Prob 2 6. An economist might say that colleges and universities “produce” education, using faculty members and students as inputs. According to this line of reasoning, education is then “consumed” by households. Construct a circular-flow diagram to represent the sector of the economy devoted to college education: colleges and universities represent firms, and households both consume education and provide faculty and students to universities. What are the relevant markets in this diagram? What is being bought and sold in each direction? What would happen in the diagram if the government decided to subsidize 50% of all college students’ tuition?

Prob 2 10. Evaluate the following statement: “It is easier to build an economic model that accurately reflects events that have already occurred than to build an economic model to forecast future events.” Do you think this is true or not? Why? What does this imply about the difficulties of building good economic models?

Prob 2 11. Economists who work for the government are often called on to make policy recommendations. Why do you think it is important for the public to be able to differentiate normative statements from positive statements in these recommendations?

Prob 2 5. Assess the following statement: “If economists just had enough data, they could solve all policy questions in a way that maximizes the social good. There would be no need for divisive political debates, such as whether the government should provide free medical care for all.”