Economics begins with the assumption that human actions are rational-intended for maximum self-benefit. For example, people pay more for a larger box of the same cereal than for a smaller one. Yet people sometimes seem to act irrationally. When a celebrity endorses a product, sales increase although the endorsement appears to convey no information about product quality. Nonetheless, economists stubbornly insist on finding rational explanations for all behavior. Why? Imagine a physicist who encounters his first helium-filled balloon. which flies up rather that down when released near the ground, a blatant challenge to the laws of gravity. Two courses are open to him. He can say. “Well. the laws of gravity have exceptions.” Or he can say, “Let me see if there is any way to explain this strange phenomenon without abandoning basic principles of physics.” If he takes the latter course, and if he is sufficiently clever. he will eventually discover the properties of objects that are lighter than air and recognize that their behavior is in perfect harmony with existing theories of gravity. In the process he will not only learn about helium-filled balloons; he will also come to a deeper understanding of how gravity works.
Now it might very well be that there are real exceptions to the laws of gravity, and that our physicist will one day encounter one. If he insists on looking for a good explanation without abandoning his theories, he will fail. If there are enough such failures, new theories will eventually arise to supplant the existing ones. Nevertheless the wise course of action, at least initially, is to see whether surprising facts can be reconciled with existing theories. The attempt itself is a good mental exercise for the scientist, and there are sometimes surprising successes. Moreover, if we are too quick to abandon our most successful theories, we will soon be left with nothing at all.
Much primitive agriculture shares a strange common feature. There are very few large plots of land: instead each farmer owns several small plots scattered around the village. (This pattern was endemic in medieval England and exists today in less developed parts of the world.) Historians have long debated the reasons for this scattering, which is believed to be the source of much inefficiency. Perhaps it arises from inheritance and marriage: At each generation, the family plot is subdivided among the heirs, so that plots become tiny; marriages then bring widely scattered plots into the same family. This explanation suffers because it seems to assume a form of irrationality: Why don’t the villagers periodically exchange plots among themselves to consolidate their holdings?
Inevitably. this problem attracted the attention of the economist and historian Deirdre McCloskey. whose instinct for constructing ingenious economic explanations is unsurpassed. Instead of asking “What social institutions led to such irrational behavior?” McCloskey asked, “Why is this behavior rational?” Careful study led her to conclude that it is rational because it is a form of insurance. A farmer with one large plot is liable to be completely ruined in the event of a localized flood. By scattering his holdings, the farmer gives up some potential income in exchange for a guarantee that he will not be wiped out by a local disaster. This behavior is not even exotic. Every modern insured homeowner does the same thing. One way to test McCloskey’s theory is to ask whether the insurance “premiums” (that is, the amount of production that is sacrificed by scattering) are commensurate with the amount of protection being “purchased.” using as a standard the premiums that people are willing to pay in more conventional insurance markets, and by this measure it holds up well. A serious criticism is this: If medieval peasants wanted insurance, why didn’t they buy and sell insurance policies, as we do today? A simple answer is that nobody had yet figured out how to do it. But some economists demand more exact answers to this objection, and they are right. Theories should be tested to their limits.
1
Economics begins with the assumption that human actions are rational-intended for maximum self-benefit. For example, people pay more for a larger box of the same cereal than for a smaller one. Yet people sometimes seem to act irrationally. When a celebrity endorses a product, sales increase although the endorsement appears to convey no information about product quality. Nonetheless, economists stubbornly insist on finding rational explanations for all behavior. Why? Imagine a physicist who encounters his first helium-filled balloon. which flies up rather that down when released near the ground, a blatant challenge to the laws of gravity. Two courses are open to him. He can say. “Well. the laws of gravity have exceptions.” Or he can say, “Let me see if there is any way to explain this strange phenomenon without abandoning basic principles of physics.” If he takes the latter course, and if he is sufficiently clever. he will eventually discover the properties of objects that are lighter than air and recognize that their behavior is in perfect harmony with existing theories of gravity. In the process he will not only learn about helium-filled balloons; he will also come to a deeper understanding of how gravity works.
The word “blatant” in the passage is closest in meaning to
Aseeming
Bconfusing
Cobvious
Dpractical
2
Economics begins with the assumption that human actions are rational-intended for maximum self-benefit. For example, people pay more for a larger box of the same cereal than for a smaller one. Yet people sometimes seem to act irrationally. When a celebrity endorses a product, sales increase although the endorsement appears to convey no information about product quality. Nonetheless, economists stubbornly insist on finding rational explanations for all behavior. Why? Imagine a physicist who encounters his first helium-filled balloon. which flies up rather that down when released near the ground, a blatant challenge to the laws of gravity. Two courses are open to him. He can say. “Well. the laws of gravity have exceptions.” Or he can say, “Let me see if there is any way to explain this strange phenomenon without abandoning basic principles of physics.” If he takes the latter course, and if he is sufficiently clever. he will eventually discover the properties of objects that are lighter than air and recognize that their behavior is in perfect harmony with existing theories of gravity. In the process he will not only learn about helium-filled balloons; he will also come to a deeper understanding of how gravity works.
