What Methods May an Economist Use to Test a Hypothesis

1. Place the steps that make up the scientific method in their proper order. a. Observe an interesting phenomenon b. Develop a hypothesis c. Construct models d. Design experiments e. Collect results f. Assess hypothesis 2. In one day, Al’s Furniture can make 3 tables or 4 chairs, whereas BIG Furniture Warehouse can make 20 tables or 30 chairs. Match the concept to the corresponding description. a. COMPARATIVE ADVANTAGE → Al's can make tables at a lower opportunity cost than BIG. b. ABSOLUTE ADVANTAGE → BIG can make more tables than Al's. c. TRADE OFF → For BIG to make more tables, it has to make fewer chairs. d. GAIN FROM TRADE → BIG and Al's could both benefit if they coordinated their production efforts. 3. Which country is a good example of a high present rate of investment and a low present rate of consumer goods consumption? a. Mexico 4. Leading up to the Great Recession, a major problem with computer models used by many banks to predict the performance of mortgage-back securities was that the models were designed to assume that real estate prices would always rise 5. Match the appropriate label to the direction (positive or negative) of the relationship of each pair of variables. a. POSITIVE CORRELATION: ice cream sales and temperatures; team T-shirt sales and the winning percentage of the team b. NEGATIVE CORRELATION: seat belt use and car crash fatalities; rainfall and number of visitors at a golf course 6. Drag each formula to the part of the graph where it would be most useful. a. ON THE SLOPE LINE: slope = change in y/x b. PRODUCER'S TOTAL: area = base x height c. CONSUMER SURPLUS: area = 1/2 x base x height 7. Each box below describes a relationship between two variables that has been interpreted incorrectly. Match the appropriate label to each mistake. a. OMITTED VARIABLE i. People become tired when they wear athletic clothes. ii. Drinking a lot of water leads to sunburn. b. REVERSE CAUSATION i. People who visit the dentist are more likely to get a cavity ii. Cars that mechanics work on regularly are more likely to break down. 8. Calculate the slope of a line passing through point A at (2, 1) and point B at (4, 2). Calculate to one decimal place. a. 0.5 9. Identify whether these statements are normative or positive. a. NORMATIVE i. We need a progressive tax system to improve equality and fairness for taxpayers in a society. ii. Income inequality should be minimized in a developed society iii. Everyone should wear a face mask because it is civically responsible to do. iv. Steph Curry is the best point guard because he has the highest shooting average of anyone in the NBA. v. Income inequality should be minimized in a developed society. b. POSITIVE i. Carla will get more exercise at the fair than a movie. ii. The average person lies four times a day. iii. If you practice tennis two hours a day, you will win more matches. c. 10. Natalia notices that if she does not sleep a lot at night, she feels tired the next day. What relationship (if any) exists between hours of sleep and degree of exhaustion? a. There is a negative correlation 11. To have an absolute advantage means to be able to produce more using the same resources. To have comparative advantage means to have a lower opportunity cost. Comparative advantage is the basis for gains from trade. It is impossible for a producer to have a comparative advantage in both goods. 12. What methods may an economist use to test a hypothesis? a. METHOD TO TEST A HYPOTHESIS i. Gather historical data. ii. Conduct one or more experiments. iii. Wait for real-world events to confirm or refute the hypothesis. b. NOT A METHOD TO TEST A HYPOTHESIS i. Formulate an alternative hypothesis. ii. Frame the hypothesis as a normative statement. 13. Assume that an economy produces only two goods, pizza and wings, and that it is producing on its production possibilities frontier (PPF). If the economy can only produce two goods, which of the following ways would allow the economy to produce even more pizza? a. WAY TO INCREASE THE NUMBER OF PIZZAS PRODUCED i. improved pizza-making technology ii. improved wing-making technology iii. growth in labor force b. NOT A WAY TO INCREASE THE NUMBER OF PIZZAS PRODUCED i. some workers move to a country that produces only pizza ii. more efficient use of existing production assets 14. What were the key factors that made the Wright brothers’ wind tunnel a useful tool for wing design? a. KEY FACTOR i. enabled independent control of each key variable ii. allowed measurement of wing performance b. NOT A KEY FACTOR i. could be used without prior knowledge of aerodynamics ii. included an element of unpredictability 15. During the coronavirus pandemic, scientists used models containing multiple variables to help make predictions about the spread of the virus. These variables, also referred to as factors, can either be endogenous, meaning they are included in the model; or endogenous, meaning they are excluded from the model. 16. 17. 18.