Economic Analysis
Exam Answer Key
Course Introduction
Economic Analysis is a course designed to introduce students to the fundamental concepts and quantitative tools used to evaluate economic problems and decision-making. The curriculum covers both microeconomic and macroeconomic frameworks, including supply and demand theory, market equilibrium, consumer and producer behavior, cost structures, and the role of government in economic activity. Students learn to apply analytical techniques to interpret real-world data, forecast trends, and assess the potential impacts of various economic policies. Through case studies and problem-solving exercises, the course equips students with the ability to critically analyze complex economic issues and make informed decisions in business or public policy contexts.
Recommended Textbook
Principles of Microeconomics 7th Canadian Edition by McKenzie Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) What do economists study
A)how people make decisions
B)how governments interact with one another
C)the forces and trends that affect only the economy as a whole
D)how societies change over time
Answer: A
Q2) What happened to the opportunity cost of gasoline from 1997 to 2014
A)increased significantly
B)decreased significantly
C)remained relatively constant
D)decreased slightly
Answer: C
Q3) According to economists,what do people respond to A)laws
B)incentives
C)threats more than rewards
D)positives, but not negatives
Answer: B
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3
Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) What does Human Resources Canada do
A)enforces the country's antitrust laws
B)analyzes economic developments in Canada
C)sets the country's monetary policy
D)helps formulate labour market policies
Answer: D
Q2) What happens when a variable on an axis of a graph changes
A)The curve will not shift.
B)The curve will shift.
C)The curve may or may not change depending on how the variables are related.
D)The curve will shift if the variable is on the vertical axis, but not on the horizontal axis.
Answer: A
Q3) What does macroeconomics study
A)individual decision makers
B)economic history
C)economy-wide phenomena
D)how firms maximize profit
Answer: C
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4
Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Refer to Table 3-6.Denmark and Italy trade according to the principle of comparative advantage.If the international price of bread is 2.5 units of cheese for 1 unit of bread,what is the gain from trade to Italy per unit of bread traded
A)0.5 units of cheese
B)1.5 unit of cheese
C)2.0 units of cheese
D)2.5 units of cheese
Answer: B
Q2) Refer to Figure 3-3.What does each of the two producers have a comparative or absolute advantage in
A)Ben has an absolute advantage in cones, and Jerry has a comparative advantage in ice cream.
B)Ben has an absolute advantage in both goods, and Jerry has a comparative advantage in cones.
C)Ben has an absolute advantage in ice cream, and Jerry has a comparative advantage in cones.
D)Ben has an absolute advantage in neither good, and Jerry has a comparative advantage in ice cream.
Answer: A
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) If a decrease in income increases the demand for a good,what is the good called
A)a substitute good
B)a complementary good
C)a normal good
D)an inferior good
Q2) If buyers now wanted to purchase larger quantities of a soft drink,what do we know about its demand curve
A)The demand curve for soft drinks would shift to the left.
B)We would move down the demand curve for soft drinks.
C)The demand curve for soft drinks would shift to the right.
D)We would move up the demand curve for soft drinks.
Q3) What will a technological advancement do
A)shift the supply curve to the right
B)shift the demand curve to the left
C)shift the demand curve to the right
D)shift the supply curve to the left
Q4) In a market,the price of any good adjusts until quantity demanded equals quantity supplied.
A)True
B)False
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Chapter 5: Elasticity and Its Application
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Sample Questions
Q1) A bakery would be willing to supply 500 bagels per day at a price of $0.50 each.At a price of $0.70,the bakery would be willing to supply 900.Using the midpoint method,what is the elasticity of supply for bagels
A)0.58
B)0.77
C)1.24
D)1.71
Q2) Generally,over which time period will a firm be able to respond most to a change in price
A)in one month
B)in six months
C)in one year
D)in five years
Q3) If the quantity supplied responds only slightly to changes in price,what can be said about supply
A)Supply is said to be elastic.
B)Supply is said to be perfectly elastic.
C)Supply is said to be inelastic.
D)Supply is said to be unit elastic.
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Chapter 6: Supply, demand, and Government Policies
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Sample Questions
Q1) In order to raise tax revenue and reduce cigarette sales,the government decided to impose a new alcohol tax on all beer sales.One year after introducing the tax,the government found that the tax was most effective in reducing beer sales among young people but did not have a significant effect on others.What can this information tell you about the demand curves
Q2) Which principle is illustrated by the long-run effects of rent controls
A)Society faces a short-run tradeoff between unemployment and inflation.
B)The cost of something is what you give up to get it.
C)People respond to incentives.
D)Government can sometimes improve on market outcomes.
Q3) What do most labour economists believe about the supply of labour
A)It is less elastic than demand and therefore firms bear most of the burden of the payroll tax.
B)It is less elastic than demand and therefore workers bear most of the burden of the payroll tax.
C)It is more elastic than demand and therefore workers bear most of the burden of the payroll tax.
D)It is more elastic than demand and therefore firms bear most of the burden of the payroll tax.
