Economics, Fourteenth Canadian Edition Test Bank

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ExamName___________________________________MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.FIGURE 1-1With a budget of $200 million, the government can choose to purchase 4 helicopters or repair 200 km of highway.1)Refer to Figure 1-1. For the government, the opportunity cost of one search and rescue helicopter is1)A)200 kilometres of highway repair.B)150 kilometres of highway repair.C)0 kilometres of highway repair.D)50 kilometres of highway repair.E)100 kilometres of highway repair.Answer:DExplanation:A)B)C)D)E)1

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2)Which of the following has most contributed to the globalization of the economy?2)A)tariffs and trade barriersB)reductions in transportation and communication costsC)the shift toward a market economy in ChinaD)the decreased importance of agricultureE)the decline in the relative importance of manufacturingAnswer:BExplanation:A)B)C)D)E)3)Which of the following is illustrated by the circular flow of income?3)A)that firms own the factors of productionB)that there is no relationship between goods markets and factor marketsC)that the flow of payments moves in the same direction as the flow of goodsD)the flows of expenditures and income in a householdE)the interaction of households and firms through the factors and goods marketsAnswer:EExplanation:A)B)C)D)E)The table below illustrates that, in one day, Tristan can produce either 12 fishing lures or mow 3 lawns, while Thomas can produce either6 fishing lures or mow 6 lawns.Fishing LuresMowed LawnsTristan123Thomas66TABLE 1-14)Refer to Table 1-1. What is Tristan's opportunity cost of producing one fishing lure?4)A)one mowed lawnB)4 mowed lawnsC)3 mowed lawnsD)1/4 of a mowed lawnE)1/3 of a mowed lawnAnswer:DExplanation:A)B)C)D)E)2

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5)Suppose Andrea has a job that pays her $25 000 per year (after taxes). She is considering quittingher job and going to university full time for four years. Tuition fees and books will cost $12 000 peryear. Living expenses in either situation will cost $10 000 per year. What is the opportunity cost ofAndrea's four-year university degree?5)A)$148 000B)$188 000C)$88 000D)$120 000E)$100 000Answer:AExplanation:A)B)C)D)E)6)An insight first fully developed by Adam Smith is that6)A)self-interest undermines effective economic order.B)individual self-interest is the only necessary force for social order.C)without benevolence production would not occur.D)all individuals are motivated solely by self-interest.E)self-interest, not benevolence, is the foundation of economic order.Answer:EExplanation:A)B)C)D)E)7)During economic recessions, the opportunity cost of going to university ________ because thewages a student can expect to earn working in the best alternative ________.7)A)increases; decreaseB)decreases; decreaseC)remains the same; remain the sameD)increases; increaseE)decreases; increaseAnswer:BExplanation:A)B)C)D)E)8)Which of the following represents a typical "real" flow (as opposed to a financial flow) in thecircular flow of income?8)A)factor services going from producers to consumersB)goods going from producers to consumersC)money payments going from consumers to producersD)money payments going from producers to consumersE)goods going from consumers to producersAnswer:BExplanation:A)B)C)D)E)3

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9)Which countries have mostly public ownership of resources?9)A)France and GermanyB)United States and CanadaC)Brazil and ArgentinaD)Cuba and North KoreaE)Sweden and NorwayAnswer:DExplanation:A)B)C)D)E)FIGURE 1-510)Refer to Figure 1-5. Which production possibilities boundaries are consistent with increasingopportunity costs?10)A)boundary C onlyB)boundary A onlyC)boundaries B and CD)boundaries A, B, and CE)boundaries A and BAnswer:AExplanation:A)B)C)D)E)4

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The diagram below shows two production possibilities boundaries for Country X.FIGURE 1-411)Refer to Figure 1-4. If Country X is currently producing at point A, it could move to point B if11)A)some resources were switched from the capital goods industries to the consumer goodsindustries.B)Country X is no longer able to produce the quantity of capital goods at point A.C)the cost of producing capital goods were to increase.D)some resources were switched from the consumer goods industries to the capital goodsindustries.E)the cost of producing consumer goods were to increase.Answer:AExplanation:A)B)C)D)E)12)A small landscaping firm purchases a tractor that, in one day, is capable of drilling 60 fence-postholes or removing 12 tree stumps (or some intermediate combination). For this landscaper, what isthe opportunity cost of removing one extra tree stump?12)A)drilling 12 fence-post holesB)drilling 5 fence-post holesC)there is no opportunity costD)1/12th of the cost of the tractorE)1/5 of the cost of the tractorAnswer:BExplanation:A)B)C)D)E)5

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The diagram below shows two production possibilities boundaries for Country X.FIGURE 1-413)Refer to Figure 1-4. Suppose that Country X is currently producing at point E. Country X couldachieve production at point D if13)A)sufficient improvements in technology occurred in either the capital goods industry or theconsumer goods industries.B)the prices of capital goods and consumption goods fell.C)the given resources were fully employed.D)firms reduced output of capital goods.E)the given resources were more efficiently employed.Answer:AExplanation:A)B)C)D)E)6

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Madeleine allows herself $100 per month for purchasing coffee. The diagram below illustrates the choices available to her.FIGURE 1-314)Refer to Figure 1-3. For Madeleine, the opportunity cost of one latte is14)A)1/4 of a latte.B)80 regular coffees.C)1/4 of a regular coffee.D)8 regular coffees.E)4 regular coffees.Answer:EExplanation:A)B)C)D)E)7

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The table below shows that, in one day, Claire can complete either 3 chemistry or 2 biology lab reports, while Sam can complete either 4chemistry or 3 biology lab reports.Chemistry Lab ReportsBiology Lab ReportsClaire32Sam43TABLE 1-215)Refer to Table 1-2. What is Sam's opportunity cost of completing 2 biology lab reports?15)A)113chemistry lab reportsB)34of a chemistry lab reportC)4 chemistry lab reportsD)223chemistry lab reportsE)23of a chemistry lab reportAnswer:DExplanation:A)B)C)D)E)16)Income redistribution in a mixed economy16)A)risks reducing individual incentives to work and produce.B)is supported by all individuals.C)is only accomplished through government intervention.D)is not allowed.E)rarely occurs.Answer:AExplanation:A)B)C)D)E)17)If some income earned by households is not spent on output, or if some income earned by firms isnot spent on factor services, the circular flow of income will17)A)contract.B)explode.C)run over.D)stop.E)expand.Answer:AExplanation:A)B)C)D)E)8

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Madeleine allows herself $100 per month for purchasing coffee. The diagram below illustrates the choices available to her.FIGURE 1-318)Refer to Figure 1-3. If Madeleine chooses to allocate all $100 to buying lattes, we can say that heropportunity cost in one month is18)A)zero because she stayed within her budget.B)zero because she bought what she desired.C)20 cups of regular coffee.D)40 cups of regular coffee.E)80 cups of regular coffee.Answer:EExplanation:A)B)C)D)E)19)An economic system that relies primarily upon custom and habit in economic decision making is a19)A)market system.B)communist system.C)mixed system.D)command system.E)traditional system.Answer:EExplanation:A)B)C)D)E)9

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20)On a diagram of a production possibilities boundary, the concept of scarcity is illustrated by the20)A)area within the boundary.B)points on the boundary.C)negative slope of the boundary.D)unattainable points outside the boundary.E)distance from the origin to the boundary.Answer:DExplanation:A)B)C)D)E)21)Consider Canada's production possibilities boundary. Suppose a scientific breakthrough leads to alower-cost method of producing battery-operated cars in Canada. The likely effect would be tomove Canada's current production21)A)above the level of U.S. production.B)to a point beyond its new production possibilities boundary.C)possibilities boundary inward.D)possibilities boundary outward.E)to a point inside its new production possibilities boundary.Answer:DExplanation:A)B)C)D)E)22)Suppose that a bakeshop with 5 employees can produce both pies and cakes. In one day, if allresources are devoted to baking pies, the shop can produce 125 pies; if all resources are devoted tobaking cakes, the shop can produce 50. What is the shop's opportunity cost of producing any onecake?22)A)0.4 piesB)0.25 piesC)2.5 cakesD)2.5 piesE)0.4 cakesAnswer:DExplanation:A)B)C)D)E)10

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23)Which of the following statements about specialization and trade are correct?23)A)They exist only in capitalist economies.B)They developed only where government and political institutions were stable.C)They developed only in the twentieth century.D)They arose as humans changed from nomadic and self-sufficient food gatherers to settledfood producers.E)They occur only in the private sector.Answer:DExplanation:A)B)C)D)E)24)The barter system of exchange is inefficient because24)A)markets do not exist.B)the double coincidence of wants may not exist.C)exchange partners need to know each other.D)"fair" values cannot be defined without the use of money.E)bargaining power is unequal between rich and poor.Answer:BExplanation:A)B)C)D)E)11

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The downward-sloping line in the diagram below shows the combinations of health care and education expenditures that the governmentcan afford with a given amount of tax revenue.FIGURE 1-625)Refer to Figure 1-6. If the government's spending on health and education is given by point B, amove to point A must involve25)A)less spending on education.B)zero opportunity cost.C)more spending on education.D)less spending on health.E)less spending in total.Answer:AExplanation:A)B)C)D)E)26)The key decision makers in a market economy are26)A)governments and all institutions under government control.B)corporations and governments.C)individual citizens, non-profit organizations, and the Bank of Canada.D)households, firms, and government.E)large corporations and labour organizations.Answer:DExplanation:A)B)C)D)E)12

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The table below shows that, in one day, Claire can complete either 3 chemistry or 2 biology lab reports, while Sam can complete either 4chemistry or 3 biology lab reports.Chemistry Lab ReportsBiology Lab ReportsClaire32Sam43TABLE 1-227)Refer to Table 1-2. What is Sam's opportunity cost of completing 3 biology lab reports?27)A)4 chemistry lab reportsB)0 chemistry lab reportsC)1 chemistry lab reportsD)2 chemistry lab reportsE)3 chemistry lab reportsAnswer:AExplanation:A)B)C)D)E)28)A modern economy like Canada's is largely organized by28)A)benevolent individuals pursuing the public interest.B)the self-interested behaviour of a small number of individuals.C)governments at all levels coordinating the activities of firms and citizens.D)individuals following their own self interest, doing what seems best for themselves.E)individuals forming cooperative enterprises and labour unions.Answer:DExplanation:A)B)C)D)E)29)Comparison of economic systems indicates that29)A)capitalist economies are clearly superior in distributing income.B)most countries have mixed economies.C)socialist economies are clearly superior in producing consumer goods.D)most nations have either a purely socialist economy or a purely capitalist economy.E)all countries have largely traditional economies.Answer:BExplanation:A)B)C)D)E)13

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With a budget of $500 000, a school board can choose to purchase 20 000 textbooks or 2000 laptop computers (or some intermediatecombination) for use in classrooms.Figure 1-230)Refer to Figure 1-2. For the school board, what is the opportunity cost of one additional laptopcomputer?30)A)0 textbooksB)1/10 of a textbookC)10 textbooksD)20 textbooksE)2000 textbooksAnswer:CExplanation:A)B)C)D)E)31)The opportunity cost of producing goodAis defined to be31)A)the cost of having to get by using something else in place of goodA.B)the money cost of the factors of production used in goodA.C)the retail price of goodA.D)what must be sacrificed of other goods to get an additional unit of goodA.E)the cheapest method of producing goodA.Answer:DExplanation:A)B)C)D)E)14

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32)If there is always a three-for-one trade-off between the production of goods X and Y, then theproduction possibilities boundary for X and Y is32)A)a downward-sloping straight line.B)a downward-sloping curve convex to the origin.C)a downward-sloping straight line that is broken at one point.D)a downward-sloping curve concave to the origin.E)semi-circular.Answer:AExplanation:A)B)C)D)E)With a budget of $500 000, a school board can choose to purchase 20 000 textbooks or 2000 laptop computers (or some intermediatecombination) for use in classrooms.Figure 1-233)Refer to Figure 1-2. What is the price of a textbook in this example?33)A)$25B)$40C)$50D)$100E)$250Answer:AExplanation:A)B)C)D)E)15

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