CHAPTER 1 PRELIMINARIES 一、QUESTIONS FOR REVIEW 1.It is often said that a good theory is one that can be refuted by an empirical data-oriented study. Explain why a theory that cannot be evaluated empi is not a good theory. There are two steps to consider when evaluating a theory:first,you should examine the reasonability of the theory's assumptions second,you should test the theory's predictions by comparing them with facts.If a theory cannot be tested,it cannot be accepted or rejected Therefore,it contributes little to our understanding of reality. 2.Which of the following two atements involves positive onomic analysis and which normative?How do the two kinds ofanalysis differ? a.Gasoline rationing(allocating to each individual a maximum amount of gasoline that can be purchased each year)is a poor social policy because it interferes with the workings of the competitive market system. Positive econmic analysis describes what is.Normative conomic analysis describes what ought to be.Statement (a)merges both types of analysis.First,statement (a)makes a positive statement that gasoline rationing"interferes with the workings of the competitive market system."We knowfromm analysis that a constraint placed on supply wil change the market equilibrium.Second,statement(a)makes the normative statement (i.e.a value judgment)that gasoline rationing is a poor social policy."Thus,statement(a) makes a normative comment based on a conclusion derived from positive economic analysis of the policy. b.Gasoline rationing is a policy under which more people are made worse off than are made better off. Statement (b)is itive becaus it states what the effect of gasoline rationing is without makingavalue judgment about the desirability of the rationing poliey. 3.Suppose the price of unleaded regular octane gasoline were 20 cents per gallon higher in New Jersey than in Oklahoma.Do you think there would be an opportunity for arbitrage (ie.,that firms could buy gas in Oklahoma and then sell it at a profit in New Jersey)?Why or why not? CHAPTER 1 PRELIMINARIES 一、QUESTIONS FOR REVIEW 1. It is often said that a good theory is one that can be refuted by an empirical, data-oriented study. Explain why a theory that cannot be evaluated empirically is not a good theory. There are two steps to consider when evaluating a theory: first, you should examine the reasonability of the theory’s assumptions; second, you should test the theory’s predictions by comparing them with facts. If a theory cannot be tested, it cannot be accepted or rejected. Therefore, it contributes little to our understanding of reality. 2. Which of the following two statements involves positive economic analysis and which normative? How do the two kinds of analysis differ? a. Gasoline rationing(allocating to each individual a maximum amount of gasoline that can be purchased each year) is a poor social policy because it interferes with the workings of the competitive market system. Positive economic analysis describes what is. Normative economic analysis describes what ought to be. Statement (a) merges both types of analysis. First, statement (a) makes a positive statement that gasoline rationing “interferes with the workings of the competitive market system.” We know from economic analysis that a constraint placed on supply will change the market equilibrium. Second, statement (a) makes the normative statement (i.e., a value judgment) that gasoline rationing is a “poor social policy.” Thus, statement (a) makes a normative comment based on a conclusion derived from positive economic analysis of the policy. b. Gasoline rationing is a policy under which more people are made worse off than are made better off. Statement (b) is positive because it states what the effect of gasoline rationing is without making a value judgment about the desirability of the rationing policy. 3. Suppose the price of unleaded regular octane gasoline were 20 cents per gallon higher in New Jersey than in Oklahoma. Do you think there would be an opportunity for arbitrage (i.e., that firms could buy gas in Oklahoma and then sell it at a profit in New Jersey)? Why or why not?