D) Free riding does not impose a cost on society.
Answer: B
Difficulty: Easy
AACSB: Analytical Thinking
Topic: The Free‐Rider Problem
25
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12) Assume that a house is rented by four students. When it comes to keeping the house clean, each of the
four roommates has an incentive to leave the cleaning to the others. As a result, the house is never clean.
Which of the following is the best solution to this problem of free riding?
A) Asking every roommate to clean the house if they dirty it
B) Requiring every roommate to contribute to a cleaning service
C) Requiring each roommate to pay more toward the house rent and groceries
D) Assigning one roommate the responsibility of watching over the other students
Answer: B
Difficulty: Medium
AACSB: Application of Knowledge
Topic: The Free‐Rider Problem
13) Explain the term ʺfree riders.ʺ
Answer: Free riders are people who do not contribute but still benefit from the actions that others
undertake. When people pursue their own private interests and do not contribute voluntarily to the public
interest, the problem of free riding arises. For example, a free rider may avoid paying taxes but enjoy the
same benefits enjoyed by tax payers.
Difficulty: Easy
AACSB: Analytical Thinking
Topic: The Free‐Rider Problem
1.5 The Third Principle of Economics: Empiricism
1) Empiricism refers to the process of ________.
A) measuring variables
B) testing ideas using data
C) collecting and organizing data
D) making choices using values and beliefs
Answer: B
Difficulty: Medium
AACSB: Analytical Thinking
Topic: The Third Principle of Economics: Empiricism
2) Which of the following statements is true?
A) Data help establish whether theories match reality.
B) Data are not an integral part of optimization analysis.
C) Empiricism is not an integral part of optimization analysis.
D) Empiricism refers to the testing of ideas without using data.
Answer: A
Difficulty: Easy
AACSB: Analytical Thinking
Topic: The Third Principle of Economics: Empiricism
26
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3) Which of the following statements is true of data?
A) Data help verify causal relationships.
B) Data are not important for evaluating theories.
C) Anecdotes are good substitutes for data.
D) The fewer data that are available, the better the empirical analysis will be.
Answer: A
Difficulty: Easy
AACSB: Analytical Thinking
Topic: The Third Principle of Economics: Empiricism
4) Which of the following statements is true?
A) Testing with data is essential to developing a good theory.
B) The knowledge of economics complicates decision making.
C) Cost‐benefit analysis can be applied only to limited economic decisions.
D) Economics is more of a theoretical subject with limited applications in the real world.