Deck 1: Limits, Alternatives, and Choices

Question 1

Opportunity cost is best defined as:

A) marginal cost minus marginal benefit.
B) the time spent on an economic activity.
C) the value of the best foregone alternative.
D) the money cost of an economic decision.

Answer 1

the value of the best foregone alternative.

Question 2

Concern about the general level of prices in an economy is primarily a concern about the economic goal of:

A) economic efficiency.
B) economic security.
C) price-level stability.
D) equity.

Answer 2

price-level stability.

Question 3

The study of economics is primarily concerned with:

A) keeping private businesses from losing money.
B) demonstrating that capitalistic economies are superior to socialistic economies.
C) choices which are made in seeking to use scarce resources efficiently.
D) determining the most equitable distribution of society's output.

Answer 3

choices which are made in seeking to use scarce resources efficiently.

Question 4

"Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase." This is a reflection of:

A) resource scarcity and the necessity of choice.
B) purposeful behaviour.
C) marginal costs which exceed marginal benefits.
D) the tradeoff problem which exists between competing goals.

Question 5

The assertion that "There is no free lunch" means:

A) there are always tradeoffs between economic goals.
B) all production involves the use of scarce resources and thus the sacrifice of alternative goods.
C) marginal analysis is not used in economic reasoning.
D) choices do not need be made if behaviour is rational.

Question 6

The institution that coordinates actions of consumers and producers to establish prices for goods and services is known as:

A) a market.
B) a monopoly.
C) a production possibilities curve.
D) consumer sovereignty.

Question 7

A major argument for economic growth is that it:

A) creates an equal distribution of income.
B) protects common property resources.
C) leads to a higher standard of living.
D) reduces the amount of taxation.

Question 8

One of the basic economic defences of economic growth rests on the conclusion that:

A) growth makes workers less obsolete and more secure in employment.
B) growth reduces the cost of "common property" resources to society.
C) growth makes the gap between unlimited wants and scarce resources less acute.
D) a growth-oriented society has a relatively equitable income distribution.

Question 9

When economists describe "a market," they mean:

A) a place where stocks and bonds are traded.
B) information networks that allow individuals to keep in touch with each other.
C) a hypothetical place where the production of goods and services takes place.
D) a mechanism which coordinates actions of consumers and producers to establish equilibrium prices and quantities.

Question 10

Tammie makes $150 a day as a bank clerk. She takes off two days of work without pay to fly to another city to attend the concert of her favourite music group. The cost of transportation for the trip is $250. The cost of the concert ticket is $50. The opportunity cost of Tammie's trip to the concert is:

A) $300.
B) $450.
C) $500.
D) $600.

Question 11

The study of economics exists because:

A) government interferes with the efficient allocation of scarce resources.
B) resources are scarce in relation to human material wants.
C) the market system is an obstacle to the efficient use of plentiful resources to satisfy constrained wants.
D) resources are overly abundant as compared to wants; thus, an allocation problem exists.

Question 12

In every economic system, choices must be made because resources are:

A) infinite, but economic wants are finite.
B) finite, but economic wants are insatiable.
C) unlimited, but economic wants are limited.
D) limited, and so are economic wants.

Question 13

Assume that a tradeoff exists in the short run between inflation and unemployment. This relationship means that:

A) a low rate of unemployment causes a low rate of inflation.
B) the unemployment rate always equals the inflation rate.
C) less unemployment can be achieved with more inflation.
D) less unemployment can be achieved with less inflation.

Question 14

Specialization and trade are beneficial to society because:

A) the output of economic goods may be increased with no increase in resources.
B) scarce resources are utilized more efficiently.
C) a division of labour lowers prices for products.
D) all of the above are correct.

Question 15

Purposeful behaviour suggests that:

A) everyone will make identical choices.
B) resource availability exceeds material wants.
C) individuals make decisions with some desired outcome in mind..
D) an individual's economic goals cannot involve tradeoffs.

Question 16

As a consequence of the condition of scarcity:

A) there is always enough of everything.
B) production has to be centrally planned.
C) things which are plentiful have relatively high prices.
D) individuals and communities have to make choices among alternatives.

Question 17

The "economic perspective" refers to:

A) macroeconomic phenomena, but not microeconomic phenomena.
B) microeconomic phenomena, but not macroeconomic phenomena.
C) the making of rational decisions in a context of marginal costs and marginal benefits.
D) unlimited resources in a context of limited material wants.

Question 18

When a provincial government chooses to build more roads, the required resources are no longer available for spending on public education. This dilemma illustrates the concept of:

A) marginal analysis.
B) full employment.
C) full production.
D) opportunity cost.

Question 19

The economic concept that serves as the basis for the study of economics is:

A) inflation.
B) unemployment.
C) money.
D) scarcity.

