Question 1

The assumption of rationality in economics implies that:
A)people perfectly understand their own preferences.
B)people can overcome economic obstacles in the best possible way.
C)people can make accurate calculations and they have a perfect foresight.
D)people make choices with an eye toward attaining objectives they have chosen.

Accepted Answer

The assumption of rationality in economics implies that people make choices with an eye toward attaining objectives they have chosen. It does not necessarily imply perfect understanding of preferences, overcoming economic obstacles in the best possible way, or perfect foresight.

Question 2

The human mind's abilities to reason and imagine are facilitated by the information it can collect from trustworthy sources, rather than by facts and experiences it can recall from memory.

Accepted Answer

The human mind's abilities to reason and imagine are significantly influenced by both the information it collects from external sources and the facts and experiences it can recall from memory. Memory plays a crucial role in reasoning and imagination by providing a basis of knowledge and experiences upon which new ideas can be built and problems can be solved.

Question 3

Heuristics economize on the mental capabilities of people.

Accepted Answer

Heuristics are mental shortcuts or rules of thumb that allow individuals to make decisions quickly and efficiently, without using extensive mental resources. Therefore, they help to economize on people's mental capabilities.

Question 4

A highly technical product is more likely to be sold by mass advertising as it signals to the consumers that the product is of dependable quality.

Accepted Answer

A highly technical product is more likely to be sold through informational and targeted advertising rather than mass advertising. This allows for more detailed explanations of the product's features and benefits, which may not be effectively conveyed through mass advertising. Additionally, technical products may require a more specialized sales approach, such as working with expert salespeople or providing detailed product demonstrations.

Question 5

The math and graphics used in economics help us better understand the logic of:
A)verbal reasoning.
B)rational choice.
C)hypothesis testing.
D)business forecasting.

Accepted Answer

The use of math and graphics in economics helps us to better understand rational decision making, which is the basis of economic analysis. Using mathematical models, economists can study how individuals and firms make choices in various situations, and develop theories about behavior that can guide policy decisions. Graphics can help to illustrate complex relationships between economic variables, making it easier for economists to communicate their ideas and findings to others. While economics also involves hypothesis testing and business forecasting, the use of math and graphics is most closely linked with rational choice theory.

Question 6

Economic models simplify reality and help us to better understand important aspects of it.

Accepted Answer

Economic models are simplified versions of reality that help us to understand complex economic phenomena. They allow us to isolate and analyze specific factors that affect economic behavior, and to test hypotheses about how these factors interact. While no model can perfectly capture the complexity of real-world situations, economic models are valuable tools for thinking about the economy and making informed decisions.

Question 7

Rationality is a normative concept.

Accepted Answer

The answer of Rationality is a normative concept....

Question 8

Which of the following is a positive statement?
A)Heavy snowfall drives up the demand for heaters.
B)Fiscal expenditures should be increased to combat recession.
C)Government should encourage foreign direct investments to generate employment.
D)Organs trade should be banned across nations.

Accepted Answer

This statement describes a cause and effect relationship, indicating that heavy snowfall leads to an increase in demand for heaters. It does not express an opinion or value judgment.

Note: Option B expresses a normative statement, expressing a suggestion of what should be done rather than a factual statement about what is currently happening. Option C also expresses a normative statement, suggesting a course of action that should be taken. Option D expresses a normative statement and includes a value judgment about what is morally right or wrong.

Question 9

Economists use the phrase, "dollar bills left on the sidewalk" for describing systematically missed opportunities.

Accepted Answer

Economists do use the phrase "dollar bills left on the sidewalk" for describing systematically missed opportunities. This refers to situations where there may be easy and obvious ways to increase value or utility, but they are not being taken advantage of.

Question 10

When an economy's limited resources are moved into the production of one commodity, the production of a valuable alternative has to be foregone.This most valuable alternative lost is referred to as:
A)the marginal cost.
B)the opportunity cost.
C)the sunk cost.
D)the fixed cost.

Accepted Answer

The term used to describe the most valuable alternative that is foregone when limited resources are used to produce one commodity is opportunity cost. Marginal cost refers to the additional cost incurred in producing one extra unit of a commodity. Sunk cost refers to the cost that has already been incurred and cannot be recovered. Fixed cost refers to the cost that remains constant regardless of the level of production.

Question 11

When the method used to collect a sample biases any conclusions that might be drawn from it, the sample is said to have a selection bias.

Accepted Answer

This is a correct definition of selection bias.

Question 12

The different rights and responsibilities which owners, workers, and managers have in different forms of business are referred to as contractual constraints.

Accepted Answer

The different rights and responsibilities which owners, workers, and managers have in different forms of business are referred to as legal and organizational structures, not contractual constraints.

Question 13

Almost all event markets forecast accurately.

Accepted Answer

No, almost all event markets do not forecast accurately. There are always uncertainties and unexpected factors that can affect the outcome of an event.

Question 14

In order to simplify a complex situation, economic models often treat constraints as unalterable.

Accepted Answer

Yes, economic models often simplify complex situations by treating constraints as unalterable. For example, a model may assume that a certain resource is fixed and cannot be increased or that a certain law or regulation cannot be changed. This allows for easier analysis and understanding of the situation, even though in reality, these constraints may be more flexible or subject to change.

Question 15

An elimination heuristic makes the choice on the basis of all the categories in which the events differ.

Accepted Answer

An elimination heuristic simplifies decision-making by systematically removing options that do not meet certain criteria, rather than comparing all categories or aspects of the events.

Question 16

Measuring important concepts in economics is difficult and some important economic phenomena are still beyond the understanding of economists.Thus economics is called a(n):
A)complex science.
B)social science.
C)inexact science.
D)hard science.

Accepted Answer

Economics is considered an inexact science because it relies on data that can be difficult to measure, and because there are many variables that can affect economic outcomes. Additionally, there are many economic phenomena, such as the global financial crisis of 2008, that are still not fully understood by economists.

Question 17

Researchers who make judgements in their experiments based on what is salient rather than on actual probabilities err by using a representativeness heuristic.

Accepted Answer

The answer of Researchers who make judgements in their experiments...

Question 18

When an individual is unable to alter or undo a past decision he/she incurs an opportunity cost.

Accepted Answer

Opportunity cost refers to the potential benefits an individual, investor, or business misses out on when choosing one alternative over another. It's not about being unable to alter or undo a past decision, but rather about the cost of what is foregone by choosing one option over another.

Question 19

When people use a recognition heuristic, they often get answers right because the correct answer is usually the one they are familiar with while the incorrect answer is the one which is unfamiliar to them.

Accepted Answer

This statement is true. The recognition heuristic is a cognitive shortcut in which people make judgments based on whether or not they recognize something. Research has shown that when people use this heuristic, they often choose the option that is more familiar to them, and this often leads to correct answers. However, there are also cases where the heuristic can lead to errors, such as when the unfamiliar option is actually the correct one.

Question 20

Advertising reduces the cost of obtaining a commodity by saving the time spent searching for price quotes and other information related to this commodity.

Accepted Answer

Advertising allows consumers to learn about the availability and price of a product without having to spend time searching for this information themselves, therefore reducing the cost of obtaining the commodity.

Quiz 1: Reasoning With Economics: Models and Information

The assumption of rationality in economics implies that: