Chapter 12 MCQ Flashcards
What you are worth, in a market economy, is what the market is willing to pay you for the inputs you provide. T F
True. Incomes are earned in input markets.
If you earn $10 per hour and work 50 hours per week, your weekly income is $500. T F
True. Price × Quantity.
Income is a stock of earnings received by an individual. T F
False. Income is a flow.
Businesses’ demand for labour is derived from the input market. T F
False. Businesses’ demand for labour is derived from the output market — from profits from selling output.
For maximum profits, a business should hire labour only when the marginal revenue product is greater than the wage. T F
True. Recipe for profits for hiring inputs.
An employer will hire more workers if the price of output rises. T F
True. Higher output price increases marginal revenue product of each worker.
If someone offers you $1 today or $1 tomorrow, it is smart to prefer $1 tomorrow. T F
False. $1 today is more valuable because you could be earning interest on it.
When interest rates rise, present value increases. T F
False. If interest rates increase, you have to further discount future revenues to adjust for more forgone interest.
If interest rates fall, an investment that was smart before the decrease may no longer be smart. T F
False. When interest rates decrease, present value increases. Therefore, an investment that was smart before the decrease would become even more profitable.
For most products and services, high input prices cause high output prices. T F
True. Price must cover all opportunity costs of production.
Superstar salaries are to blame for high ticket prices. T F
False. What price sports team owners can get for output (ticket prices) determines what owners are willing to pay for inputs (player salaries).
In Canada, income is more unequally distributed than wealth. T F
False. Wealth is more unequally distributed.
A regressive income tax redistributes income from the rich to the poor. T F
False. Regressive taxes take proportionately more from the poor.
Compared with the market distribution of income, government transfers and taxes reduce the inequality of income distribution. T F
True. See tables with data.
Earnings from work account for the majority of income in Canada. T F
True. Over three-quarters of income comes from working.
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.
c) Income is a flow, wealth is a stock.
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.
a) Wages are income from labour.
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.
d) All are related to marginal revenue product.
false question
f
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.
d) Definition.
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.
c) Recipe for smart investment choice.
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.
d) Definition.
Rents are determined by
demand.
input prices.
the price of capital.
all of the above.
a) Because supply is relatively inelastic and does not change.
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.
d) Income earned is a monopoly rent; not proportional to marginal revenue product.
During the lockout that cancelled the 2004–2005 hockey season, fans blamed
the players.
the owners.
the CBC.
themselves.
a) Fans mistakenly believed high input prices (salaries) caused high output prices (tickets).
During the lockout that cancelled the 2004–2005 hockey season, fans should have blamed
the players.
the owners.
the CBC.
themselves.
d) Fan willingness to pay high ticket prices leads to high superstar salaries.
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.
a)
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.
b)
If the marginal tax rate increases as income increases, the income tax is defined as
progressive.
proportional.
negative.
regressive.
a) Definition.
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.
c)
