Exercises 1

 

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.)

(a) an empirical consensus of professional economists

(b) a theoretical consensus of professional economists

(c) the superiority of macroeconomics

(d) the superiority of microeconomics

 

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

(a) orthodox, concentrated or stream economics

(b) heterodox, common denominator or stream economics

(c) heterodox, commercial or mainstream economics

(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.

(b) It takes a rigorous approach to human behaviour.

(c) It defines itself as a social science.

(d) It defines itself too narrowly.

 

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

(a) Asking as many questions as possible, proposing alternative answers (that is, theories), and applying an appropriate methodology.

(b) Asking the right questions, proposing alternative scenarios as answers, and applying a science directly.

(c) Asking questions, proposing answers, and applying any methodology.

(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.

(b) Neoclassical economics is the least rigorous and systematic social science.

(c) Neoclassical economics is just one branch of a universal paradigm that is called economics.

(d) Neoclassical economics is the most influential but the least systematic social science.

 

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

(a) methodological individualism

(b) rational choice

(c) political economy

(d) scarcity

 

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

(a) The basic agents of the economy are the rational, self-contained and relevant individuals.

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

(c) The basic agents of the market are the irrational, self-contained and profit-maximiser producers.

(d) The basic actors of the economy are the irrational, self-centred consumers.

 

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.)

(a) international monetary exchange

(b) international trade

(c) economic efficiency

(d) state regulation

 

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.

(b) Because trade means earning money and making a profit.

(c) Because trade means the accumulation of gold in the hands of producers.

(d) Because trade means the expansion of human capital.

 

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.)

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

(b) Textiles were available in great abundance in Great Britain, while port was available in great abundance in Portugal.

(c) Textiles were available in great abundance in Portugal, while port was available in great abundance in Great Britain.

(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”?

(a) human activity that creates wealth

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

(c) human decisions that creates wealth

(d) rational choices that humans made in order to cope with abundance

 

Q2: What is it meant by “scarcity”?

(a) Human resources exceed available needs and wants.

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

(c) Human activity depends on energy and time.

(d) Environmental resources are scarce.

 

Q3: Opportunity cost means:

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

(b) everything costs something

(c) a sacrifice in order to consume as much as possible

(d) a cost that is related to all the chances a man has got during his lifetime.

 

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.

(b) the cost one has to pay for cable TV.

(c) the licence fee to watch TV.

(d) the cost that one has to pay in order to miss another programme on TV.

 

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

(a) people will visit cinemas more frequently

(b) people will not visit cinemas at all

(c) people will visit cinemas less frequently

(d) people do not care at all because visiting a cinema does not have an opportunity cost.

 

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

(a) half unit of shirt.

(b) 1 unit of shirt.

(c) 2 units of shirts.

(d) zero unit of shirt.

 

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.

(b) 1 unit of a pair of trousers.

(c) 2 units of a pair of trousers.

(d) zero unit of a pair of trousers.

 

Q8: Ceteris paribus means:

(a) being equal

(b) there is no change at all

(c) there is no chance to change anything in the economy

(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.

(b) in which economic agents cannot maximize their utility since there are no further resources left in the economy.

(c) in which economic agents have no further resources to consume or to produce more.

(d) in which economic agents try to maximize their chances in order to consume or to produce as much as possible.

 

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

(a) produce half as much cars as before.

(b) produce more cars.

(c) produce less cars.

(d) produce twice as much cars as before.

 

Q11: Which of the following statements are correct?

(a) A free-market competitive equilibrium becomes efficient if demand overlaps with supply in the market and resources are close to full utilization.

(b) A competitive equilibrium becomes efficient only if demand equals supply and all the relevant resources have been exploited by economic agents.

(c) A competitive equilibrium becomes efficient only if demand equals supply and all the relevant resources have been exploited by economic agents and the state.

(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

(a) hard work and high wages.

(b) capital accumulation and technological change.

(c) GDP per capita.

(d) natural resources exclusively.

