CHAPTER 1

For Review

1. 1. a. Economic theories or models provide testable propositions about the real world. These models must stand or fall on the accuracy of their predictions. It is the use of evidence that makes theories scientific.

2. b. Here are some economic predictions: Vegetables will be cheaper in season than out of season. People will seldom be observed throwing money away. Advertisers will claim that their products are better than competitors' products. To take a more extended example: Sharply higher gasoline prices will reduce auto travel generally, and also reduce average highway speeds (with a consequent drop in motor accidents). They will also encourage sales of smaller cars. In the longer run a trend to more compact cities will be observed. (Of course, all such predictions must be understood in an “other things equal” sense.)

3. c. Economics does not explain why tastes or social attitudes change. We do not understand the determinants of ideological movements such as fascism, Marxism, or Christianity, or the full causes of important social trends such as growth of government. And even important issues of a more narrowly defined “economic” nature, for example the causes of business fluctuations, remain unresolved.

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