Assignment Study Guides

Question 1

What happens when goods are available in an economy free of charge?

Answer 1

Market forces cannot be used to allocate resources

Question 2

Why does the market not provide national defence?

Answer 2

It is impossible to prevent any single person from enjoying the benefit of national defence

Question 3

What are both public goods and common resources?

Answer 3

Nonexcludable

Question 4

Which of the following would be considered a common resource good?

Answer 4

Fish in the ocean

Question 5

When one person uses a common resource, which of the following outcomes will occur?

Answer 5

An externality will arise

Question 6

Due to externalities associated with public goods and common resources, which of the following statements is most accurate?

Answer 6

Government intervention can potentially raise economic well being

Question 7

How is a cheeseburger classified?

Answer 7

Excludable and rival

Question 8

For what reason does the government provide public goods?

A. Private markets are incapable of producing public goods?
B. Free-riders make it difficult for private markets to supply the socially optimal quantity
C. Markets are always better off with some government oversight
D. External benefits will occur to private producers

Answer 8

A. Private markets are incapable of producing public goods?
B. Free-riders make it difficult for private markets to supply the socially optimal quantity - (c)
C. Markets are always better off with some government oversight
D. External benefits will occur to private producers

Question 9

What claim do advocates of anti poverty programs make?

A. They are most successfully done by charities
B. They are a public good
C. They can be done Efficiently by the market system
D. The should not be done with tax dollars

Answer 9

A. They are most successfully done by charities
B. They are a public good (C)
C. They can be done Efficiently by the market system
D. The should not be done with tax dollars

Question 10

Suppose that Martin owns a lighthouse and Lewis owns a nearby port. Martin’s lighthouse benefits only those ships that enter Lewis’ port. Which of the followings statements is most accurate?

A. Martin’s lighthouse may be considered a public good
B. It is not possible for Martin to combat the free-rider problem by charging Lewis a usage fee
C. Martin can exclude Lewis’s port from benefiting from the lighthouse by simply turning the power off
D. Martin’s lighthouse would be considered a common resource

Answer 10

A. Martin’s lighthouse may be considered a public good
B. It is not possible for Martin to combat the free-rider problem by charging Lewis a usage fee
C. Martin can exclude Lewis’s port from benefiting from the lighthouse by simply turning the power off (C)
D. Martin’s lighthouse would be considered a common resource A. Martin’s lighthouse may be considered a public good

Question 11

Why is simply asking people how much they value a highway not a reliable way of measuring the benefits and costs?
A. Those who stand to gain have an incentive to tell the truth
B. Those who stand to lose have an incentive to exaggerate their true costs
C. Answers to the survey questions will always be downwardly bias
D. Not everyone asked will be using the highway

Answer 11

A. Those who stand to gain have an incentive to tell the truth
B. Those who stand to lose have an incentive to exaggerate their true costs (C)
C. Answers to the survey questions will always be downwardly bias
D. Not everyone asked will be using the highway

Question 12

When does the tragedy of commons result?
A. When a good is rival and not excludable
B. When a good is excludable and not rival
C. When a good is both rival and excludable
D. When a good is neither rival nor excludable

Answer 12

A. When a good is rival and not excludable (C)
B. When a good is excludable and not rival
C. When a good is both rival and excludable
D. When a good is neither rival nor excludable

Question 13

How can the Tragedy of Commons be corrected?

A. By providing more of the resource for public use
B. By assigning property rights to the individual
C. By providing government subsidies for the resource
D. By making certain everyone in the economy has access to the resource

Answer 13

A. By providing more of the resource for public use
B. By assigning property rights to the individual (C)
C. By providing government subsidies for the resource
D. By making certain everyone in the economy has access to the resource

Question 14

The Ogallala aquifer is a large underground pool of fresh water under several western states in the United States. Any farmer with land above the aquifer can at present pump water out of it. Which of the following statements about the aquifer is most likely correct

A. The aquifer is a public good that must be publicly owned to be used efficiently
B. The aquifer is a private good that must be privately owned to be used efficiently
C. The acquirer is a common property resource, which will be overused if nobody owns it
The acquirer is a natural monopoly that should be left as is

Answer 14

A. The aquifer is a public good that must be publicly owned to be used efficiently
B. The aquifer is a private good that must be privately owned to be used efficiently
C. The acquirer is a common property resource, which will be overused if nobody owns it (C)
The acquirer is a natural monopoly that should be left as is

Question 15

If the use of a common resource is not regulated, what happens?

A. It cannot be used by anyone
B. The economy will end up with too much of a good thing
C. It becomes a private good
D. It will be overused

Answer 15

A. It cannot be used by anyone
B. The economy will end up with too much of a good thing
C. It becomes a private good
D. It will be overused (C)

Question 16

Four friends who love to ski decide to pool their financial resources and equally share the cost of a one week time share condominium in Banff. The condominium does not come with maid service. Everyone values clean dishes but the unwashed dishes pile up in the sink would best be explained by an economist who understands that clean dishes in the cupboard reflect which of the following?

A. a common resource problem
B. A problem similar to cost-benefit analysis
C. A household behaviour of the invisible hand
D. A negative externality for whoever does the dishes

Answer 16

A. a common resource problem (C)
B. A problem similar to cost-benefit analysis
C. A household behaviour of the invisible hand
D. A negative externality for whoever does the dishes

Question 17

Ten friends who love to ski decided to pool their financial resources and share the cost of a time share in Banff. If lift lines at the ski resort become more congested when these ten additional people start to ski, when which of the following is most likely the case?

