Question 1

In his book, The Wealth of Nations, Adam Smith made the following observation?

Accepted Answer

Adam Smith's observation of the invisible hand means that individual pursuit of self-interest leads to collective social welfare and economic well-being. This idea supports free-market capitalism, where the market guides supply and demand, which ultimately determines prices and production.

Question 2

Economics is different from a "hard" science like physics because:

Accepted Answer

Economics is different from a "hard" science like physics because it deals with human behavior, which is complex and influenced by numerous variables that are difficult to control or predict.

Question 3

Economists need to develop abstractions in order to:

Accepted Answer

Economists develop abstractions in order to understand and explain economic behavior, which means they are developing generalized theories and models to explain how the world works. These abstractions can then be used to analyze real-world economic interactions. Option A is incorrect because economists use abstractions to analyze real-world economic interactions, rather than avoid them. Option B is incorrect because abstractions are not necessary for distinguishing normative and positive economic behavior. Option C is incorrect because abstractions are not necessary for avoiding the fallacy of composition, although they may be helpful in understanding it.

Question 4

A person behaving rationally will:

Accepted Answer

A rational person will try to make decisions that result in maximizing their expected marginal benefits while minimizing expected marginal costs. This involves weighing the pros and cons, analyzing available information, and making an informed decision. Making mistakes is not uncommon, but a rational person will learn from their mistakes and make adjustments to improve their decision-making in the future. Other individuals can provide input and feedback, but ultimately it is up to the person making the decision to determine its rationality. Option A is incorrect because everyone makes mistakes, even rational people. Option B is incorrect because random and chaotic decisions do not involve weighing the pros and cons and considering available information. Option C is incorrect because others' opinions do not necessarily determine the rationality of a decision.

Question 5

A good economic theory:

Accepted Answer

Economic theories rely on simplifying assumptions in order to isolate the important factors affecting economic behavior and make predictions. It is not feasible to include every detail, so simplifications are necessary. However, these simplifications must be justified and relevant to the problem being studied.

Question 6

When economists use the term "ceteris paribus," they mean that:

Accepted Answer

When economists use the term "ceteris paribus," they assume that all other variables except the ones specified are held constant while analyzing the relationship between two economic variables. This is done to isolate the impact of the variables being studied and to simplify the analysis.

Question 7

Which of the following is correct?

Accepted Answer

A hypothesis is an educated guess or assumption that is made based on observations, while a theory is a well-supported explanation that has been tested and confirmed through empirical evidence. Therefore, a hypothesis may lead to the formation of a theory if it is tested and confirmed.

Question 8

An economic theory is tested by:

Accepted Answer

The best way to test an economic theory is by comparing its predictions with real-world data. This way, we can examine whether the theory accurately predicts and explains the behavior of the economy in reality. Assessing the realism of its assumptions is important too, but it alone is not enough to test the theory's accuracy. Polling economists can provide insights and opinions but it is not considered a valid method for testing an economic theory. Similarly, simply comparing and contrasting its simplicity with related theories does not provide enough empirical evidence to support or refute an economic theory.

Question 9

Economists use the term "ceteris paribus" to indicate that:

Accepted Answer

"Ceteris paribus" means "all other things being equal" or "other things remaining constant". Therefore, when economists use this term, they are assuming that all other relevant factors are holding steady, allowing them to isolate the effects of a specific variable or change.

Question 10

Adam Smith

Accepted Answer

All of the given options are correct. Adam Smith is widely considered the founder of modern economics, and he wrote "An Inquiry into the Nature and Causes of the Wealth of Nations," which is considered a foundational text in economic theory. Moreover, Smith did not believe that the accumulation of gold and silver was the sole source of a nation's wealth, contrary to prevailing beliefs at the time.

Question 11

An economist at the University of Alaska at Anchorage has been asked to explain why the price of Alaskan crude oil has fallen recently. In order to assemble a scholarly answer, the professor should take which steps?

