SOLUTIONS TO TEXT PROBLEMS Chapter 2

SOLUTIONS TO TEXT PROBLEMS Chapter 2 - QuickQuizzes 1...

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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 scientific  method. Figure 1 shows the production possibilities frontier for a society that produces food and clothing. Point  A is an efficient point (on the frontier), point B is an inefficient point (inside the frontier), and point C is  an infeasible point (outside the frontier). Figure 1 The effects of a drought are shown in Figure 2. The drought reduces the amount of food that can be  produced, shifting the production possibilities frontier inward. 1
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2 Chapter 2/Thinking Like an Economist Figure 2 Microeconomics is the study of how households and firms make decisions and how they interact in  markets. Macroeconomics is the study of economy-wide phenomena, including inflation,  unemployment, and economic growth. 2. An example of a positive statement is “a higher price of coffee causes me to buy more tea.” It is a  positive statement because it is a claim that describes the world as it is. An example of a normative  statement is “the government should restrain coffee prices.” It is a normative statement because it is a  claim that prescribes how the world should be. Many other examples are possible. Parts of the government that regularly rely on advice from economists are the Department of the  Treasury in designing tax policy, the Department of Labor in analyzing data on the employment  situation, the Department of Justice in enforcing the nation’s antitrust laws, the Congressional Budget  Office in evaluating policy proposals, and the Federal Reserve in analyzing economic developments.  Many other answers are possible. 3. Economic advisers to the president might disagree about a question of policy because of differences  in scientific judgments or differences in values. Questions for Review 1. Economics is like a science because economists use the scientific method. They devise theories,  collect data, and then analyze these data in an attempt to verify or refute their theories about how the  world works. Economists use theory and observation like other scientists, but they are limited in their  ability to run controlled experiments. Instead, they must rely on natural experiments.
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Chapter 2/Thinking Like an Economist 3 2. Economists make assumptions to simplify problems without substantially affecting the answer.  Assumptions can make the world easier to understand.
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