Deck 1: Economic Issues and Concepts

Question 1

Consider the production possibilities boundary (PPB) of an economy. Economic growth is illustrated by

A) a movement onto the PPB.
B) an outward shift of the PPB.
C) a movement along the PPB.
D) the negative slope of the PPB.
E) the movement to a point outside of the PPB.

Answer 1

B

Question 2

Most modern economies in the world today

A) are similar to feudal systems.
B) have pure market exchange.
C) are mostly run by government decree.
D) have a mix of traditional, command and market elements.
E) are complex systems that defy description and analysis.

Answer 2

D

Question 3

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Madeleine allows herself $100 per month for purchasing coffee. The diagram below illustrates the choices available to her. FIGURE 1-2
Refer to Figure 1-2.

A) 1/4 of a regular coffee.
B) 80 lattes.
C) 4 lattes.
D) 1/4 of a latte.
E) 20 lattes

Answer 3

D

Question 4

Karl Marx argued that

A) centrally planned economies could provide a more equitable distribution of total output than capitalist economies.
B) benevolence, not self-interest, produced an effective economic order.
C) technological change was not important in improving living standards.
D) the unfettered market system driven by self-interest leads to the best social outcome.
E) a free-market system would produce a low level of total output.

Question 5

A barter system of exchange

A) requires the use of money.
B) is the most efficient form of exchange.
C) involves the trading of goods directly for other goods
D) does not involve the double coincidence of wants.
E) developed late in history.

Question 6

The Canadian economic system can best be described as

A) traditional.
B) pure free market.
C) mixed socialism.
D) mixed capitalism.
E) command.

Question 7

Income redistribution in a mixed economy

A) risks reducing individual incentives to work and produce.
B) is only accomplished through government intervention.
C) is supported by all individuals.
D) is not allowed.
E) rarely occurs.

Question 8

Suppose Andrea has a job that pays her $25 000 per year (after taxes). She is considering quittingher job and going to university full time for four years. Tuition fees and books will cost $12 000 peryear. Living expenses will cost $10 000 per year. What is the opportunity cost of Andrea's four-year university degree?

A) $88 000
B) $100 000
C) $120 000
D) $148 000
E) $188 000

Question 9

In a modern mixed economy the government ensures that key institutions are in place to facilitatevoluntary transactions between economic agents. These key institutions are

A) labour and capital markets.
B) securities regulators and the court system.
C) private property and freedom of contract.
D) the House of Commons and the Senate.
E) the Department of Finance and the Bank of Canada.

Question 10

Which of the point(s) below is (are) true of money?i) Money allowed for specialization of labour and expansion of trade. iii) Money allowed for the development of a market economy.iv) Money allowed one to save current production for future use.

A) Only i).
B) Only i) and ii).
C) Only i) and iv).
D) Only i), ii), and iv).
E) All of the points are true.

Question 11

The downward-sloping line in the diagram below shows the combinations of health care and education expenditures that the government can afford with a given amount of tax revenue. FIGURE 1-5
Refer to Figure 1-5. Suppose the government's current spending is shown by point D. In this case,

A) more education expenditures can be achieved only by sacrificing some health expenditures.
B) the government should spend its total budget so as to get to point B, since more health spending and more education spending are both clearly desirable.
C) the prices of education and health care have increased beyond the government's ability to pay.
D) more health expenditures can be achieved only by sacrificing some education expenditures.
E) the government is not spending its total budget.

Question 12

Economists usually assume that households and firms, respectively, maximize

A) wages and revenues.
B) expenditures and profits.
C) income and sales.
D) savings and profits.
E) utility and profits.

Question 13

A basic underlying point in economics is that

A) people have unlimited wants in the face of limited resources.
B) people have limited wants in the face of limited resources.
C) governments should satisfy the needs of the people.
D) there are unlimited resources.
E) governments should never interfere in the workings of a market economy.

Question 14

Economics can best be described as

A) the application of sophisticated mathematical models to address social problems.
B) the study of how to reduce inflation and unemployment.
C) the study of the use of scarce resources to satisfy unlimited human wants.
D) the study of how a society ought to allocate its resources.
E) a normative science.

Question 15

The table below shows that, in one day, Claire can complete either 3 chemistry or 2 biology lab reports, while Sam can complete either 4
chemistry or 3 biology lab reports. TABLE 1-2
Refer to

Question 16

A point lying inside the production possibilities boundary is one at which

A) more output could be produced with existing resources.
B) it is not possible to produce more output with existing resources.
C) the economy has run out of resources.
D) there is no scarcity.
E) the opportunity cost of producing more output is negative.

Question 17

The diagram below shows two production possibilities boundaries for Country X. FIGURE 1-3
Refer to Figure 1-3. At point B,

A) the opportunity cost of producing an extra unit of consumption goods is higher than at point A.
B) the price of capital goods is higher than the price of consumption goods.
C) the opportunity cost of producing an extra unit of capital goods is higher than at point A.
D) Country X is producing too many consumption goods and too few capital goods.
E) the price of consumption goods is equal to the price of capital goods.

Question 18

In a pure market economy, the role of government is limited to provision of :i) a basic legal and institutional structure.ii) intervention in the allocation of resources in some areas of the economy. iii) redistribution of income.iv) stabilization of economic conditions generally. Which of the above points is true?

A) Only i).
B) Only i) and ii).
C) Only i) and iv).
D) Only i), ii), and iv).
E) All of the points are provided by government in a pure market economy.

Question 19

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Madeleine allows herself $100 per month for purchasing coffee. The diagram below illustrates the choices available to her. FIGURE 1-2
A farmer selling tomatoes and corn at a roadside, and a currency trader in Hong Kong, are eachparticipating in

A) international trade.
B) an involuntary transaction.
C) flexible manufacturing.
D) barter.
E) a market.

Question 20

The table below illustrates that, in one day, Tristan can produce either 12 fishing lures or mow 3 lawns, while Thomas can produce either
6 fishing lures or mow 6 lawns. TABLE 1-1
Refer to Table 1-1. What is Tristan's opportunity cost of producing one fishing lure?

A) one mowed lawn
B) 3 mowed lawns
C) 1/4 of a mowed lawn
D) 1/3 of a mowed lawn
E) 4 mowed lawns

Question 21

In mixed economies, economic behaviour is

A) based primarily on custom and habit.
B) random and unpredictable.
C) directed only by self interest.
D) largely determined by a central authority.
E) affected by elements of tradition, government command, and market incentives.

Question 22

Complex economic plans for many economic sectors are most associated with a

A) feudal system.
B) traditional economy.
C) free-market system.
D) command economy.
E) mixed market system..

Question 23

Which countries have mostly public ownership of resources?

A) Brazil and Argentina
B) Sweden and Norway
C) Cuba and North Korea
D) United States and Canada
E) France and Germany

Question 24

On a diagram of a production possibilities boundary, the concept of opportunity cost is illustrated by the

A) distance from the origin to the boundary.
B) unattainable points outside the boundary.
C) negative slope of the boundary.
D) area bounded by the two axes and the boundary.
E) boundary being concave to the origin.

Question 25

The circular flow of income illustrates

A) the flows of expenditures and income in a household.
B) that there is no relationship between goods markets and factor markets.
C) that firms own the factors of production.
D) the interaction of households and firms through the factors and goods markets.
E) that the flow of payments moves in the same direction as the flow of goods.

Question 26

The diagram below shows two production possibilities boundaries for Country X. FIGURE 1-3
Refer to Figure 1-3. Growth in the country's productive capacity is illustrated by

A) a movement from a point inside the boundary such as C to the boundary.
B) the movement between points on a given boundary.
C) a point like D outside the boundary.
D) a single point such as A on the boundary.
E) an outward shift of the boundary, for example from PPB1 to PPB2.

