Deck 1: Economics: Foundations and Models

Question 1

Which of the following statements is true about scarcity?

A)Scarcity refers to the situation in which unlimited wants exceed limited resources.
B)Scarcity is not a problem for the wealthy.
C)Scarcity is only a problem when a country has too large a population.
D)Scarcity arises when there is a wide disparity in income distribution.

Answer 1

A

Question 2

Economists assume that individuals

A)behave in unpredictable ways.
B)will never take actions to help others.
C)prefer to live in a society that values fairness above all else.
D)are rational and respond to incentives.

Answer 2

D

Question 3

In economics, choices must be made because we live in a world of

A)unemployment.
B)scarcity.
C)greed.
D)unlimited resources.

Answer 3

B

Question 4

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.

A)equitably
B)rationally
C)emotionally
D)selfishly

Question 5

On average women in Quebec have

A)fewer children than women in other provinces.
B)more children than women in other provinces.
C)the same number of children was women in other provinces.
D)exactly the number of children required to maintain a stable population.

Question 6

By definition, economics is the study of

A)how to make money in the stock market.
B)how to make money in a market economy.
C)the choices people make to attain their goals, given their scarce resources.
D)supply and demand.

Question 7

Economists assume that rational behavior is useful in explaining choices people make

A)because irrational people do not make economic choices.
B)even though people may not behave rationally all the time.
C)because individuals act rationally all the time in all circumstances.
D)even though people rarely, if ever, behave in a rational manner.

Question 8

The term ________ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade.

A)collective
B)cooperative
C)market
D)trade-off

Question 9

In economics, the term ________ means "additional" or "extra."

A)allocative
B)marginal
C)equity
D)optimal

Question 10

Suppose that some teachers have decided that economic and financial uncertainty have made the prospect of retiring more risky, and therefore it carries a higher cost than not retiring.By using all available information as they act to achieve their goals, these teachers are exemplifying the economic idea that

A)people are rational.
B)people respond to economic incentives.
C)optimal decisions are made at the margin.
D)equity is more important than efficiency.

Question 11

An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue.

A)market
B)trade-off
C)variable
D)model

Question 12

Bad weather in Colombia can lead to

A)more Canadians drinking coffee.
B)Canadians having to pay more for coffee.
C)wage increases for coffee shop employees.
D)the destruction of the Canadian coffee harvest.

Question 13

Where do economic agents such as individuals, firms and nations, interact with each other?

A)in public locations monitored by the government
B)in any arena that brings together buyers and sellers
C)in any physical location people where people can physically get together for selling goods, such as shopping malls
D)in any location where transactions can be monitored by consumer groups and taxed by the government

Question 14

Suppose your provincial government encouraged new medical school graduates to take over rural and small town practices from doctors wishing to retire by paying both the new and retiring doctors $100,000.These doctors would be exemplifying the economic idea that

A)people are rational.
B)people respond to economic incentives.
C)optimal decisions are made at the margin.
D)equity is more important than efficiency.

Question 15

The basic economic problem of ________ has always existed and will continue to exist.

A)scarcity
B)efficiency
C)inflation
D)recession

Question 16

Economists reason that the optimal decision is to continue any activity up to the point where the

A)marginal benefit is zero.
B)marginal benefit is greater than the marginal cost.
C)marginal cost is zero.
D)marginal benefit equals the marginal cost.

Question 17

Consider the following statements:
A)Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area.
B)Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment.
C)Firms produce more of a particular DVD when its selling price rises.
Which of the above statements demonstrates that economic agents respond to incentives?

A)a only.
B)b only.
C)c only.
D)a and b.
E)a, b, and c.

Question 18

Economists assume that rational people do all of the following except

A)use all available information as they act to achieve their goals.
B)undertake activities that benefit others and hurt themselves.
C)weigh the benefits and costs of all possible alternative actions.
D)respond to economic incentives.

Question 19

Holding all other personal characteristics-such as age, ethnicity, and income-constant, economists would expect that

A)women in provinces making payments for having more children will have fewer children than women in other provinces.
B)women in provinces making payments for having more children will have more children than women in other provinces.
C)women in provinces making payments for having children will have the same number of children as women in other provinces.
D)there is no correlation between payments for having children and the number of children women choose to have.

