,Chapter 2
Thinking Like An Economist
TRUE/FALSE
1. Economists try to address their subject with a scientist’s objectivity.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Definitional
2. Economists devise theories, collect data, and then analyze these data in an attempt to verify or refute their
theories.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Definitional
3. The scientific method is the dispassionate development and testing of theories about how the world works.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Scientific method MSC: Definitional
4. The scientific method can be applied to the study of economics.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Scientific method MSC: Interpretive
5. While the scientific method is applicable to studying natural sciences, it is not applicable to studying a
nation’s economy.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Scientific method MSC: Interpretive
6. For economists, conducting experiments is often difficult and sometimes impossible.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Definitional
7. Economists usually have to make do with whatever data the world happens to give them.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Definitional
8. It is difficult for economists to make observations and develop theories, but it is easy for economists to run
experiments to generate data to test their theories.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Interpretive
9. Since economists cannot use natural experiments offered by history, they must use carefully constructed
laboratory experiments instead.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Interpretive
10. Historical episodes are not valuable to economists.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Interpretive
49
,50 Chapter 2/Thinking Like An Economist
11. Historical episodes allow economists to illustrate and evaluate economic theories of the present.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Definitional
12. Good assumptions simplify a problem without substantially affecting the answer.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Assumptions MSC: Interpretive
13. Assumptions can simplify the complex world and make it easier to understand.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Assumptions MSC: Definitional
14. Economists often find it worthwhile to make assumptions that do not necessarily describe the real world.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Interpretive
15. Economists use one standard set of assumptions to answer all economic questions.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Interpretive
16. Economic models are most often composed of diagrams and equations.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Economic models MSC: Definitional
17. Economic models omit many details to allow us to see what is truly important.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Economic models MSC: Definitional
18. Economic models can help us understand reality only when they include all details of the economy.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Economic models MSC: Interpretive
19. An economic model can accurately explain how the economy is organized because it is designed to include, to
the extent possible, all features of the real world.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Economic models MSC: Interpretive
20. All scientific models, including economic models, simplify reality in order to improve our understanding of it.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Economic models MSC: Definitional
21. The circular-flow diagram explains, in general terms, how the economy is organized and how participants in
the economy interact with one another.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Interpretive
22. A circular-flow diagram is a visual model of the economy.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Definitional
, Chapter 2/Thinking Like An Economist 51
23. In the circular-flow diagram, households and firms are the decision makers.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Interpretive
24. In the circular-flow diagram, firms produce goods and services using the factors of production.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram | Factors of production MSC: Interpretive
25. In the circular-flow diagram, factors of production are the goods and services produced by firms.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram | Factors of production MSC: Interpretive
26. In the circular-flow diagram, factors of production include land, labor, and capital.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram | Factors of production MSC: Interpretive
27. In the circular-flow diagram, firms own the factors of production and use them to produce goods and services.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram | Factors of production MSC: Interpretive
28. In the circular-flow diagram, firms consume all the goods and services that they produce.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Interpretive
29. In the circular-flow diagram, the two types of markets in which households and firms interact are the markets
for goods and services and the markets for factors of production.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Definitional
30. In the markets for goods and services in the circular-flow diagram, households are buyers and firms are sellers.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Definitional
31. In the markets for the factors of production in the circular-flow diagram, households are buyers and firms are
sellers.
ANS: F DIF: 1 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Definitional
32. In the circular-flow diagram, one loop represents the flow of goods, services, and factors of production, and
the other loop represents the corresponding flow of dollars.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Interpretive
33. In the circular-flow diagram, one loop represents the flow of goods and services, and the other loop represents
the flow of factors of production.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Interpretive
Thinking Like An Economist
TRUE/FALSE
1. Economists try to address their subject with a scientist’s objectivity.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Definitional
2. Economists devise theories, collect data, and then analyze these data in an attempt to verify or refute their
theories.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Definitional
3. The scientific method is the dispassionate development and testing of theories about how the world works.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Scientific method MSC: Definitional
4. The scientific method can be applied to the study of economics.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Scientific method MSC: Interpretive
5. While the scientific method is applicable to studying natural sciences, it is not applicable to studying a
nation’s economy.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Scientific method MSC: Interpretive
6. For economists, conducting experiments is often difficult and sometimes impossible.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Definitional
7. Economists usually have to make do with whatever data the world happens to give them.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Definitional
8. It is difficult for economists to make observations and develop theories, but it is easy for economists to run
experiments to generate data to test their theories.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Interpretive
9. Since economists cannot use natural experiments offered by history, they must use carefully constructed
laboratory experiments instead.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Interpretive
10. Historical episodes are not valuable to economists.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Interpretive
49
,50 Chapter 2/Thinking Like An Economist
11. Historical episodes allow economists to illustrate and evaluate economic theories of the present.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Definitional
12. Good assumptions simplify a problem without substantially affecting the answer.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Assumptions MSC: Interpretive
13. Assumptions can simplify the complex world and make it easier to understand.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Assumptions MSC: Definitional
14. Economists often find it worthwhile to make assumptions that do not necessarily describe the real world.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Interpretive
15. Economists use one standard set of assumptions to answer all economic questions.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: The study of economics and definitions of economics
TOP: Economists MSC: Interpretive
16. Economic models are most often composed of diagrams and equations.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Economic models MSC: Definitional
17. Economic models omit many details to allow us to see what is truly important.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Economic models MSC: Definitional
18. Economic models can help us understand reality only when they include all details of the economy.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Economic models MSC: Interpretive
19. An economic model can accurately explain how the economy is organized because it is designed to include, to
the extent possible, all features of the real world.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Economic models MSC: Interpretive
20. All scientific models, including economic models, simplify reality in order to improve our understanding of it.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Economic models MSC: Definitional
21. The circular-flow diagram explains, in general terms, how the economy is organized and how participants in
the economy interact with one another.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Interpretive
22. A circular-flow diagram is a visual model of the economy.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Definitional
, Chapter 2/Thinking Like An Economist 51
23. In the circular-flow diagram, households and firms are the decision makers.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Interpretive
24. In the circular-flow diagram, firms produce goods and services using the factors of production.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram | Factors of production MSC: Interpretive
25. In the circular-flow diagram, factors of production are the goods and services produced by firms.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram | Factors of production MSC: Interpretive
26. In the circular-flow diagram, factors of production include land, labor, and capital.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram | Factors of production MSC: Interpretive
27. In the circular-flow diagram, firms own the factors of production and use them to produce goods and services.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram | Factors of production MSC: Interpretive
28. In the circular-flow diagram, firms consume all the goods and services that they produce.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Interpretive
29. In the circular-flow diagram, the two types of markets in which households and firms interact are the markets
for goods and services and the markets for factors of production.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Definitional
30. In the markets for goods and services in the circular-flow diagram, households are buyers and firms are sellers.
ANS: T DIF: 1 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Definitional
31. In the markets for the factors of production in the circular-flow diagram, households are buyers and firms are
sellers.
ANS: F DIF: 1 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Definitional
32. In the circular-flow diagram, one loop represents the flow of goods, services, and factors of production, and
the other loop represents the corresponding flow of dollars.
ANS: T DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Interpretive
33. In the circular-flow diagram, one loop represents the flow of goods and services, and the other loop represents
the flow of factors of production.
ANS: F DIF: 2 REF: 2-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Circular-flow diagram MSC: Interpretive