In paragraph 1, why does the author discuss celebrity endorsements?
ATo argue that product size can be more important for sales than quality
BTo show that celebrities act for their own self-benefit
CTo warn against buying products without information about their quality
DTo provide an example that challenges a basic assumption of economics
3
Economics begins with the assumption that human actions are rational-intended for maximum self-benefit. For example, people pay more for a larger box of the same cereal than for a smaller one. Yet people sometimes seem to act irrationally. When a celebrity endorses a product, sales increase although the endorsement appears to convey no information about product quality. Nonetheless, economists stubbornly insist on finding rational explanations for all behavior. Why? Imagine a physicist who encounters his first helium-filled balloon. which flies up rather that down when released near the ground, a blatant challenge to the laws of gravity. Two courses are open to him. He can say. “Well. the laws of gravity have exceptions.” Or he can say, “Let me see if there is any way to explain this strange phenomenon without abandoning basic principles of physics.” If he takes the latter course, and if he is sufficiently clever. he will eventually discover the properties of objects that are lighter than air and recognize that their behavior is in perfect harmony with existing theories of gravity. In the process he will not only learn about helium-filled balloons; he will also come to a deeper understanding of how gravity works.
In paragraph 1, why does the author discuss an imaginary first encounter of a physicist with a helium-filled balloon?
ATo demonstrate that even the laws of gravity are not fully understood
BTo identify the properties of objects that are lighter than air
CTo suggest that assumptions in economics are more likely to have exceptions than are the laws of physics
DTo demonstrate that economists are right in looking for rational explanations for all human actions
4
Now it might very well be that there are real exceptions to the laws of gravity, and that our physicist will one day encounter one. If he insists on looking for a good explanation without abandoning his theories, he will fail. If there are enough such failures, new theories will eventually arise to supplant the existing ones. Nevertheless the wise course of action, at least initially, is to see whether surprising facts can be reconciled with existing theories. The attempt itself is a good mental exercise for the scientist, and there are sometimes surprising successes. Moreover, if we are too quick to abandon our most successful theories, we will soon be left with nothing at all.
Paragraph 2 mentions which TWO of the following benefits of trying to reconcile exceptions with existing theories? To receive credit, you must select TWO answers.
AReduced risk of failure
BExercise of the mind
CThe possibility of an unexpected success
DThe possibility that new theories will arise quickly
5
Much primitive agriculture shares a strange common feature. There are very few large plots of land: instead each farmer owns several small plots scattered around the village. (This pattern was endemic in medieval England and exists today in less developed parts of the world.) Historians have long debated the reasons for this scattering, which is believed to be the source of much inefficiency. Perhaps it arises from inheritance and marriage: At each generation, the family plot is subdivided among the heirs, so that plots become tiny; marriages then bring widely scattered plots into the same family. This explanation suffers because it seems to assume a form of irrationality: Why don’t the villagers periodically exchange plots among themselves to consolidate their holdings?
Paragraph 3 suggests that historians have offered which of the following explanations for the kind of land plots that medieval farmers owned in England?
AAgriculture was too primitive for farmers to work large plots of land efficiently
BFamilies subdivided their land when a family member became married
CLand could be divided among several people when it was passed on to the next generation.
DVillagers often exchanged small plots of land among themselves.
6
Inevitably. this problem attracted the attention of the economist and historian Deirdre McCloskey. whose instinct for constructing ingenious economic explanations is unsurpassed. Instead of asking “What social institutions led to such irrational behavior?” McCloskey asked, “Why is this behavior rational?” Careful study led her to conclude that it is rational because it is a form of insurance. A farmer with one large plot is liable to be completely ruined in the event of a localized flood. By scattering his holdings, the farmer gives up some potential income in exchange for a guarantee that he will not be wiped out by a local disaster. This behavior is not even exotic. Every modern insured homeowner does the same thing. One way to test McCloskey’s theory is to ask whether the insurance “premiums” (that is, the amount of production that is sacrificed by scattering) are commensurate with the amount of protection being “purchased.” using as a standard the premiums that people are willing to pay in more conventional insurance markets, and by this measure it holds up well. A serious criticism is this: If medieval peasants wanted insurance, why didn’t they buy and sell insurance policies, as we do today? A simple answer is that nobody had yet figured out how to do it. But some economists demand more exact answers to this objection, and they are right. Theories should be tested to their limits.
