Test One – Economic Principles & Problems

Test 1 -- Covers Unit 1 Content


PART A     Multiple Choice (K/U)     7 MARKS

Clearly select and circle the BEST answer for each of the following multiple-choice questions.            * 7 questions worth 1 mark each.

1.  Y. Varoufakis’ twin peaks explains

(a) the underlying benefits of austerity.
(b) the over confidence of investors.
(c) the norm operations of markets.
(d) the irrationality of investors.

2. Analytical economics deals primarily with the following, except

(a) incentives.
(b) the Nash Equilibrium.
(c) forecasts generated by economic models.
(d) distributive justice (fair resource distribution).

3. In a market economy

(a) perfect information and competition is essential.
(b) the economy is centrally planned.
(c) public good economics is not possible.
(d) self interest is unrestrained.


PART B     Short Answer Questions (APP)     8 MARKS

Answer the following questions in the space provided.      * 3 questions  in total (Q1 = 3 marks, Q2 = 3 marks, Q3 = 2 marks)


1.  Explain how Yanis Varoufakis' concept of the twin peaks explains the debt crisis many countries face in Europe and North America.  (2 marks)

PART C – Written Responses (T)     5 MARKS 

* 1 question worth 5 marks.  5 marks earned by offering 5 fully developed points supported by specific course concepts and examples.


1.  Agree or disagree with the statement below.  In defending your position, be sure to make specific reference to unit 1 concepts we studied in class.  Be sure to discuss public good versus public choice economics and positive versus negative freedom.  (5 marks)

Market forces, not governments, are the primary driver of the common good. 

TOPICS OUTLINE                                                                                                                            Topics in RED not on the test in 2019.

→ Self-Interest

→ Implicit Collusion.

→ Counteraction.

→ The Prisoner's Dilemma.

→ Perfect Information & Perfect Competition.

→ M. Friedman Core Concepts.

→ Definition of Economics.

→ The Condition of Scarcity as the Fundamental Economic Problem.

→ Opportunity Cost.

→ Analytical vs. Normative Economics.

→ 4 Basics of a Market Economy (Free Market)

→ 4 Layer Cake (Goals, Economic Systems, Economic Ideologies, Economic Concepts).

→ Economic Concepts & Decision-Making Models.

→ Public Good vs. Public Choice Economics.

→ The Invisible Hand.

Fallacy of Composition, Fallacy of Single Causation, Post Hoc Fallacy.

→ 2 Fallacies Covered as a Class (#1 Rubin and Infinite Growth & #2 Nash, Self-Interest, and Game Theory).

→ Moral Hazard Problems.

→ Determinants of Oil Prices.

Real Economy vs. Expectations Economy.

→ Analytical vs. Normative Statements.

→ Hayek & Spontaneous Order.

→ The Nash Equilibrium.

→ 2 Types of Freedom.

→ "maximin" concept of liberty.

→ Majority Marginalization.

→ Greatest Good for the Greatest Number.

It's the Economists, Stupid Handout Questions & Debrief of Core Concepts and BOTTOM LINE LESSONS.

→ Greece Case Study.

→ Yanis Varoufakis, Austerity, Debt-Inflationary Cycles, and the Twin Peaks Paradox.