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Microeconomics 14th 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. 1) The economic concept that serves as the basis for the study of economics is: 1) _______ A) scarcity. B) inflation. C) unemployment. D) money. 2) As a consequence of the condition of scarcity: 2) _______ A) there is always enough of everything. B) individuals and communities have to make choices among alternatives. C) production has to be centrally planned. D) things which are plentiful have relatively high prices. 3) In every economic system, choices must be made because resources are: 3) _______ A) unlimited, but economic wants are limited. B) limited, and so are economic wants. C) finite, but economic wants are insatiable. D) infinite, but economic wants are finite. 4) Opportunity cost is best defined as: 4) _______ A) the money cost of an economic decision. B) marginal cost minus marginal benefit. C) the value of the best foregone alternative. D) the time spent on an economic activity. 5) Tammie makes $150 a day as a bank clerk. She takes off two days of work without pay to fly to another city to attend the concert of her favourite music group. The cost of transportation for the trip is $250. The cost of the concert ticket is $50. The opportunity cost of Tammie's trip to the concert is: 5) _______ A) $300 B) $500 C) $450 D) $600 6) When a provincial government chooses to build more roads, the required resources are no longer available for spending on public education. This dilemma illustrates the concept of: 6) _______ A) full employment. B) opportunity cost. C) full production. D) marginal analysis. 7) Specialization and trade are beneficial to society because: 7) _______ A) a division of labour lowers prices for products. B) the output of economic goods may be increased with no increase in resources. C) scarce resources are utilized more efficiently. D) all of the above are correct. 8) When economists describe "a market," they mean: 8) _______ A) information networks that allow individuals to keep in touch with each other. B) a place where stocks and bonds are traded. C) a mechanism which coordinates actions of consumers and producers to establish equilibrium prices and quantities. D) a hypothetical place where the production of goods and services takes place.

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    9) The institution that coordinates actions of consumers and producers to establish prices for goods and services is known as: 9) _______ A) a monopoly. B) a market. C) a production possibilities curve. D) consumer sovereignty. 10) A major argument for economic growth is that it: 10) ______ A) reduces the amount of taxation. B) creates an equal distribution of income. C) leads to a higher standard of living. D) protects common property resources. 11) One of the basic economic defences of economic growth rests on the conclusion that: 11) ______ A) growth makes the gap between unlimited wants and scarce resources less acute. B) growth reduces the cost of "common property" resources to society. C) a growth - oriented society has a relatively equitable income distribution. D) growth makes workers less obsolete and more secure in employment. 12) Concern about the general level of prices in an economy is primarily a concern about the economic goal of: 12) ______ A) price - level stability. B) equity. C) economic security. D) economic efficiency. 13) Assume that a tradeoff exists in the short run between inflation and unemployment. This relationship means that: 13) ______ A) less unemployment can be achieved with more inflation. B) less unemployment can be achieved with less inflation. C) a low rate of unemployment causes a low rate of inflation. D) the unemployment rate always equals the inflation rate. 14) The study of economics is primarily concerned with: 14) ______ A) determining the most equitable distribution of society's output. B) choices which are made in seeking to use scarce resources efficiently. C) keeping private businesses from losing money. D) demonstrating that capitalistic economies are superior to socialistic economies. 15) The assertion that "There is no free lunch" means: 15) ______ A) there are always tradeoffs between economic goals. B) marginal analysis is not used in economic reasoning. C) all production involves the use of scarce resources and thus the sacrifice of alternative goods. D) choices do not need be made if behaviour is rational. 16) The study of economics exists because: 16) ______ A) resources are overly abundant as compared to wants; thus, an allocation problem exists. B) government interferes with the efficient allocation of scarce resources. C) the market system is an obstacle to the efficient use of plentiful resources to satisfy constrained wants. D) resources are scarce in relation to human material wants. 17) Economics may best be defined as: 17) ______

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    A) the empirical testing of value judgments through the use of induction and deduction. B) the interaction between macro and micro considerations. C) the use of policy to refute facts and hypotheses. D) the study of the behaviour of people and institutions in the production, distribution, and consumption of scarce goods. 18) Purposeful behaviour suggests that: 18) ______ A) resource availability exceeds material wants. B) an individual's economic goals cannot involve tradeoffs. C) individuals make decisions with some desired outcome in mind. D) everyone will make identical choices. 19) Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of: 19) ______ A) resource scarcity and the necessity of choice. B) purposeful behaviour. C) the tradeoff problem which exists between competing goals. D) marginal costs which exceed marginal benefits. 20) The "economic perspective" refers to: 20) ______ A) microeconomic phenomena, but not macroeconomic phenomena. B) unlimited resources in a context of limited material wants. C) macroeconomic phenomena, but not microeconomic phenomena. D) the making of rational decisions in a context of marginal costs and marginal benefits. 21) The "economic perspective" entails: 21) ______ A) rational behaviour by individuals and institutions. B) the altering of behaviour when marginal benefits and marginal costs change. C) a comparison of marginal benefits and marginal costs in decision making. D) all of the above. 22) The economic perspective used in customer decision making at fast - food restaurants is reflected in: 22) ______ A) customers selecting the shortest line. B) all customer lines tending to be of equal length. C) customers leaving rather than waiting if all lines are long. D) all of the above. 23) How is the economic perspective reflected in lines for fast food? 23) ______ A) Lines will typically be of unequal length because of the inefficiencies in counter service. B) Customers select the shortest line because they have perfect information. C) Customers select the shortest line because they believe it will reduce their time cost of obtaining food. D) The set of food choices is often too complex for most customers and thus creates long lines. 24) From an economic perspective, when consumers leave a fast - food restaurant because the lines to be served are too long, they have concluded that the: 24) ______ A) marginal cost of waiting is greater than the marginal benefit of being served.

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    B) marginal cost of waiting is less than the marginal benefit of being served. C) management is exhibiting irrational behaviour by not maximizing profits. D) management is making an assumption that other things are equal. 25) Consumers might leave a fast - food restaurant without being served because: 25) ______ A) the environment is not conducive to a rational choice. B) they conclude that the marginal cost (monetary plus time costs) exceeds the marginal benefit. C) the lines waiting for service are not of equal length. D) they are misinformed about the marginal cost and marginal benefits of the food being served. 26) At fast - food restaurants: 26) ______ A) decisions entail comparisons of marginal costs and marginal benefits. B) decisions are usually made by trial and error. C) consumers enjoy complete and accurate information. D) benefits always exceed costs. 27) Economics involves "marginal analysis" because: 27) ______ A) marginal costs always exceed marginal benefits. B) marginal benefits always exceed marginal costs. C) much economic behaviour is irrational. D) most decisions involve changes in the status quo. 28) You should decide to go to a movie: 28) ______ A) if your income will allow you to buy a ticket B) if the marginal cost of the movie exceeds its marginal benefit. C) if the marginal benefit of the movie exceeds its marginal cost. D) because movies are inherently good products. 29) Marginal costs exist because: 29) ______ A) most decisions do not involve sacrifices or tradeoffs. B) wants are scarce relative to resources. C) households and businesses make rational decisions. D) the decision to produce more of some product means the sacrifice of other products. 30) Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact: 30) ______ A) is an example of irrational behaviour. B) implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost. C) contradicts the economic perspective. D) implies that reading should be taught through phonics rather than the whole language method. 31) The process of developing hypotheses, testing them against facts, and using the results to construct theories is called: 31) ______ A) microeconomics. B) mar ginal analysis. C) the scientific method. D) opportunity cost calculation. 32) A "hypothesis" is: 32) ______

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    A) always the result of induction. B) a fundamental truth which all economists accept. C) the same as a normative statement. D) a tentative, untested principle. 33) From the perspective of economists, which term provides the highest degree of confidence for explaining economic behaviour? 33) ______ A) a hypothesis B) an economic principle or a law C) a fact D) an assumption 34) In constructing models, economists: 34) ______ A) must use mathematical equations. B) attempt to duplicate the real world. C) make simplifying assumptions. D) include all available information. 35) Economic models: 35) ______ A) are of limited use because they cannot be tested empirically. B) emphasize basic economic relationships by abstracting from the complexities of the real world. C) are unrealistic and therefore of no practical consequence. D) are limited to variables which are directly related to one another. 36) An economic model is: 36) ______ A) built on correlations. B) built using theory. C) a fact. D) a value judgment. 37) The term "ceteris paribus" means: 37) ______ A) that economics deals with facts, not values. B) other things equal. C) that if event A precedes event B, A has caused B. D) prosperity inevitably follows recession. 38) Suppose an economist says that "Other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that: 38) ______ A) all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant. B) one cannot generalize about the relationship between the price of bananas and the quantity purchased. C) economists can conduct controlled laboratory experiments. D) the quantity of bananas purchased determines the price of bananas. 39) The term "other things equal" means that: 39) ______ A) the assumption that factors other than those being considered do not change. B) the associated statement is normative. C) when variable X increases so does related variable Y. D) many variables affect the variable under consideration. 40) The basic purpose of the "other things equal" assumption is to: 40) ______ A) allow one to reason about the relationship between variables X and Y without the intrusion of variable Z. B) determine whether X causes Y or vice versa. C) allow one to focus upon macro variables by ignoring micro variables.

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    D) allow one to focus upon micro variables by ignoring macro variables. 41) Microeconomics is concerned with: 41) ______ A) the concealing of detailed information about specific segments of the economy. B) a detailed examination of specific economic units which comprise the economic system. C) the establishing of an overall view of the operation of the economic system. D) the aggregate or total levels of income, employment, and output. 42) Microeconomics: 42) ______ A) describes the aggregate flows of output and income. B) is not concerned with details, but only with the overall "big picture" of the economy. C) is concerned with the aggregate or total levels of income, employment, and output. D) is concerned with individual economic units and specific markets. 43) Which of the following is a microeconomic statement? 43) ______ A) The price of personal computers declined last year. B) Unemployment was 8.3 percent of the labour force last year. C) The real domestic output increased by 2.5 percent last year. D) The general price level increased by 4 percent last year. 44) Macroeconomics approaches the study of economics from the viewpoint of: 44) ______ A) the entire economy. B) governmental units. C) individual firms. D) the operation of specific product and resource markets. 45) Which of the following is associated with macroeconomics? 45) ______ A) a study of the trend of pecan prices since World War II B) an empirical investigation of the general price level and unemployment rates in the 2000s C) an examination of the incomes of the University of Toronto Business School graduates D) a case study of pricing and production in the textbook industry 46) The problems of aggregate inflation and unemployment are: 46) ______ A) peculiar to socialistic economies. B) major topics of microeconomics. C) major topics of macroeconomics. D) not relevant to the Canadian economy. 47) Which of the following statements pertains to macroeconomics? 47) ______ A) The national productivity rate grew by 1.4 percent last year. B) The Pumpkin Center Chartered Bank increased its interest rate on consumer loans by 1 percent. C) A decline in the price of soybeans caused farmer Wanek to plant more land in wheat. D) Because the minimum wage was raised, Mrs. Beepath decided to enter the labour force.

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    48) Macroeconomics can best be described as the: 48) ______ A) analysis of how a consumer tries to spend income. B) study of how supply and demand determine prices in individual markets. C) analysis of how firms attempt to maximize their profits. D) study of the large aggregates of the economy or the economy as a whole. 49) Which of the following is a macroeconomic statement? 49) ______ A) The price of beef declined by 3 percent last year. B) The gross profits of all Canadian businesses were $70 billion last year. C) General Motors' profits increased in 2012. D) The productivity of steelworkers increased by 1 percent in 2012. 50) A positive statement is one which is: 50) ______ A) subjective and is based on a value judgment. B) objective and is based on facts. C) suggestive of what should be done. D) derived by an abstract generalization. 51) Which of the following is a positive statement? 51) ______ A) It is too hot to jog today. B) The humidity is too high today. C) I enjoy summer evenings when it cools off. D) The temperature is 30 degrees today. 52) A positive statement is concerned with: 52) ______ A) the formulation of economic policy. B) what should be. C) some goal which is desirable to society. D) what is. 53) A normative statement is one which: 53) ______ A) pertains only to macroeconomics. B) pertains only to microeconomics. C) is based upon value judgments. D) is based on the law of averages. 54) Which of the following is a normative statement? 54) ______ A) The temperature is high today. B) It will cool off later this evening. C) It is too hot to play tennis today. D) The humidity is high today. 55) Normative statements are concerned with: 55) ______ A) facts and theories. B) what ought to be. C) rational choice involving costs and benefits. D) what is. 56) Most of the disagreement among economists involves: 56) ______ A) normative statements. B) facts. C) positive statements. D) theories. 57) Economics is concerned with using scarce productive resources efficiently in attempting to satisfy society's material wants. This statement is: 57) ______ A) positive, but incorrect. B) positive and correct.

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    C) normative and correct. D) normative, but incorrect. 58) Ben says that "An increase in the tax on beer will raise its price." Holly argues that "Taxes should be increased on beer because college students drink too much." We can conclude that: 58) ______ A) Both statements are normative. B) Ben's statement is normative, but Holly's is positive. C) Holly's statement is normative, but Ben's is positive. D) Both statements are positive. 59) The global financial crisis that spread to Canada in late 2008 has been dubbed: 59) ______ A) The housing bubble crash. B) The great recession. C) The great financial crisis. D) The great depression. 60) The individuals and society both face an economic problem. This problem arises from the fact that: 60) ______ A) individuals and institutions behave only in their self - interest. B) wants are limited but the resources are not. C) both wants and resources are unlimited. D) resources are scarce relative to individual's wants. 61) The individual's limited income problem: 61) ______ A) has been eliminated in affluent societies such as Canada and the United States. B) has been solved in all industrialized nations. C) persists only because countries have failed to achieve continuous full employment. D) exists because material wants are limited. 62) When an economist says that material wants are insatiable, this means that: 62) ______ A) economic resources — land, labour, capital, and entrepreneurial ability — are scarce. B) the structure of consumer demand varies from time to time and from country to country. C) these wants are virtually unlimited and therefore incapable of complete satisfaction. D) economic resources are valuable only because they can be used to produce consumer goods. 63) As used in economics, the notion of scarce resources means that: 63) ______ A) the quantities available of some resources exceed the demand for them. B) resources are not so plentiful that all individuals' material wants can be fulfilled. C) some resources are free while others have price tags on them. D) mineral deposits are only available in finite amounts. 64) The budget line shows: 64) ______ A) all possible combinations of two goods which yield the same level of utility to the consumer. B) the amount of product A which a consumer is willing to give up to obtain one more unit of product B. C) all equilibrium points on an indifference map. D) all possible combinations of two goods which can be purchased, given money income and the prices of the goods. 65) The price ratio of the two products is the: 65) ______

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    A) marginal rate of substitution. B) slope of the budget line. C) elasticity of demand for the two products. D) point of tangency for equilibrium. 66) Refer to the budget line shown in the diagram below. If the consumer's money income is $20, the: 66) ______ A) prices of C and D cannot be determined. B) price of C is $4 and the price of D is $2. C) price of C is $2 and the price of D is $4. D) consumer can obtain a combination of 5 units of both C and D. 67) Refer to the diagram below, suppose you have a money income of $10 all of which you spend on Coke and boxes of popcorn. The prices of Coke and popcorn respectively are: 67) ______ A) $.40 and $.50. B) $1.00 and $.50. C) $1.00 and $2.00. D) $.50 and $1.00. 68) In moving along a given budget line: 68) ______ A) money income varies, but the prices of the two goods are constant. B) the prices of both products are assumed to vary, but money income is constant. C) the prices of both products and money income are assumed to be constant. D) each point on the line will be equally satisfactory to consumers.

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    69) In drawing a budget line it is assumed that: 69) ______ A) consumer willingness to substitute between the two products is fixed. B) money income is fixed. C) the prices of the two products are variable. D) consumer preferences are fixed. 70) Any combination of goods lying outside of the budget line: 70) ______ A) is unattainable, given the consumer's income. B) yields less utility than any point on the budget line. C) yields less utility than any point inside the budget line. D) implies that the consumer is not spending all of his income. 71) The budget line shift from cd to ab in the below figure is consistent with: 71) ______ A) decreases in the prices of both M and N. B) an increase in money income. C) an increase in the price of M and a decrease in the price of N. D) a decrease in money income. 72) A leftward shift of a consumer's budget line to a position parallel with the original one could indicate that the: 72) ______ A) marginal utilities derived from both products have decreased. B) consumer's money income has increased but the prices of both products have increased proportionately more. C) price of one product has decreased in relation to the other. D) prices of both products have decreased in the same proportion. 73) Which of the following statements is not correct? 73) ______ A) A reduction in money income accompanied by an increase in product prices will necessarily shift the budget line to the left. B) A reduction in money income will shift the budget line to the right. C) An increase in money income will shift the budget line to the right. D) An increase in product prices will shift the budget line to the left. 74) The society must also make choices under conditions of scarcity. This problem arises from the fact that: 74) ______

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    A) resources are scarce relative to society's wants. B) society's wants are limited but the resources are not. C) society's wants and resources are both unlimited. D) societies behave only in their self - interest. 75) The fundamental problem of economics is: 75) ______ A) to achieve a more equitable distribution of money income in order to mitigate poverty. B) to establish a democratic political framework for the provision of social goods and services. C) the scarcity of productive resources relative to material wants. D) the establishment of prices which accurately reflect the relative scarcities of products and resources. 76) Economic resources are also called: 76) ______ A) factors of production. B) consumption goods. C) units of money capital. D) free gifts of nature. 77) Money is not considered to be an economic resource because: 77) ______ A) the terms of trade can be determined in non - monetary terms. B) money, as such, is not productive. C) idle money balances do not earn interest income. D) money is a free gift of nature. 78) Which of the following is real capital? 78) ______ A) a pair of stockings B) a share of TD Bank stock C) a dump truck D) a savings account 79) The main function of the entrepreneur is to: 79) ______ A) innovate. B) purchase capital. C) make routine pricing decisions. D) create market demand. 80) The following production possibilities table represents an economy which is producing two products, tanks and autos. Refer to the table, in moving from possibility C to D, the cost of a tank in terms of autos is: 80) ______ A) 50 B) 300 C) 200 D) 100 (The following economy produces two products.) Production Possibilities Table

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    81) Refer to the above table. A change from possibility C to B means that: 81) ______ A) 1 unit of steel is given up to get 15 more units of wheat. B) 2 units of steel are given up to get 75 units of wheat. C) 2 units of steel are given up to get 15 more units of wheat. D) 1 unit of steel is given up to get 75 units of wheat. 82) Refer to the above table. In moving from possibility C to D, the cost of a unit of steel in terms of a unit of wheat is: 82) ______ A) 20 B) 10 C) 30 D) 25 83) Refer to the above table. A change from possibility B to C means that: 83) ______ A) 15 units of wheat are equal to one unit of steel. B) 75 units of wheat are equal to one unit of steel. C) 10 units of wheat are given up to get one more unit of steel. D) 15 units of wheat are given up to get one more unit of steel. 84) The production possibilities curve represents which of the following? 84) ______ A) maximum combinations of goods attainable with fixed resources B) the amount of goods attainable if prices decline C) the amount of goods attainable with variable resources D) the maximum amount of goods attainable with variable resources 85) The production possibilities curve represents: 85) ______ A) the maximum amount of labour and capital available for production. B) maximum combinations of products available with fixed resources and technology. C) combinations of goods and services among which consumers are indifferent. D) the maximum rate of growth of capital and labour in an economy. 86) The construction of a production possibilities curve assumes: 86) ______ A) the quantities of all resources are fixed. B) full employment and full production are being realized. C) technology is fixed. D) all of the above. 87) Assume an economy is operating at some point on its production possibilities curve which shows civilian and military goods. If the output of military goods is increased, the output of civilian goods: 87) ______ A) must also be increased. B) must be decreased. C) will remain unchanged. D) may be either increased or decreased. 88) The production possibilities curve shows: 88) ______ A) the minimum outputs of two goods which will sustain a society. B) the various combinations of two goods which can be produced when society uses its scarce resources efficiently.

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    C) the ideal, but unattainable, combinations of two goods which would maximize consumer satisfactions. D) the various combinations of two goods which can be produced when some resources are unemployed. 89) The negative slope of the production possibilities curve is a graphical way of indicating that: 89) ______ A) consumers buy more when prices are low than they do when prices are high. B) any economy "can have its cake and eat it too." C) the principle of increasing opportunity costs does not apply to the economy as a whole. D) to produce more of one product we must accept less of another. 90) If an economy is operating on its production possibilities curve for consumer goods and capital goods, this means that: 90) ______ A) it is impossible to produce more consumer goods. B) it is impossible to produce more capital goods. C) more consumer goods can only be produced at the cost of fewer capital goods. D) resources cannot be reallocated between the two goods. 91) In drawing a production possibilities curve we hold constant: 91) ______ A) the money supply. B) the consumer price index. C) resource supplies only. D) both technology and resource supplies 92) The production possibilities curve tells us: 92) ______ A) what combinations of two goods can be produced with society's available resources. B) costs are irrelevant in a society which has fixed resources. C) what specific combinations of two products is most desired by society. D) that costs do not change as society varies its output. 93) When an economy is operating with maximum efficiency, the production of more of commodity A will mean the production of less of commodity B because: 93) ______ A) material wants are insatiable. B) of the law of decreasing opportunity costs. C) resources are limited. D) resources are not specialized and are imperfectly substitutable. 94) The production possibilities curve: 94) ______ A) indicates that any combination of goods lying outside the curve is economically inefficient. B) shows all of those levels of production which are consistent with a stable price level. C) shows all of those combinations of two goods which are most preferred by society. D) is a frontier between all combinations of two goods which can be produced and those combinations which cannot be produced. 95) The production possibilities curve illustrates the basic principle that: 95) ______ A) the production of more of any one good will in time require smaller and smaller sacrifices of other goods.

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    B) an economy's capacity to produce increases in proportion to its population size. C) an economy will automatically seek that level of output at which all of its resources are employed. D) if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced. 96) A production possibilities curve illustrates: 96) ______ A) market prices. B) scarcity. C) consumer preferences. D) the distribution of income. 97) A production possibilities curve shows: 97) ______ A) the maximum amounts of two goods which can be produced assuming the full and efficient use of available resources. B) combinations of capital and labour necessary to produce specific levels of output. C) that people prefer one of the goods more than the other. D) that resources are unlimited. 98) In drawing the production possibilities curve we assume that: 98) ______ A) unemployment exists. B) economic resources are unlimited. C) wants are limited. D) technology is fixed. 99) Which of the following is assumed in constructing a typical production possibilities curve? 99) ______ A) the economy is using its resources inefficiently. B) the economy is engaging in international trade. C) production technology is fixed. D) resources are perfectly shiftable among alternative uses. 100) Which of the following is not correct? A typical production possibilities curve: 100) _____ A) specifies how much of each product society should produce. B) indicates how much of two products a society can produce. C) reveals how much each additional unit of one product will cost in terms of the other product. D) indicates that to produce more of one product society must give up larger and larger amounts of the other product. 101) Which one of the following statements is correct? 101) _____ A) Relative scarcity is no longer a central notion in economics because we are in an age of abundance. B) The production possibilities curve shows society's preferences for consumer goods relative to capital goods. C) Most production possibilities curves are convex as viewed from the origin. D) The central concept underlying the production possibilities curve is that of limited resources. 102) The typical production possibilities curve is: 102) _____ A) an upward sloping line which is concave to the origin. B) a downward sloping line which is concave to the origin. C) a straight upward sloping line. D) a downward sloping line which is convex to the origin.

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    103) Refer to the diagram below. Points A, B, C, D, and E show: 103) _____ A) combinations of bicycles and computers which society can produce by using its resources efficiently. B) that the opportunity cost of bicycles increases, while that of computers is constant. C) that society's demand for computers is greater than its demand for bicycles. D) that the opportunity cost of computers increases, while that of bicycles is constant. 104) Refer to the following production possibilities curves. Curve (a) is the current curve for the economy. Given production possibilities curve (a), the combination of capital and consumer goods indicated by point L: 104) _____ A) would entail substantial unemployment. B) suggests the productive capacity of the system is declining. C) is beyond the productive capacity of this society. D) would entail an inefficient use of society's resources.

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