A. Use of the ski resort by all of those ten new skiers will yield a positive externality
B. The ski resort cannot do anything to reduce the congestion externality
C. An increase in lift ticket prices could be viewed as a Pigovian tax on the externality of congestion
D. Everyone would have been better off to stay at home

Answer 17

A. Use of the ski resort by all of those ten new skiers will yield a positive externality
B. The ski resort cannot do anything to reduce the congestion externality
C. An increase in lift ticket prices could be viewed as a Pigovian tax on the externality of congestion (C)
D. Everyone would have been better off to stay at home

Question 18

What is the amount of money a firm receives from the sale of its output called?

A. Total gross profit
B. Total net profit
C. Total revenue
D. Net revenue

Answer 18

A. Total gross profit
B. Total net profit
C. Total revenue (c)
D. Net revenue

Question 19

What is the amount of money a firm pays to buy inputs called?

A. Total costs
B. Variable cost
C. Marginal cost
D. Fixed cost

Answer 19

A. Total costs (C)
B. Variable cost
C. Marginal cost
D. Fixed cost

Question 20

Susan used to work as a telemarketer earning $25,000 per year. She gave up that job to start a catering business. In calculating the economic profit of her business, how is the $25000 income that she gave up counted in terms of the catering business?
A. Total revenue
B. Opportunity cost
C. Explicit costs
D. Sunk costs

Answer 20

A. Total revenue
B. Opportunity cost (C)
C. Explicit costs
D. Sunk costs

Question 21

Tony is a wheat farmer, but he also spends his days teaching guitar lessons. Due to the popularity of his local country band, Tony has more students requesting lessons than he has time for. Tony charges $25 an hour for guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat.

What is the total opportunity cost of the day that Tony incurred for his spring day in the field planting wheat?

A. $130
B. $250
C. $300
D. $380

Answer 21

A. $130
B. $250
C. $300
D. $380 (C)

Question 22

Tony is a wheat farmer, but he also spends his days teaching guitar lessons. Due to the popularity of his local country band, Tony has more students requesting lessons than he has time for. Tony charges $25 an hour for guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat.

What would Tony’s accountant most likely figure the total cost fo his wheat planting would be?
A. $25
B. $130
C. $180
D. $300

Answer 22

A. $25
B. $130 (C)
C. $180
D. $300

Question 23

Tony is a wheat farmer, but he also spends his days teaching guitar lessons. Due to the popularity of his local country band, Tony has more students requesting lessons than he has time for. Tony charges $25 an hour for guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat.

What is Tony’s accounting profit?
A. $-80
B. $130
C. $170 (C)
D. $190

Answer 23

A. $-80
B. $130
C. $170 (C)
D. $190

Question 24

Tony is a wheat farmer, but he also spends his days teaching guitar lessons. Due to the popularity of his local country band, Tony has more students requesting lessons than he has time for. Tony charges $25 an hour for guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat.

What is Tony’s economic profit?
A. $-130
B. $-80 (C)
C. $130
D. $170

Answer 24

A. $-130
B. $-80 (C)
C. $130
D. $170

Question 25

What is the accounting profit equal to?

A. Marginal revenue minus marginal cost
B. Total revenue minus the explicit cost of producing goods and services
C. Total revenue minus the opportunity cost of producing goods and services

Answer 25

A. Marginal revenue minus marginal cost
B. Total revenue minus the explicit cost of producing goods and services (C)
C. Total revenue minus the opportunity cost of producing goods and services

Question 26

What relationship does production function measure?

A. Inputs and quantity of output
B. Inputs and revenues
C. Inputs and profits

Answer 26

A. Inputs and quantity of output (C)
B. Inputs and revenues
C. Inputs and profits

Question 27

On a 100 acre farm, a farmer is able to produce 3000 bushels of wheat when he hires 2 workers. He is able to produce 4400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?
A. The farmer is able to produce 5600 bushels of wheat with 4 workers
B. The farmer is able to produce 5800 bushels of wheat with 4 workers
C. The farmer is able to produce 6000 bushels fo wheat with 4 workers

Answer 27

A. The farmer is able to produce 5600 bushels of wheat with 4 workers (C)
B. The farmer is able to produce 5800 bushels of wheat with 4 workers
C. The farmer is able to produce 6000 bushels fo wheat with 4 workers

Question 28

Suppose Jan is starting up a lemonade stand. What would be included in variable costs for Jan’s lemonade stand?

A. The cost of building the stand
B. The cost of hiring an artist to design a logo
C. The lemonade mix

Answer 28

A. The cost of building the stand
B. The cost of hiring an artist to design a logo
C. The lemonade mix (C)

Question 29

If a firm produces nothing, which of the followings costs will be zero?
A. Fixed cost
B. Opportunity cost
C. Variable cost (C)

Answer 29

A. Fixed cost
B. Opportunity cost
C. Variable cost (C)

Question 30

What distinguishes short run cost analysis from long run cost analysis for a profit maximizing firm in the short run?

A. Output is not variable
B. The number of workers used to produce the firms product is fixed
C. The size of the factory is fixed

Answer 30

A. Output is not variable
B. The number of workers used to produce the firms product is fixed
C. The size of the factory is fixed (C)

Question 31

Because the good offered for sale in a competitive market are largely the same, what do we expect in the market?

