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?