Positive Economic Statement – Principles of Macroeconomics

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Public Transportation, Positive Economic Statement, Endogenous Factor, – Exam

The key terms in this Macroeconomics course include Public Transportation, Positive Economic Statement, Endogenous Factor, Economics, Linear Production Possibilities, Comparative Advantage, Absolute Advantage, Graph, Production Possibilities Frontier – Principles of Macroeconomics.


A recent study shows the benefits of using public transportation. Government officials have hired your consulting firm to increase the demand for public transportation. They come to you with three of their suggestions.

Suggestion 1. Reduce the price of public transportation.
Suggestion 2. Increase the price of private transportation by increasing tolls.
Suggestion 3. Offer monthly and yearly passes that reduce the price paid per ride of public transportation.

Which suggestion(s) does your firm recommend?

1 and 3

3

1

2 – correct

Explanation: Increasing the price of private transportation, a substitute good, will increase demand for public transportation. Your recommendations should be made on the basis of demand increasing, not quantity demanded increasing. Ask yourself, which variable(s) changes quantity demanded and which variable(s) changes demand?

Which of the following is an example of a positive economic statement?

The poor should pay more taxes and the rich should pay lower taxes toward social security.

The Kardashians should not be allowed to be on television.

The average rainfall in August 2016 was 5 inches nationwide. – correct

Congress should devote more resources to the environment.

Explanation: In economics it is important to avoid letting personal beliefs and values influence the outcome of analysis. To be as objective as possible, scientists will use positive statements, which can be tested and validated. The statement about average rainfall is something that can be validated. All other statements are normative, which have embedded value judgements.

When a student is making a decision about the college she will attend, which of the following would be an endogenous factor?

Location of the school – correct

the national unemployment rate when she graduates

the school being wiped out by a natural disaster

death of a family member requiring the student to return home for a semester

Explanation: Endogenous factors are things you can plan for and take into consideration before going to a college, such as the location and price of tuition. Exogenous factors cannot be accounted for before you begin your education at a particular college because they are not related to the college you choose.

Mike has a linear production possibilities frontier that shows maximum production of trucks or computers of 10 million each. Debra also has a linear production possibilities curve that shows maximum production of 9 million trucks or 3 million computers.

Positive Economic Statement – Principles of Macroeconomics


Based on the graphs, which of the following statements is true?

Debra has an absolute advantage in the production of trucks.

Mike has a comparative advantage in the production of computers. – correct

Debra has an absolute advantage in the production of computers.

Debra has an absolute advantage in the production of computers.

Explanation: Mike has an absolute advantage in both goods. That means he can produce more than Debra using the same quantity of resources. From the graph, you can see that Mike has a lower opportunity cost in producing trucks; he gives up one truck for each computer he produces, while Debra gives up three trucks for each computer she produces. Mike has a comparative advantage in producing computers but not in producing trucks.

A recent study shows the benefits of using public transportation. Government officials have hired your consulting firm to increase the demand for public transportation. They come to you with three of their suggestions.

Suggestion 1. Reduce the price of public transportation.
Suggestion 2. Increase the price of private transportation by increasing tolls.
Suggestion 3. Offer monthly and yearly passes that reduce the price paid per ride of public transportation.

Which suggestion(s) does your firm recommend?

1 and 3

3

1

2 – correct

Explanation: Increasing the price of private transportation, a substitute good, will increase demand for public transportation. Your recommendations should be made on the basis of demand increasing, not quantity demanded increasing. Ask yourself, which variable(s) changes quantity demanded and which variable(s) changes demand?


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