A. There will be sellers in the market
B. Buyers will have market power
C. Sellers will have little reason to charge less than the going market price

Answer 31

A. There will be sellers in the market
B. Buyers will have market power
C. Sellers will have little reason to charge less than the going market price (C)

Question 32

The Wheeler Wheat farm sells wheat to a grain broker in Regina. Since the market for wheat is generally considered to be competitive, what does the Wheeler farm do?

A. It chooses the quantity of wheat to produce
B. It chooses the price at which it sells its wheat
C. It enjoys a mark up over marginal cost

Answer 32

A. It chooses the quantity of wheat to produce (C)
B. It chooses the price at which it sells its wheat
C. It enjoys a mark up over marginal cost

Question 33

Whenever a perfectly competitive firm chooses to change its level of output, holding the price of the product constant, what happens to marginal revenue?

A. It does not change
B. It increases
C. It decreases

Answer 33

A. It does not change (C)
B. It increases
C. It decreases

Question 34

For what reason do both households and societies face many decisions?
A. because resources are scarce
B. because populations may increase or decrease over time
C. because wages for households and therefore society fluctuate with business cycles
D. because people, by nature, tend to disagree

Answer 34

A

Question 35

Approximately what percentage of the world's economies experience scarcity?
A. 25%
B. 50%
C. 75%
D. 100%

Answer 35

D

Question 36

Mike has spent $800 purchasing and repairing an old motorcycle, which he expects to sell for $1200 once the repairs are complete. He discovers that he needs an additional repair, which will cost $200, in order to complete the repairs. He can sell the motorcycle as it is now for $400. What should he do?
A. He should cut his losses and take the $400.
B. He should never sell something for less than it cost.
C. He should complete the repairs and sell the motorcycle.
D. It doesn’t matter which action he takes; the outcome is the same either way.

Answer 36

C

Question 37

A donut shop sells fresh baked donuts from 5 a.m. until 3 p.m. every day but Sunday. The cost of making and selling a dozen glazed donuts is $2.00. Since this shop does not sell day-old donuts the next day, what should the manager do if she still has 10 dozen left at 2:30 p.m.?
A. lower the price of the remaining donuts even if the price falls below $2.00
B. lower the price of the remaining donuts as long as it’s more than $2.00
C. lower the price on all donuts so they will all be sold earlier in the day
D. throw them away and produce 10 fewer dozen tomorrow

Answer 37

A

Question 38

What is market power?
A. the power of a single person or group to influence market prices
B. the ability of a person or group of people to successfully market new products
C. the power of the government to regulate a market
D. the relative importance of a market to the overall economy

Answer 38

A

Question 39

What happens when economists test theories?
A. They must make do with whatever data the world gives them.
B. They can manipulate economic conditions easier than other scientific fields.
C. They can enlist the government’s help to manipulate economic conditions.
D. They can achieve statistically valid results with much smaller sample sizes.

Answer 39

A

Question 40

Why do economists make assumptions?
A. to diminish the chance of wrong answers
B. to make the world easier to understand
C. because all scientists make assumptions
D. to make certain that all necessary variables are included

Answer 40

B

Question 41

Which of the following is NOT true about most economic models?
A. They are built using the tools of mathematics.
B. They are useful to economists, but not to policymakers.
C. They do not include every feature of the economy.
D. They are built using assumptions.

Answer 41

B

Question 42

Which of the following would NOT be considered a factor of production?
A. labour
B. land
C. capital
D. money

Answer 42

D

Question 43

What does it mean if an economy is producing efficiently?
A. there is no way to produce more of one good without producing less of the other.
B. it is possible to produce more of both goods.
C. it is possible to produce more of one good without producing less of the other.
D. it is not possible to produce more of one good at any cost.

Answer 43

A

Question 44

What is the best reason for people to provide you with goods and services?
A. They are acting out of generosity.
B. They are acting because they like you.
C. They do so because they get something in return.
D. They are required to do so by government.

Answer 44

C

Question 45

A rancher can produce only hamburgers, while a farmer can produce only French fries. If the rancher and the farmer like both foods, which of the following is most likely?
A. They cannot gain from trade.
B. They could gain from trade under certain circumstances, but not always.
C. They could gain from trade because each would enjoy a greater variety of food.
D. They could gain from trade only if each were indifferent between hamburgers and French fries.

Answer 45

C

Question 46

If there is no trade, which of the following is most likely?
A. A country is better off because it will become self-sufficient.
B. A country’s production possibilities frontier is also its consumption possibilities frontier.
C. A country can still benefit from international specialization.
D. More product variety is available in a country.

Answer 46

B

Question 47

Which of the following is NOT correct?
A. Trade allows for specialization.
B. Trade is good for nations.
C. Trade is based on absolute advantage.
D. Trade allows individuals to consume outside of their individual production possibilities curve.

Answer 47

C

Question 48

What does comparative advantage reflect?
A. productivity.
B. relative opportunity cost.
C. efficiency.
D. terms of trade advantage.

Answer 48

B

Question 49

What should a country do if it has a comparative advantage in a product?
A. It should import that product.
B. It should export that product.
C. It should keep the product for domestic use since it is relatively inexpensive to produce.
D. Without additional information, an import/export decision cannot be made.

Answer 49

B

Question 50

What is the term that means whatever must be given up to obtain an item?
A. efficiency.
B. externality.
C. opportunity cost.
D. market failure.

