Question

1) Economists believe that

a		people who choose to promote the interests of others cannot be acting rationally in their own self-interest
b		people show concern only for those whom they know personally
c		charitable donations would disappear if tax deductions for charitable giving were eliminated
d		the notion of self-interest rules out concern for others
e		concern for the welfare of others is consistent with the concept of self-interest

2) Aggregate income is defined as

a		the sum of income earned by all laborers in the world economy
b		the sum of income earned by all workers in the private sector
c		the total income of all individuals who contribute resources to the market production of output
d		total income after all income taxes but before paying other payroll taxes
e		total income after purchases of necessities

3) Economists generally assume that

a		firms act to maximize the dividends paid to stockholders
b		households act to maximize their wealth
c		households act to maximize utility
d		firms act to maximize revenue
e		both households and firms act to minimize expenditures

4) An example of a positive externality is

a		pollution because it affects people not directly involved with producing it
b		a homeowner's maintenance of a beautiful lawn because this creates a benefit for neighbors
c		creating a monopoly
d		driving a car that emits pollution
e		cigarette smoking because this imposes an indirect cost on people around the smoker

Answer 1

Ans) 1) Economists believe that self interest and welfare of others go hand in hand. For eg- an interest of farmers to earn income will lead to production of crops, an interest of grocery seller to earn profits will lead to selling of farm produce in the market, which will ultimately be served on the plates of people.

Option e.

2) Option c.

Aggregate income is sum of all the income in an economy without the adjustment of taxes, inflation etc.

3) Economists generally assume that households try to maximise their utility or satisfaction and firms try to maximise their profits.

Option c.

4) Positive externality is when the bystander bears the benefit of any activity. Eg- education, vaccination, afforestation, recycling etc.

Option b. Maintenance of lawn will lead to production of oxygen, reduction of pollution, beautification of surrounding etc.