11.
Which of the following observations was made famous
by Adam Smith in his book The Wealth of Nations?
a. There is no such thing as a free lunch.
b. People buy more when prices are low than when prices are high.
c. No matter how much people earn, they tend to spend more than they earn.
d. Households and firms interacting in markets are guided by an "invisible hand" that
leads them to desirable market outcomes.
12.
The term market failure refers to
a. a situation in which the market on its own fails to allocate resources efficiently
b. an unsuccessful advertising campaign which reduces demand for a product.
c. a situation in which competition among firms becomes ruthless.
d. a firm which is forced out of business because of losses.
13.
Which of the following can lead to market failure?
a. externalities and market power
b. externalities but not market power
c. market power but not externalities
d. neither externalities nor market power
14.
Which of the following statements is correct?
a. Economists almost always find it easy to conduct experiments in order to test their
theories.
b. Economics is not a true science because economists are not usually allowed to
conduct experiments to test their theories.
c. Economics is a social science rather than a true science because it cannot employ
the scientific method.
d. Economists are usually not able to conduct experiments, so they must rely on
natural experiments offered by history.
15. For an economist, the idea of making assumptions is
regarded generally as a
a. bad idea, since doing so leads to the omission of important ideas and variables from
economic models.
b. bad idea, since doing so invariably leads to data-collection problems.
c. good idea, since doing so helps to simplify the complex world and make it easier to
understand.
d. good idea, since economic analysis without assumptions leads to complicated
results that the general public finds hard to understand.
