Chapter 2 Thinking Like an Economists TRUE OR FALSE 1. Economists devise theories, collect data, and then analyze these data in an attempt to verify or refute their theories. (T) 2. While the scientific method is applicable to studying natural sciences, it is not applicable to studying a nation’s economy. (F) 3. It is difficult for economists to make observations and develop theories, but it is easy for economists to run experiments to generate data to test their theories. (F) 4. Good assumptions simplify a problem without substantially affecting the answer. (T) 5. Assumptions can simplify the complex world and make it easier to understand. (T) 6. Economic models omit many details to allow us to see what is truly important. (T) 7. The circular-flow diagram explains, in general terms, how the economy is organized and how participants in the economy interact with one another. (T) 8. In the circular-flow diagram, households and firms are the decision makers. (T) 9. In the circular-flow diagram, factors of production are the goods and services produced by firms. (F) 10. In the circular-flow diagram, firms own the factors of production and use them to produce goods and services. (F) 11. In the circular-flow diagram, one loop represents the flow of goods and services, and the other loop represents the flow of factors of production. (F) 12. The production possibilities frontier is a graph that shows the various combinations of outputs that the economy can possibly produce given the available factors of production and the available production technology. (T) 13. Refer to Figu re 2-1, if this economy uses all its resources in the dishwasher industry, it produces 35 dishwashers and no doghouses. (T...
