Exercises 1. A) In order to see whether you have properly understood the reading, please answer the following multiple choice questions

A) In order to see whether you have properly understood the reading, please answer the following multiple choice questions. In each case, there is only one proper solution.

Q1: What do we mean by the term “neoclassical synthesis”? (p. 46.)

(b) a theoretical consensus of professional economists

Q2: Which of the following are synonymous with “neoclassical economics”? (p. 46.)

(d) orthodox, conventional or mainstream economics

Q3: According to the textbook, what is one of the most significant limitations of economics? (p. 47.)

(a) It reduces social reality to changes in prices and quantities.

Q4: What are the very basic elements of any science (or discipline)? (p. 47.)

(d) Asking the right questions, proposing answers (that is, theories), and applying an appropriate methodology.

Q5: Which of the following statements are true in case of neoclassical economics? (p. 47.)

(a) Neoclassical economics is the most rigorous and systematic social science.

Q6: What is the principal method of economics? (p. 47.)

(a) methodological individualism

Q7: What is “methodological individualism”? (p. 47.)

(b) The basic actors of the economy are the rational, self-centred individuals.

Q8: In which particular field were classical economists such as David Ricardo involved in during the late 18^th, early 19^th century? (p. 48.)

(b) international trade

Q9: Why could international trade be at the very heart of the interest of classical economists? (p. 48.)

(a) Because trade means the expansion of human activity, the expansion of markets.

Q10: In Chapter 4 and 8, we will learn precisely how to define “comparative advantage”. For the moment, please consider the following: why did Great Britain export textiles to Portugal, while the Portuguese exported port (wine) to the island? (p. 48.)

(d) The British were relatively more efficient in the production of textiles, while the Portuguese were relatively more efficient in the production of port.

Exercises 2

A)

Q1: Which of the following definitions subscribe to “economics”?

(b) rational choices that humans made in order to cope with scarcity

Q2: What is it meant by “scarcity”?

(b) Human needs (or wants) exceed available resources.

Q3: Opportunity cost means:

(a) if a certain decision has been made then some other options have to be given up

Q4: The opportunity cost of watching a movie on TV during Thursday afternoon is…

(a) the income one could earn by spending his/her time with work.

Q5: If the price of the cinema ticket increases, it is assumable that

(c) people will visit cinemas less frequently

Q6: If a supplier can produce either 2 units of shirts or 1 unit of trousers within one hour, then the opportunity cost of sewing 1 unit of trousers is

(c) 2 units of shirts.

Q7: If a supplier can produce either 2 units of shirts or 1 unit of trousers within one hour, then the opportunity cost of sewing 1 unit of shirt is

(a) half unit of a pair of trousers.

Q8: Ceteris paribus means:

(d) other things being equal

Q9: A competitive equilibrium is a situation

(a) in which economic agents have no further incentives to consume or to produce more.

Q10: If the price of cars doubles, producers will have an incentive to

(b) produce more cars.

Q11: Which of the following statements are correct?

(d) A free-market competitive equilibrium becomes efficient if demand equals supply in every market and all the resources are fully utilized.

Q12: Economic growth comes from

(b) capital accumulation and technological change.

B) now decide whether the following statements are correct or not.

The concept of the invisible hand means…

Q1: …a mechanism by which the economy and society works. Correct

Q2: …pursuing an individual’s own interest that does NOT serve the interest of the whole society. Incorrect

Q3: …a decentralised process, without the existence of a central authority. Correct

Q4: …that the equilibrium in the economy is intentional. Incorrect

Q5: …that a well-functioning free market has been assumed. Correct

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