Question 20

Economics may best be defined as:

A) the interaction between macro and micro considerations.
B) the study of the behaviour of people and institutions in the production, distribution, and consumption of scarce goods.
C) the empirical testing of value judgments through the use of induction and deduction.
D) the use of policy to refute facts and hypotheses.

Question 21

An economic model is:

A) a value judgment.
B) a fact.
C) built using theory.
D) built on correlations.

Question 22

The term "other things equal" means that:

A) the associated statement is normative.
B) many variables affect the variable under consideration.
C) the assumption that factors other than those being considered do not change.
D) when variable X increases so does related variable Y.

Question 23

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact:

A) is an example of irrational behaviour.
B) implies that reading should be taught through phonics rather than the whole language method.
C) contradicts the economic perspective.
D) implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

Question 24

Suppose an economist says that "Other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that:

A) the quantity of bananas purchased determines the price of bananas.
B) all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.
C) economists can conduct controlled laboratory experiments.
D) one cannot generalize about the relationship between the price of bananas and the quantity purchased.

Question 25

Consumers might leave a fast-food restaurant without being served because:

A) they are misinformed about the marginal cost and marginal benefits of the food being served.
B) they conclude that the marginal cost (monetary plus time costs) exceeds the marginal benefit.
C) the environment is not conducive to a rational choice.
D) the lines waiting for service are not of equal length.

Question 26

From an economic perspective, when consumers leave a fast-food restaurant because the lines to be served are too long, they have concluded that the:

A) marginal cost of waiting is less than the marginal benefit of being served.
B) marginal cost of waiting is greater than the marginal benefit of being served.
C) management is exhibiting irrational behaviour by not maximizing profits.
D) management is making an assumption that other things are equal.

Question 27

At fast-food restaurants:

A) consumers enjoy complete and accurate information.
B) decisions are usually made by trial and error.
C) decisions entail comparisons of marginal costs and marginal benefits.
D) benefits always exceed costs.

Question 28

Economics involves "marginal analysis" because:

A) most decisions involve changes in the status quo.
B) marginal benefits always exceed marginal costs.
C) marginal costs always exceed marginal benefits.
D) much economic behaviour is irrational.

Question 29

The "economic perspective" entails:

A) rational behaviour by individuals and institutions.
B) a comparison of marginal benefits and marginal costs in decision making.
C) the altering of behaviour when marginal benefits and marginal costs change.
D) all of the above.

Question 30

In constructing models, economists:

A) make simplifying assumptions.
B) include all available information.
C) must use mathematical equations.
D) attempt to duplicate the real world.

Question 31

Economic models:

A) are of limited use because they cannot be tested empirically.
B) are limited to variables which are directly related to one another.
C) emphasize basic economic relationships by abstracting from the complexities of the real world.
D) are unrealistic and therefore of no practical consequence.

Question 32

The term "ceteris paribus" means:

A) that if event A precedes event B, A has caused B
B) that economics deals with facts, not values.
C) other things equal.
D) prosperity inevitably follows recession.

Question 33

From the perspective of economists, which term provides the highest degree of confidence for explaining economic behaviour?

A) an economic principle or a law
B) a fact
C) a hypothesis
D) an assumption

Question 34

Marginal costs exist because:

A) the decision to produce more of some product means the sacrifice of other products.
B) wants are scarce relative to resources.
C) households and businesses make rational decisions.
D) most decisions do not involve sacrifices or tradeoffs.

Question 35

The economic perspective used in customer decision making at fast-food restaurants is reflected in:

A) customers selecting the shortest line.
B) customers leaving rather than waiting if all lines are long.
C) all customer lines tending to be of equal length.
D) all of the above.

Question 36

The basic purpose of the "other things equal" assumption is to:

A) allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.
B) allow one to focus upon micro variables by ignoring macro variables.
C) allow one to focus upon macro variables by ignoring micro variables.
D) determine whether X causes Y or vice versa.

Question 37

How is the economic perspective reflected in lines for fast food?

A) Customers select the shortest line because they have perfect information.
B) Customers select the shortest line because they believe it will reduce their time cost of obtaining food.
C) Lines will typically be of unequal length because of the inefficiencies in counter service.
D) The set of food choices is often too complex for most customers and thus creates long lines.

Question 38

A "hypothesis" is:

A) a fundamental truth which all economists accept.
B) a tentative, untested principle.
C) the same as a normative statement.
D) always the result of induction.

Question 39

The process of developing hypotheses, testing them against facts, and using the results to construct theories is called:

A) opportunity cost calculation.
B) the scientific method.
C) marginal analysis.
D) microeconomics.

