William observes that a car in 1925 sold for an average of $500 versus $20,000 for a 2005 model. He concludes that 2005 cars must be 40 times better than 1925 cars. What's wrong with this way of thinking?
Poor William has made several errors. First, a 1925 car differs substantially from a 2005 car. As the saying goes, he is comparing apples and oranges. Second, the value of the dollar has declined; William, therefore, is using as his measure a unit that has changed sizes. This is like measuring one room with a 50-inch stick and another room with a 20-inch stick. We can give both measures in terms of sticks, but they are not very comparable.
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Finite-sample distributions of the OLS estimator and t-statistics are complicated, unless
A) the regressors are all normally distributed. B) the regression errors are homoskedastic and normally distributed, conditional on X1,... Xn. C) the Gauss-Markov Theorem applies. D) the regressor is also endogenous.
A theory asserts that consumers will purchase less of a good at higher prices than they will at lower prices, ceteris paribus. However, when the average price of cars increased throughout the 1990s, more cars were purchased. Which of the following best explains the apparent conflict between theory and data? a. The ceteris paribus assumption is valid
b. It is likely that variables other than the price and quantity of cars demanded were changing. c. The theory is valid. However, the price and quantity data gathered by researchers was clearly measured incorrectly. d. The theory must be invalid.
Which of the following is not a limitation a person faces when shopping for clothes?
a. The amount of time available to shop b. The person's budget c. The various styles that are available d. The selection of stores e. The freedom to make rational choices
Combinations of goods outside the production possibilities curve (PPC) have which of the following characteristics?
a. They are only attainable today if we employ all unemployed or underemployed resources. b. None of the answers is correct. c. They imply that some resources, such as labor, are unemployed or underemployed. d. They are not attainable given our existing stock of resources and technology.