Answer 50

C

Question 51

Trade can benefit society as a whole because it allows for each of the following EXCEPT:
A. a more efficient use of resources.
B. goods to be obtained at a lower opportunity cost.
C. people to specialize in activities in which they have a comparative advantage.
D. some countries to gain political control over trading partners.

Answer 51

D

Question 52

Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of wheat per year, and a worker in Sylvania can produce either 2 units of corn or 6 units of wheat per year. Each nation has 10 workers. Without trade, Freedonia produces and consumes 30 units of corn and 10 units of wheat per year. Sylvania produces and consumes 10 units of corn and 30 units of wheat. Then suppose that trade is initiated between the two countries, and Freedonia sends 30 units of corn to Sylvania in exchange for 30 units of wheat. What maximum amounts will Freedonia now be able to consume?
A. 30 units of corn and 30 units of wheat.
B. no corn and 30 units of wheat.
C. 60 units of corn and 30 units of wheat.
D. no corn and 60 units of wheat.

Answer 52

Need to find answer

Question 53

Suppose that the country of Xenophobia chose to isolate itself from the rest of the world. Its ruler proclaimed that Xenophobia should become self-sufficient, and so would not engage in foreign trade. From an economic perspective, when would this idea make sense?
A. If Xenophobia had an absolute advantage in all goods.
B. If Xenophobia had no absolute advantages in any goods.
C. Never as long as Xenophobia had a comparative advantage in any good.
D. Never as long as Xenophobia had an absolute advantage in at least half the goods traded.

Answer 53

C

Question 54

In a free market, who determines how much of a good will be sold and the price at which it is sold?
A. suppliers
B. demanders
C. the government
D. suppliers and demanders together

Answer 54

D

Question 55

What is a market?
A. a group of demanders and suppliers of a particular good or service
B. a group of people with common desires
C. a place where only sellers meet
D. a place where only buyers come together

Answer 55

A

Question 56

Who or what allocates an economy’s scarce resources?
A. economic planners
B. producers who use resources
C. prices for resources
D. government regulation of scarce resources

Answer 56

C

Question 57

Which of the following is NOT a characteristic of a perfectly competitive market?
A. similar products
B. numerous sellers
C. market power
D. numerous buyers

Answer 57

C

Question 58

What is an example of a perfectly competitive market?
A. cable TV market
B. soybean market
C. new car market
D. blue jean market

Answer 58

B

Question 59

Which of the following would be an example of a monopoly?
A. a bakery in a large city
B. local cement companies
C. a local cable television company
D. a potato farmer

Answer 59

C

Question 60

What does a demand curve illustrate?
A. the tradeoff between inflation and unemployment
B. the positive relationship between price and quantity demanded
C. the negative relationship between price and quantity demanded
D. the maximum quantity of two goods an economy is capable of producing with available resources and technology

Answer 60

C

Question 61

Francis receives a decrease in his pay, what would we expect?
A. Francis’s demand for each good he purchases to remain unchanged
B. Francis’s demand for normal goods to increase
C. Francis’s demand for luxury goods to increase
D. Francis’s demand for inferior goods to increase

Answer 61

D

Question 62

Complete the following: Two goods are substitutes if a decrease in the price of one good
A. increases the demand for the other good.
B. reduces the demand for the other good.
C. reduces the quantity demanded of the other good.
D. increases the quantity demanded of the other good.

Answer 62

B

Question 63

When it comes to people’s tastes, what do economists generally believe?
A. Tastes are based on forces beyond the realm of economics.
B. Tastes are based on historical and psychological forces.
C. Tastes can only be studied through well-constructed, real-life models.
D. Since tastes do not directly affect demand, there is little need to explain people’s tastes.

Answer 63

B

Question 64

If cigarettes and marijuana had been found to be substitutes, what would a tax placed on cigarettes do?
A. decrease the demand for marijuana
B. increase the demand for marijuana
C. decrease the quantity demanded of marijuana
D. increase the quantity demanded of marijuana

Answer 64

B

Question 65

What does the market supply curve show?
A. the total quantity supplied at any price
B. the average quantity supplied at any price
C. a ratio between price and quantity supplied for the market
D. the price sellers will receive from consumers at given quantities

Answer 65

A

Question 66

A dress manufacturer is expecting higher prices for dresses in the near future. What would we expect?
A. the dress manufacturer to supply more dresses now
B. the dress manufacturer to supply fewer dresses now
C. the demand for this manufacturer’s dresses to fall
D. no change in the dress manufacturer’s current supply

Answer 66

B

Question 67

What happens when there is a shortage in a market?
A. There is downward pressure on price.
B. There is upward pressure on price.
C. The market could still be in equilibrium.
D. The price must be above equilibrium.

Answer 67

A

Question 68

If the demand for a product increases, what would we expect?
A. equilibrium price to increase and equilibrium quantity to decrease
B. equilibrium price to decrease and equilibrium quantity to increase
C. equilibrium price and equilibrium quantity to both increase
D. equilibrium price and equilibrium quantity to both decrease

Answer 68

C

Question 69

Suppose that the number of buyers in a market increases and a technological advancement occurs. What would we expect to happen in the market?
A. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous.
B. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous.
C. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
D. Both equilibrium price and equilibrium quantity would increase.

