Chapter 2 – A Framework for Analysis 1) Sources of Per Capita Income Differences a) What are some proximate causes for why some countries have higher income than others? b) What are some fundamental (ultimate) causes for why some countries have higher income than others? 2) Graphing Production Functions a) Be able to draw the relationship between income per capita and a factor of production, ceteris paribus. b) Be able to draw the same relationship for a different level of productivity. 3) Correlation versus Causation – Suppose X and Y are two random variables that originate from the real world. a) How do you calculate the correlation between X and Y? How do you visualize the correlation between X and Y? b) Suppose there is an apparently strong correlation between X and Y. There are three possibilities: X causes Y, Y causes X, or some Z causes both. The big question for all economists: for any X and Y, how can you tell which of the three cases is true? What techniques can we use?