Question 1

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

Accepted Answer

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

Question 2

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

Accepted Answer

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

Question 3

Suppose you own a courier service and you use two types of delivery vehicles - Model A,which costs $30 000 to purchase,and Model B,which costs $50 000 to purchase.You have a budget of $300 000 for the purchase of new vehicles.Which of the following statements best describes the shape of your budget line?

Accepted Answer

A) The budget line is concave to the origin,indicating that the opportunity cost of each model of vehicle increases with each additional unit purchased. 
B) The budget line is convex to the origin,indicating that the opportunity cost of each vehicle decreases with each additional unit purchased. 
C) The budget line is a straight line,indicating that the opportunity cost of each vehicle decreases with each additional unit purchased. 
D) The budget line is a straight line,indicating that the opportunity cost of each model of vehicle is independent of how many are purchased. 
E) The budget line is a straight line,indicating that the opportunity cost of each vehicle increases with each additional unit purchased.

Question 4

The diagram below shows two production possibilities boundaries for Country X.
  FIGURE 1-4
-Refer to Figure 1-4.An outward shift of the production possibilities boundary fromPPB1 to PPB2 indicates which of the following?

Accepted Answer

A) an increase in the price of raw materials for consumer goods 
B) growth in the countryʹs productive capacity 
C) an increase in the price of raw material for capital goods 
D) more of the countryʹs resources are being used 
E) the countryʹs resources are being used less efficiently

Question 5

In command economies,economic behaviour is

Accepted Answer

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

Question 6

In practice,the term ʺcentrally planned economyʺ refers to an economy in which

Accepted Answer

A) the government makes ALL production and consumption decisions. 
B) the mix of market and command principles is heavily weighted towards the latter. 
C) all commodities are rationed. 
D) the military is in control of the government. 
E) economic decisions are made in the geographic centre of the country.

Question 7

Suppose there are only three alternatives to attending a ʺfreeʺ 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).The opportunity cost of attending the social event is

Accepted Answer

A) $10. 
B) $20. 
C) $25. 
D) $45. 
E) $55.

Question 8

Which of the following results from the introduction of money for use in transactions?

Accepted Answer

A) exchange becomes easier and this promotes the specialization of labour 
B) an increased use of barter 
C) the specialization of labour becomes more difficult 
D) self-sufficiency is assured 
E) society is able to satisfy all wants

Question 9

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

Accepted Answer

A) when prospects for getting a job are poor,the opportunity cost of getting a job is lower. 
B) when prospects for getting a job are poor,the opportunity cost of doing nothing is higher. 
C) during periods of high unemployment,tuition fees are reduced. 
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 going to university is lower.

Question 10

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

Accepted Answer

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

Question 11

Economics can best be described as

Accepted Answer

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

Question 12

Suppose that a bakeshop with 5 employees can produce both pies and cakes.In one day,if all resources are devoted to baking pies,the shop can produce 125 pies; if all resources are devoted to baking cakes,the shop can produce 50.What is the shopʹs opportunity cost of producing any one cake?

Accepted Answer

A) 0.4 pies 
B) 0.25 pies 
C) 2.5 pies 
D) 0.4 cakes 
E) 2.5 cakes

Question 13

The diagram below shows two production possibilities boundaries for Country X.
  FIGURE 1-4
-Refer to Figure 1-4.Growth in the countryʹs productive capacity is illustrated by

Accepted Answer

A) a point like D outside the boundary. 
B) a movement from a point inside the boundary such as C to the boundary. 
C) the movement between points on a given 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 14

Which of the following statements best describes a barter system of exchange?

Accepted Answer

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

Question 15

Chantal has a full-time job as a geological engineer and earns an annual after -tax salary of $85 000.She decides to leave her job for 6 months to scuba dive on the Great Barrier Reef in Australia,and incurs costs of $7500 for course equipment and certification,$2500 for airfare,and $12 000 for regular living expenses in Australia (equal to her living expenses at home).What is Chantalʹs opportunity cost for this 6 -month,unpaid leave of absence?

Accepted Answer

A) $12 000 
B) $22 000 
C) $42 000 
D) $52 500 
E) $65 000

Question 16

A basic underlying point in economics is that

Accepted Answer

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

Question 17

Economists usually assume that households and firms,respectively,maximize

Accepted Answer

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

Question 18

In the current Canadian economy,the majority of choices on how resources are allocated are made by

Accepted Answer

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

Question 19

A modern economy like Canadaʹs is largely organized by

Accepted Answer

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

Question 20

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

Accepted Answer

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

Exam 1: Economic Issues and Concepts

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