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Page 8
Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) What name is given to the study of how the allocation of resources affects economic well-being
A)consumer economics
B)managerial economics
C)welfare economics
D)supply-side economics
Q2) If Paula is willing to pay $80 for Prince's last album,and the market-equilibrium price is $70,what is consumer surplus for Paula
A)$0
B)$10
C)$70
D)$80
Q3) Market demand is given as Q<sub>D </sub>= 80 - P.Market supply is given as Q<sub>S </sub>= 3P.In a perfectly competitive equilibrium,what will be the value of producer surplus
A)$168.75
B)$600.00
C)$875.00
D)$1800.00
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Chapter 8: Application: the Costs of Taxation
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Sample Questions
Q1) What happens as elasticities of supply and demand increase
A)the smaller the deadweight loss from a tax
B)the less intrusive a tax will be on a market
C)the greater the deadweight loss from a tax
D)the more equitable the distribution of a tax between buyers and sellers
Q2) Suppose a tax is imposed on the buyers of a product.On whom will the burden of the tax fall
A)on the buyers and the government
B)on the sellers and the government
C)on the buyers, sellers and the government
D)on the buyers and the sellers
Q3) Refer to Figure 8-2.What area represents the amount of deadweight loss associated with the tax
A)P ACP
B)ABC
C)P DAP
D)P CDP
Q4) Illustrate on three demand and supply graphs how the size of a tax (small,medium,and large) can alter tax revenue and deadweight loss.
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Chapter 9: Application: International Trade
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Sample Questions
Q1) Which of the following best describes the argument many infant industries propose in order to gain support for trade restrictions
A)Protecting new industries through trade restrictions will pay off later.
B)Protecting industries that produce goods and services for infants is necessary if a country is to have healthy children.
C)Any trade restrictions put in place will be temporary and easily removed.
D)Government can easily decide whether the benefits to consumers of protecting new industries exceeds the cost imposed by the restrictions.
Q2) A tariff increases the quantity of imports and moves the market farther from its equilibrium without trade.
A)True
B)False
Q3) China produces shoes at a lower cost than Canada. As a result, most of the shoes purchased in Canada are made in China. Should this be a concern to anyone in Canada? If so, who should be concerned and why? If not, why not?
Q4) Trade decisions are based on the concept of absolute advantage.
A)True
B)False
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Page 11
Chapter 10: Externalities
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Sample Questions
Q1) What does the demand curve for a product reflect
A)the value of the product to consumers
B)the cost of the product's externality on society
C)the quantity consumers are able to purchase
D)the price the product will sell for in the market
Q2) Imagine you are a nonsmoker sharing a house with a smoker. According to the Coase theorem, what determines whether your roommate smokes in the house? Is this outcome efficient? How do you and your roommate reach this solution?
Q3) Private parties may choose to leave an externality problem unsolved if the transaction costs are large enough.
A)True
B)False
Q4) What is emission controls on automobiles an example of
A)a collective tax on automobiles, based on how much they pollute
B)a command-and-control policy to increase social efficiency
C)a policy that reduces pollution by allocating resources through market mechanisms
D)a policy to reduce congestion on urban highways
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Goods that are not excludable are usually which of the following
A)higher priced than excludable goods
B)higher priced than rival in consumption goods
C)in short supply
D)free of charge
Q2) Which method could Banff National Park use to correct for overcrowding
A)Increase entrance fees and ensure that they keep pace with inflation each year.
B)When the park gets too crowded, no more visitors are allowed.
C)The park takes full advantage of the free market to correct for overcrowding.
D)If Banff received additional support from the federal government, the overuse problem would be eliminated.
Q3) What is a good that is rival in consumption but not excludable
A)a public good
B)a private good
C)a club good
D)a common resource
Q4) Tolls could not be used to alter people's incentives to drive during rush hour.
A)True
B)False
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) When the marginal tax rate equals the average tax rate,what is the tax called
A)proportional
B)progressive
C)regressive
D)egalitarian
Q2) According to the ability-to-pay principle,it is fair for people to pay taxes based on their ability to handle the financial burden.
A)True
B)False
Q3) When the marginal tax rate exceeds the average tax rate,what is the tax called
A)proportional
B)regressive
C)disproportional
D)progressive
Q4) Why is corporate tax popular among voters but economists believe consumers and workers bear most of the tax
Q5) Tax loopholes often arise from ambiguities or omissions in the tax laws.
A)True
B)False
Q6) Evaluate the statement: Tax loopholes increase the efficiency of tax systems.
Page 14
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Chapter 13: The Costs of Production
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Sample Questions
Q1) What relationship does a production function measure
A)inputs and quantity of output
B)inputs and revenue
C)inputs and costs
D)inputs and profit
Q2) Refer to Table 13-3.What is the average fixed cost for the month if nine instructional modules are produced
A)$108
B)$120
C)$150
D)$175
Q3) Suppose that three different technologies can be used to produce a special product.The following table shows the total cost related to each technology for the amount of output produced per day.A firm is considering adopting a proper technology to produce this special product.Derive the long-run average- total-cost curve to help the firm making its decision.Quantity 1 2 3 4 5 6 7
Firm 1 $30 $40 $50 $60 $75 $90 $110
Firm 2 15 25 39 56 75 96 119
Firm 3 21 29 37 50 68 106 132
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Page 15
Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.
