ECO 111 Exam 1 Fall, 2003
Directions: Answer 4 out of the 5questions in the space provided. Your answers will be evaluated on how well you organize your discussion, and the content of that discussion.
1. Identify the premises, and the conclusion of the following argument and state whether or not it is valid argument.
“Professional athletes are overpaid. Their work is a nothing more than playing a game. Many people would be willing to do the same work for free.”

An argument is valid is there is no way for the conclusion to be false if the premises are true. We did not cover whether an argument is valid or not this semester, so you would not be expected to answer that portion of the question. However, you should be able to identify the premises and judge whether or not this is a good argument based on those premises. The first sentence of the argument is the conclusion (Professional athletes are overpaid); the other two sentences are premises. This is clearly not a good argument. Just because I am willing to play professional baseball or basketball for free doesn’t mean that people are willing to watch me play these sports. One reason why athletes receive high salaries is that fans are willing to pay to watch them. This implies that the services provided by athletes are valued.
2. Is the following an inductive or deductive reasoning? Explain why.
All Volvo owners have high incomes. Joe has a Volvo. Therefore Joe must have a high income.
This is a deductive argument. The conclusion, Joe must have high income, follows from the second premise, Joe has a Volvo. While the second premise does not follow directly from the first, it is impossible to reach the conclusion without both.
3. Is inductive or deductive logic more commonly used in economics? Explain why.
Both are critical to economics. Answering any economic question requires deductive theory.
Economists develop models based on theoretical logic. This logic is almost always deductive.
However, theory in itself doesn’t tell us much about reality. Thus, most theoretical models are tested using real world data (and those that are not are held with suspicion.). Using data and statistical methods is an inductive process. While both are critical, inductive reasoning is more common.
4. Would you accept, reject or suspend judgement on the premises of the following argument.
Explain the rationale for your answer completely.
Don Evans, the United States Secretary of Commerce issued a report last year that showed the elimination of a 10% import duty (tax on imports) on European steel in 2001 was followed by a 5% decrease in the quantity of American steel purchased in 2002. The report was based on sales figures provided by the Steel industry. These figures were confirmed as being accurate by the World Trade Organization. The statistics provided in this report make a clear case for the reimposition of import duties on steel to protect the American steel industry.
While it is always possible to suspend judgment on an argument based on insufficient information; I expect you to have a much better rationale for doing so in this course. This question requires you to use the steps involved in evaluating the premises of an argument. First, does the argument make sense based on your personal information. It is logical to presume that eliminating import duties will lower the price of a substitute for U.S. steel, and would therefore reduce the demand for U.S. steel. However, there might be other demand side factors such as reduced income (in 2002 the U.S. was coming out of a recession). Moreover, the reduction in quantity could be attributed to supply side factors such as higher input costs. Thus, it is difficult to make a judgment based solely on personal information. Second, you question the source of the information. Don Evans is a politician, and as such would report things that are favorable to his

political position. On the other hand, it is reasonable to believe that he has good information, and is a credible authority. Third you question the medium where the information was disseminated. There is no information about where the statistics were published. We know that they come from the steel industry, but the industry has motive for bias. Confirmation by the WTO doesn’t mean much in this case. Notice that the statement says “These figures were confirmed as being accurate by the World Trade Organization”. That merely says that quantity has decreased by 5%. It says nothing about the reason for the decrease. Thus, there are legitimate reasons to suspend judgment on this argument pending further information.
5. Identify the fallacy in each of the following (if one exists) and explain why it is a fallacy. a. Shortly after President Bush pushed his tax cuts through Congress in 2001, the size of the federal budget deficit increased significantly. This is clear evidence that the President’s economic policies are faulty.
This is a post hoc fallacy. The argument is that deficits followed tax cuts, therefore tax cuts caused deficits. There might be other factors that caused the higher deficits (reductions in income because of the recession or higher government spending). b. Granting preferential trade status to China, a country that denies basic human rights, will lead human rights violations all over the world.
This is a slippery assimilation. The argument assumes that there are no differences between
China and other countries. However, the reasons for granting preferential trade status and human rights conditions in China might be sufficiently different from those of other countries that no comparison can be drawn.