AcDec Economics Section 1

Who is credited with the early outlines of modern economic analysis?

• John Maynard Keynes

• Karl Marx

• Adam Smith

• Milton Friedman

Answer explanation

Adam Smith is often regarded as the father of modern economics, particularly for his work 'The Wealth of Nations,' which laid the groundwork for classical economic theory and analysis.

What is the role of economics in understanding the world, according to the text?

• To predict future events

• To understand why economies function smoothly or break down

• To control market prices

• To eliminate scarcity

Answer explanation

The correct choice highlights that economics helps us understand the mechanisms behind economic stability and crises, rather than merely predicting events, controlling prices, or eliminating scarcity.

What is the main purpose of economic models?

• To provide exact predictions

• To capture essential features of economic interactions

• To eliminate all assumptions

• To describe every aspect of reality

Answer explanation

The main purpose of economic models is to capture essential features of economic interactions, allowing economists to analyze and understand complex behaviors without needing to describe every detail or make exact predictions.

What does the text suggest about people’s concern for social issues?

• It is unrelated to rational decision-making

• It is consistent with rational decision-making

• It is always economically beneficial

• It is a waste of resources

Answer explanation

The text suggests that people's concern for social issues aligns with rational decision-making, indicating that such concerns can be logical and purposeful rather than irrational or wasteful.

What is the primary focus of positive economics?

• Making value judgments about economic outcomes

• Describing and explaining economic phenomena

• Evaluating the efficiency of resource allocation

• Determining the best economic policies

Answer explanation

The primary focus of positive economics is to describe and explain economic phenomena without making value judgments. It analyzes facts and relationships in the economy, distinguishing it from normative economics, which involves opinions.

What is the main goal of efficiency in economic decisions?

• To maximize government revenue

• To ensure no resources are wasted

• To increase the wealth of the richest individuals

• To minimize production costs

Answer explanation

The main goal of efficiency in economic decisions is to ensure no resources are wasted. This means utilizing resources in a way that maximizes output without unnecessary expenditure, which is crucial for sustainable economic growth.

What does the term "microeconomics" refer to?

• The study of national economies

• The study of individual and business decision-making

• The analysis of global trade policies

• The evaluation of government budgets

Answer explanation

Microeconomics focuses on the behavior of individuals and businesses in making decisions about resource allocation, production, and consumption, distinguishing it from macroeconomics, which studies national economies.

What is the relationship between positive and normative economics?

• They are completely unrelated

• Positive economics involves value judgments, while normative does not

• Normative economics involves value judgments, while positive does not

• Both focus on predicting economic phenomena

Answer explanation

Positive economics describes what is, focusing on facts and cause-effect relationships, while normative economics involves value judgments about what ought to be, making the correct choice: normative economics involves value judgments, while positive does not.

What is a key limitation of Pareto efficiency?

• It does not consider the well-being of individuals

• It cannot characterize different economic outcomes

• It does not provide a basis for choosing between efficient distributions

• It focuses only on maximizing profits

Answer explanation

A key limitation of Pareto efficiency is that it does not provide a basis for choosing between different efficient distributions, meaning multiple outcomes can be efficient but not necessarily preferable.

What is the primary concern of macroeconomics?

• Individual consumer behavior

• The overall level of production and employment

• The pricing strategies of small businesses

• The financial statements of corporations

Answer explanation

The primary concern of macroeconomics is the overall level of production and employment, as it studies the economy as a whole rather than individual behaviors or specific businesses.