Chapter 1 Exam – The Nature of Economics

Multiple Choice. Choose the one alternative that best completes the statement or answers the question.

1) Economics is best defined as
A) the study of how people make choices to satisfy their wants.
B) the study of individual self—interests.
C) the study of how government can most efficiently raise funds by taxation.
D) the process by which goods are sold in free markets.

2) Microeconomics is defined as that part of economic analysis which
A) studies the behavior of the economy as a whole.
B) includes the problems of inflation and unemployment.
C) studies the individual decision making by households and firms.
D) concerns international finance and exchange rates.

3) In his book “An Inquiry into the Nature and Causes of the Wealth of Nations,” economist Adam Smith argued that individuals
A) tend to act in an altruistic manner.
B) always consider the impact of their actions on the welfare of others.
C) are motivated by self—interest.
D) are generally not concerned with economic questions.

4) When studying individuals’ economic behavior, economists assume that
A) individuals understand the rationale for all their actions.
B) individuals act as if they were rational.
C) only educated people act as if they were rational.
D) self—interest is of limited relevance in predicting an individual’s actions.

5) Holding all variables but one constant and assessing the impact of the one variable which has changed is an example of using

A) the ceteris paribus assumption. B) Keynesian economic analysis.
C) a flawed economic model. D) An untestable proposition.

6) A microeconomist would study all of the following issues except
A) the impact of a change in consumer income on the sales of corn.
B) the impact of a snowstorm on the sales of snow shovels.
C) the most efficient means for