Question 20

A grocery store sells a bag of potatoes at a fixed price of $5.50.Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes?

A)marginal revenue
B)gross earnings
C)pure profit
D)marginal costs
E)net benefit

Question 21

Scenario 1.1
Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, "Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal number of cell phones."
Refer to Scenario 1.1.Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 3,000 cell phones?

A)marginal cost
B)operating cost
C)explicit cost
D)Any of the above terms are correct.

Question 22

Table 1.1
$\begin{array}{|c|c|}\hline \begin{array}{c}\text { Hours } \\\text { Open }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} \\\hline 1 & \$ 50 \\\hline 2 & 75 \\\hline 3 & 95 \\\hline 4 & 110 \\\hline 5 & 120 \\\hline 6 & 125 \\\hline\end{array}$
Lydia runs a small nail salon in the town of New Hope. She is debating whether she should extend her hours of operation. Lydia figures that her sales revenue will depend on the number of hours the nail salon is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $10 per hour.

-Refer to Table 1.1.Using marginal analysis, determine how many hours should Lydia extend her nail salon's hours of operations?

A)2 hours
B)3 hours
C)4 hours
D)5 hours
E)6 hours

Question 23

Scarcity is a problem that will eventually disappear as technology advances.

Question 24

Table 1.1
$\begin{array}{|c|c|}\hline \begin{array}{c}\text { Hours } \\\text { Open }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} \\\hline 1 & \$ 50 \\\hline 2 & 75 \\\hline 3 & 95 \\\hline 4 & 110 \\\hline 5 & 120 \\\hline 6 & 125 \\\hline\end{array}$
Lydia runs a small nail salon in the town of New Hope. She is debating whether she should extend her hours of operation. Lydia figures that her sales revenue will depend on the number of hours the nail salon is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $10 per hour.

-Refer to Table 1.1.What is Lydia's marginal benefit if she decides to stay open for two hours instead of one hour?

A)$25
B)$50
C)$75
D)$125

Question 25

DeShawn's Detailing is a service that details cars at the customers' homes or places of work.DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service.For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package.What is the marginal cost of adding the engine detailing to the basic detailing package?

A)$20
B)$30
C)$60
D)$60 plus the value of his time

Question 26

Making optimal decisions "at the margin" requires

A)making decisions according to one's whims and fancies.
B)making consistently irrational decisions.
C)weighing the costs and benefits of a decision before deciding if it should be pursued.
D)making borderline decisions.

Question 27

An economic model is a simplified version of reality used to analyze real-world economic situations.

Question 28

DeShawn's Detailing is a service that details cars at the customers' homes or places of work.DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service.For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package.What is DeShawn's marginal benefit if he sells a basic detailing package?

A)$35
B)$75
C)He makes a marginal loss of $15, not a marginal benefit.
D)The marginal benefit cannot be determined.

Question 29

If the marginal cost of producing an extra million kilograms of french fries is $1 million, then McCain Foods Ltd.should produce the extra french fries

A)only if the marginal benefit is greater than $1 million plus an acceptable profit margin.
B)as long as the marginal benefit the firm receives is just equal to or greater than $1 million.
C)as long as the marginal cost does not rise.
D)until the marginal benefit the firm receives reaches zero.

Question 30

Scarcity refers to a situation in which unlimited wants exceed the limited resources available to fulfill those wants.

Question 31

The extra cost associated with undertaking an activity is called

A)net loss.
B)marginal cost.
C)opportunity cost.
D)foregone cost.

Question 32

The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal benefit.

Question 33

Soo Jin shares a one-bedroom apartment with her classmate.Her share of the rent is $700 per month.She is considering moving to a studio apartment which she will not have to share with anyone.The studio apartment rents for $950 per month.Recently, you ran into Soo Jin on campus and she tells you that she has moved into the studio apartment.Soo Jin is as rational as any other person.As an economics major, you rightly conclude that

A)Soo Jin did not have a choice; her roommate was a slob.
B)Soo Jin figures that the additional benefit of having her own place (as opposed to sharing)is at least $250.
C)Soo Jin figures that the benefit of having her own place (as opposed to sharing)is at least $950.
D)The cost of having one's own space outweighs the benefits.

