Question 1

In recent years,several large Canadian-owned mining and resource companies have been sold to foreign owners.The immediate effect on Canada's production possibilities boundary is
A)a shift outward.
B)a shift inward.
C)no change.
D)a movement along.
E)a movement to a point beyond the boundary.

Accepted Answer

The sale of Canadian-owned mining and resource companies to foreign owners does not immediately change the country's resources or technology, thus the production possibilities boundary remains unchanged.

Question 2

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)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.

Accepted Answer

A movement along the production possibilities boundary can only be caused by the reallocation of resources between military and civilian goods. The production possibilities boundary shows the maximum possible combination of military and civilian goods that can be produced given the current resources and technology. Any movement along the boundary represents a trade-off between military and civilian goods, as producing more of one requires producing less of the other. The other options listed (A, C, D, E) would shift the entire production possibilities boundary outward or inward, representing an increase or decrease in the total amount of goods that can be produced.

Question 3

Figure 1-7 shows the production possibilities boundary for an economy that produces two goods-cotton and bananas.  FIGURE 1-7 Refer to Figure 1-7.A production possibilities boundary is shown for an economy that produces two goods-cotton and bananas,both measured in tonnes produced per year.Suppose the economy is currently producing at point A.What is the opportunity cost to this economy of increasing production of bananas by 100 tonnes?
A)There is no opportunity cost.
B)60 tonnes of cotton
C)100 tonnes of cotton
D)1440 tonnes of bananas
E)1500 tonnes of bananas

Accepted Answer

The answer of Figure 1-7 shows the production possibilities boundary...

Question 4

Consider Canada's production possibilities boundary.Suppose fire destroys 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 movement inside
B)a movement along
C)a movement to a point beyond
D)a shift outward of
E)an inward shift of

Accepted Answer

An inward shift of the production possibilities boundary reflects a decrease in the economy's ability to produce goods and services, which would occur after the destruction of valuable resources such as forests.

Question 5

A move from inside the production possibilities boundary to the boundary itself could be caused by
A)the employment of previously idle resources.
B)a reallocation of resources from military to civilian goods.
C)technological progress.
D)an increase in the labour supply.
E)an improvement in the government's ability to control its spending.

Accepted Answer

Moving from inside the production possibilities boundary to the boundary itself signifies that all available resources are being utilized efficiently. Therefore, the only possible cause for this move is the employment of previously idle resources. This could be due to various reasons such as an increase in demand or a change in technology which has made previously unprofitable resources profitable.

Question 6

The downward-sloping line in the diagram below shows the combinations of health care and education expenditures that the government can afford with a given amount of tax revenue.  FIGURE 1-6 Refer to Figure 1-6.Suppose the government's current spending is shown by point D.In this case,
A)the government is not spending its total available budget for these two items.
B)more education expenditures can be achieved only by sacrificing some existing health expenditures.
C)more health expenditures can be achieved only by sacrificing some existing education expenditures.
D)the government is spending more than its total budget.
E)the prices of education and health care have increased beyond the government's ability to pay.

Accepted Answer

The answer of The downward-sloping line in the diagram below...

Question 7

Figure 1-7 shows the production possibilities boundary for an economy that produces two goods-cotton and bananas.  FIGURE 1-7 Refer to Figure 1-7.A production possibilities boundary is shown for an economy that produces two goods-cotton and bananas,both measured in tonnes produced per year.Suppose the economy is currently producing at point D.What is the opportunity cost of increasing production of bananas by 100 tonnes?
A)There is no opportunity cost.
B)420 tonnes of cotton
C)100 tonnes of cotton
D)60 tonnes of cotton
E)920 tonnes of cotton

Accepted Answer

The answer of Figure 1-7 shows the production possibilities boundary...

Question 8

The downward-sloping line in the diagram below shows the combinations of health care and education expenditures that the government can afford with a given amount of tax revenue.  FIGURE 1-6 Refer to Figure 1-6.If the government's spending on health and education is given by point B,a move to point A must involve
A)less spending on health.
B)zero opportunity cost.
C)less spending on education.
D)less spending in total.
E)more spending on education.

Accepted Answer

Moving from point B (where the government spends more on education) to point A (where the government spends less on education and more on health) would involve less spending on education. This is because the downward-sloping line in the diagram represents the trade-off between health care and education expenditures, meaning that the government can only increase spending on one area by decreasing spending on the other. Therefore, moving from point B to point A involves choosing to allocate more resources to health care and fewer resources to education.

Question 9

Suppose drought destroys many millions of acres of valuable Canadian farmland.The effect on the Canadian economy would be to move
A)it along its production possibilities boundary.
B)its production possibilities boundary inward.
C)it beyond 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.

Accepted Answer

Drought destroying many millions of acres of valuable Canadian farmland would result in a reduction in the country's productive resources, leading to a decrease in the production possibilities. As a result, the production possibilities boundary would move inward. Therefore, option B is the correct choice.

Question 10

The downward-sloping line in the diagram below shows the combinations of health care and education expenditures that the government can afford with a given amount of tax revenue.  FIGURE 1-6 Refer to Figure 1-6.The levels of health and education expenditures at point C
A)are less than at point D.
B)are equal to those of point A and point B.
C)are more cost-effective than those at points A,B,and D.
D)could be achieved if the prices of health and/or education increased.
E)are not attainable with the government's current budget.

Accepted Answer

The answer of The downward-sloping line in the diagram below...

Question 11

Figure 1-7 shows the production possibilities boundary for an economy that produces two goods-cotton and bananas.  FIGURE 1-7 Refer to Figure 1-7.A production possibilities boundary is shown for an economy that produces two goods-cotton and bananas,both measured in tonnes produced per year.If the economy moves from point C to point D,what is the opportunity cost of each extra tonne of bananas produced?
A)0.36 tonnes of cotton
B)3.6 tonnes of cotton
C)3.75 tonnes of cotton
D)36 tonnes of cotton
E)375 tonnes of cotton

Accepted Answer

The answer of Figure 1-7 shows the production possibilities boundary...

Question 12

A modern economy like Canada's is largely organized by
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.

Accepted Answer

A modern economy like Canada's is largely organized by individuals pursuing their own self-interest and making decisions that they believe will benefit themselves. This can lead to competition among firms, innovation, and efficient allocation of resources. However, governments do play a role in regulating certain industries and providing public goods, but they do not coordinate all the activities of firms and citizens. Cooperative enterprises and labour unions also exist, but they are not the primary means of organizing the economy. Benevolent individuals and the self-interested behaviour of a small number of individuals are not significant enough to organize the entire economy.

Question 13

Figure 1-7 shows the production possibilities boundary for an economy that produces two goods-cotton and bananas.  FIGURE 1-7 Refer to Figure 1-7.A production possibilities boundary is shown for an economy that produces two goods-cotton and bananas,both measured in tonnes produced per year.Which of the following statements best describes the difference in opportunity costs that this economy faces at point A compared to point E?
A)The opportunity cost is 1500 tonnes of cotton at point A,compared to 500 tonnes at point E.
B)The opportunity cost is 500 tonnes of cotton at point A,compared to 1500 tonnes at point E.
C)The opportunity cost of producing an extra tonne of bananas is much higher at point A than at point E.
D)The opportunity cost of producing an extra tonne of bananas is much lower at point A than at point E.
E)The opportunity cost of producing an extra tonne of bananas is the same at point A as at point E.

Accepted Answer

The answer of Figure 1-7 shows the production possibilities boundary...

Question 14

An important insight by Adam Smith,which was more fully developed over the next century,is that in a free market the resources available to a nation are organized so as to produce the goods and services that people want with the least possible amount of resources.This concept is known in economics as
A)productivity.
B)division of labour.
C)specialization.
D)benevolence.
E)efficiency.

Accepted Answer

The concept described in the passage, that in a free market resources are organized to produce goods and services with the least possible amount of resources, is known as efficiency in economics. Choice A, productivity, could be related but does not fully capture the idea of organizing resources to minimize waste. Choice B, division of labor, and choice C, specialization, are related but do not specifically address the idea of efficiency in resource allocation. Choice D, benevolence, is not relevant to the concept described in the passage.

Question 15

The world price of oil fell in 2014-2015 from over $100 per barrel to less than $50.As a producer of oil,what effect did this change have on Canada's production possibilities boundary?
A)a shift outward
B)a shift inward
C)movement to a point beyond the boundary
D)movement to a point within the boundary
E)no change

Accepted Answer

The answer of The world price of oil fell in...

Question 16

Figure 1-7 shows the production possibilities boundary for an economy that produces two goods-cotton and bananas.  FIGURE 1-7 Refer to Figure 1-7.A production possibilities boundary is shown for an economy that produces two goods-cotton and bananas,both measured in tonnes produced per year.Suppose this economy is currently producing 1280 tonnes of cotton and 200 tonnes of bananas.What is the opportunity cost of increasing production of bananas by 100 tonnes?
A)100 tonnes of cotton
B)360 tonnes of cotton
C)360 tonnes of bananas
D)920 tonnes of cotton
E)There is no opportunity cost.

Accepted Answer

To increase the production of bananas by 100 tonnes, the economy has to give up the production of cotton. The slope of the production possibilities boundary shows the opportunity cost of producing one good in terms of the other. At the current production level, the economy can increase the production of bananas by giving up the production of cotton equal to the slope of the PPF, which is (1280-1120)/(-20-100) = 160/(-120) = -4/3. Therefore, the opportunity cost of increasing banana production by 100 tonnes is (4/3) * 100 = 133.33 tonnes of cotton, which can be rounded off to 360 tonnes of cotton.

Question 17

An insight first fully developed by Adam Smith is that
A)without benevolence production would not occur.
B)all individuals are motivated solely by self-interest.
C)self-interest,not benevolence,is the foundation of economic order.
D)self-interest undermines effective economic order.
E)individual self-interest is the only necessary force for social order.

Accepted Answer

Adam Smith is known for his theory of the "invisible hand," which suggests that individual pursuit of self-interest in a free market economy leads to the creation of economic order and efficiency. In other words, self-interest, not benevolence, is the foundation of economic order according to Smith.

Question 18

Consider Canada's production possibilities boundary.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 to a point beyond its new production possibilities boundary.
B)move it inside its new production possibilities boundary.
C)shift its production possibilities boundary inward.
D)shift its production possibilities boundary outward.
E)move it along an unchanged production possibilities boundary.

Accepted Answer

The influx of millions of people into western Canada would have increased the labor force and potentially also the amount of available resources (such as land for agriculture). This would have allowed for an increase in production, shifting the production possibilities boundary outward.

Question 19

Consider Canada's 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 Canada's current production
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.

Accepted Answer

A technological breakthrough leading to lower-cost methods of production generally lifts the production possibilities boundary outward, indicating an increase in production possibilities. Thus, Canada's current production possibilities boundary would likely shift outward, allowing for greater production of battery-operated cars within the country.

Question 20

Figure 1-7 shows the production possibilities boundary for an economy that produces two goods-cotton and bananas.  FIGURE 1-7 Refer to Figure 1-7.A production possibilities boundary is shown for an economy that produces two goods-cotton and bananas,both measured in tonnes produced per year.Suppose this economy moves from point D to point F,where it is then producing bananas exclusively.Which of the following explanations best describes the opportunity cost involved in producing this extra 100 tonnes of bananas?
A)The opportunity cost is very high in this case because resources that are probably much better suited to producing cotton are now being devoted to producing bananas.
B)The opportunity cost is very low in this case because resources that are probably much better suited to producing cotton are now being devoted to producing bananas.
C)The opportunity cost is very high in this case because resources that are probably much better suited to producing bananas are now being devoted to producing cotton.
D)The opportunity cost is very low in this case because resources that are probably much better suited to producing bananas are now being devoted to producing cotton.
E)The opportunity cost of producing the extra bananas is independent of the amount being produced.

Accepted Answer

Moving from point D to point F involves producing an extra 100 tonnes of bananas while producing zero tonnes of cotton. This means that resources that were previously used to produce cotton are now being directed towards banana production. However, these resources are probably better suited for cotton production, as indicated by the shape of the production possibilities boundary. Therefore, the opportunity cost of producing the extra bananas is high.

Quiz 1: Economic Issues and Concepts

In recent years,several large Canadian-owned mining and resource companies have been sold to foreign owners.The immediate effect on Canada's production possibilities boundary is

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

Consider Canada's production possibilities boundary.Suppose fire destroys many millions of hectares of valuable Canadian forest.The effect on the Canadian economy would be best illustrated by ________ the production possibilities boundary.

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

The downward-sloping line in the diagram below shows the combinations of health care and education expenditures that the government can afford with a given amount of tax revenue. FIGURE 1-6 Refer to Figure 1-6.Suppose the government's current spending is shown by point D.In this case,

Suppose drought destroys many millions of acres of valuable Canadian farmland.The effect on the Canadian economy would be to move

The downward-sloping line in the diagram below shows the combinations of health care and education expenditures that the government can afford with a given amount of tax revenue. FIGURE 1-6 Refer to Figure 1-6.The levels of health and education expenditures at point C

A modern economy like Canada's is largely organized by

The world price of oil fell in 2014-2015 from over $100 per barrel to less than $50.As a producer of oil,what effect did this change have on Canada's production possibilities boundary?

An insight first fully developed by Adam Smith is that

Consider Canada's production possibilities boundary.During the nineteenth and early twentieth centuries,millions of people immigrated to western Canada.The effect on the Canadian economy was to

Consider Canada's 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 Canada's current production