Question 27

The diagram below shows two production possibilities boundaries for Country X. FIGURE 1-3
Refer to Figure 1-3. If Country X were producing at point C,

A) it is not possible to move to any point on PPB1 or PPB2 without technological progress.
B) this is the maximum output possible from given resources.
C) the opportunity cost of moving to point A is to give up some capital goods.
D) the opportunity cost of moving to point B is to give up some consumption goods.
E) the opportunity cost of moving to point A is zero.

Question 28

If some income earned by households is not spent on output, or if some income earned by firms isnot spent on factor services, the circular flow of income will

A) contract.
B) expand.
C) run over.
D) stop.
E) explode.

Question 29

If there is always a three-for-one trade-off between the production of goods X and Y, then the production possibilities boundary for X and Y is

A) a downward-sloping straight line.
B) a downward-sloping curve convex to the origin.
C) a downward-sloping curve concave to the origin.
D) semi-circular.
E) a downward-sloping straight line that is broken at one point.

Question 30

If a country's production possibilities boundary is drawn as a straight (downward-sloping) line it indicates

A) the use of the scarce resources in an economy.
B) constant opportunity cost of producing more of either good.
C) increasing opportunity cost of producing more of either good.
D) decreasing opportunity cost of producing more of either good.
E) an unfair distribution of resources in an economy.

Question 31

With regard to various economic systems, most economists agree that

A) most production and consumption decisions are more efficiently coordinated by markets than through central planning.
B) the mix of market and command principles that exists in Canada is the best.
C) command economies have been very successful in distributing income in socially just ways.
D) the optimal mix of market and command systems remains constant over time.
E) government intervention in the economy is only justified in time of war.

Question 32

A country's production possibilities boundary shows that

A) when a society combines its resources efficiently, it cannot produce more of one good without producing less of the other good.
B) the supply for goods always exceeds the demand.
C) when a society combines its resources inefficiently, it cannot produce more of one good without producing less of the other good.
D) when a society combines its resources efficiently, it is always possible to produce more of all goods.
E) all points inside the boundary are preferred to all points on the boundary.

Question 33

A) legal contracts.
B) the various levels of government.
C) consumers and firms through the price system.
D) negotiation between unions and firms.
E) business firms only.

Question 34

The downward-sloping line in the diagram below shows the combinations of health care and education expenditures that the government can afford with a given amount of tax revenue. FIGURE 1-5
Refer to Figure 1-5. If the government's spending on health and education is given by point B, a move to point A must involve

A) more spending on education.
B) less spending on education.
C) less spending in total.
D) less spending on health.
E) zero opportunity cost.

Question 35

Consider a production possibilities boundary showing the quantity of military goods and thequantity of civilian goods on the two axes. A movement along the production possibilitiesboundary could be caused by

A) an increase in the labour supply.
B) the employment of previously idle resources.
C) the reallocation of resources between military and civilian goods.
D) technological progress.
E) the growth of productive capacity.

Question 36

Suppose fire destroy many millions of hectares of valuable Canadian forest. The effect on theCanadian economy would be best illustrated by _ the production possibilities boundary.

A) a shift outward of
B) a movement to a point beyond
C) a movement inside
D) an inward shift of
E) a movement along

Question 37

Consider a production possibilities boundary showing the possible combinations of military goodsand civilian goods that a country can produce. Suppose that the country is currently at a point onthe boundary. If the production of military goods is increased, the production of civilian goods will necessarily

A) remain the same.
B) decrease.
C) increase.
D) increase at a decreasing rate.
E) increase at a increasing rate.

Question 38

Because resources are scarce, individuals are required to

A) sacrifice production but not consumption.
B) improve production but not distribution.
C) use resources inefficiently.
D) improve distribution but not production.
E) make choices among alternatives.

Question 39

In the Canadian economy, most decisions regarding resource allocation are made by

A) the various levels of government.
B) consumers and producers interacting in the price system.
C) legal contract.
D) business firms only.
E) negotiation between unions and firms.

Question 40

Economics is the study of

A) how to limit human wants so that scarce resources are sufficient.
B) the allocation of scarce resources among alternative uses.
C) how to plan an economy.
D) how to distribute income as equally as possible.
E) why resources are scarce.