Question 34

Table 1.1
$\begin{array}{|c|c|}\hline \begin{array}{c}\text { Hours } \\\text { Open }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} \\\hline 1 & \$ 50 \\\hline 2 & 75 \\\hline 3 & 95 \\\hline 4 & 110 \\\hline 5 & 120 \\\hline 6 & 125 \\\hline\end{array}$
Lydia runs a small nail salon in the town of New Hope. She is debating whether she should extend her hours of operation. Lydia figures that her sales revenue will depend on the number of hours the nail salon is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $10 per hour.

-Refer to Table 1.1.What is Lydia's marginal cost if she decides to stay open for two hours instead of one hour?

A)$10
B)$20
C)$25
D)$40

Question 35

DeShawn's Detailing is a service that details cars at the customers' homes or places of work.DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service.For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package.Should DeShawn continue to offer the engine detailing service?

A)Yes, he still makes a profit by selling the engine detailing service with the basic detailing package.
B)Yes, but only if he raises the price of the basic detailing package.
C)No, his marginal benefit is less than his marginal cost.
D)More information is needed for DeShawn to make this decision.

Question 36

Marginal analysis involves undertaking an activity

A)until its marginal costs start declining.
B)only when its marginal benefits are positive.
C)until its marginal benefits equal marginal costs.
D)only if its marginal costs are greater than its marginal benefits.

Question 37

Scenario 1.1
Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, "Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal number of cell phones."
Refer to Scenario 1.1.Using marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 3,000 cell phones?

A)gross earnings
B)marginal revenue
C)sales revenue
D)gross profit

Question 38

Making "how much" decisions involve

A)calculating the total benefits of the activity and determining if you are satisfied with that amount.
B)calculating the total costs of the activity and determining if you can afford to incur that expenditure.
C)calculating the average benefit and the average cost of an activity to determine if it is worthwhile undertaking that activity.
D)determining the additional benefits and the additional costs of that activity.

Question 39

Scenario 1.1
Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, "Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal number of cell phones."
Refer to Scenario 1.1.Had the firm not produced and sold the last 3,000 cell phones, would its profit be higher or lower, and if so by how much?

A)Its profit will be $6,700 higher.
B)Its profit will be $700 higher.
C)Its profit will be $700 lower.
D)Its profit will be $6,000 lower.

Question 40

The revenue received from the sale of ________ of a product is a marginal benefit to the firm.

A)an additional unit
B)the total number of units
C)no units
D)only profitable units

Question 41

The highest valued alternative that must be given up to engage in an activity is the definition of

A)economic equity.
B)marginal benefit.
C)opportunity cost.
D)marginal cost.

Question 42

The distribution of income primarily determines which of the fundamental economic questions?

A)What goods and services are to be produced?
B)How the goods and services are to be produced?
C)Who will receive the goods and services produced?
D)How to plan the economy?

Question 43

The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of

A)optimization.
B)efficiency.
C)trade-off.
D)equity.

Question 44

The decision about what goods and services will be produced made in a market economy is made by

A)lawmakers in the government voting on what will be produced.
B)workers deciding to produce only what the boss says must be produced.
C)producers deciding what society wants most.
D)consumers and firms choosing which goods and services to buy or produce.
E)consumers dictating to firms what they need most.

Question 45

Optimal decisions are made at the point where marginal cost equals zero.

Question 46

Assume that McCain Foods Ltd.can earn an extra $2 million in revenue from producing an extra million kilograms of french fries.What must the addition cost of producing the extra million kilograms of french fries be to make producing them economically rational?

Question 47

Which of the following is not an example of an economic trade-off that a firm has to make?

A)whether it is cheaper to produce with more machines or with more workers
B)whether it is to outsource the production of a good or service
C)whether or not consumers will buy its products
D)whether it should produce more of its product

Question 48

Arlene quits her $125,000-a-year job to take care of her ailing parents.What is the opportunity cost of her decision?