The phrase “this problem” in the passage refers to
Athe continued inefficiency of agriculture in some parts of the world
Bthe need for villagers to consolidate their holdings
Cthe lack of a rational explanation for plot scattering
Dthe role of inheritance and marriage in the size of plots
7
Inevitably. this problem attracted the attention of the economist and historian Deirdre McCloskey. whose instinct for constructing ingenious economic explanations is unsurpassed. Instead of asking “What social institutions led to such irrational behavior?” McCloskey asked, “Why is this behavior rational?” Careful study led her to conclude that it is rational because it is a form of insurance. A farmer with one large plot is liable to be completely ruined in the event of a localized flood. By scattering his holdings, the farmer gives up some potential income in exchange for a guarantee that he will not be wiped out by a local disaster. This behavior is not even exotic. Every modern insured homeowner does the same thing. One way to test McCloskey’s theory is to ask whether the insurance “premiums” (that is, the amount of production that is sacrificed by scattering) are commensurate with the amount of protection being “purchased.” using as a standard the premiums that people are willing to pay in more conventional insurance markets, and by this measure it holds up well. A serious criticism is this: If medieval peasants wanted insurance, why didn’t they buy and sell insurance policies, as we do today? A simple answer is that nobody had yet figured out how to do it. But some economists demand more exact answers to this objection, and they are right. Theories should be tested to their limits.
Which of the sentences below best expresses the essential information in the highlighted sentence in the passage? Incorrect choices change the meaning in important ways or leave out essential information.
AThe amount of production sacrificed by scattering is commensurate with what people are willing to pay for protection in more conventional insurance markets. which supports McCloskey’s theory
BThe amount of protection people have been purchasing by buying insurance has been commensurate with the insurance premiums, and the standard used for measuring them has held up well over time
COne way to test McCloskey’s theory is to measure the amount of production that is sacrificed by scattering and the “premiums” that people are willing to pay for that production on the market.
DOne way to test McCloskey’s theory is to ask people whether the “premiums” they are willing to pay in more conventional insurance markets are commensurate with the protection being “purchased
8
Inevitably. this problem attracted the attention of the economist and historian Deirdre McCloskey. whose instinct for constructing ingenious economic explanations is unsurpassed. Instead of asking “What social institutions led to such irrational behavior?” McCloskey asked, “Why is this behavior rational?” Careful study led her to conclude that it is rational because it is a form of insurance. A farmer with one large plot is liable to be completely ruined in the event of a localized flood. By scattering his holdings, the farmer gives up some potential income in exchange for a guarantee that he will not be wiped out by a local disaster. This behavior is not even exotic. Every modern insured homeowner does the same thing. One way to test McCloskey’s theory is to ask whether the insurance “premiums” (that is, the amount of production that is sacrificed by scattering) are commensurate with the amount of protection being “purchased.” using as a standard the premiums that people are willing to pay in more conventional insurance markets, and by this measure it holds up well. A serious criticism is this: If medieval peasants wanted insurance, why didn’t they buy and sell insurance policies, as we do today? A simple answer is that nobody had yet figured out how to do it. But some economists demand more exact answers to this objection, and they are right. Theories should be tested to their limits.
According to paragraph 4, which of the following explanations has McCloskey provided for the practice of farmland scattering?
AOther available forms of insurance would be too expensive for the farmers
BThe practice makes certain that farmers will not lose all their crops if a local flood occurs.
CThe presence of social institutions can sometimes lead to irrational behavior.
DFarming several small pieces of land can be easier than farming a single large piece of land
9
Inevitably. this problem attracted the attention of the economist and historian Deirdre McCloskey. whose instinct for constructing ingenious economic explanations is unsurpassed. Instead of asking “What social institutions led to such irrational behavior?” McCloskey asked, “Why is this behavior rational?” Careful study led her to conclude that it is rational because it is a form of insurance. A farmer with one large plot is liable to be completely ruined in the event of a localized flood. By scattering his holdings, the farmer gives up some potential income in exchange for a guarantee that he will not be wiped out by a local disaster. This behavior is not even exotic. Every modern insured homeowner does the same thing. One way to test McCloskey’s theory is to ask whether the insurance “premiums” (that is, the amount of production that is sacrificed by scattering) are commensurate with the amount of protection being “purchased.” using as a standard the premiums that people are willing to pay in more conventional insurance markets, and by this measure it holds up well. A serious criticism is this: If medieval peasants wanted insurance, why didn’t they buy and sell insurance policies, as we do today? [■] A simple answer is that nobody had yet figured out how to do it. [■]But some economists demand more exact answers to this objection, and they are right. [■]Theories should be tested to their limits.[■]
Look at the four squaresthat indicate where the following sentence could be added to the passage
This is because designing an insurance policy requires an act of genius.
Where would the sentence best fit?Click on a square sentence to the passage.
10
Economists try to explain certain decisions that humans make.
AEconomists have been able to explain why people pay different prices for products based on their quantity but not why they do so when they have no information about product quality
BEconomists believe that humans act in ways that are most beneficial or themselves, although this belief may seem to be challenged by behavior like land scattering
CLand scattering during medieval times more likely resulted from an effort to reduce losses at times of disaster than from the inheritance and marriage practices that were current then
DEconomists are similar to physicists in that they usually explain surprising observations by creating new theories instead of adding exceptions to existing ones.
EEconomists and historians studying primitive agriculture could not agree on whether a number of its practices are due to the traditions of inheritance and marriage or other social institutions
FIt is important to test theories to the greatest extent possible, but they should be abandoned only when there are enough facts that cannot be brought into agreement with them.