Chapter 12 MCQ

Question 1

What you are worth, in a market economy, is what the market is willing to pay you for the inputs you provide. T  F

Answer 1

True. Incomes are earned in input markets.

Question 2

If you earn $10 per hour and work 50 hours per week, your weekly income is $500. T  F

Answer 2

True. Price × Quantity.

Question 3

Income is a stock of earnings received by an individual. T  F

Answer 3

False. Income is a flow.

Question 4

Businesses’ demand for labour is derived from the input market. T  F

Answer 4

False. Businesses’ demand for labour is derived from the output market — from profits from selling output.

Question 5

For maximum profits, a business should hire labour only when the marginal revenue product is greater than the wage. T  F

Answer 5

True. Recipe for profits for hiring inputs.

Question 6

An employer will hire more workers if the price of output rises. T  F

Answer 6

True. Higher output price increases marginal revenue product of each worker.

Question 7

If someone offers you $1 today or $1 tomorrow, it is smart to prefer $1 tomorrow. T  F

Answer 7

False. $1 today is more valuable because you could be earning interest on it.

Question 8

When interest rates rise, present value increases. T  F

Answer 8

False. If interest rates increase, you have to further discount future revenues to adjust for more forgone interest.

Question 9

If interest rates fall, an investment that was smart before the decrease may no longer be smart. T  F

Answer 9

False. When interest rates decrease, present value increases. Therefore, an investment that was smart before the decrease would become even more profitable.

Question 10

For most products and services, high input prices cause high output prices. T  F

Answer 10

True. Price must cover all opportunity costs of production.

Question 11

Superstar salaries are to blame for high ticket prices. T  F

Answer 11

False. What price sports team owners can get for output (ticket prices) determines what owners are willing to pay for inputs (player salaries).

Question 12

In Canada, income is more unequally distributed than wealth. T  F

Answer 12

False. Wealth is more unequally distributed.

Question 13

A regressive income tax redistributes income from the rich to the poor. T  F

Answer 13

False. Regressive taxes take proportionately more from the poor.

Question 14

Compared with the market distribution of income, government transfers and taxes reduce the inequality of income distribution. T  F

Answer 14

True. See tables with data.

Question 15

Earnings from work account for the majority of income in Canada. T  F

Answer 15

True. Over three-quarters of income comes from working.

Question 16

Wealth differs from income because

income is a stock; wealth is a flow.

wealth is derived from income.

income is what you earn; wealth is what you own.

income is what you own; wealth is what you earn.

Answer 16

c) Income is a flow, wealth is a stock.

Question 17

Which of the following statements is false?

Wealth is income received from supplying labour.

Rent is income received from supplying land.

Normal profits are income received from supplying entrepreneurial abilities.

Interest is income received from supplying capital.

Answer 17

a) Wages are income from labour.

Question 18

The additional benefits from hiring an additional web designer are derived from the additional

output of webpages she can produce.

revenues from selling those additional webpages.

profits from selling those additional webpages.

all of the above.

Answer 18

d) All are related to marginal revenue product.

Question 19

false question

Answer 19

f

Question 20

Economic rent is

paid only for the use of land.

paid only for the use of capital.

determined only by supply.

income paid to any input in relatively inelastic supply.

Answer 20

d) Definition.

Question 21

An investment choice is smart when the

future stream of revenues is greater than the price of the investment.

future stream of revenues is less than the price of the investment.

present value of the future stream of revenues is greater than the price of the investment.

present value of the future stream of revenues is less than the price of the investment.

Answer 21

c) Recipe for smart investment choice.

Question 22

The present value of a future amount of money is

a stock concept.

less than the future amount because future revenues are discounted to adjust for forgone interest.

the amount that, if invested today, will grow as large as the future amount, taking account of earned interest.

all of the above.

Answer 22

d) Definition.

Question 23

Rents are determined by

demand.
input prices.
the price of capital.
all of the above.

Answer 23

a) Because supply is relatively inelastic and does not change.

Question 24

For inputs in inelastic supply, such as land or superstar talent,

there is no supply response to higher prices.

the price paid for the input is not proportional to its productivity.

input prices are explained by output prices.

all of the above.

Answer 24

d) Income earned is a monopoly rent; not proportional to marginal revenue product.

Question 25

During the lockout that cancelled the 2004–2005 hockey season, fans blamed

the players.
the owners.
the CBC.
themselves.

Answer 25

a) Fans mistakenly believed high input prices (salaries) caused high output prices (tickets).

Question 26

During the lockout that cancelled the 2004–2005 hockey season, fans should have blamed

the players.
the owners.
the CBC.
themselves.

Answer 26

d) Fan willingness to pay high ticket prices leads to high superstar salaries.

Question 27

Which of the following statements about the distribution of market income in Canada is true?

The poorest 20 percent of families earn 1 percent of total market income.

The middle 20 percent of families earn 10 percent of total market income.

The poorest 40 percent of families earn 15 percent of total market income.

The richest 20 percent of families earn less than half of total market income.

Answer 27

a)

Question 28

Which of the following statements about the distribution of wealth in Canada is false?

The bottom 50 percent of families own 5 percent of total wealth.

The bottom 40 percent of families own 20 percent of total wealth.

The wealthiest 10 percent of Canadian families own 51 percent of total wealth.

The wealthiest 1 percent of Canadian families own 24 percent of total wealth.

Answer 28

b)

Question 29

If the marginal tax rate increases as income increases, the income tax is defined as

progressive.
proportional.
negative.
regressive.

Answer 29

a) Definition.

Question 30

Which of the following statements is false?

A family of three in Toronto that makes less than $29 699 per year is considered to be in poverty.

More than 50 percent of individuals in poverty live in a family whose major income earner is female.

More than 9 million people in Canada lived below the poverty line in 2011.

One out of 12 children lived below the poverty line in 2011.

Answer 30

c)