Accepted Answer

The economist should develop a hypothesis and test it through empirical analysis using data to see if it fits with the facts. This is the standard scientific approach in economics. Option B, while not entirely wrong, carries the risk of forming a hypothesis based on spurious correlations. Option C is not relevant to understanding the global crude oil market, and Option D is incorrect because the oil industry is not completely controlled by a cartel and economic theories can explain price changes in the industry.

Question 12

Economists use theories to:

Accepted Answer

Economists use theories to abstract from the complexities of the world, understand economic behavior, and explain and help predict human behavior. Therefore, the correct choice is D, as it includes all of the above options.

Question 13

The best test of an economic theory is:

Accepted Answer

The ability of an economic theory to explain and predict real-world economic phenomena is the ultimate test of its usefulness and validity. Rigor and accuracy of assumptions are important, but they are not as important as the ability of the theory to explain and predict real-world outcomes. Similarly, capturing real-world detail is important, but it is not the most important criterion for evaluating the usefulness of an economic theory.

Question 14

Difficulty in prediction social sciences is the result of analyzing ____ but can be overcome by focusing on ____ groups.

Accepted Answer

Difficulty in prediction social sciences is the result of analyzing human behavior, which may vary greatly from one individual to another. However, focusing on large groups can help overcome this difficulty by identifying overarching trends and patterns that are more likely to hold across a population.

Question 15

A good economic theory:

Accepted Answer

Good economic theories explain economic behavior effectively and make accurate predictions, regardless of the realism of their assumptions or the level of detail and mathematical expression involved.

Question 16

Which of the following statements is most accurate?

Accepted Answer

Scarcity is a fundamental economic concept and cannot be eliminated in any time frame. This is because resources are limited while human wants and needs are infinite. Even if we achieve a state of abundance for some resources, there will always be other resources that are scarce.

Question 17

An economic theory:

Accepted Answer

Economic theory is an abstraction from reality, meaning it simplifies the complexities of the economy to create models and make predictions. While it may not capture every detail of real-world scenarios, it is still useful in providing insights and understanding economic behavior.

Question 18

An economic hypothesis:

Accepted Answer

An economic hypothesis can be tested using empirical analysis, which involves collecting and analyzing relevant data to determine the validity of the hypothesis. This type of analysis is based on observable facts and can provide evidence to support or reject a hypothesis.

Question 19

A hypothesis is:

Accepted Answer

A hypothesis is a testable proposition that is proposed as an explanation for a phenomenon or a set of observations. It should be falsifiable, meaning that it can be proved wrong if evidence contradicts it. Hypotheses are an essential part of the scientific method, and they help researchers to form theories and make predictions.

Question 20

The term "ceteris paribus" means that:

Accepted Answer

Ceteris paribus means "all other things being equal," which implies that all variables except the ones being specified are held constant. In other words, the effect of the specified variable is isolated and measured against a constant backdrop. Thus, option B is the correct choice. Options A, C, and D are incorrect.

Quiz 1: The Role and Method of Economics

In his book, The Wealth of Nations, Adam Smith made the following observation?

Economics is different from a "hard" science like physics because:

Economists need to develop abstractions in order to:

A person behaving rationally will:

A good economic theory:

When economists use the term "ceteris paribus," they mean that:

Which of the following is correct?

An economic theory is tested by:

Economists use the term "ceteris paribus" to indicate that:

Adam Smith

An economist at the University of Alaska at Anchorage has been asked to explain why the price of Alaskan crude oil has fallen recently. In order to assemble a scholarly answer, the professor should take which steps?

Economists use theories to:

The best test of an economic theory is:

Difficulty in prediction social sciences is the result of analyzing but can be overcome by focusing on groups.

A good economic theory:

Which of the following statements is most accurate?

An economic theory:

An economic hypothesis:

A hypothesis is:

The term "ceteris paribus" means that: