An economic model is useful only if it:
a. contains no positive statements.
b. captures all the complexities of reality.
c. yields accurate predictions.
d. has both macro- and microeconomic applications.
QUESTION 2An economic model is defined as:
a. a value judgment.
b. a presentation of all possible relevant real-world variables.
c. a simplified representation of the way in which facts are related.
d. data adjusted for irrational actions.
QUESTION 3A theory is:
a. based only on critical factors or variables. b. a simplified abstraction of the real world.
c. a detailed description of reality. d. a and b.
QUESTION 4A model is defined as a:
a. description of all variables affecting a situation.
b. positive analysis of all variables affecting an event.
c. simplified description of reality to understand and predict an economic event.
d. prediction based on historical evidence.
QUESTION 5An economist at the University of Alaska at Anchorage has been asked to explain why the price of Alaskan crude oil has fallen recently. In order to develop a model, the professor should take which steps?
a. Identify the problem, develop a model based on simplifying assumptions and test the model to formulate a conclusion.
b. Gather data on crude oil prices and seemingly unrelated variables in order to look for associations, then formulate a hypothesis based on those unexpected associations.
c. Ask people in Alaska why they are not purchasing oil.
d. None of these. The oil industry is controlled by a cartel; therefore price changes in the industry cannot be explained using economic theories.
QUESTION 6Economists use models to:
a. abstract from the complexities of the world.
b. understand economic behavior.
c. explain and help predict human behavior.
d. do all of these.
QUESTION 7The basic purpose of economic models is to:
a. construct simplifying assumptions about the real world.
b. explain reality in all its complexity.
c. construct situations where controlled experiments can be carried out.
d. provide explanations for, and predictions of the relationship between variables.
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