A)zero, since she will no longer be earning a salary
B)It depends on the "going rate" for home-care providers.
C)at least $125,000
D)the value she attributes to the satisfaction she receives from taking care of her parents

Question 49

Which of the following statements is true?

A)Anytime you have to decide which action to take you are experiencing economic equity.
B)Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale.
C)Every individual, no matter how rich or poor, is faced with making trade-offs.
D)Economics is a social science that studies the trade-offs we are forced to make because resources are unlimited.

Question 50

What is meant by the statement that "optimal decisions are made at the margin"?

Question 51

Explain the economic assumption that "people are rational."

Question 52

If it costs Sinclair $300 to produce 3 suede jackets and $420 to produce 4 suede jackets, then the difference of $120 is the marginal cost of producing the 4th suede jacket.

Question 53

Which of the following statements about the economic decisions consumers, firms, and the government have to make is false?

A)Governments face the problem of scarcity in making economic decisions.
B)Only individuals face scarcity; firms and the government do not.
C)Both firms and individuals face scarcity.
D)Each faces the problem of scarcity which necessitates trade-offs in making economic decisions.

Question 54

The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each.What is the opportunity cost of buying a cappuccino?

A)2 1/2 Russian tea cakes
B)2/5 of a Russian tea cake
C)$2.50
D)$1.00

Question 55

Explain the economic idea that "people respond to incentives."

Question 56

Suppose the extra cost of producing an extra million kilograms of french fries is $1 million.Then, McCain Foods Ltd.should make the extra french fries if they generate additional revenue of $1 million.

Question 57

The three fundamental questions that any economy must address are

A)What will be the prices of goods and services; how will these goods and services be produced; and who will receive them?
B)What goods and services to produce; how will these goods and services be produced; and who receives them?
C)Who gets jobs; what wages do workers earn; and who owns what property?
D)How much will be saved; what will be produced; and how can these goods and services be fairly distributed?

Question 58

Society faces a trade-off in all of the following situations except

A)when deciding who will receive the goods and services produced.
B)when deciding what goods and services will be produced.
C)when deciding how goods and services will be produced.
D)when some previously unemployed workers find jobs.

Question 59

Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks and compact cars.What fundamental economic question are they addressing by making this range of products?

A)How to produce goods that consumers want?
B)Why produce a variety of automobiles?
C)What to produce?
D)Who to produce automobiles for?

Question 60

Consider the following economic agents:
A)the government
B)consumers
C)producers
Who, in a centrally planned economy, decides what goods and services will be produced with the scarce resources available in that economy?

A)the government
B)producers
C)consumers
D)consumers and producers
E)the government, consumers and producers

Question 61

________ is a situation in which a good or service is produced at the lowest possible cost.

A)Allocative efficiency
B)Productive efficiency
C)Equity
D)Optimal marginalism

Question 62

How are the fundamental economic decisions determined in North Korea?

A)Individuals, firms, and the government interact in a market to make these economic decisions.
B)These decisions are made by the country's elders who have had much experience in answering these questions.
C)The government decides because North Korea is a centrally planned economy.
D)The United Nations decides because North Korea is a developing economy.

Question 63

Markets promote

A)equity and competition.
B)voluntary exchange and equality.
C)equity and equality.
D)competition and voluntary exchange.

Question 64

All of the following contributed to the downfall of the Soviet Union in 1991 except

A)public dissatisfaction with low living standards and political repression.
B)an inability to produce low-cost consumer goods that households wanted.
C)lack of high-quality goods and services.
D)lack of a strong dictator who can coordinate economic activities.

Question 65

Which of the following is a problem inherent in centrally planned economies?

A)Households and firms make poor decisions in choosing how resources are allocated.
B)There is too little production of low-cost, high-quality goods and services.
C)Production managers are more concerned with satisfying consumer wants than with satisfying government's orders.
D)Exports tend to exceed imports.

Question 66

Which of the following is motivated by an equity concern?

