Deck 1: Ten Principles of Economics

Question 1

What is the economy experiencing when a society cannot produce all the goods and services people wish to have?

A)scarcity
B)communism
C)externalities
D)market failure

Answer 1

A

Question 2

From which Greek words is the word economy derived?

A)"environment"
B)"one who manages a household"
C)"one who participates in a market"
D)"conservation"

Answer 2

B

Question 3

What does economics study?

A)business
B)how society manages its scarce resources
C)central planning
D)government regulation

Answer 3

B

Question 4

Which of the following goods best meets the definition of scarcity?

A)air
B)water in the ocean
C)water in a city
D)wood in a forest

Question 5

When does scarcity exist?

A)when there is less than an infinite amount of a resource or good
B)when society can meet the wants of every individual
C)when there is less of a good or resource available than people wish to have
D)when the government fails to produce goods

Question 6

In most societies, who allocates resources?

A)a single central planner
B)those who own the resources
C)those firms that use resources to provide goods and services
D)the combined actions of millions of households and firms

Question 7

Which of the following would NOT be true in a world without scarcity?

A)There would be no need for the science of economics.
B)Everyone would have all the goods and services they wanted.
C)There would have to be an infinite supply of every resource.
D)There would be opportunity costs.

Question 8

Economists study

A)how people make decisions.
B)how governments interact with one another.
C)the forces and trends that affect only the economy as a whole.
D)how societies change over time.

Question 9

Which of the following is NOT included in the decisions that every society must make?

A)what goods will be produced
B)who will produce the goods
C)what determines consumer preferences
D)who will consume the goods

Question 10

Which of the following statements is NOT true? Households and economies both

A)must allocate scarce resources.
B)face many decisions.
C)must allocate the goods and services they produce.
D)must have a central decision maker.

Question 11

What does economics study?

A)how society manages its scarce resources
B)the government's role in society
C)how to increase production
D)How firms make profits

Question 12

What is the word that comes from the Greek word for "one who manages a household"?

A)market
B)consumer
C)producer
D)economy

Question 13

What concept is illustrated by the adage, "There is no such thing as a free lunch"?

A)tradeoffs
B)scarcity
C)productivity
D)efficiency

Question 14

With what concept does economics deal primarily with?

A)scarcity
B)poverty
C)change
D)power

Question 15

Approximately what percentage of the world's economies experience scarcity?

A)25%
B)50%
C)75%
D)100%

Question 16

For society, when is a good NOT scarce?

A)if at least one individual in society can obtain all he or she wants of the good
B)if firms are producing at full capacity
C)if all members of society can have all they want of it
D)if those who have enough income can buy all they want of the good

Question 17

Which of the following is NOT a major area of study for economists?

A)how people make decisions
B)how countries choose national leaders
C)how people interact with each other
D)how forces and trends affect the overall economy

Question 18

When is a good considered scarce in a society?

A)when more output of the good is possible
B)when everyone in that society cannot have all they want of the good
C)when the government restricts production of the good
D)when only the richest people in the economy can buy all they want of the good

Question 19

What does the adage, "There is no such thing as a free lunch," mean?

A)Even people on welfare have to pay for food.
B)The cost of living is always increasing.
C)To get something we like, we usually have to give up another thing we like.
D)All costs are included in the price of a product.

Question 20

For what reason do both households and societies face many decisions?

A)because resources are scarce
B)because populations may increase or decrease over time
C)because wages for households and therefore society fluctuate with business cycles
D)because people, by nature, tend to disagree

Question 21

When the government implements programs such as progressive income tax rates, which of the following is likely to occur?

A)Equity is increased and efficiency is increased.
B)Equity is increased and efficiency is decreased.
C)Equity is decreased and efficiency is increased.
D)Equity is decreased and efficiency is decreased.

Question 22

Henry decides to spend 2 hours playing golf rather than working at his job which pays $8 per hour. What is Henry's tradeoff?

A)the $16 he could have earned working for 2 hours
B)nothing, because he enjoys playing golf more than working
C)the increase in skill he obtains from playing golf for those 2 hours
D)nothing, because he spent $16 for green fees to play golf

Question 23

When society requires that firms reduce pollution, what happens?

A)There is a tradeoff because of reduced incomes to the firms' owners, workers, and customers.
B)There is no tradeoff, since everyone benefits from reduced pollution.
C)There is no tradeoff for society as a whole, since the cost of reducing pollution falls only on the firms affected by the requirements.
D)There is a tradeoff only if some firms are forced to close.

Question 24

What is one definition of equity?

A)equality
B)efficiency
C)fairness
D)similarity

Question 25

What will pollution regulations do?

A)increase profit to firms
B)impose a tradeoff on society
C)allow firms to raise workers' wages
D)lower prices for consumers

Question 26

What do economists illustrate when they use the phrase "There is no such thing as a free lunch"?

A)how inflation increases prices
B)that to get one thing, we must give up something else
C)that nothing is free in a market economy
D)that if something looks too good to be true, it probably is

Question 27

How does a tradeoff exist between a clean environment and a higher level of income?

A)Studies show that individuals with higher levels of income actually pollute less than low-income individuals.
B)To pay for pollution clean-up, the government must increase taxes which lowers income.
C)Laws that reduce pollution raise costs of production and reduce incomes.
D)By employing individuals to clean up pollution, employment and income both rise.

Question 28

Which of the following would NOT be a result of laws that require firms to reduce pollution?

A)lower spending by government
B)higher prices to consumers
C)lower wages to workers
D)smaller profit to firms

Question 29

When the government attempts to improve equity in an economy, what is often the result?

A)an increase in overall output in the economy
B)additional government revenue since overall income will increase
C)an actual reduction in equity
D)reduced efficiency in the economy

Question 30

What does efficiency mean?

A)Society is conserving resources in order to save them for the future.
B)Society's goods and services are distributed fairly among society's members.
C)Society has lessened its dependence on foreign energy sources.
D)Society is getting the most it can from its scarce resources.

Question 31

Daniel decides to spend the last two hours of the night before his economics exam studying instead of sleeping. For Daniel, what would his tradeoff be?

A)nothing, since no dollar value can be put on sleep
B)nothing, since studying would be more beneficial than sleep
C)the six hours of sleep he could have had if he had gone to bed before midnight
D)the two hours of rest he would have gotten

Question 32

In which of the following situations would economists use the word equity?

A)Each member of society has the same income.
B)Society is getting the most it can from its scarce resources.
C)Those in society who have the least will receive the most.
D)The benefits of society's resources are distributed fairly among society's members.

Question 33

When the government redistributes income from the rich to the poor, what is the result?

A)Efficiency is improved, but equity is not.
B)Both rich people and poor people benefit directly.
C)People work less and produce fewer goods and services.
D)Rich people consume fewer goods, but poor people consume more goods, resulting in no real change.

Question 34

Which best represents the concept represented by the adage, "There is no such thing as a free lunch"?

A)Melissa can only attend the concert if she takes her sister with her.
B)Greg is hungry and homeless.
C)Brian must repair the tire on his bike before he can ride it to class.
D)Kendra must decide between going to Miami or Cancun for spring break.

Question 35

When government policies such as the welfare system try to help the neediest members of society, what happens?

A)It increases equity and reduces efficiency.
B)It reduces charitable contributions in an economy.
C)It increases the productivity of the needy in the society.
D)It causes market failure to occur.

Question 36

In economics, what is the cost of something?

A)the dollar amount of obtaining it
B)always measured in units of time given up to get it
C)what you give up to get it
D)usually higher than people think it will be

Question 37

Guns and butter are used to represent the classic societal tradeoff between spending on which two items?

A)durable and nondurable goods
B)imports and exports
C)national defense and consumer goods
D)law enforcement and agriculture

Question 38

Which of the following best defines efficiency?

A)absolute fairness
B)equal distribution
C)minimum waste
D)consumer sovereignty

Question 39

What happens when government policies are being designed?

A)There is usually a tradeoff between equity and efficiency.
B)Equity and efficiency goals are usually independent of each other.
C)Equity can usually be achieved without an efficiency loss.
D)Increasing efficiency usually results in more equity.

Question 40

When the government attempts to cut the economic pie into more equal slices, what happens?

A)It is easier to cut the pie, and therefore the economy can produce a larger pie.
B)The government can more easily allocate the pie to those most in need.
C)The pie gets smaller, and there will be less pie for everyone.
D)The economy will spend too much time cutting and loses the ability to produce enough pie for everyone.

Question 41

What is the largest single cost of going to university?

A)books
B)room and board
C)tuition
D)lost wages

Question 42

What is the opportunity cost of an item?

A)the number of hours needed to earn money to buy it
B)what you give up to get that item
C)usually more than the dollar value of the item
D)usually less than the dollar value of the item

Question 43

Russell spends an hour studying instead of playing tennis. What is the opportunity cost to him of studying?

A)the improvement in his grades from studying for the hour
B)the difference between the improvement in his grades from studying minus the enjoyment of playing tennis
C)the enjoyment and exercise he would have received had he played tennis
D)Zero, Since Russell chose to study rather than to play tennis, the value of studying must have been greater than the value of playing tennis

Question 44

After much consideration, you have chosen Cancun over Ft. Lauderdale for your Spring Break trip this year. For this decision to change, which of the following must occur?

A)The marginal benefit of Cancun must increase.
B)The marginal cost of Cancun must decrease.
C)The marginal benefit of Ft. Lauderdale must increase.
D)The marginal cost of Ft. Lauderdale must increase.

Question 45

For most students, what is the largest single cost of a university education?

A)the wages given up to attend school
B)tuition, fees, and books
C)room and board
D)transportation, parking, and entertainment

Question 46

What do we know about college-age athletes who drop out of college to play professional sports?

A)They are not rational decision makers.
B)They are well aware that their opportunity cost of attending college is very high.
C)They are concerned more about present circumstances than their future.
D)They underestimate the value of a college education.

Question 47

What does making decisions "at the margin" mean?

A)that people make those decisions that do not impose a marginal cost
B)that people evaluate how easily a decision can be reversed if problems arise
C)that people compare the marginal costs and marginal benefits of each decision
D)that people always calculate the marginal dollar costs for each decision

Question 48

What does the word "margin" mean?

A)edge
B)distance
C)space
D)measure

Question 49

Which of the following is the best example of a marginal change?

A)After graduating from university, Audrey's income increases from $500 per month to $3,000 per month.
B)Morgan gets a raise at her part-time job and is now paid $7.25 per hour instead of $7.00.
C)Housing prices in an area increase by 40% when a new highway is built in a small town.
D)A hard freeze wipes out half of the tobacco crop in Ontario and the price of cigarettes doubles.

Question 50

The average cost per seat on a bus trip from Montreal to Toronto is $140. Suppose no refreshments are served and 3 seats are empty. How could the bus company increase its profit?

A)if it charged no less than $140 for the 3 remaining seats
B)if it charged more than $140 for the 3 remaining seats
C)if it charged any ticket price above $0 for the remaining seats
D)if it left the seats empty

Question 51

Paul receives $300 as a birthday gift. In deciding how to spend the money, he narrows his options down to four choices, Option A, Option B, Option C, and Option D. Each option costs $200. Finally he decides on Option B. What is the opportunity cost of Option B?

A)the value to him of the Option he would have chosen if Option B were not available
B)the value to him of Options A, C, and D combined
C)$300
D)$200

Question 52

How do people make decisions at the margin?

A)by following tradition
B)by experience
C)by calculating dollar costs
D)by comparing costs and benefits

Question 53

What is the term for what you give up to obtain an item?

A)opportunity cost
B)explicit cost
C)true cost
D)direct cost

Question 54

Which of the following is the best example of a marginal change?

A)After graduating from university, Neville's income increases from $1,000 per month to $1,100 per month.
B)Marliss is granted a raise at her part-time job and is now paid $8.25 per hour instead of $8.00.
C)Housing prices in an area increase by 50% when a new freeway is built in a small town.
D)A hard freeze wipes out half of the potato crop in Prince Edward Island and the price of potatoes doubles.

Question 55

What is a marginal change?

A)a long-term trend
B)a large, significant adjustment
C)a change for the worse, and so is usually short-term
D)a small incremental adjustment

Question 56

What is the opportunity cost of going to college?

A)the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses
B)the value of the best opportunity a student gives up to attend college
C)zero for students who are fortunate enough to have all of their college expenses paid by someone else
D)zero, since a college education will allow a student to earn a larger income after graduation

Question 57

Mallory decides to spend 3 hours working overtime rather than watching a video with her friends. She earns $8 an hour. What is her opportunity cost of working?

A)the $24 she earns working
B)the $24 minus the enjoyment she would have received from watching the video
C)the enjoyment she would have received had she watched the video
D)nothing, since she would have received less than $24 of enjoyment from the video

Question 58

Maurice receives $100 as a birthday gift. In deciding how to spend the money, he narrows his options down to four choices, Option A, Option B, Option C, and Option D. Each option costs $100. Finally he decides on Option B. What is the opportunity cost of Option B?

A)the value to him of the Option he would have chosen if Option B were not available
B)the value to him of Options A, C, and D combined
C)$300
D)$100

Question 59

A marginal change is illustrated by which of the following?

A)Nancy retires and takes a part-time job. She was working 40 hours per week and now works 10 hours per week.
B)Provincial University has announced that due to provincial budget deficits, tuition must rise by 25% next year.
C)Ryan moved to a new apartment and now pays 40% more rent than before.
D)Vancouver, which usually receives 10 inches of rain per year, received 11 inches last year.

Question 60

Which of the following is the best example of a marginal change?

A)The price of water rose in Calgary by 2% last year.
B)Kim gets a big promotion at work. She also gets a raise from $25,000 per year to $40,000 per year.
C)Mark graduates from university and takes a job. His income increases from $10,000 per year to $50,000 per year.
D)A drought hits Saskatchewan and the price of wheat increases from $4.00 per bushel to $8.00 per bushel.

Question 61

Mike has spent $500 purchasing and repairing an old fishing boat, which he expects to sell for $800 once the repairs are complete. He discovers that he needs an additional repair, which will cost $400, in order to complete the repairs. He can sell the boat as it is now for $300. What should he do?

A)He should cut his losses and take the $300.
B)He should never sell something for less than it cost.
C)He should complete the repairs and sell the boat.
D)It doesn't matter which action he takes; the outcome is the same either way.

Question 62

In the nation of Dictatorland, farmers traditionally feed grain to their livestock. Central planners, however, decided to increase the price of grain to make grain farmers happy and to reduce the price of bread made from that grain to make city dwellers happy. Now the price of bread is lower than the price of grain. What might we now expect?

A)farmers to continue to feed grain to their livestock
B)farmers to start feeding bread to their livestock
C)city dwellers to start buying grain to make bread to eat
D)city dwellers to start buying grain to make bread to sell

Question 63

Your professor loves her work, teaching economics. She has been offered other positions in the corporate world making 25 percent more, but has decided to stay in teaching. What might change her decision?

A)if the marginal cost of teaching increased
B)if the marginal benefit of teaching increased
C)if the marginal cost of teaching decreased
D)if the marginal cost of a corporate job increased

Question 64

Carol has spent $2,000 purchasing and repairing an old car, which she expects to sell for $2,400 once the repairs are complete. She discovers that she needs an additional repair, which will cost $400, in order to complete the repairs. She can sell the car as it is now for $2,000. What should she do?

A)She should cut her losses and take the $2,400.
B)She should never sell something for less than it cost.
C)She should complete the repairs and sell the car.
D)It doesn't matter which action she takes; the outcome is the same either way.

Question 65

A donut shop sells fresh baked donuts from 5
A)lower the price of the remaining donuts even if the price falls below $1.00

A)m. until 3 p.m. every day but Sunday. The cost of making and selling a dozen glazed donuts is $1.00. Since this shop does not sell day-old donuts the next day, what should the manager do if he still has 10 dozen left at 2:30 p.m.?
B)lower the price of the remaining donuts as long as it's more than $1.00
C)lower the price on all donuts so they will all be sold earlier in the day
D) throw them away and produce 10 fewer dozen tomorrow

Question 66

When does a rational decision maker take an action?

A)only if the marginal benefit is less than the marginal cost
B)only if the marginal benefit is greater than the marginal cost
C)only if the average benefit is greater than the average cost
D)only if the marginal benefit is greater than both the average cost and the marginal cost

Question 67

According to economists, what do people respond to?

A)laws
B)incentives
C)threats more than rewards
D)positives, but not negatives

Question 68

Tim has spent $2,500 purchasing and repairing a Hummer, which he expects to sell for $3,500 once the repairs are complete. He discovers that he needs an additional repair, which will cost $1,100, in order to complete the repairs. He can sell the Hummer as it is now for $900. What should he do?

A)He should cut his losses and take the $900.
B)He should never sell something for less than it cost.
C)He should complete the repairs and sell the Hummer.
D)It doesn't matter which action he takes; the outcome is the same either way.

Question 69

Lisa buys a 1982 BMW, which she plans to restore and sell. She anticipates that the cost of the car and the repairs will be $14,000 and that she can sell it for $20,000. When she has spent $11,000, she discovers she needs to replace the engine, which will cost $5,000. She can sell the car without the new engine for $14,000. What should Lisa do?

A)complete the repairs and sell the car for $20,000
B)cut her losses and sell the car now for $14,000
C)never try such an expensive project again
D)be totally indifferent between finishing the project and selling the car now

Question 70

Mike has spent $800 purchasing and repairing an old motorcycle, which he expects to sell for $1200 once the repairs are complete. He discovers that he needs an additional repair, which will cost $200, in order to complete the repairs. He can sell the motorcycle as it is now for $400. What should he do?

A)He should cut his losses and take the $400.
B)He should never sell something for less than it cost.
C)He should complete the repairs and sell the motorcycle.
D)It doesn't matter which action he takes; the outcome is the same either way.

Question 71

Stan buys a 1966 Mustang, which he plans to restore and sell. He anticipates that the cost of the car and the repairs will be $10,000 and that he can sell it for $13,000. When he has spent $10,000, he discovers he needs to replace the engine, which will cost $4,000. He can sell the car without the new engine for $9,000. What should Stan do?

A)complete the repairs and sell the car for $13,000
B)cut his losses and sell the car now for $9,000
C)never try such an expensive project again
D)be totally indifferent between finishing the project and selling the car now

Question 72

A furniture maker currently produces 100 tables per week and sells them for a profit. She is considering expanding her operation in order to make more tables. Should she expand?

A)Yes, because making tables is profitable.
B)No, because she may not be able to sell the additional tables.
C)It depends on the marginal cost of producing more tables and the marginal revenue she will earn from selling more tables.
D)It depends on the average cost of producing more tables and the average revenue she will earn from selling more tables.

Question 73

A donut shop sells fresh baked donuts from 5
A)lower the price of the remaining donuts even if the price falls below $2.00

A)m. until 3 p.m. every day but Sunday. The cost of making and selling a dozen glazed donuts is $2.00. Since this shop does not sell day-old donuts the next day, what should the manager do if she still has 10 dozen left at 2:30 p.m.?
B)lower the price of the remaining donuts as long as it's more than $2.00
C)lower the price on all donuts so they will all be sold earlier in the day
D) throw them away and produce 10 fewer dozen tomorrow

Question 74

The average cost per seat on an airplane trip from Calgary to Edmonton is $105. Suppose no refreshments are served and 7 seats are empty. How could the airline company increase its profit?

A)if it charged no less than $105 for the 7 remaining seats
B)if it charged more than $105 for the 7 remaining seats
C)if it charged any ticket price above $0 for the remaining seats
D)if it left the seats empty

Question 75

Monica has spent $30,000 purchasing and repairing an old cabin, which she expects to sell for $40,000 once the repairs are complete. She discovers that she needs an additional repair, which will cost $20,000, in order to complete the repairs. She can sell the cabin as it is now for $25,000. What should she do?

A)She should cut her losses and take the $25,000.
B)She should never sell something for less than it cost.
C)She should complete the repairs and sell the cabin.
D)It doesn't matter which action she takes; the outcome is the same either way.

Question 76

When policymakers make policies that change the costs and benefits that people face, what can the policymakers do?

A)alter behaviours
B)make people ignore incentives
C)create inflation
D)reduce government revenue

Question 77

Lisa buys a 1982 BMW, which she plans to restore and sell. She anticipates that the cost of the car and the repairs will be $14,000 and that she can sell it for $15,000. When she has spent $10,000, she discovers she needs to replace the engine, which will cost $4,000. She can sell the car without the new engine for $11,000. What should Lisa do?

A)complete the repairs and sell the car for $15,000
B)cut her losses and sell the car now for $11,000
C)never try such an expensive project again
D)be totally indifferent between finishing the project and selling the car now

Question 78

Suppose your management professor has been offered a corporate job with a 30% pay increase. He has decided to take the job. What happened for him?

A)The marginal cost of leaving was greater than the marginal benefit.
B)The marginal benefit of leaving was greater than the marginal cost.
C)The marginal benefit of teaching was greater than the marginal cost.
D)The marginal cost of teaching was greater than the marginal benefit.

Question 79

Stan buys a 1966 Mustang, which he plans to restore and sell. He anticipates that the cost of the car and the repairs will be $8,000 and that he can sell it for $10,000. When he has spent $7,000, he discovers he needs to replace the engine, which will cost $4,000. He can sell the car without the new engine for $9,000. What should Stan do?

A)complete the repairs and sell the car for $10,000
B)cut his losses and sell the car now for $9,000
C)never try such an expensive project again
D)be totally indifferent between finishing the project and selling the car now

Question 80

Suppose your management professor has been offered a corporate job with a 30% pay increase. He has decided not to take the job. What happened for him?

A)The marginal cost of leaving was greater than the marginal benefit.
B)The marginal benefit of leaving was greater than the marginal cost.
C)The marginal benefit of leaving was less than the marginal cost.
D)The marginal benefit of teaching was greater than the marginal cost.