Answer 69

C

Question 70

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers rose and the price of tea rose?
A. price will fall and the effect on quantity is ambiguous
B. price will rise and the effect on quantity is ambiguous
C. quantity will fall and the effect on price is ambiguous
D. quantity will rise and the effect on price is ambiguous

Answer 70

B

Question 71

What does the price elasticity of demand measure?
A. a buyer’s responsiveness to a change in the price of a good
B. the increase in demand as additional buyers enter the market
C. how much more of a good consumers will demand when incomes rise
D. the increase in demand that will occur from a change in one of the nonprice determinants of demand

Answer 71

A

Question 72

When is demand said to be elastic?
A. if the price of the good responds substantially to changes in demand
B. if demand shifts substantially when the price of the good changes
C. if buyers do not respond much to changes in the price of the good
D. if the quantity demanded responds substantially to changes in the price of the good

Answer 72

D

Question 73

When quantity demanded responds only slightly to changes in price, what is demand said to be?
A. unit elastic
B. elastic
C. inelastic
D. perfectly inelastic

Answer 73

C

Question 74

What type of demand does a person who has high cholesterol and must exercise for an hour every day have for exercise equipment?
A. elastic
B. unit elastic
C. inelastic
D. weak

Answer 74

C

Question 75

Which of the following statements is correct?
A. The greater the price elasticity of demand, the more likely the product is a necessity.
B. The greater the price elasticity of demand, the smaller the responsiveness of quantity demanded to price.
C. The greater the price elasticity of demand, the greater the percentage change in price over the percentage change in quantity demanded.
D. The greater the price elasticity of demand, the greater the responsiveness of quantity demanded to price.

Answer 75

D

Question 76

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, what do you know about the demand for bubble gum?
A. It is inelastic.
B. It is elastic.
C. It is unit elastic.
D. It is perfectly inelastic.

Answer 76

B

Question 77

Suppose the price of Twinkies is reduced from $1.45 to $1.25 and, as a result, the quantity of Twinkies demanded increases from 2,000 to 2,200. Using the midpoint method, what is the price elasticity of demand for Twinkies in the given price range?
A. 0.64
B. 1.00
C. 0.75
D. 1.56

Answer 77

A

Question 78

If a change in the price of a good results in no change in total revenue, what must be the case?
A. The demand for the good must be elastic.
B. The demand for the good must be inelastic.
C. The demand for the good must be unit elastic.
D. The demand for the good must be revenue inelastic.

Answer 78

C

Question 79

Suppose a producer is able to separate customers into two groups, one having a price inelastic demand and the other having a price elastic demand. If the producer’s objective is to increase total revenue, what should she do?
A. increase the price charged to customers with the price elastic demand and decrease the price charged to customers with the price inelastic demand
B. decrease the price charged to customers with the price elastic demand and increase the price charged to customers with the price inelastic demand
C. charge the same price to both groups of customers
D. increase the price for both groups of customers

Answer 79

B

Question 80

Last year, Sheila bought 6 pairs of shoes when her income was $40 000. This year, her income is $50 000 and she purchased 10 pairs of shoes. All else constant, what can we determine about Sheila?
A. She prefers shoes to boots.
B. She considers shoes to be an inferior good.
C. She considers shoes to be a normal good.
D. She has a price-inelastic demand for shoes.

Answer 80

C

Question 81

Which good would you expect to have the highest income elasticity of demand?
A. water
B. diamonds
C. hamburgers
D. housing

Answer 81

B

Question 82

Suppose that good X has a negative income elasticity of demand. What does this imply about the good?
A. It is a normal good.
B. It is a necessity.
C. It is an inferior good.
D. It is a luxury.

Answer 82

C

Question 83

If two goods are substitutes, what will their cross-price elasticity of demand be?
A. positive
B. negative
C. zero
D. 1

Answer 83

A

Question 84

Why do policymakers choose to enact price controls in a market?
A. They believe the market’s outcome to be unfair.
B. Enacting price controls will directly increase tax revenues.
C. They are required by law to improve market conditions.
D. They believe that the market system is inefficient and their actions will improve efficiency.

Answer 84

A

Question 85

What is a legal maximum price at which a good can be sold?
A. a price floor
B. a price stabilization
C. a price support
D. a price ceiling

Answer 85

D

Question 86

What is a legal minimum price at which a good can be sold?
A. a price cut
B. a price stabilization
C. a price ceiling
D. a price floor

Answer 86

D

Question 87

When will a price ceiling be binding?
A. only if it is set equal to equilibrium price
B. only if it is set above equilibrium price
C. only if it is set below equilibrium price
D. A price ceiling is never binding in a free market system.

Answer 87

C

Question 88

When binding price ceilings are imposed in a market, what happens?
A. Price no longer serves as a rationing device.
B. The market will be cleared of any shortages or surpluses that existed previously.
C. Buyers and sellers both benefit equally.
D. The market concludes that the government is attempting to improve market efficiency.

Answer 88

A

Question 89

What will a binding price ceiling make it necessary to do?
A. supply more of the product
B. develop a way of rationing the product, because there will be a shortage
C. develop a better marketing plan, because there will be a surplus
D. increase demand for the product

Answer 89

B

Question 90

Which of the following is NOT a mechanism of rationing used by landlords in cities with rent control?
A. waiting lists
B. race
C. price
D. bribes

Answer 90

C

Question 91

What name is given to the study of how the allocation of resources affects economic well-being?
A. consumer economics
B. macroeconomics
C. welfare economics
D. supply-side economics

Answer 91

C

Question 92

Belva is willing to pay $65.00 for a pair of shoes for a formal dance. She finds a pair at her favourite outlet shoe store for $48.00. What is Belva's consumer surplus?
A. $17
B. $31
C. $48
D. $65

Answer 92

A

Question 93

Suppose Lauren, Leslie, and Lydia all purchase bulletin boards for their rooms for $15 each. Lauren's willingness to pay was $35, Leslie's willingness to pay was $25, and Lydia's willingness to pay was $30. What is the total consumer surplus for these three?
A. $15
B. $25
C. $35
D. $45

Answer 93

D

Question 94

Shannon buys a new CD player for her car for $135. She receives consumer surplus of $25 on her purchase. What is her willingness to pay?
A. $110
B. $135
C. $160
D. It is impossible to determine her willingness to pay because the installation cost of the CD player is not given.

Answer 94

C

Question 95

Denise values a stainless steel dishwasher for her new house at $500, but buys it for $350. What is Denise's willingness to pay?
A. $150
B. $350
C. $500
D. $850

Answer 95

C

Question 96

A demand curve reflects each of the following EXCEPT what?
A. the willingness to pay of all buyers in the market
B. the value each buyer in the market places on the good
C. the highest price buyers are willing to pay for each quantity
D. the ability of buyers to obtain the quantity they desire

Answer 96

D

Question 97

Which of the following would NOT be true concerning a seller’s cost?
A. A seller would be eager to sell her product at a price higher than her cost.
B. A seller would refuse to sell her product at a price lower than her cost.
C. A seller would be indifferent about selling her product at a price equal to her cost.
D. Since sellers cannot set the price for their product, they must be willing to sell their product at any price.

Answer 97

D

Question 98

What does producer surplus measure?
A. the well-being of society as a whole
B. the well-being of sellers
C. the well-being of buyers and sellers
D. the loss to sellers

Answer 98

B

Question 99

At Nick's Bakery, the cost to make Nick’s homemade chocolate cake is $3 per cake. He sells three and receives a total of $21 worth of producer surplus. What is Nick selling his cakes for?
A. $2 each
B. $7 each
C. $8 each
D. $10 each

Answer 99

D

Question 100

The Surgeon General announces that eating chocolate increases tooth decay. As a result, what happens to the equilibrium market price of chocolate and producer surplus?
A. They both increase.
B. The equilibrium market price increases, and producer surplus decreases.
C. They both decrease.
D. The equilibrium market price decreases, and producer surplus increases.

Answer 100

C

Question 101

If a market is allowed to move freely to its equilibrium price and quantity, what will an increase in supply do to consumer surplus?
A. increase consumer surplus
B. reduce consumer surplus
C. not affect consumer surplus
D. possibly increase, decrease, or not affect consumer surplus

Answer 101

A

Question 102

What effect does a tax on a good have on prices?
A. It raises the price buyers pay and lowers the price sellers receive.
B. It raises both the price buyers pay and the price sellers receive.
C. It lowers both the price buyers pay and the price sellers receive.
D. It lowers the price buyers pay and raises the price sellers receive.

Answer 102

A

Question 103

When a good is taxed, who is worse off?
A. Both buyers and sellers are worse off.
B. Only buyers are worse off because they ultimately pay the majority of the tax.
C. Only sellers are worse off because the government holds them responsible for collecting the tax.
D. Neither buyers nor sellers are worse off, since tax revenue is used to provide goods and services that would otherwise not be provided by the market.

Answer 103

A

Question 104

What effect does a tax placed on kite buyers have?
A. It shifts demand upward, causing both the price received by sellers and the equilibrium quantity to fall.
B. It shifts demand downward, causing both the price received by sellers and the equilibrium quantity to fall.
C. It shifts supply downward, causing the price received by sellers to fall and equilibrium quantity to rise.
D. It shifts supply upward, causing the price received by sellers to rise and equilibrium quantity to fall.

Answer 104

B

Question 105

When a tax on a good is enacted, who bears the burden of the tax?
A. Buyers and sellers share the burden of the tax regardless of whom it is levied on.
B. Buyers always bear the full burden of the tax.
C. Sellers always bear the full burden of the tax.
D. Sellers bear the full burden if the tax is levied on them, but buyers bear the full burden if the tax is levied on them.

Answer 105

A

Question 106

How is the benefit received by the government from a tax measured?
A. by deadweight loss
B. by tax revenue
C. by equilibrium price
D. by equilibrium quantity

Answer 106

B

Question 107

When a tax is imposed on a good, what do we know about the losses to buyers and sellers?
A. They are equal to the revenue raised by the government.
B. They are less than the revenue raised by the government.
C. They exceed the revenue raised by the government.
D. They cannot be compared to the tax revenue raised by the government since the amount of the tax will vary from good to good.

Answer 107

C

Question 108

Suppose that policymakers are considering placing a tax on either of two markets. In Market A, the tax will have a significant effect on the price consumers pay, but it will not affect equilibrium quantity very much. In Market B, the same tax will have only a small effect on the price consumers pay, but it will have a large effect on the equilibrium quantity. In which market will the tax have a larger deadweight loss?
A. Market A
B. Market B
C. Deadweight loss will be the same in both markets.
D. There is not enough information to answer the question.

