Which One of the Following States a Central Element of the Economic

question 109

Multiple Choice

Which one of the following states a central element of the economic way of thinking?

• A) Scarce goods are priceless.
• B) Incentives matter--human choice is influenced in predictable ways by changes in personal costs and benefits.
• C) The realism of the assumptions is the best test of an economic theory.
• D) When deciding how to allocate time, the concept of opportunity cost is meaningless.

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Definitions:

Permanent Income Hypothesis

Formulated by Milton Friedman, it states that the strongest influence on consumption is one’s estimated lifetime income.

Paradox of Thrift

An economic theory suggesting that while saving is beneficial to an individual, increased savings by the entire population can lead to a decrease in aggregate demand, ultimately reducing savings at a macroeconomic level.

Theory of the Leisure Class

A socio-economic theory presented by Thorstein Veblen, which critiques consumerism and status-driven consumption, emphasizing the social uses of wealth and leisure to display status rather than for utility.

Theory of the Multiplier

An economic theory suggesting that an initial increase in spending leads to increased income and consumption, further magnifying economic activity.