Question 40

You should decide to go to a movie:

A) if the marginal cost of the movie exceeds its marginal benefit.
B) if the marginal benefit of the movie exceeds its marginal cost.
C) if your income will allow you to buy a ticket
D) because movies are inherently good products.

Question 41

The global financial crisis that spread to Canada in late 2008 has been dubbed:

A) The housing bubble crash
B) The great financial crisis
C) The great recession
D) The great depression

Question 42

Macroeconomics approaches the study of economics from the viewpoint of:

A) the entire economy.
B) governmental units.
C) the operation of specific product and resource markets.
D) individual firms.

Question 43

Macroeconomics can best be described as the:

A) analysis of how a consumer tries to spend income.
B) study of the large aggregates of the economy or the economy as a whole.
C) analysis of how firms attempt to maximize their profits.
D) study of how supply and demand determine prices in individual markets.

Question 44

Which of the following is a microeconomic statement?

A) The real domestic output increased by 2.5 percent last year.
B) Unemployment was 8.3 percent of the labour force last year.
C) The price of personal computers declined last year.
D) The general price level increased by 4 percent last year.

Question 45

Which of the following statements pertains to macroeconomics?

A) Because the minimum wage was raised, Mrs. Beepath decided to enter the labour force.
B) A decline in the price of soybeans caused farmer Wanek to plant more land in wheat.
C) The national productivity rate grew by 1.4 percent last year.
D) The Pumpkin Center Chartered Bank increased its interest rate on consumer loans by 1 percent.

Question 46

Microeconomics is concerned with:

A) the aggregate or total levels of income, employment, and output.
B) a detailed examination of specific economic units which comprise the economic system.
C) the concealing of detailed information about specific segments of the economy.
D) the establishing of an overall view of the operation of the economic system.

Question 47

Which of the following is a normative statement?

A) The temperature is high today.
B) The humidity is high today.
C) It is too hot to play tennis today.
D) It will cool off later this evening.

Question 48

Ben says that "An increase in the tax on beer will raise its price." Holly argues that "Taxes should be increased on beer because college students drink too much." We can conclude that:

A) Ben's statement is normative, but Holly's is positive.
B) Holly's statement is normative, but Ben's is positive.
C) Both statements are normative.
D) Both statements are positive.

Question 49

Which of the following is a positive statement?

A) The humidity is too high today.
B) It is too hot to jog today.
C) The temperature is 30 degrees today.
D) I enjoy summer evenings when it cools off.

Question 50

Microeconomics:

A) is concerned with the aggregate or total levels of income, employment, and output.
B) is not concerned with details, but only with the overall "big picture" of the economy.
C) is concerned with individual economic units and specific markets.
D) describes the aggregate flows of output and income.

Question 51

The problems of aggregate inflation and unemployment are:

A) major topics of macroeconomics.
B) not relevant to the Canadian economy.
C) major topics of microeconomics.
D) peculiar to socialistic economies.

Question 52

A positive statement is concerned with:

A) some goal which is desirable to society.
B) what should be.
C) what is.
D) the formulation of economic policy.

Question 53

Which of the following is a macroeconomic statement?

A) The gross profits of all Canadian businesses were $70 billion last year.
B) The price of beef declined by 3 percent last year.
C) General Motors' profits increased in 2012.
D) The productivity of steelworkers increased by 1 percent in 2012.

Question 54

Which of the following is associated with macroeconomics?

A) an examination of the incomes of the University of Toronto Business School graduates
B) an empirical investigation of the general price level and unemployment rates in the 2000s
C) a study of the trend of pecan prices since World War II
D) a case study of pricing and production in the textbook industry

Question 55

"Economics is concerned with using scarce productive resources efficiently in attempting to satisfy society's material wants." This statement is:

A) positive, but incorrect.
B) positive and correct.
C) normative, but incorrect.
D) normative and correct.

Question 56

Most of the disagreement among economists involves:

A) facts.
B) theories.
C) positive statements.
D) normative statements.

Question 57

A positive statement is one which is:

A) derived by an abstract generalization.
B) suggestive of what should be done.
C) subjective and is based on a value judgment.
D) objective and is based on facts.

Question 58

Normative statements are concerned with:

A) facts and theories.
B) what ought to be.
C) what is.
D) rational choice involving costs and benefits.

Question 59

A normative statement is one which:

A) is based on the law of averages.
B) pertains only to microeconomics.
C) pertains only to macroeconomics.
D) is based upon value judgments.

Question 60

The individuals and society both face an economic problem. This problem arises from the fact that:

A) wants are limited but the resources are not.
B) resources are scarce relative to individual's wants.
C) individuals and institutions behave only in their self-interest.
D) both wants and resources are unlimited.

Question 61

The price ratio of the two products is the:

A) marginal rate of substitution.
B) slope of the budget line.
C) point of tangency for equilibrium.
D) elasticity of demand for the two products.