Question 41

On a diagram of a production possibilities boundary, the concept of scarcity is illustrated by the

A) area within the boundary.
B) distance from the origin to the boundary.
C) unattainable points outside the boundary.
D) negative slope of the boundary.
E) points on the boundary.

Question 42

During the nineteenth and early twentieth centuries, millions of people immigrated to westernCanada. The effect on the Canadian economy was to

A) move it beyond its new production possibilities boundary.
B) shift its production possibilities boundary inward.
C) shift its production possibilities boundary outward.
D) move it inside its new production possibilities boundary.
E) move it along an unchanged production possibilities boundary.

Question 43

The diagram below shows two production possibilities boundaries for Country X. FIGURE 1-3
Refer to Figure 1-3. Suppose that Country X is currently producing at point E. Country X could achieve production at point D if

A) firms reduced output of capital goods.
B) sufficient improvements in technology occurred in either the capital goods industry or the consumer goods industries.
C) the given resources were more efficiently employed.
D) the given resources were fully employed.
E) the prices of capital goods and consumption goods fell.

Question 44

Suppose drought destroys many millions of acres of valuable Canadian farmland. The effect on theCanadian economy would be to move

A) its production possibilities boundary inward.
B) it beyond its production possibilities boundary.
C) it along its production possibilities boundary.
D) its production possibilities boundary outward.
E) none of the above. There would be no change in Canada's production possibilities boundary.

Question 45

The diagram below shows two production possibilities boundaries for Country X. FIGURE 1-3
Refer to Figure 1-3. If Country X, constrained by the production possibilities boundary PPB1, is currently producing at point A, it can produce more capital goods by moving to point

A) E.
B) F.
C) B.
D) C.
E) D.

Question 46

Katie and Hugh are producing pies and jars of pickles. Katie can produce either 200 jars of pickles or 100 pies per month. Hugh can produce either 800 jars of pickles or 200 pies per month. Currently, each divide their time equally between production of the two goods per month -- Katie produces 100 jars of pickles and 50 pies while Hugh produces 400 jars of pickles and 100 pies. Inorder for Katie and Hugh to jointly gain from specialization, which of the following changes should take place?

A) Hugh should produce more pies and fewer jars of pickles.
B) Katie should produce more pies and fewer jars of pickles.
C) Katie and Hugh should both produce more pies and fewer jars of pickles.
D) Katie and Hugh should both produce more jars of pickles and fewer pies.
E) Katie should produce more jars of pickles and fewer pies.

Question 47

The opportunity cost of producing good A is defined to be

A) the cost of having to get by using something else in place of good A.
B) the money cost of the factors of production used in good A.
C) what must be sacrificed of other goods to get an additional unit of good A.
D) the cheapest method of producing good A.
E) the retail price of good A.

Question 48

The opportunity cost of going to college or university for four years is

A) zero.
B) equal to the wage rate a person will earn after graduation.
C) the cost of tuition and books and four years of lost wages from employment.
D) the cost of tuition, residence fees and books.
E) the least valued alternative one forfeits to attend.

Question 49

Economics is generally NOT concerned with

A) restricting the level of human wants.
B) the distribution of income among households.
C) the concept of opportunity cost.
D) the rate of growth of productive capacity.
E) the allocation of resources among alternative uses.

Question 50

In command economies, economic behaviour is

A) largely affected by elements of tradition and market incentives.
B) largely determined by a central authority.
C) random and unpredictable.
D) based primarily on custom and habit.
E) directed by individual self interest.

Question 51

The diagram below shows two production possibilities boundaries for Country X. FIGURE 1-3
Suppose that one unit of labour can produce either 5 units of wool or 2 pineapples. What is theopportunity cost of producing 1 pineapple?

A) 2/5 unit of wool
B) 5 units of wool
C) 5/2 units of wool
D) zero
E) 2 units of wool

Question 52

Scarcity is likely to be

A) a problem that will always exist.
B) a problem that will be solved by the proper use of available resources.
C) eliminated with a better understanding of economics.
D) a result of the work ethic.
E) unique to the twentieth century.

