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Economics, Fourteenth Canadian Edition Test Bank

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    Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. FIGURE 1 - 1 With 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 is 1) 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: D Explanation: 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 barriers B) reductions in transportation and communication costs C) the shift toward a market economy in China D) the decreased importance of agriculture E) the decline in the relative importance of manufacturing Answer: B Explanation: 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 production B) that there is no relationship between goods markets and factor markets C) that the flow of payments moves in the same direction as the flow of goods D) the flows of expenditures and income in a household E) the interaction of households and firms through the factors and goods markets Answer: E Explanation: 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 either 6 fishing lures or mow 6 lawns. Fishing Lures Mowed Lawns Tristan 12 3 Thomas 6 6 TABLE 1 - 1 4) Refer to Table 1 - 1. What is Tristan's opportunity cost of producing one fishing lure? 4) A) one mowed lawn B) 4 mowed lawns C) 3 mowed lawns D) 1/4 of a mowed lawn E) 1/3 of a mowed lawn Answer: D Explanation: 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 quitting her job and going to university full time for four years. Tuition fees and books will cost $12 000 per year. Living expenses in either situation will cost $10 000 per year. What is the opportunity cost of Andrea's four - year university degree? 5) A) $148 000 B) $188 000 C) $88 000 D) $120 000 E) $100 000 Answer: A Explanation: A) B) C) D) E) 6) An insight first fully developed by Adam Smith is that 6) 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: E Explanation: A) B) C) D) E) 7) During economic recessions, the opportunity cost of going to university ________ because the wages a student can expect to earn working in the best alternative ________. 7) A) increases; decrease B) decreases; decrease C) remains the same; remain the same D) increases; increase E) decreases; increase Answer: B Explanation: A) B) C) D) E) 8) Which of the following represents a typical "real" flow (as opposed to a financial flow) in the circular flow of income? 8) A) factor services going from producers to consumers B) goods going from producers to consumers C) money payments going from consumers to producers D) money payments going from producers to consumers E) goods going from consumers to producers Answer: B Explanation: A) B) C) D) E) 3

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    9) Which countries have mostly public ownership of resources? 9) A) France and Germany B) United States and Canada C) Brazil and Argentina D) Cuba and North Korea E) Sweden and Norway Answer: D Explanation: A) B) C) D) E) FIGURE 1 - 5 10) Refer to Figure 1 - 5. Which production possibilities boundaries are consistent with increasing opportunity costs? 10) A) boundary C only B) boundary A only C) boundaries B and C D) boundaries A, B, and C E) boundaries A and B Answer: A Explanation: A) B) C) D) E) 4

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    The diagram below shows two production possibilities boundaries for Country X. FIGURE 1 - 4 11) Refer to Figure 1 - 4. If Country X is currently producing at point A, it could move to point B if 11) A) some resources were switched from the capital goods industries to the consumer goods industries. 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 goods industries. E) the cost of producing consumer goods were to increase. Answer: A Explanation: A) B) C) D) E) 12) A small landscaping firm purchases a tractor that, in one day, is capable of drilling 60 fence - post holes or removing 12 tree stumps (or some intermediate combination). For this landscaper, what is the opportunity cost of removing one extra tree stump? 12) A) drilling 12 fence - post holes B) drilling 5 fence - post holes C) there is no opportunity cost D) 1/12th of the cost of the tractor E) 1/5 of the cost of the tractor Answer: B Explanation: A) B) C) D) E) 5

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    The diagram below shows two production possibilities boundaries for Country X. FIGURE 1 - 4 13) Refer to Figure 1 - 4. Suppose that Country X is currently producing at point E. Country X could achieve production at point D if 13) A) sufficient improvements in technology occurred in either the capital goods industry or the consumer 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: A Explanation: 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 - 3 14) Refer to Figure 1 - 3. For Madeleine, the opportunity cost of one latte is 14) 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: E Explanation: 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 4 chemistry or 3 biology lab reports. Chemistry Lab Reports Biology Lab Reports Claire 3 2 Sam 4 3 TABLE 1 - 2 15) Refer to Table 1 - 2. What is Sam's opportunity cost of completing 2 biology lab reports? 15) A) 1 1 3 chemistry lab reports B) 3 4 of a chemistry lab report C) 4 chemistry lab reports D) 2 2 3 chemistry lab reports E) 2 3 of a chemistry lab report Answer: D Explanation: A) B) C) D) E) 16) Income redistribution in a mixed economy 16) 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: A Explanation: A) B) C) D) E) 17) If some income earned by households is not spent on output, or if some income earned by firms is not spent on factor services, the circular flow of income will 17) A) contract. B) explode. C) run over. D) stop. E) expand. Answer: A Explanation: 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 - 3 18) Refer to Figure 1 - 3. If Madeleine chooses to allocate all $100 to buying lattes, we can say that her opportunity cost in one month is 18) 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: E Explanation: A) B) C) D) E) 19) An economic system that relies primarily upon custom and habit in economic decision making is a 19) A) market system. B) communist system. C) mixed system. D) command system. E) traditional system. Answer: E Explanation: 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 the 20) 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: D Explanation: A) B) C) D) E) 21) 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 21) 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: D Explanation: A) B) C) D) E) 22) Suppose that a bakeshop with 5 employees can produce both pies and cakes. In one day, if all resources are devoted to baking pies, the shop can produce 125 pies; if all resources are devoted to baking cakes, the shop can produce 50. What is the shop's opportunity cost of producing any one cake? 22) A) 0.4 pies B) 0.25 pies C) 2.5 cakes D) 2.5 pies E) 0.4 cakes Answer: D Explanation: 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 settled food producers. E) They occur only in the private sector. Answer: D Explanation: A) B) C) D) E) 24) The barter system of exchange is inefficient because 24) 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: B Explanation: 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 government can afford with a given amount of tax revenue. FIGURE 1 - 6 25) 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 25) 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: A Explanation: A) B) C) D) E) 26) The key decision makers in a market economy are 26) 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: D Explanation: 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 4 chemistry or 3 biology lab reports. Chemistry Lab Reports Biology Lab Reports Claire 3 2 Sam 4 3 TABLE 1 - 2 27) Refer to Table 1 - 2. What is Sam's opportunity cost of completing 3 biology lab reports? 27) A) 4 chemistry lab reports B) 0 chemistry lab reports C) 1 chemistry lab reports D) 2 chemistry lab reports E) 3 chemistry lab reports Answer: A Explanation: A) B) C) D) E) 28) A modern economy like Canada's is largely organized by 28) 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: D Explanation: A) B) C) D) E) 29) Comparison of economic systems indicates that 29) 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: B Explanation: 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 intermediate combination) for use in classrooms. Figure 1 - 2 30) Refer to Figure 1 - 2. For the school board, what is the opportunity cost of one additional laptop computer? 30) A) 0 textbooks B) 1/10 of a textbook C) 10 textbooks D) 20 textbooks E) 2000 textbooks Answer: C Explanation: A) B) C) D) E) 31) The opportunity cost of producing good A is defined to be 31) A) the cost of having to get by using something else in place of good A . B) the money cost of the factors of production used in good A . C) the retail price of good A . D) what must be sacrificed of other goods to get an additional unit of good A . E) the cheapest method of producing good A . Answer: D Explanation: 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 the production possibilities boundary for X and Y is 32) 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: A Explanation: 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 intermediate combination) for use in classrooms. Figure 1 - 2 33) Refer to Figure 1 - 2. What is the price of a textbook in this example? 33) A) $25 B) $40 C) $50 D) $100 E) $250 Answer: A Explanation: A) B) C) D) E) 15

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