Question 1

The government can potentially improve market outcomes if market inequalities or market failure exist.

Accepted Answer

The government can use policies such as taxes, subsidies, regulations, and public goods provision to intervene in the market and improve outcomes, particularly in cases where there are market failures or significant inequalities.

Question 2

One tradeoff society faces is between efficiency and equity. Define each term. If the Canadian government redistributes income from the rich to the poor, explain how this action affects equity as well as efficiency in the economy.

Accepted Answer

The answer of One tradeoff society faces is between efficiency...

Question 3

With the understanding that people respond to incentives, outline the possible outcome for teachers if the K-12 school year is extended to 11 months per year instead of the existing 10 months per year.

Accepted Answer

The answer of With the understanding that people respond to...

Question 4

Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short run.

Accepted Answer

The answer of Explain how an attempt by the government...

Question 5

Under what conditions might government intervention in an economy improve the market outcome?

Accepted Answer

The answer of Under what conditions might government intervention in...

Question 6

The tenth principle of economics shows the short-run tradeoff between inflation and economic growth.

Accepted Answer

The tenth principle of economics, according to Gregory Mankiw, is that society faces a short-run trade-off between inflation and unemployment, not economic growth.

Question 7

For your birthday, your friends have joined forces and offer you a choice among the following options (they will pay all expenses of your choice): 
A) A two-week trip to an exotic destination; B) A new, high-tech mountain bike, C) An annual pass to your preferred sports team games, and D) A dinner with your preferred celebrity. Suppose your subjective valuations of these options are as follows: A)$800, B)$700, C)$1500, and D)$1000. If you are a rational individual, you will obviously choose C, the annual pass, because it is the option of your highest valuation.
a) What is your opportunity cost of choosing option C? Explain.
b) Now, suppose your friends announce at the last minute a fifth option, E, a cheque of $1100. What is now your opportunity cost of choosing option C?
c) As you can see, the theory of opportunity cost implies that the cost of an action depends on other, seemingly unrelated facts. Why does this make sense?

Accepted Answer

The answer of For your birthday, your friends have joined...

Question 8

Government spending is the primary source of inflation.

Accepted Answer

While government spending can contribute to inflation, it is not always the primary source. Inflation can also be caused by factors such as supply and demand imbalances, changes in production costs, and changes in exchange rates.

Question 9

Market failure refers to a situation in which the market does not allocate resources efficiently.

Accepted Answer

Market failure occurs when the market fails to produce the socially optimal level of output or when the allocation of resources by the market results in inefficiencies, such as externalities, public goods, and market power.

Question 10

In each of the following situations, identify the relevant economic principle and explain how it applies.?a) Peter has lived in his own apartment for many years. However, rents have recently increased so much that Peter considers moving into a smaller apartment and renting out his own.?b) Alfonso is a talented singer and he strongly wants to pursue an artist's career. However, he is two years short of graduating from law school. He is certain he will never be a lawyer because he does not like it and has no gift to be a lawyer. However, his family insists he finish his studies, since he has already spent so much time and money on law studies. What should he do??c) There are a few industrial sites in town, producing essential goods and services for the residents and providing the citizens with vital jobs. However, the businesses, including an airport in the very downtown, also produce pollution, congestion, and noise. People understand the blessings of economic and civil freedoms and are pleased and proud to have productive activities in their town. They started, though, to crave for a more pleasant place to live in. What economic principle can give these people some guidance about what to do?

Accepted Answer

The answer of In each of the following situations, identify...

Question 11

What would happen to the study of economics if scarcity disappeared?

Accepted Answer

The answer of What would happen to the study of...

Question 12

Suppose you have your own pizza delivery business and receive a call to deliver to a remote client. You need to decide whether to take the call. If you don't, there are no consequences, since someone else will. Based on the distance to the client, you calculate that it would cost you $5 to deliver, and expect to receive $6 for the service. You also pay monthly rent for the car, which on average, based on past experience, comes down to about $2 per trip. Your time doesn't matter, as you have nothing more enjoyable or useful to do for the time being. How do you make this decision? What economic principle is at work in your decision process?

Accepted Answer

The answer of Suppose you have your own pizza delivery...

Question 13

An economic principle is that people respond to incentives. Identify the incentives and discuss the possible outcomes in each of the following situations.?a) A Liberal government decides to increase the level of required health benefits that firms pay on behalf of their employees.?b) The City of Winnipeg decides to set a rather high regulated parking fee in downtown in order to reduce traffic congestion.?c) A very popular hip-hop singer asks his managers to set concert prices very low such that everybody can afford them.?d) The government of Canada subsidizes the purchases of new electric cars.?e) A provincial government subsidizes tuition fees for all students who get admitted to college for the whole period of studies.?f) A father gives his daughter $50 when she gets a grade of D at school, $100 for a C, $500 for a B, and $1000 for an A.

Accepted Answer

The answer of An economic principle is that people respond...

Question 14

Inflation increases the value of money.

Accepted Answer

Inflation decreases the value of money, as the purchasing power of money decreases with an increase in the general price level of goods and services.

Question 15

Define opportunity cost. What is the opportunity cost to you of attending university? What was your opportunity cost of coming to class today?

Accepted Answer

The answer of Define opportunity cost. What is the opportunity...

Question 16

Productivity is the primary determinant of a country's living standards.

Accepted Answer

Productivity is a measure of how efficiently goods and services are produced using the resources available. The more productive a country is, the more it can produce with the same resources, which can lead to higher living standards through increased wages, more job opportunities, and lower prices for goods and services. Therefore, productivity is a significant determinant of a country's living standards.

Question 17

Productivity is defined as the quantity of goods and services produced from each hour of a worker's time.

Accepted Answer

Productivity is indeed defined as the amount of goods and services produced with respect to the time and effort put in by a worker.

Question 18

In each of the following decision situations, show what tradeoffs are involved.
a) You are driving and need to decide how fast to drive.
b) You meet a young lady at a party and you are considering whether to ask her out.
c) You like a co-worker whom you have known for a couple of years, and you need to decide whether to go on a date with him.
d) You ponder moving back with your parents.
e) You need to decide whether to buy a used or a new car.
f) You are thinking about opening a computer services business in your basement.
g) You are a consultant for the City of Toronto. The city council asks you to analyze the implications of a new high-rise office building in downtown.

Accepted Answer

The answer of In each of the following decision situations,...

Quiz 1: Ten Principles of Economics