Question 53

Behaviour in free-market economies is

A) determined by a central authority.
B) based primarily on custom and habit.
C) random and unpredictable.
D) mostly affected by elements of tradition and government command.
E) mostly directed by self interest.

Question 54

The famous economist who developed the idea of the division of labour was

A) Adam Smith.
B) David Ricardo.
C) Milton Friedman.
D) Karl Marx.
E) John Maynard Keynes.

Question 55

The diagram below shows two production possibilities boundaries for Country X. FIGURE 1-3
Refer to Figure 1-3. A shift of the production possibilities boundary from PPB1 to PPB2 implies

A) that if point E is the new choice of outputs, productivity has increased in the consumption goods industry.
B) a movement from full employment to some unemployment.
C) that technology in the capital goods industries has improved.
D) that technology in the consumption goods industry has improved.
E) an inevitable decrease in total output.

Question 56

Many economies in central and Eastern Europe, including the countries of the former Soviet Union,are still in the process of moving from a command economy to a market economy. In the first yearsof this transition, most of these countries experienced sharp drops in output and reductions in living standards. Economists generally see this as

A) an indication of the extreme difficulty of transition from one type of economic system to another.
B) the failure of the market system.
C) the difficulty of corruption in non-market economies.
D) the triumph of capitalism over communism.
E) an indication that these economies should return to being command economies.

Question 57

Which of the following statements best describes the underlying feature in most economic problems?

A) Governments should never interfere in the workings of a market economy.
B) People have unlimited wants in the face of limited resources.
C) People have limited wants in the face of limited resources.
D) There are unlimited resources.
E) Our country is rich; we just don't realize it.

Question 58

The concept of scarcity in economics usually refers to a condition

A) where society is not employing all of its available resources in an efficient manner.
B) that afflicts only poor countries.
C) where people's wants can never be satisfied by the available resources.
D) where production is efficient, but distribution is inefficient.
E) where too many frivolous goods and services are produced at the expense of socially desirable goods and services.

Question 59

In the circular flow of income, the allocation of resources is largely decided by

A) central authorities and firms only.
B) individuals only.
C) central authorities only.
D) firms and households acting independently.
E) political parties and firms only.

Question 60

Scarcity arises from limited resources. For this reason, all economic choices involve

A) an opportunity cost.
B) greed.
C) a value judgement.
D) complementary ends.
E) pride.

Question 61

Economists usually assume that households

A) make consistent decisions, maximize utility, and are the principal owners of the factors of production.
B) make consistent decisions, maximize savings, and are the principal users of the factors of production.
C) do not make consistent decisions, maximize satisfaction, and are the principal owners of the factors of production.
D) make consistent decisions, maximize profits, and are the principal users of the factors of production.
E) do not make consistent decisions, maximize profits, and are the principal users of the factors of production.

Question 62

Suppose a scientific breakthrough leads to a lower-cost method of producing battery-operated cars in Canada. The likely effect would be to move Canada's current production

A) possibilities boundary inward.
B) above the level of U.S. production.
C) to a point inside its new production possibilities boundary.
D) to a point beyond its new production possibilities boundary.
E) possibilities boundary outward.

Question 63

The use of money for transactions

A) makes specialization of labour more difficult.
B) increases the use of barter.
C) enables humanity to satisfy all wants.
D) makes exchange easier and thus promotes the specialization of labour.
E) fosters self-sufficiency.

Question 64

One of the major results of the greater specialization of labour is that

A) there is an increased need for government to intervene in the marketplace.
B) there is a greater need for trade.
C) the circular flow of income contracts.
D) each worker must become more self-sufficient.
E) the overall output of the economy declines.

Question 65

It has been observed that university enrollment in Canada is higher during periods of highunemployment. A possible explanation for this is that

A) when prospects for getting a job are poor, the opportunity cost of getting a job is lower.
B) during periods of high unemployment, tuition fees are reduced.
C) when prospects for getting a job are poor, the opportunity cost of going to university is lower.
D) during periods of high unemployment, the opportunity cost is no longer relevant.
E) when prospects for getting a job are poor, the opportunity cost of doing nothing is higher.

