choices. The students are discussing how a firm should make its output decision. This is a discussion
about an individual entity and so is considered microeconomic analysis.
Difficulty: Medium
AACSB: Application of Knowledge
Topic: Microeconomics and Macroeconomics
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1.2 Three Principles of Economics
1) Which of the following correctly defines the term ʺequilibriumʺ?
A) It refers to a situation in which data are used to arrive at conclusions.
B) It refers to a situation in which all economic agents are simultaneously optimizing.
C) It refers to a situation in which an optimizing decision is made by an individual economic agent.
D) It refers to a situation in which government intervention efficiently allocates scarce resources.
Answer: B
Difficulty: Easy
AACSB: Analytical Thinking
Topic: Three Principles of Economics
2) Which of the following best describes equilibrium?
A) A situation where the government intervenes to allocate resources
B) A situation where only one individual or firm makes an optimal decision
C) A situation where no economic agent would benefit by changing his or her behavior
D) A situation where economic agents do not optimize as they do not have perfect information
Answer: C
Difficulty: Easy
AACSB: Analytical Thinking
Topic: Three Principles of Economics
3) Empiricism is analysis that uses ________ to test theories.
A) data
B) illustrations
C) philosophy
D) value judgments
Answer: A
Difficulty: Easy
AACSB: Analytical Thinking
Topic: Three Principles of Economics
4) Which of the following is NOT a key principle of economics?
A) Optimization
B) Equilibrium
C) Empiricism
D) Substitution
Answer: D
Difficulty: Easy
AACSB: Analytical Thinking
Topic: Three Principles of Economics
11
Copyright © 2019 Pearson Education, Ltd.
5) Define the three key principles of economics.
Answer:
i) Optimization: optimization refers to the process of choosing the best option from a set of alternatives,
given the available information.
ii) Equilibrium: equilibrium is a special situation all agents are simultaneously optimizing, so that nobody
would benefit personally by changing his or her behavior.
iii) Empiricism: empiricism is analysis that is evidence‐based–it uses data to test theories and to determine
what is causing things to happen in the world.
Difficulty: Easy
AACSB: Analytical Thinking
Topic: Three Principles of Economics
1.3 The First Principle of Economics: Optimization
1) Which of the following statements is true of optimization?
A) Optimization analysis only relates to the financial budget of an economic agent.
B) Individuals who optimize do not consider costs when choosing the most feasible alternative.
C) Economic agents can optimize only when they are able to perfectly estimate all future costs and