Answer 108

B

Question 109

What is correct about the deadweight economic loss from taxes?
A. It does not depend on tax rates.
B. It is higher when tax rates are higher than when tax rates are lower.
C. It is lower when tax rates are higher than when tax rates are lower.
D. It does not depend on the slope of the demand curve.

Answer 109

B

Question 110

How does trade raise the economic well-being of a nation?
A. The gains of the winners exceed the losses of the losers.
B. Everyone in an economy gains from trade.
C. Since countries can choose what products to trade, they will pick those products that are most beneficial to society.
D. Trade increases a country’s gross domestic product (GDP).

Answer 110

A

Question 111

What is trade among nations ultimately based on?
A. absolute advantage
B. political advantage
C. comparative advantage
D. technical advantage

Answer 111

C

Question 112

To correctly analyze the welfare effects of free trade on an economy, what must economists assume?
A. that the country has a comparative advantage in the product
B. that the country is the only producer of the product
C. that the country is a price taker
D. that the country has an absolute advantage in the product

Answer 112

C

Question 113

If a country allows trade and the domestic price of a good is lower than the world price, will the country become an exporter or importer of the good?
A. an exporter
B. an importer
C. neither exporter nor importer
D. Additional information about demand is needed to determine whether the country will export or import the good.

Answer 113

A

Question 114

When a country allows trade and becomes an exporter of a good, what is the result?
A. Everyone in the country benefits.
B. Everyone in the country loses.
C. The gains of the winners exceed the losses of the losers.
D. The losses of the losers exceed the gains of the winners.

Answer 114

C

Question 115

The before-trade domestic price of tomatoes in Canada is $500 per ton. The world price of tomatoes is $600 per ton. Canada is a price-taker in the tomatoes market.
If trade in tomatoes is allowed, what will Canada become?
A. an importer of tomatoes
B. an exporter of tomatoes
C. either an importer or an exporter of tomatoes
D. It is impossible to determine whether Canada will become an importer or an exporter of tomatoes.

Answer 115

B

Question 116

The before-trade domestic price of tomatoes in Canada is $500 per ton. The world price of tomatoes is $600 per ton. Canada is a price-taker in the tomatoes market.

If trade in tomatoes is allowed, how will the price of tomatoes in Canada compare to the world price?
A. It will be greater than the world price.
B. It will be equal to the world price.
C. It will be less than the world price.
D. It could be greater than, equal to, or less than the world price.

Answer 116

B

Question 117

The before-trade domestic price of tomatoes in Canada is $500 per ton. The world price of tomatoes is $600 per ton. Canada is a price-taker in the tomatoes market.

If trade in tomatoes is allowed, how will Canadian consumers of tomatoes be?
A. better off
B. worse off
C. unaffected
D. could be helped or hurt

Answer 117

B

Question 118

The before-trade domestic price of tomatoes in Canada is $500 per ton. The world price of tomatoes is $600 per ton. Canada is a price-taker in the tomatoes market.

If trade in tomatoes is allowed, how will Canadian producers of tomatoes be?
A. better off
B. worse off
C. unaffected
D. could be helped or hurt

Answer 118

A

Question 119

Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. What can we conclude about consumer surplus in Aquilonia?
A. It is now higher for steel, lower for incense, and the same for rugs.
B. It is now higher for incense and steel, but not rugs.
C. It is now higher for incense and rugs, but not steel.
D. It is now higher for incense, lower for steel, and the same for rugs.

Answer 119

D

Question 120

When a country allows trade and becomes an importer of a good, what happens to consumer surplus and producer surplus?
A. Consumer surplus and producer surplus will increase.
B. Consumer surplus and producer surplus will decrease.
C. Consumer surplus will increase and producer surplus will decrease.
D. Consumer surplus will decrease and producer surplus will increase.

Answer 120

C

Question 121

What is the effect of a tariff on a product?
A. It makes domestic sellers better off and domestic buyers worse off.
B. It makes domestic sellers worse off and domestic buyers worse off.
C. It makes domestic sellers better off and domestic buyers better off.
D. It makes domestic sellers worse off and domestic buyers better off.

Answer 121

A

Question 122

When a country moves from a free trade position and imposes a tariff on imports, what does this cause?
A. a decrease in total surplus in the market
B. a decrease in producer surplus in the market
C. an increase in consumer surplus in the market
D. a decrease in revenue to the government

Answer 122

A

Question 123

Denmark is an importer of computer chips and is also a price-taker in the chip market. The world price of these computer chips is $12. If Denmark imposes a $5 tariff on chips, who will gain?
A. Consumers and producers will both gain.
B. Consumers and producers will both lose.
C. Consumers will gain and producers will lose.
D. Consumers will lose and producers will gain.

Answer 123

D

Question 124

Which of the following is an argument for restricting trade?
A. Trade restrictions make all Canadians better off.
B. Trade restrictions increase economic efficiency.
C. Trade restrictions are necessary for economic growth.
D. Trade restrictions are sometimes necessary for national security.