A)Some provinces and municipalities have transferred funds to food bank programs in order to increase benefits to lower-income families.
B)Following the implementation of subsidies for energy conservation, household demand for rooftop solar panels increased quite significantly in BC.
C)Some provinces allow automotive insurance companies to charge men and women different rates for insurance.
D)Canada offers patent protection to pharmaceutical manufacturers to prevent others from duplicating their products.

Question 67

Allocative efficiency is achieved when firms produce goods and services

A)at the lowest possible cost.
B)that consumers value most.
C)at the lowest opportunity cost.
D)at a marginal cost of zero.

Question 68

Which of the following generates productive efficiency?

A)competition among sellers
B)competition among buyers
C)government inspectors
D)government production rules and regulations

Question 69

Who receives the most of what is produced in a market economy?

A)lawmakers and other politically favored groups
B)those who are willing and able to buy them
C)Everyone receives an equal amount.
D)people who earn the highest incomes

Question 70

Why is it necessary for all economic systems to not only provide people with goods and services, but also restrict them from getting as much of these goods and services as they wish?

A)Failure to do this could reduce the efficiency of the system by producing some goods and services that are not as highly valued as others.
B)Failure to do this could lead to an inequitable allocation of goods and services produced.
C)Failure to do this could lead to drastic shortages of good and services.
D)Failure to do this could reduces efficiency and leads to an inequitable allocation of output.

Question 71

When production reflects consumer preferences, ________ occurs.

A)allocative efficiency
B)productive efficiency
C)equity
D)efficient central planning

Question 72

Which of the following is motivated by an efficiency concern?

A)In 2013 the Alberta government handed out pre-paid credit and debit cards to flood victims.
B)The right to purchase tickets to the Grey Cup is decided by a lottery.
C)Organ transplant waiting lists rationing scarce kidneys that would favor young patients over old in an effort to wring more life out of donated organs.
D)The federal government Equilization program which makes larger transfers to poor provinces than to wealthy ones.

Question 73

Which of the following statements is true about competition in a market?

A)Competition forces firms to out source the production of their labor-intensive products.
B)Competition forces firms to undercut their selling price, thus benefiting consumers who will be able to purchase products at the lowest price possible.
C)Competition forces firms to produce and sell products as long as the marginal benefit to consumers exceeds the marginal cost of production.
D)Competition forces firms to add only low profit margins to their costs of production.

Question 74

Productive efficiency is achieved when

A)firms add a low profit margin to the goods and services they produce.
B)firms produce the goods and services that consumers value most.
C)firms produce goods and services at the lowest cost.
D)there are no shortages or surpluses in the market.

Question 75

Voluntary exchange between buyers and sellers generates ________ in a market economy.

A)scarcity
B)allocative efficiency
C)productive efficiency
D)equity

Question 76

How are the fundamental economic questions answered in a market economy?

A)The government alone decides the answers.
B)Individuals, firms, and the government interact in markets to decide the answers to these questions.
C)Households and firms interact in markets to decide the answers to these questions.
D)Large corporations alone decide the answers.

Question 77

________ increases economic efficiency because it forces firms to produce and sell goods and services as long as the additional benefit to consumers is greater than the additional cost of production.

A)Competition
B)Voluntary exchange
C)Equity
D)A centrally planned economy

Question 78

Political candidates often hold fund raisers by charging "per plate" for dinner.Wendy purchased four tickets to a $1,000 per plate dinner for a local city council candidate.Is this transaction economically efficient?

A)No, political candidates should never be allowed to overcharge for a fund raising dinner.
B)Yes, it was a voluntary exchange that benefited both parties.
C)No, Wendy paid too much for four dinners.
D)Yes, it is efficient only from the perspective of the candidate but not from the perspective of Wendy.

Question 79

In economics, the term "equity" means

A)everyone has an equal standard of living.
B)the hardest working individuals consume all they want.
C)only elected officials have high standards of living.
D)economic benefits are distributed fairly.

Question 80

Which of the following is a result of a market economy?

A)environmental protection
B)an equal income distribution
C)agreement on equity
D)voluntary exchange