1.1.1 Economics as a social science Quiz: Pearson Edexcel Economics A, Unit 1

The 20 questions

1. What does the ceteris paribus assumption mean in an economic model?

   • Consumers are assumed to ignore prices when deciding how much of each good to buy.
   • All other relevant factors are held constant while the effect of one variable is analysed.
   • The model is assumed to describe every real market without any simplification.
   • Every variable in the model is assumed to change at the same rate over time.

2. Why can economists rarely run controlled scientific experiments on a whole economy?

   • Too many variables interact in a whole economy and cannot be held fixed for a controlled test.
   • Economic outcomes are fully predictable, so experiments would add nothing to understanding.
   • Governments forbid the collection of economic data, so experiments cannot be designed.
   • Economic theory is built entirely on mathematics, so it needs no evidence from the real world.

3. Which statement best describes a model in economics?

   • An exact copy of the real economy that includes every individual decision made by every agent.
   • A historical record of past prices that cannot be used to make any predictions about the future.
   • A simplified representation of reality used to explain and predict economic behaviour.
   • A set of opinions about what policymakers ought to do during a recession.

4. What is the main reason economists make assumptions when building models?

   • To avoid having to specify how the variables in the model relate to one another.
   • To make the conclusions of the model normative rather than positive in nature.
   • To make sure the model produces exactly the same results as observed data in every case.
   • To simplify complex reality so that the key relationships between variables can be analysed.

5. Which of the following is an example of a model assumption in economics?

   • The government should reduce income tax to boost economic growth.
   • Inflation is currently running above the central bank's target rate.
   • Consumers aim to maximise utility given their income and the prices they face.
   • Average house prices in the UK rose by 5 per cent over the last year.

6. What does it mean to describe economics as a social science?

   • It studies only the physical properties of goods, such as their weight, size and durability.
   • It studies how people and societies make choices under scarcity, using observation and reasoned analysis.
   • It is concerned mainly with accounting rules and the detailed taxation of company profits.
   • It relies on laboratory experiments to establish laws that never change over time.

7. Why might a model with unrealistic assumptions still be useful?

   • It proves that its assumptions are true for every real economy in the world.
   • Unrealistic assumptions guarantee that the model's conclusions are correct in every case.
   • It removes the need to compare predictions with any evidence from the economy.
   • It can produce clear predictions about how key variables are likely to respond to a change.

8. A model assumes that demand for petrol depends only on its price. Real data shows demand also rises when incomes rise. What is the best reason the model's prediction may differ from the data?

   • The data must be wrong, because economic models are always accurate in their predictions.
   • The model is positive, so its predictions must always match the data exactly.
   • The model holds income constant through the ceteris paribus assumption, so income effects are excluded.
   • Demand for petrol cannot respond to price changes under any circumstances whatsoever.

9. An economist states that raising the minimum wage will reduce employment. Which type of statement is this?

   • An assumption, because it is taken as given without any need for testing.
   • A normative statement, because it describes what ought to happen in the labour market.
   • A value judgement, because it reflects the economist's personal opinion about wages.
   • A positive statement, because it can in principle be tested against evidence.

10. Which statement shows a value judgement influencing economic decision making?

    • Policymakers should prioritise reducing inequality even if this slows economic growth.
    • The price elasticity of demand for bread is less than one in the short run.
    • A rise in interest rates reduces the quantity of loans demanded, other things being equal.
    • Unemployment rose by 0.3 percentage points in the latest quarter of the year.

11. Which of the following statements is positive?

    • Smoking is the most serious public health problem facing the country and needs urgent action.
    • A 10 per cent rise in the price of cigarettes is likely to reduce the quantity demanded.
    • Cigarette taxes are unfair to low-income smokers and should be abolished without delay.
    • The government ought to ban cigarette advertising in order to protect young people from harm.

12. A model shows that the price of a good falls when supply increases, holding demand constant. Which assumption is being applied?

    • Ceteris paribus.
    • Rational decision making by consumers and firms.
    • Diminishing marginal utility of consumption.
    • Specialisation and the division of labour in production.

13. Why might a model with 'all else equal' assumptions still be useful even though real markets are more complex?

    • It guarantees that the predicted outcomes will occur in every real market in practice.
    • It shows that complex markets cannot be analysed using economic reasoning at all.
    • It isolates the key relationship so that its predicted direction of change can be tested.
    • It removes the need for evidence, since its assumptions are self-evidently true in all cases.

14. Which of these would be an appropriate way to test an economic prediction?

    • Compare the predicted change in a variable with statistical data collected after the event.
    • Ask whether the economist who made the prediction would like the outcome to be true.
    • Accept the prediction because the model has been published in a respected textbook.
    • Change the model's assumptions until its predictions match what has already happened.

15. A model predicts that a tax will reduce consumption by 20 per cent. Data show a fall of only 5 per cent. Which explanation is most consistent with economic reasoning?

    • Other factors, such as rising incomes or substitute prices, may have offset the tax effect, so the assumptions may not hold.
    • The model was correct, since the gap is simply chance and proves nothing either way about the theory.
    • The tax has no effect, because observed data is always more reliable than any economic model.
    • The model must be discarded, because any difference between prediction and data disproves all of economic theory.

16. Why does the inability to run controlled experiments make it harder for economists to establish causation?

    • Without controlling other variables, observed correlations may reflect factors other than the one studied, so causation is uncertain.
    • Correlations in economic data are always evidence of causation, so experiments are unnecessary to establish it.
    • Economists can establish causation only through normative judgements about which policies are desirable.
    • Economic relationships change so rapidly that no data can ever be collected about them over time.

17. Which argument best shows why a positive economic model can still inform policy debates that are inherently normative?

    • The model shows the likely consequences of a policy, which policymakers can weigh against their own value judgements.
    • Normative debates are settled whenever a model produces a single clear numerical prediction for the outcome.
    • A positive model removes the need for any value judgement once it has been tested against data.
    • The model's predictions automatically determine which policy is morally correct for society to adopt.

18. A model assumes consumers are perfectly rational, but evidence shows many buy impulsively. What is the best evaluation of the model?

    • It may be useful for broad patterns, but its assumptions could mislead where impulse matters, so results should be treated cautiously.
    • The model is worthless, because any unrealistic assumption makes all of its predictions false in every context.
    • Impulse buying shows the model is normative, so it cannot be tested against any data at all.
    • The model is fully accurate, because economists define rational behaviour to include impulse buying decisions.

19. Two economists use the same model but reach different policy recommendations. What best explains this?

    • The model is positive, so it must have produced contradictory predictions that cannot be reconciled.
    • They may hold different value judgements about objectives such as equity versus efficiency, even when their positive analysis agrees.
    • One of them must have made an arithmetic error, since the model gives only one correct answer.
    • Economic models always give different results when the same data is used by different people.

20. An economist draws a demand curve with price on the vertical axis and quantity on the horizontal axis. What is the main purpose of this diagram?

    • To represent the relationship between price and quantity demanded in a simplified visual form.
    • To prove that consumers always buy more of a good when its price rises in any market.
    • To show exact historical prices for every good sold in the market in a given year.
    • To replace the need for assumptions by describing all factors affecting demand at once.

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