Deck 1: Economic Issues and Concepts

Question 1

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.

Answer 1

A

Question 2

The Canadian economic system can best be described as

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

Answer 2

D

Question 3

Suppose Andrea has a job that pays her $25 000 per year (after taxes). She is considering quitting her job and going to university full time for four years. Tuition fees and books will cost $12 000 per year. 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

Answer 3

D

Question 4

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

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

Question 5

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.

Question 6

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

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 7

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 8

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 9

A farmer selling tomatoes and corn at a roadside, and a currency trader in Hong Kong, are each participating in

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

Question 10

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 11

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 12

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 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

Consider a production possibilities boundary showing the possible combinations of military goods and civilian goods that a country can produce. Suppose that the country is currently at a point on the 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 16

Which of the point(s)below is (are)true of money? i)Money eliminated the need for barter.
Ii)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 17

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.

Question 18

In a modern mixed economy the government ensures that key institutions are in place to facilitate voluntary 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 19

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 20

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 21

Suppose that one unit of labour can produce either 5 units of wool or 2 pineapples. What is the opportunity 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 22

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 23

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 24

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 25

Suppose fire destroy many millions of hectares of valuable Canadian forest. The effect on the Canadian 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 26

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 27

Suppose there are only two goods produced in our economy-snowplows and helicopters. If there is always a two- for- one tradeoff between the production of these two goods (in terms of opportunity cost), then the production possibilities boundary between snowplows and helicopters is

A)circular.
B)a downward- sloping straight line.
C)a downward- sloping curve convex to the origin.
D)a downward- sloping straight line with slope equal to - 1.
E)a downward- sloping curve concave to the origin.

Question 28

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 29

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 30

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 31

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 32

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 33

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

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 34

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 35

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 36

During the nineteenth and early twentieth centuries, millions of people immigrated to western Canada. 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 37

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 38

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 39

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 40

Suppose drought destroys many millions of acres of valuable Canadian farmland. The effect on the Canadian 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 41

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 42

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 43

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 44

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 45

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 46

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 47

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 48

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). The opportunity cost of attending the social event is

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

Question 49

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 years of 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 50

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 51

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 52

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 53

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 54

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 55

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. In order 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 56

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 57

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 58

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 59

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 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

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 62

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 63

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 64

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 65

It has been observed that university enrollment in Canada is higher during periods of high unemployment. 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

A move from inside the production possibilities boundary to the boundary itself could be caused by

A)an improvement in the government's ability to control its spending.
B)technological progress.
C)an increase in the labour supply.
D)the employment of previously idle resources.
E)a reallocation of resources from military to civilian goods.

Question 67

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.

A)Katie's opportunity cost of producing 1 jar of pickles is 1/2 of a pie.
B)Hugh's and Katie's opportunity costs of producing are the same.
C)Katie's opportunity cost of producing 1 jar of pickles is 2 pies.
D)Hugh's opportunity cost of producing 1 pie is 1/4 jar of pickles.
E)Hugh's opportunity cost of producing 1 jar of pickles is 4 pies.

Question 68

A straight- line production possibilities boundary differs from a concave boundary in which of the following ways?

A)The concave boundary illustrates constant opportunity costs, whereas the straight- line boundary illustrates decreasing opportunity costs.
B)The straight- line boundary illustrates constant opportunity costs, whereas the concave boundary illustrates increasing opportunity costs.
C)A straight- line boundary is associated with a command economy, whereas a concave boundary is associated with a free- market economy.
D)The straight- line boundary does not show scarcity, whereas the concave boundary does.
E)The straight- line boundary shows opportunity cost, whereas the concave boundary does not.

Question 69

In traditional economies, economic behaviour is

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

Question 70

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 71

Specialization and trade

A)developed only where government and political institutions were stable.
B)arose as humans changed from nomadic and self- sufficient food gatherers to settled food producers.
C)*- exist only in capitalist economies.
D)occur only in the private sector.
E)developed only in the twentieth century.

Question 72

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 73

In practice, the term "centrally planned economy" refers to an economy in which

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

Question 74

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 75

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 76

The barter system of exchange is inefficient because

A)exchange partners need to know each other.
B)markets do not exist.
C)"fair" values cannot be defined without the use of money.
D)bargaining power is unequal between rich and poor.
E)the double coincidence of wants may not exist.