Chapter 2
Tools of Positive Analysis
Multiple-Choice
1. Positive economics
A) does not depend on market interactions.
B) only looks at the best parts of the economy.
C) examines how the economy actually works (as opposed to how it should work).
D) is very subjective.
Ans: c
2. The Law of Demand states
A) that there is an inverse relationship between price and quantity demanded.
B) that the judicial branch of government sets demand schedules.
C) that laws can have no effect on market economies.
D) none of the above.
Ans: a
3. The function Y = f(X,Z) means
A) X multiplied by Y equals f.
B) X + Y = Z.
C) Y is a function of both X and Z.
D) none of the above.
Ans: c
4. If there is a function and one component is Y3, then there is a ____ in the function.
A) square root
B) cubic
C) cosine
D) circle
E) all of the above
Ans: b
5. Refer to Question 4 above. The equation containing Y3 would be
A) linear.
B) quadratic.
C) a Nash equilibrium.
D) inefficient.
E) nonlinear.
Ans: e
6. Marginal and average taxes are
A) calculated using the same methodology.
B) not used in modern tax analysis.
C) not calculated using the same methodology.
D) all of the above.
Ans: d
7. The slope of a regression line is calculated by dividing
A) the intercept by the change in horizontal distance.
B) the change in horizontal distance by the change in vertical distance.
C) the change in horizontal distance by the intercept term.
D) the change in vertical distance by the change in horizontal distance.
Ans: d
8. Unobserved influences on a regression are captured in the
A) error term.
B) parameters.
C) regression line.
D) significance term.
E) regression coefficient.
Ans: a
9. The following can be analyzed using econometrics:
A) labor supply.
B) market demand.
C) tax_setting behavior.
D) poverty.
E) all of the above.
Ans: e
10. Normative economics
A) does not depend on market interactions.
B) only looks at the best parts of the economy.
C) examines how the economy actually works (as opposed to how it should work).
D) embodies value judgments.
Ans: d
11. The Latin phrase ceteris paribus means
A) let the buyer beware.
B) other things being the same.
C) swim at your own risk.
D) whatever will be will be.
Ans: b
12. The substitution effect
A) is when individuals consume more of one good and less of another.
B) is associated with changes in relative prices.
C) will have no effect if goods are unrelated.
D) is all of the above.
Ans: d
13. Self_selection bias affects empirical estimation by
A) leading to samples that are not representative of the entire population.
B) making estimators improved.
C) increasing the accuracy of test results.
D) doing none of the above.
Ans: a
14. When different bundles of commodities give the same level of satisfaction, you are
A) said to be indifferent between the bundles.
B) said to be confused.
C) not able to make a decision.
D) unhappy with any combination.
E) none of the above.
Ans: a
15. The marginal rate of substitution is
A) the slope of the utility curve.
B) the slope of the contract curve.
C) the slope of the utility possibilities curve.
Ans: a
16. Data that is considered observational can be
A) cross-sectional
B) time series
C) panel
D) all of the above
Ans: d
17. A counterfactual is
A) what happens when there are no facts.
B) what would have happened if the treatment group had not received the treatment.
c) a legal term describing the process of proving that a negative is the actual truth.
D) none of the above.
Ans: b
Essay
18. Suppose that a competitive firm’s marginal cost of producing output q is given by MC=2+2q. Assume that the market price of the firm’s product is $13.
A) What level of output will the firm produce?
B) What is the firm’s producer surplus?
Ans: q = 11/2. Producer surplus = ½(11/2)11 = 121/4.
19. Use the following function for elasticity: ε = -(1/s)(P/X), where s is the slope of the demand curve, P is the price, and X is the quantity demanded, to find elasticity when demand is Xd = 22-(1/4)P when the price of good X is 20.
Ans: ε
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“” “”“” “”
Chapter 2
Tools of Positive Analysis
Multiple-Choice
1. Positive economics
A) does not depend on market interactions.
B) only looks at the best parts of the economy.
C) examines how the economy actually works (as opposed to how it should work).
D) is very subjective.
Ans: c
2. The Law of Demand states
A) that there is an inverse relationship between price and quantity demanded.
B) that the judicial branch of government sets demand schedules.
C) that laws can have no effect on market economies.
D) none of the above.
Ans: a
3. The function Y = f(X,Z) means
A) X multiplied by Y equals f.
B) X + Y = Z.
C) Y is a function of both X and Z.
D) none of the above.
Ans: c
4. If there is a function and one component is Y3, then there is a ____ in the function.
A) square root
B) cubic
C) cosine
D) circle
E) all of the above
Ans: b
5. Refer to Question 4 above. The equation containing Y3 would be
A) linear.
B) quadratic.
C) a Nash equilibrium.
D) inefficient.
E) nonlinear.
Ans: e
6. Marginal and average taxes are
A) calculated using the same methodology.
B) not used in modern tax analysis.
C) not calculated using the same methodology.
D) all of the above.
Ans: d
7. The slope of a regression line is calculated by dividing
A) the intercept by the change in horizontal distance.
B) the change in horizontal distance by the change in vertical distance.
C) the change in horizontal distance by the intercept term.
D) the change in vertical distance by the change in horizontal distance.
Ans: d
8. Unobserved influences on a regression are captured in the
A) error term.
B) parameters.
C) regression line.
D) significance term.
E) regression coefficient.
Ans: a
9. The following can be analyzed using econometrics:
A) labor supply.
B) market demand.
C) tax_setting behavior.
D) poverty.
E) all of the above.
Ans: e
10. Normative economics
A) does not depend on market interactions.
B) only looks at the best parts of the economy.
C) examines how the economy actually works (as opposed to how it should work).
D) embodies value judgments.
Ans: d
11. The Latin phrase ceteris paribus means
A) let the buyer beware.
B) other things being the same.
C) swim at your own risk.
D) whatever will be will be.
Ans: b
12. The substitution effect
A) is when individuals consume more of one good and less of another.
B) is associated with changes in relative prices.
C) will have no effect if goods are unrelated.
D) is all of the above.
Ans: d
13. Self_selection bias affects empirical estimation by
A) leading to samples that are not representative of the entire population.
B) making estimators improved.
C) increasing the accuracy of test results.
D) doing none of the above.
Ans: a
14. When different bundles of commodities give the same level of satisfaction, you are
A) said to be indifferent between the bundles.
B) said to be confused.
C) not able to make a decision.
D) unhappy with any combination.
E) none of the above.
Ans: a
15. The marginal rate of substitution is
A) the slope of the utility curve.
B) the slope of the contract curve.
C) the slope of the utility possibilities curve.
Ans: a
16. Data that is considered observational can be
A) cross-sectional
B) time series
C) panel
D) all of the above
Ans: d
17. A counterfactual is
A) what happens when there are no facts.
B) what would have happened if the treatment group had not received the treatment.
c) a legal term describing the process of proving that a negative is the actual truth.
D) none of the above.
Ans: b
Essay
18. Suppose that a competitive firm’s marginal cost of producing output q is given by MC=2+2q. Assume that the market price of the firm’s product is $13.
A) What level of output will the firm produce?
B) What is the firm’s producer surplus?
Ans: q = 11/2. Producer surplus = ½(11/2)11 = 121/4.
19. Use the following function for elasticity: ε = -(1/s)(P/X), where s is the slope of the demand curve, P is the price, and X is the quantity demanded, to find elasticity when demand is Xd = 22-(1/4)P when the price of good X is 20.
Ans: ε
–
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