Question 62

As used in economics, the notion of scarce resources means that:

A) mineral deposits are only available in finite amounts.
B) resources are not so plentiful that all individuals' material wants can be fulfilled.
C) some resources are free while others have price tags on them.
D) the quantities available of some resources exceed the demand for them.

Question 63

Which of the following statements is not correct?

A) A reduction in money income will shift the budget line to the right.
B) A reduction in money income accompanied by an increase in product prices will necessarily shift the budget line to the left.
C) An increase in product prices will shift the budget line to the left.
D) An increase in money income will shift the budget line to the right.

Question 64

In moving along a given budget line:

A) the prices of both products and money income are assumed to be constant.
B) each point on the line will be equally satisfactory to consumers.
C) money income varies, but the prices of the two goods are constant.
D) the prices of both products are assumed to vary, but money income is constant.

Question 65

Refer to the budget line shown in the diagram below. If the consumer's money income is $20, the:

A) prices of C and D cannot be determined.
B) price of C is $2 and the price of D is $4.
C) consumer can obtain a combination of 5 units of both C and D
D) price of C is $4 and the price of D is $2.

Question 66

Economic resources are also called:

A) free gifts of nature.
B) consumption goods.
C) units of money capital.
D) factors of production.

Question 67

The main function of the entrepreneur is to:

A) make routine pricing decisions.
B) innovate.
C) purchase capital.
D) create market demand.

Question 68

In drawing a budget line it is assumed that:

A) consumer preferences are fixed.
B) the prices of the two products are variable.
C) money income is fixed.
D) consumer willingness to substitute between the two products is fixed.

Question 69

The individual's limited income problem:

A) persists only because countries have failed to achieve continuous full employment.
B) exists because material wants are limited.
C) has been solved in all industrialized nations.
D) has been eliminated in affluent societies such as Canada and the United States.

Question 70

The society must also make choices under conditions of scarcity. This problem arises from the fact that:

A) society's wants are limited but the resources are not.
B) resources are scarce relative to society's wants.
C) societies behave only in their self-interest.
D) society's wants and resources are both unlimited.

Question 71

The budget line shows:

A) the amount of product A which a consumer is willing to give up to obtain one more unit of product B
B) all possible combinations of two goods which can be purchased, given money income and the prices of the goods.
C) all equilibrium points on an indifference map.
D) all possible combinations of two goods which yield the same level of utility to the consumer.

Question 72

The following production possibilities table represents an economy which is producing two products, tanks and autos. Refer to the table, in moving from possibility C to D, the cost of a tank in terms of autos is:

A) 50.
B) 100.
C) 200.
D) 300.

Question 73

Which of the following is real capital?

A) a pair of stockings
B) a dump truck
C) a savings account
D) a share of TD Bank stock

Question 74

Any combination of goods lying outside of the budget line:

A) implies that the consumer is not spending all of his income.
B) yields less utility than any point on the budget line.
C) yields less utility than any point inside the budget line.
D) is unattainable, given the consumer's income.

Question 75

A leftward shift of a consumer's budget line to a position parallel with the original one could indicate that the:

A) price of one product has decreased in relation to the other.
B) prices of both products have decreased in the same proportion.
C) marginal utilities derived from both products have decreased.
D) consumer's money income has increased but the prices of both products have increased proportionately more.

Question 76

Refer to the diagram below, suppose you have a money income of $10 all of which you spend on Coke and boxes of popcorn. The prices of Coke and popcorn respectively are:

A) $.50 and $1.00.
B) $1.00 and $.50.
C) $1.00 and $2.00.
D) $.40 and $.50.

Question 77

The fundamental problem of economics is:

A) to establish a democratic political framework for the provision of social goods and services.
B) the establishment of prices which accurately reflect the relative scarcities of products and resources.
C) the scarcity of productive resources relative to material wants.
D) to achieve a more equitable distribution of money income in order to mitigate poverty.

Question 78

When an economist says that material wants are insatiable, this means that:

A) economic resources are valuable only because they can be used to produce consumer goods.
B) economic resources-land, labour, capital, and entrepreneurial ability-are scarce.
C) these wants are virtually unlimited and therefore incapable of complete satisfaction.
D) the structure of consumer demand varies from time to time and from country to country.

Question 79

The budget line shift from cd to ab in the below figure is consistent with:

A) decreases in the prices of both M and N.
B) an increase in the price of M and a decrease in the price of N.
C) a decrease in money income.
D) an increase in money income.

Question 80

Money is not considered to be an economic resource because:

A) money, as such, is not productive.
B) idle money balances do not earn interest income.
C) the terms of trade can be determined in non-monetary terms.
D) money is a free gift of nature.