Exam 2: Thinking Like an Economist

Which of the following is an example of a normative statement?

Graph 2-3 -Refer to Graph 2-3. On the production possibilities frontier shown, which point represents the maximum possible production of CDs?

In the circular-flow diagram, the only return households get from supplying factors of production to firms are wages.

Which of the following statements are positive, and which are normative? a. The minimum wage creates unemployment among young and unskilled workers. b. The minimum wage ought to be increased. c. If there is a reduction in competition in a market, then other things being equal, prices will increase. d. A little bit of unemployment is worse for society than a little bit of inflation. e. There is a trade-off between inflation and unemployment in the short run. f. Endangered species would be better off if the trade in wildlife was stopped. g. If interest rates increase, forestry plantings will decrease. h. If welfare benefits were reduced, the country would be better off.

Graph 2-2 -Refer to Graph 2-2. In the circular-flow diagram shown, which arrow shows the flow of spending by households?

Economists may disagree on how the government can reduce unemployment.

Draw a production possibilities frontier representing the economy's possible production of milk and eggs. Now show what will happen to the frontier or the production point under each of the following circumstances. Use a separate graph to illustrate each situation. a. the outcome for the economy is efficient, with society choosing approximately equal amounts of milk and eggs b. a recession causes a significant percentage of the labour force to become unemployed c. some cows are found to be infected with mad cow disease and many of the cows must be destroyed d. chickens are infected with a rare disease and egg-laying is reduced e. improvements in animal nutrition raise the general productivity of cows and chickens f. the cow and chicken populations increase g. the Surgeon General announces that drinking milk prolongs life

Graph 2-1 -Refer to Graph 2-1. In the graph shown, the opportunity cost of more art increases as more art is produced.

Sometimes economists who have the same positive views about how the economy works give conflicting advice on policy because they have different values.

Sir Isaac Newton's development of the theory of gravity after observing an apple fall from a tree is an example of:

The revenue from sales that firms have left after paying for the factors of production is:

An economic outcome is said to be efficient if the economy is:

Graph 2-9 -Refer to Graph 2-9. In the graph, the curves shown are:

The circular flow diagram illustrates the:

Points inside the production possibilities frontier represent inefficient outcomes for the economy.

A circular-flow diagram is a simple, equation-based model of how an economy is organised.

Suppose an economy produces two products. These are fish and logs. If technology is introduced that improves the efficiency of logging what would occur to the production possibilities frontier?

All scientific models, including economic models, simplify reality in order to improve our understanding of it.

Graph 2-2 -Refer to Graph 2-2. In the circular-flow diagram shown, which arrow shows the flow of income payments?

Dean says that, 'the imposition of a tax on beer will raise its price'. Kylie argues that, 'taxes should be imposed on beer because university students drink too much'. We can conclude that: