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Microeconomics, 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. 1) 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? 1) A) 1/12th of the cost of the tractor B) there is no opportunity cost C) drilling 5 fence - post holes D) drilling 12 fence - post holes E) 1/5 of the cost of the tractor Answer: C Explanation: A) B) C) D) E) 2) Scarcity arises from limited resources. For this reason, all economic choices involve 2) A) greed. B) an opportunity cost. C) complementary ends. D) pride. E) a value judgement. Answer: B Explanation: A) B) C) D) E) 1

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    FIGURE 1 - 5 3) Refer to Figure 1 - 5. Suppose that the relevant production possibilities boundary is the one labelled B. This boundary implies that 3) A) consumer goods are preferred to capital goods. B) the concept of opportunity cost is not at work in this economy. C) capital goods are preferred to consumer goods. D) the opportunity cost of producing either capital goods or consumer goods does not depend on how much of each good is produced. E) in this society the resources are not efficiently employed. Answer: D Explanation: A) B) C) D) E) 2

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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 4) Refer to Figure 1 - 2. Suppose the school board chooses to allocate all $500 000 to the purchase of laptop computers. What is the opportunity cost of this entire purchase? 4) A) The opportunity cost is $0. B) The opportunity cost is 20,000 textbooks. C) There is no opportunity cost because the purchase was made within the available budget. D) The opportunity cost is 2000 laptops. E) The opportunity cost is uncertain. Answer: B Explanation: A) B) C) D) E) 5) Economists usually assume that households and firms, respectively, maximize 5) A) savings and profits. B) expenditures and profits. C) utility and profits. D) income and sales. E) wages and revenues. Answer: C Explanation: A) B) C) D) E) 3

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    6) 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 pie? 6) A) 0.4 cakes B) 2.5 pies C) 50 cakes D) 125 pies E) 0.4 pies Answer: A 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 7) Refer to Table 1 - 1. If Tristan and Thomas want to maximize their joint output from one day of work, how should they specialize their production? 7) A) Tristan produces 3 mowed lawns; Thomas produces 6 mowed lawns B) Tristan produces 12 lures; Thomas produces 6 mowed lawns C) Tristan produces nothing, Thomas produces 6 lures and 6 mowed lawns D) Tristan produces 6 lures; Thomas produces 6 lures E) Tristan produces 6 lures and 3 mowed lawns Answer: B Explanation: A) B) C) D) E) 8) A straight - line production possibilities boundary differs from a concave boundary in which of the following ways? 8) A) The straight - line boundary does not show scarcity, whereas the concave boundary does. B) The straight - line boundary shows opportunity cost, whereas the concave boundary does not. C) The straight - line boundary illustrates constant opportunity costs, whereas the concave boundary illustrates increasing opportunity costs. D) A straight - line boundary is associated with a command economy, whereas a concave boundary is associated with a free - market economy. E) The concave boundary illustrates constant opportunity costs, whereas the straight - line boundary illustrates decreasing opportunity costs. Answer: C Explanation: A) B) C) D) E) 4

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    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 9) Refer to Table 1 - 1. What is Thomas's opportunity cost of producing one fishing lure? 9) A) 1/6 of a lure B) 1 mowed lawn C) there is no opportunity cost D) 5 lures E) 1/6 of a mowed lawn Answer: B Explanation: A) B) C) D) E) 10) On a diagram of a production possibilities boundary, the concept of scarcity is illustrated by the 10) A) area within the boundary. B) unattainable points outside the boundary. C) points on the boundary. D) distance from the origin to the boundary. E) negative slope of the boundary. Answer: B Explanation: A) B) C) D) E) 11) Many economies in central and Eastern Europe, including the countries of the former Soviet Union, are still in the process of moving from a command economy to a market economy. In the first years of this transition, most of these countries experienced sharp drops in output and reductions in living standards. Economists generally see this as 11) A) an indication of the extreme difficulty of transition from one type of economic system to another. B) the failure of the market system. C) the difficulty of corruption in non - market economies. D) the triumph of capitalism over communism. E) an indication that these economies should return to being command economies. Answer: A Explanation: A) B) C) D) E) 5

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    12) On a diagram of a production possibilities boundary, the concept of opportunity cost is illustrated by the 12) A) unattainable points outside the boundary. B) boundary being concave to the origin. C) area bounded by the two axes and the boundary. D) negative slope of the boundary. E) distance from the origin to the boundary. Answer: D Explanation: A) B) C) D) E) 13) The concept of scarcity in economics usually refers to a condition 13) A) that afflicts only poor countries. B) where society is not employing all of its available resources in an efficient manner. C) where production is efficient, but distribution is inefficient. D) where too many frivolous goods and services are produced at the expense of socially desirable goods and services. E) where people's wants can never be satisfied by the available resources. Answer: E Explanation: A) B) C) D) E) 14) An economic system that relies primarily upon custom and habit in economic decision making is a 14) A) market system. B) communist system. C) traditional system. D) mixed system. E) command system. Answer: C Explanation: A) B) C) D) E) 6

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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. Which of the following statements about Claire's and Sam's opportunity costs is correct? 15) A) Sam has a higher opportunity cost for completing 1 biology lab report. B) Claire has a higher opportunity cost for completing 1 biology lab report. C) Sam has a lower opportunity cost for completing 1 chemistry lab report. D) Claire has a higher opportunity cost for completing 1 chemistry lab report. E) Claire and Sam have equal opportunity costs. Answer: B Explanation: A) B) C) D) E) 16) Suppose there are only three alternatives to attending a "free" social event: read a novel (you value this at $10), go to work (you could earn $20), or watch videos with some friends (you value this at $25). The opportunity cost of attending the social event is 16) A) $10. B) $20. C) $25. D) $45. E) $55. Answer: C Explanation: A) B) C) D) E) 7

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    FIGURE 1 - 5 17) Refer to Figure 1 - 5. Which production possibilities boundaries are consistent with increasing opportunity costs? 17) A) boundaries A and B B) boundaries B and C C) boundary A only D) boundary C only E) boundaries A, B, and C Answer: D Explanation: A) B) C) D) E) 18) 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? 18) A) 0.4 cakes B) 2.5 cakes C) 2.5 pies D) 0.25 pies E) 0.4 pies Answer: C Explanation: A) B) C) D) E) 8

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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 19) Refer to Table 1 - 2. What is Sam's opportunity cost of completing 3 biology lab reports? 19) A) 0 chemistry lab reports B) 1 chemistry lab reports C) 4 chemistry lab reports D) 2 chemistry lab reports E) 3 chemistry lab reports Answer: C Explanation: A) B) C) D) E) 20) Which of the following results from the introduction of money for use in transactions? 20) A) an increased use of barter B) society is able to satisfy all wants C) exchange becomes easier and this promotes the specialization of labour D) self - sufficiency is assured E) the specialization of labour becomes more difficult Answer: C Explanation: A) B) C) D) E) 21) Because resources are scarce, individuals are required to 21) A) use resources inefficiently. B) sacrifice production but not consumption. C) improve distribution but not production. D) make choices among alternatives. E) improve production but not distribution. Answer: D Explanation: A) B) C) D) E) 9

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    22) 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 22) A) move it beyond its new production possibilities boundary. B) move it along an unchanged production possibilities boundary. C) shift its production possibilities boundary inward. D) shift its production possibilities boundary outward. E) move it inside its new production possibilities boundary. Answer: D Explanation: A) B) C) D) E) 23) Most modern economies in the world today 23) A) are similar to feudal systems. B) have pure market exchange. C) are mostly run by government decree. D) are complex systems that defy description and analysis. E) have a mix of traditional, command and market elements. Answer: E Explanation: A) B) C) D) E) 24) A point lying inside the production possibilities boundary is one at which 24) A) it is not possible to produce more output with existing resources. B) there is no scarcity. C) the opportunity cost of producing more output is negative. D) more output could be produced with existing resources. E) the economy has run out of resources. Answer: D Explanation: A) B) C) D) E) 10

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    25) Which of the following is illustrated by the circular flow of income? 25) A) the interaction of households and firms through the factors and goods markets B) that there is no relationship between goods markets and factor markets C) the flows of expenditures and income in a household D) that the flow of payments moves in the same direction as the flow of goods E) that firms own the factors of production Answer: A Explanation: A) B) C) D) E) 26) Specialization of labour led to greater efficiency in the allocation of resources because of 26) A) the opportunity cost of labour increased. B) the principle of comparative advantage. C) an increase in total work effort. D) greater reliance on self - sufficiency. E) the use of barter. Answer: B Explanation: A) B) C) D) E) 27) 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 27) A) the employment of previously idle resources. B) technological progress. C) the growth of productive capacity. D) an increase in the labour supply. E) the reallocation of resources between military and civilian goods. Answer: E Explanation: A) B) C) D) E) 11

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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 28) Refer to Figure 1 - 3. For Madeleine, the opportunity cost of one regular coffee is 28) A) 1/4 of a regular coffee. B) 80 lattes. C) 1/4 of a latte. D) 20 lattes. E) 4 lattes. Answer: C Explanation: A) B) C) D) E) 29) 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 29) A) a downward - sloping curve concave to the origin. B) a downward - sloping straight line. C) semi - circular. D) a downward - sloping straight line that is broken at one point. E) a downward - sloping curve convex to the origin. Answer: B Explanation: A) B) C) D) E) 12

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    30) The famous economist who first described the division of labour was 30) A) John Maynard Keynes. B) Karl Marx. C) Milton Friedman. D) Adam Smith. E) David Ricardo. Answer: D Explanation: A) B) C) D) E) 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 31) Refer to Table 1 - 2. What is Claire's opportunity cost of completing 1 chemistry lab report? 31) A) 3 4 of a biology lab report B) 2 biology lab reports C) 3 biology lab reports D) 2 3 of a biology lab report E) 1 1 2 biology lab reports Answer: D Explanation: A) B) C) D) E) 32) Money facilitates trade and specialization by 32) A) eliminating the need for barter. B) increasing the value of gold. C) reducing the shift of resources between uses. D) allowing an efficient barter system to develop. E) providing employment for coin makers. Answer: A Explanation: A) B) C) D) E) 13

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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 33) 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 33) A) less spending on education. B) less spending in total. C) more spending on education. D) zero opportunity cost. E) less spending on health. Answer: A Explanation: A) B) C) D) E) 14

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    The diagram below shows two production possibilities boundaries for Country X. FIGURE 1 - 4 34) Refer to Figure 1 - 4. If Country X were producing at point C, 34) A) it is not possible to move to any point on PPB 1 or PPB 2 without technological progress. B) the opportunity cost of moving to point A is to give up some capital goods. C) the opportunity cost of moving to point B is to give up some consumption goods. D) the opportunity cost of moving to point A is zero. E) this is the maximum output possible from given resources. Answer: D Explanation: A) B) C) D) E) 35) Refer to Figure 1 - 4. Suppose that Country X is currently producing at point E. Country X could achieve production at point D if 35) A) firms reduced output of capital goods. B) the given resources were fully employed. C) sufficient improvements in technology occurred in either the capital goods industry or the consumer goods industries. D) the given resources were more efficiently employed. E) the prices of capital goods and consumption goods fell. Answer: C Explanation: A) B) C) D) E) 15

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