Deck 3: The Role of Government in a Market Economy

Question 1

One reason for introducing the minimum wage rate into the labour market is:

A) to reduce the number of individuals on unemployment programs.
B) to help reduce the level of poverty amongst the poor.
C) to eliminate wage differentials.
D) to increase the number of jobs available.

Answer 1

to help reduce the level of poverty amongst the poor.

Question 2

Which of the following is not a criticism of minimum wage legislation?

A) it reduces the level of poverty in a society
B) it does not permanently redistribute income among wage earners
C) it does not increase employment opportunity for women and young people
D) it leads to an increase in unemployment

Answer 2

it does not permanently redistribute income among wage earners

Question 3

Which of the following is a criticism of the free market system? The system:

A) limits competition between producers.
B) may not distribute incomes in a manner considered to be equitable.
C) restricts the freedom of producers to supply some products.
D) results in prices that are too high for consumers.

Answer 3

may not distribute incomes in a manner considered to be equitable.

Question 4

Adam Smith is the first to have used the following term:

A) diminishing returns
B) third-party effect
C) invisible hand
D) free market

Question 5

Adam Smith believed that:

A) government should regulate third-party effects.
B) the free market system promotes the welfare of everyone.
C) market imperfections such as a lack of information should be corrected by government.
D) incomes should be distributed more equitably in our economy.

Question 6

The invisible hand explains how:

A) altruistic individuals can further the public interest.
B) self-interested individuals can undermine the public interest.
C) altruistic individuals can undermine public interest.
D) self-interested individuals can further public interest.

Question 7

The following is a good example of a natural monopoly:

A) local telephone service.
B) Air Canada.
C) the post office.
D) VIA Rail.

Question 8

Which one of the following types of markets receive much government intervention?

A) cellular phone venture
B) restaurant
C) telephone company
D) running-shoe store

Question 9

An example of negative third-party effect is:

A) high prices.
B) education.
C) sidewalks.
D) pollution.

Question 10

An example of a positive third-party effect is:

A) bilingual labelling of products.
B) education.
C) natural monopoly.
D) low prices.

Question 11

National defence is an example of:

A) a negative third-party effect.
B) a positive third-party effect.
C) an unmet public need.
D) the invisible hand.

Question 12

The free market may not provide such services as sidewalks and lighthouses because:

A) it is difficult to charge the users of the service.
B) governments have already provided the service.
C) there is no market for these services.
D) governments prohibit the free market from operating in these areas.

Question 13

Which of the following is not an example of an unmet public need?

A) streetlights
B) national defence
C) sidewalks
D) welfare assistance

Question 14

Unmet public needs are not provided by the free market because:

A) government regulation prohibits the private sector from providing these services.
B) only the rich can afford them.
C) if provided for one person, others can benefit from them as well.
D) private companies do not believe them to be necessary services.

Question 15

In 2004, the family types with the lowest average total income were:

A) elderly families.
B) lone-parent families.
C) two-parent families with children.
D) married couples.

Question 16

Living in poverty means that:

A) one's income is below the national average.
B) one does not have enough money for food, clothing, and shelter.
C) one's income is less than $15 000 per year.
D) one's income is below a certain standard income.

Question 17

In 2004, the LICO procedure established a poverty line of ___________ for a single person living In a community of 500 000 or more people.

A) $20 337
B) $42 862
C) $31 126.
D) $53 821

Question 18

In 2004, the LICO procedure established a poverty line of $17 500 for a single person living in a community of:

A) less than 30 000.
B) 30 000-99 999.
C) 500 000+.
D) 100 000-499 999.

Question 19

In 2004, which of the following types of unattached individuals had the lowest average total family Income?

A) non-elderly male
B) elderly male
C) non-elderly female
D) elderly female

Question 20

In 2004, the average family income for a married couple with children was approximately:

A) $91 000.
B) $74 000.
C) $38 000.
D) $52 000.

Question 21

John Maynard Keynes proposed that:

A) incomes be distributed more equitably.
B) positive third-party effects be promoted by government.
C) natural monopolies be regulated by government.
D) government intervention could bring an end to depressed economic conditions.

Question 22

Keynes argued that to correct periods of slow economic growth and high unemployment:

A) the government should not intervene.
B) the government should increase spending.
C) the government should increase taxation and reduce spending.
D) the government should increase taxation.

Question 23

The adjustment of government spending and tax policy to economic conditions is known as:

A) monetary policy.
B) fiscal policy.
C) subsidization.
D) tax incidence.

Question 24

Which of the following statements is correct?

A) when the quantity supplied of a product exceeds the quantity demanded, the price increases
B) the imposition of an excise tax on a product causes the supply curve to shift to the right
C) the minimum wage is an example of a price ceiling in the labour market
D) the imposition of a price ceiling on a product results in quantity demanded exceeding quantity supplied

Question 25

A price ceiling:

A) results in a shortage of the product.
B) is imposed by government in order to support farm incomes.
C) results in quantity supplied exceeding quantity demanded.
D) describes the legal minimum price imposed on a product by the government.

Question 26

Suppose a price ceiling is placed on apartment rent below the equilibrium price. The likely result will be:

A) a lower equilibrium rent for apartments.
B) a decrease in the quantity of apartments demand.
C) an increase in the quantity of apartments demanded.
D) a higher equilibrium rent for apartments.

