Problem 1
The police research department wants to study whether the level of crime is affected by the unemployment rate. (a) How would you test this idea ? What data would you want ? (b) What 'other things equal' problems would you bear in mind \(?\)
Problem 2
Suppose the relationship between income and consumption is such that higher incomes are associated with higher consumption of a similar amount. How can the relationship be represented on a graph ?
Problem 4
Suppose the relationship between the price of a car and its quantity demanded, other things equal, is graphed as a downward-sloping straight line. Suppose the income of consumers increases and the demand for cars increases. What happens to the downward-sloping straight line when demand for cars increases owing to an increase in consumers' income ?
Problem 5
Why are these statements wrong ? (a) The purpose of a theory is to let you ignore the facts. (b) Economics cannot be a science since it cannot conduct controlled laboratory experiments. (c) People have feelings and act haphazardly. It is misguided to reduce their actions to scientific laws.
Problem 6
Suppose you earn \(£ 1200\). You purchase only shirts, which are \(£ 10\) each, with your income every month. (a) What is the purchasing power of your income ? (b) Now, suppose your income increases to \(£ 1500\) a month but the price of shirts remains the same. Does the purchasing power of your income change ? (c) Suppose your income remains \(£ 1200\) but the price of shirts increases to \(£ 12\) each. Does the purchasing power of your income change ?
Problem 8
The table below shows car prices and house prices for the years 2011 and 2012 . Calculate the absolute change and the percentage change in the prices of cars and houses between the years 2011 and 2012 . $$ \begin{array}{|l|l|l|} \hline & 2011 & 2012 \\ \hline \text { Car prices ( } £) & 10000 & 9600 \\ \hline \text { House prices }(£) & £ 200000 & £ 192000 \\ \hline \end{array} $$
Problem 11
When we use economic data to test an economic theory, we must choose how high to set the bar in our test. If we say that whenever the data depart at all from the prediction of the theory, we will reject most of our theories, which were only approximations in the first place. Conversely, if we only reject a theory when the data are a long way away from the prediction of the theory, we will hardly ever reject any theory. Which of these two possible mistakes is more dangerous ?
Problem 12
The table below shows unemployment rates in the capital (London) and the rest of the country. One-third of the national population lives in the capital. Construct an index of national unemployment, treating 2000 as 100 . What weights did you use for the two unemployment rates? Why? $$ \begin{array}{|l|c|c|c|c|c|c|c|} \hline \begin{array}{l} \text { Unemployment } \\ \text { (\%) } \end{array} & 1997 & 1998 & 1999 & 2000 & 2001 & 2002 & 2003 \\ \hline \text { London } & 7 & 6 & 5 & 4 & 6 & 5 & 4 \\ \hline \text { Rest of country } & 10 & 9 & 8 & 8 & 9 & 8 & 8 \\ \hline \end{array} $$
Problem 14
Following the introduction of a congestion charge for driving into Central London, traffic levels initially fell by 20 per cent. Over the next few years, traffic reverted almost to its original level. Does this show that the congestion charge failed to reduce congestion ? Even if it did, might it still be a good idea ?