Question 66

Comparison of economic systems indicates that

A) capitalist economies are clearly superior in distributing income.
B) all countries have largely traditional economies.
C) most nations have either a purely socialist economy or a purely capitalist economy.
D) socialist economies are clearly superior in producing consumer goods.
E) most countries have mixed economies.

Question 67

An insight first fully developed by Adam Smith is that

A) all individuals are motivated solely by self-interest.
B) individual self-interest is the only necessary force for social order.
C) self-interest, not benevolence, is the foundation of economic order.
D) self-interest undermines effective economic order.
E) without benevolence production would not occur.

Question 68

Suppose there are three alternatives to attending a social event: read a novel (you value this at $10),go to work (you could earn $20), or watch videos with some friends (you value this at $25). Theopportunity cost of attending the social event is

A) $45.
B) $20.
C) $10.
D) zero.
E) $25.

Question 69

Money facilitates trade and specialization by

A) increasing the value of gold.
B) eliminating the need for barter.
C) reducing the shift of resources between uses.
D) providing employment for coin makers.
E) increasing investment.

Question 70

Specialization of labour led to greater efficiency in the allocation of resources because of

A) the principle of comparative advantage.
B) an increase in total work effort.
C) greater reliance on self-sufficiency.
D) the use of barter.
E) the opportunity cost of labour increased.

Question 71

The Canadian economy is best described as

A) primarily a public ownership economy.
B) primarily free-market decision making.
C) traditional.
D) a mixed economic system.
E) a command economy.

Question 72

Specialization of labour means that

A) job security is ensured.
B) each worker is self-sufficient.
C) different individuals perform different tasks in the production process of any given product.
D) different individuals produce different products.
E) a barter economy is not necessary.

Question 73

One of the "real" flows in the circular flow of income is

A) goods going from consumers to producers.
B) goods going from producers to consumers.
C) money payments going from consumers to producers.
D) factor services going from producers to consumers.
E) money payments going from producers to consumers.

Question 74

Which of the following has most contributed to the globalization of the economy?

A) tariffs and trade barriers
B) reductions in transportation and communication costs
C) the decline in the relative importance of manufacturing
D) the decreased importance of agriculture
E) the shift toward a market economy in China

Question 75

An economic system that relies primarily upon custom and habit in economic decision making is a

A) mixed system.
B) market system.
C) traditional system.
D) communist system.
E) command system.

Question 76

Labour services are bought and sold in a

A) foreign exchange market.
B) mixed market.
C) product market.
D) factor market.
E) goods market.

Question 77

The key decision makers in a market economy are:

A) households, firms, and government.
B) corporations and governments.
C) individual citizens, non-profit organizations, and the Bank of Canada.
D) governments and all institutions under government control.
E) large corporations and labour organizations.

Question 78

A modern economy like Canada's is largely organized by

A) benevolent individuals pursuing the public interest.
B) individuals following their own self interest, doing what seems best for themselves.
C) individuals forming cooperative enterprises and labour unions.
D) the self-interested behaviour of a small number of individuals.
E) governments at all levels coordinating the activities of firms and citizens.

Question 79

Consider the following list: a worker with training in video gaming technology, 10 hectares of arable land in southern Ontario, a fishing trawler in Nova Scotia, an ice-cream truck at a park in Quebec. Each of these is an example of

A) an economic service.
B) a capital resource.
C) a commodity.
D) goods and services.
E) a factor of production.

Question 80

The downward-sloping line in the diagram below shows the combinations of health care and education expenditures that the government
can afford with a given amount of tax revenue. FIGURE 1-5
Refer to Figure 1-5. The levels of health and education expenditures at point C

A) are equal to those of point A and point B.
B) are less than at point D.
C) could be achieved if the prices of health and/or education increased.
D) are more cost-effective than those at points A, B, and D.
E) are not attainable with the government's current budget.