure 2-12 ​ ​ ​ ​ ​ ​ -Refer to Figure 2-12. What does the arrow going from oval A to rectangle 2 represent in the figure?

Figure 2-9 ​ Commuter Rail Passengers by Frequency of Service ​ -Refer to Figure 2-9. Which of the following conclusions should not be drawn from observing this graph?

When two variables move in the same direction, the curve relating them is downward sloping, and we say the variables are negatively related.

Figure 2-13 ​ Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two. ​ ​ ​ -Refer to Figure 2-13. What is the opportunity cost of moving from point R to point Q?

If an economy can produce more of one good without giving up any of another good, then the economy's current production point is inefficient.

In the circular-flow diagram, households and firms are the decision makers.

Positive statements can be evaluated using data alone, but normative statements cannot.

Economists make assumptions to