 

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

 

Exercises  3

 

A)

Q1: „Economics is the science which studies human … as a relationship between ends and scarce … that have alternative uses.” (Robbins, 1936:16)

 

(a) actions, objectives

(b) behaviour, means

(c) activities, relations

(d) decisions, alternatives

 

Q2: Which of the following terms can be coined with the citation?

(a) unconstrained optimization

(b) constrained satisfaction

(c) constrained optimization

(d) unbounded optimization

 

Q3: Economics is a discipline of

(a) rational choice

(b) hard decisions

(c) scarcity and fear

(d) quantifying the costs and benefits of decisions

 

 

B) Accordingly, which of the following statements are correct regarding the discipline of neoclassical economics? .

 

Q1: Economics is not able to understand the decisions of a housewife since the latter does not earn money. . Incorrect

 

Q2: Every single individual behaves rationally. Correct

 

Q3: It does not matter whether we study the demand for water in a Sub-Saharan African country or in Europe, the same ideas and methods can be used in both cases, according to neoclassical economists. . Correct

 

Q4: Having 14 children in a family in the remote areas of Malawi, where water and food is in scarce supply, is absolutely irrational. . Incorrect

 

Q5: A Polish plumber would never move to Great Britain if he does not speak the language of the foreign country. . Incorrect

 

C) Based on the three points above, answer the following questions:

Q1: A consumer would like to buy some apples and bananas on the market. The price of one unit of apples is 1 dollar, while the price of one unit of bananas is 8 dollars. She likes both fruits very much but bananas in general are more attractive to her. The consumer has brought with her 6 dollars to the market and she would like to spend all of her money. How much apples and bananas will she buy?

(a) 1 unit of bananas, because she likes bananas the most.

(b) 6 units of apples, because she does not have enough money to buy bananas.

(c) 6 units of bananas, because she does not have enough money to buy apples.

(a) 1 unit of apples, because she likes apples the most.

 

Q2: Now assume that the same consumer has doubled her purchasing power, so she has brought twice as much money as before to the market, while the prices of the fruits are still the same (she has now 12 dollars). However, let us assume also that our consumer is indifferent between the two goods, that is, she gets the same utility from the consumption of both fruits. How much apples and bananas will she buy?

(a) 1.5 units of bananas, because bananas are cheaper than apples (eight times cheaper) and the consumer is not indifferent between the two goods.

(b) 8 units of bananas, because bananas are cheaper than apples (six times cheaper indeed) and the consumer is indifferent between the two goods.

(c) 12 units of apples, because apples are much cheaper than bananas (eight times cheaper indeed) and the consumer is indifferent between the two goods.

(d) 12 units of bananas, because bananas are much cheaper than apples and the consumer is apparently indifferent between the two goods.

 

Q3: The goods are…

(a) indifferent.

(b) complementary.

(c) cannot compete with each other.

(d) perfect substitutes of each other.

 

 

D) Please look at Diagram 1, showing London’s public transportation statistics. The data points refer to daily aggregates. During the weekends less people choose the metro than during the weekdays; this explains the relatively high spread of the data.

 

Diagram 1: public transportation in London

Q1: According to the diagram, what is our exogenous or explanatory variable?

(a) Total revenue

(b) Number of passengers

(c) Both

(d) None

 

Q2: What do we mean by an “exogenous” variable?

(a) it is estimated

(b) it is calculated by forecasts

(c) it is not estimated but calculated

(d) it is given

 

Q3: According to Diagram 1, what is our endogenous or explained variable?

(a) Total revenue

(b) Number of passengers

(c) Both

(d) None

 

Q4: Based on the previous questions, which of the following mathematical representations (or functional relationships) are correct?

(a) Number of passengers = f (Total revenue)

(b) Total revenue = f (Total revenue)

(c) Total revenue = f (Number of passengers)

(d) None

 

Q5: In our very simple model, is it possible for us to know exactly what determines the number of passengers?

(a) no, it cannot be known.

(b) yes, it can be known

(c) no, it cannot be known because it might depend on total revenue

(d) yes, it can be known because it depends on total revenue