Answer 124

D

Question 125

Where will workers displaced by trade eventually find jobs?
A. in another country
B. in the government sector
C. in the industries in which the country has a comparative advantage
D. in a different company in the same industry

Answer 125

C

Question 126

If the Japanese steel industry subsidizes the steel that it sells to Canada, what is true?
A. Canada should protect its domestic steel industry from this unfair competition.
B. The harm done to Canadian steel producers from this unfair competition exceeds the gain to Canadian consumers of cheap Japanese steel.
C. The harm done to Canadian steel producers is less than the benefit to Canadian consumers of steel.
D. Canada should subsidize the products it sells to Japan

Answer 126

C

Question 127

In a market economy, what guides economic activity?
A. the government
B. businesses
C. central planners
D. prices

Answer 127

D

Question 128

In the absence of externalities, what can be said about the invisible hand of the marketplace?
A. It leads to a market outcome that maximizes total benefit to society.
B. It is unable to resolve inherent inefficiencies in the market system.
C. It induces people to act in a manner inconsistent with self interest.
D. It increases the transaction costs of contracting between parties to an exchange

Answer 128

A

Question 129

What does the term market failure refer to?
A. a situation in which the market, on its own, fails to allocate resources efficiently
B. an unsuccessful advertising campaign which reduces demand
C. a situation in which competition among firms becomes ruthless
D. a firm which is forced out of business because of losses

Answer 129

A

Question 130

When does an externality exist?
A. when the government intercedes in the operation of private markets by forcing the market to adjust to the balance of supply and demand
B. when markets are not able to reach equilibrium
C. when a firm sells its product in a foreign market
D. when a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect

Answer 130

D

Question 131

If an externality is present in a market, what may enhance economic efficiency?
A. increased competition
B. weakening property rights
C. better informed market participants
D. government intervention

Answer 131

D

Question 132

When negative externalities are present in a market, what will result?
A. Producers will be affected, but not consumers.
B. Overproduction will occur.
C. Demand will be too high.
D. The market will still maximize total benefits.

Answer 132

B

Question 133

If a paper manufacturer does not bear the entire cost of the dioxin it emits, what will it do?
A. It will emit lower levels of dioxin than is socially efficient.
B. It will emit higher levels of dioxin than is socially efficient.
C. It will emit an acceptable level of dioxin.
D. It will not emit any dioxin in an attempt to avoid paying the entire cost.

Answer 133

B

Question 134

Dog owners do not bear the full cost of the noise their barking dogs create and, therefore, tend to take too few precautions to prevent their dogs from barking. How do local governments address this problem?
A. by making it illegal to “disturb the peace”
B. by having a well-funded animal control department
C. by subsidizing local animal shelters
D. by encouraging owners to buy licenses

Answer 134

A

Question 135

If education produces positive externalities, what would we expect?
A. government to tax education
B. government to subsidize education
C. people to realize the benefits and therefore cause demand for education to increase
D. colleges to relax admission requirements

Answer 135

B

Question 136

What does the demand curve for a product reflect?
A. the value of the product to consumers
B. the cost of the product to consumers
C. the quantity consumers are able to purchase
D. the price the product will sell for in the market

Answer 136

A

Question 137

What does the height of the supply curve show?
A. the maximum cost a seller will pay to produce a product
B. the price a seller can expect to receive for a certain quantity of a product
C. the maximum amount buyers are willing to pay for a product
D. the cost to the producer of the last unit sold

Answer 137

D

Question 138

When a negative externality exists in a market, how does the cost to producers compare with the cost to society?
A. The cost to producers will be greater than the cost to society.
B. The cost to producers will be the same as the cost to society.
C. The cost to producers will be less than the cost to society.
D. The cost to producers and society will be different, regardless of whether an externality is present.

Answer 138

C

Question 139

Suppose that at present there are no laws to restrict pollution produced by the widget industry. The market price of a widget is $20. If the government imposes a tax equal in value to the cost of the pollution, under which circumstances would firms continue to produce widgets?
A. if the cost imposed by the pollution is less than $20 per widget produced
B. if the private cost of producing a widget equals the cost of the pollution generated per widget
C. if $20 minus the private cost of producing a widget is greater than the cost of the pollution generated per widget
D. if $20 minus the private cost of producing a widget is less than the cost of the pollution generated per widget

Answer 139

C

Question 140

fertilizer plant emits a very foul odour during the production process. If the government forces the plant to internalize this negative externality, what would result?
A. The supply curve for fertilizer would shift to the right (down).
B. The supply curve for fertilizer would shift to the left (up).
C. The demand curve for fertilizer would shift to the right (down).
D. The demand curve for fertilizer would shift to the left (up).

Answer 140

B

Question 141

How can the government internalize a positive externality?
A. by taxing production, which would decrease supply
B. by taxing production, which would increase supply
C. by subsidizing production, which would decrease supply
D. by subsidizing production, which would increase supply

Answer 141

D

Question 142

What will a positive externality cause a private market to produce?
A. less than is socially desirable
B. more than is socially desirable
C. more than market equilibrium
D. less than market equilibrium

Answer 142

A

Question 143

When would a positive externality occur?
A. when Jack receives a benefit from John’s consumption of a certain good
B. when Jack receives personal benefits from his own consumption of a certain good
C. when Jack’s benefit exceeds John’s benefit when they each consume the same good
D. when Jack’s consumption is not beneficial to John

Answer 143

A

Question 144

To enhance the well-being of society, when will a social planner encourage firms to increase production?
A. when the firms are producing basic goods
B. when there is a shortage in the market
C. when technology spillovers are associated with production
D. when any negative externalities associated with production are imposed only upon consumers

Answer 144

C

Question 145

Pigovian taxes are typically advocated to correct for the effects of which of the following?
A. positive externalities
B. negative externalities
C. a regulatory burden
D. overproduction of goods with high social value

Answer 145

B