Question 27

Suppose a price ceiling is placed on apartment rent above the equilibrium price. The likely result will be:

A) an increase in the demand for apartments.
B) a lower equilibrium rent for apartments.
C) a decrease in the demand for apartments
D) a higher equilibrium rent for apartments.

Question 28

The following program is an example of price ceiling:

A) pollution-control legislation.
B) guaranteed annual income.
C) rent control.
D) agricultural price support.

Question 29

Which of the following would best fit a market with a price ceiling?

A) local farmer
B) rock concert
C) car dealership
D) grocery store

Question 30

Both price ceilings and price floors:

A) force the government to impose quotas on producers.
B) result in less of the product being exchanged in the marketplace.
C) involve government subsidies to producers.
D) result in rationing by government of the available product.

Question 31

A price floor:

A) is a legal maximum price.
B) results in a shortage of the product.
C) is imposed by government in order to stop price increases.
D) results in quantity supplied exceeding quantity demanded.

Question 32

Which of the following would best fit a market with a price floor?

A) grocery store
B) local farmer
C) car dealership
D) rock concert

Question 33

If a price floor is imposed on eggs above their equilibrium price. The likely result will be:

A) a decrease in the quantity of eggs demanded.
B) an increase in the quantity of eggs demanded.
C) a lower equilibrium price for eggs as the demand curve for eggs shifts left.
D) a higher equilibrium price for eggs as the supply curve for eggs shifts left.

Question 34

If a price floor is imposed on eggs below their equilibrium price. The likely result will be:

A) an increase in the demand for eggs.
B) a higher equilibrium price for eggs.
C) a decrease in the demand for eggs.
D) a lower equilibrium price for eggs.

Question 35

What type of government intervention is required to eliminate a surplus in the egg market When there is a price floor in place?

A) reduce taxation on egg production
B) subsidize the buyer with vouchers
C) subsidize the seller with vouchers
D) use a quota to restrict egg production

Question 36

The main reason for funding health care publicly is:

A) due to unequal distribution of income.
B) there are third-party effects.
C) it's a public good.
D) economic stabilization.

Question 37

Which of the following is not an example of how health care in Canada may be rationed?

A) reduce government spending on heath care
B) restrict the number of medical tests prescribed by doctors
C) introduce an annual heatlh-insurance premium
D) introducing user fees for non-life threatening situations

Question 38

Examples of rationing used in health care includes all of the following except:

A) insurance premiums
B) waiting lists
C) taxation
D) user fees

Question 39

The imposition of an excise tax on a product:

A) will shift the demand curve to the left.
B) will shift the supply curve to the right.
C) will shift the supply curve to the left.
D) will shift the demand curve to the right.

Question 40

If the government were interested solely in raising revenue from the imposition of an excise tax, it should put the tax on a product that has:

A) an elastic demand.
B) a unitary elastic demand.
C) a perfectly elastic demand.
D) an inelastic demand.

Question 41

If the government were interested in raising revenue from the imposition of an excise tax, on which of the following products should it place a tax?

A) air conditioners
B) potato chips
C) magazines
D) cigarettes

Question 42

Under what conditions of price elasticity of demand would the price increase be the greatest Impositio N of an Excise Tax?

A) elastic demand
B) inelastic demand
C) unitary elastic demand
D) perfectly elastic demand

Question 43

Under what conditions of price elasticity of supply would the price increase be the greatest after the imposition of an excise tax?

A) elastic supply and inelastic demand
B) inelastic supply and elastic demand
C) perfectly inelastic supply and perfectly elastic demand
D) unitary elastic supply and demand

Question 44

Assuming that the government imposes an excise tax on cars equal to $1000 per automobile, the supply of automobiles will shift:

A) to the right and the price of automobiles will change by an undeterminant amount.
B) to the left and the price of automobiles will increase by $1000.
C) to the left and the price of automobiles will increase by less than $1000.
D) to the right and the price of automobiles will increase by more than $1000.

Question 45

Assuming that the government imposes an excise tax on cigarettes equal to $1 per pack and the the demand curve fo this good is perfectly inelastic. The price per pack of cigarettes will:

A) increase by less than $1.
B) stay the same.
C) increase by more than $1.
D) increase by $1.

Question 46

If the objective of the government was to discourage consumption then it would tax a product With:

A) an inelastic demand.
B) an elastic supply.
C) an elastic demand.
D) an inelastic supply.

Question 47

If the demand for a product is inelastic, the price increase after the imposition of a $1 excise tax will be:

A) more than $1.
B) less than $1.
C) equal to $1.
D) impossible to tell with available information.

Question 48

Excise duties apply to:

A) jewelry.
B) alcohol.
C) air conditioners.
D) cigarettes.

Question 49

Vilfredo Pareto was known for theories relating to:

A) minimum wage.
B) government intervention and economic stabilization.
C) welfare maximization and the invisible hand.
D) income distribution.

Question 50

For a society to reach a Pareto optimum situation there must:

A) be third-party effects, perfect competition and non-excludability in consumption of goods and services.
B) be third-party effects and excludability in consumption of goods and services.
C) be perfect competition and excludability in consumption of goods and services.
D) be third-party effects, perfect competition and excludability in consumption of goods and services.