micro terms quiz 1

Economic variable

A measurable quantity that can change and is relevant to the economy. Examples include income, prices, employment, or GDP.

Correlation

A relationship between two variables in which a change in one variable is associated with a change in another. Correlation does not necessarily mean one causes the other.

Causation

A relationship in which a change in one variable directly causes a change in another variable.

Experimental economics

The use of controlled experiments to study how people make economic decisions and test economic theories.

Economic model

A simplified representation of reality that economists use to explain, analyze, and predict economic behavior or outcomes.

Positively related variables

Two variables that move in the same direction. When one increases, the other tends to increase; when one decreases, the other tends to decrease.

Negatively related variables

Two variables that move in opposite directions. When one increases, the other tends to decrease, and vice versa.

Ceteris paribus

A Latin phrase meaning “all else equal.” Economists use it to examine the effect of one variable while assuming other relevant factors remain unchanged.

Hypothesis

A testable explanation or prediction about the relationship between variables.

Positive economics

The study of what is—economic statements that can be tested using evidence and determined to be true or false.

Normative economics

The study of what ought to be—economic opinions or judgments about what should happen, often based on values or beliefs.

1

if gas prices change from one year to another, the price of gasoline is an economic variable.

2

the chapter observes that when gasoline prices rose rapidly, miles driven tended to decline—showing a negative correlation.

3

a thermometer reading and hot weather are correlated because high readings occur when it is hot, but the thermometer does not cause the hot weather. Instead, hot weather causes the thermometer reading to rise.

4

economists can create a controlled situation that resembles a real-world economic decision and observe how people behave.

5

a map leaves out details that aren't necessary for getting where you need to go, just as an economic model leaves out some real-world details.

6

more doctors → more physical examinations, so the number of doctors and number of exams are positively related.

7

if gasoline prices increase → miles driven decrease, the two variables have a negative relationship.

8

saying that more doctors will produce more physical exams assumes that other things, such as the availability of diagnostic equipment, don't change. If there were a power outage, the prediction might no longer hold.

9

economists might observe that driving decreased and hypothesize that higher gasoline prices caused the decline in driving. They would then examine the evidence to see whether that explanation holds up.

10

“The average price of gasoline rose to a record high in June 2008.” This is a positive statement because it describes something that happened rather than saying whether it was good or bad.

11

“The government should provide basic health care to uninsured people.” This is normative because it recommends what the government ought to do.