A)True
B)False
Q2) Refer to Figure 14-9.Assume that the market starts in equilibrium at point A in panel (b).What will result from an increase in demand from Demand0 to DemanD
A)a new market equilibrium at point D
B)an eventual increase in the number of firms in the market and a new long-run equilibrium at point C
C)rising prices and falling profits for existing firms in the market
D)falling prices and falling profits for existing firms in the market
Q3) Regardless of the cost structure of firms in a competitive market,what can we expect to happen in the long run
A)Firms will experience rising demand for their products.
B)The marginal firm will earn zero economic profit.
C)Firms will experience a less competitive market environment.
D)Exit and entry is likely to lead to a horizontal long-run supply curve.
Q4) List and describe the characteristics of a perfectly competitive market.
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Page 16
Chapter 15: Monopoly
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Sample Questions
Q1) Why may private ownership of a monopoly benefit society
A)The monopoly will have an incentive to charge a price that is consistent with that of a benevolent social planner.
B)The monopoly will not have an incentive to charge a price that prevents some people from buying.
C)The monopoly will have an incentive to price its good according to the intersection of marginal cost and average revenue.
D)The monopoly will have an incentive to lower its costs so that it can earn more profit.
Q2) What do we know about a monopoly's marginal cost
A)It will be less than its average fixed cost.
B)It will be less than the price per unit of its product.
C)It will exceed its marginal revenue.
D)It will equal its average total cost.
Q3) It doesn't make sense to talk about a monopolist's supply curve.
A)True
B)False
Q4) Describe how government may be involved in creating a monopoly. Why might the government create one? Give an example.
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Page 17
Chapter 16: Monopolistic Competition
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Sample Questions
Q1) Refer to Scenario 16-1.As a result of the new VIC resort,tourists who stay in Vernon are likely to experience which of the following,and with what effect
A)product-variety externality, which harms consumers
B)product-variety externality, which benefits consumers
C)business-stealing externality, which harms consumers
D)business-stealing externality, which benefits consumers
Q2) What do we know about regulation of a firm in a monopolistically competitive market
A)It usually implies a very small administrative burden.
B)It will lower the firm's costs.
C)It is commonly used to enhance market efficiency.
D)It is unlikely to improve market efficiency.
Q3) Refer to Scenario 16-2.If Firm B decides to advertise its product,what can it expect to happen
A)It will incur a loss of $36 million per year.
B)It will have a profit of $96 million per year.
C)It will have a profit of $84 million per year.
D)It will exit the industry.
Q4) List five goods that are sold in a monopolistically competitive market.
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Chapter 17: Oligopoly
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Sample Questions
Q1) For a duopoly,what is the result of the logic of self-interest
A)The total output level equals the output level that would prevail in a competitive market.
B)The total output level equals the output level that would prevail in a monopoly.
C)The total output level exceeds the monopoly level, but falls short of the competitive level.
D)The total output level falls short of the monopoly level.
Q2) A central issue in the Microsoft antitrust lawsuit involved Microsoft's integration of its Internet browser into its Windows operating system,to be sold as one unit.What is this practice known as
A)tying
B)predation
C)wholesale maintenance
D)retail maintenance
Q3) Which characterization typically applies to monopolistically competitive firms
A)many firms selling products that are similar, but not identical
B)many firms selling identical products
C)a few firms selling products that are similar, but not identical
D)a few firms selling highly different products
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Page 19
Chapter 18: The Markets for the Factors of Production
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Sample Questions
Q1) Refer to Table 18-1.What is the marginal product of the fifth worker
A)20
B)40
C)60
D)100
Q2) Refer to Table 18-1.What is the name of the property exemplified by the fact that the marginal product changes as the number of workers increases
A)diminishing marginal product
B)diminishing marginal utility
C)supply and demand
D)profit maximization
Q3) If hiring more workers results in each additional worker contributing successively smaller amounts of output,then which of the following applies
A)diminishing profitability
B)diminishing marginal cost
C)diminishing marginal product
D)diminishing average product
Q4) What is a monopsony? Give a few examples of a market showing the characteristics of a monopsony.
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Chapter 19: Earnings and Discrimination
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Sample Questions
Q1) Travis,a university student,is considering what he should do for summer employment.Two recruiters show up at his school in search of summer workers.Recruiter A is looking for workers to help a disaster relief agency distribute food aid in Greece.Recruiter B is looking for custodial help to clean motel rooms in a motel located near the entrance to Jasper National Park.Travis is carefully considering the options that each recruiter presents.On the basis of knowledge obtained in his economics class,what is Travis likely to conclude
A)If the motel job requires some night-shift work, wages are likely to be lower than otherwise.
B)The job that is likely to be the most fun is more likely to have a higher wage.
C)If the motel job doesn't require any special skills, the wage offer is likely to be lower than otherwise.
D)The motel job is less pleasant, will attract fewer applicants, and will have a higher wage.
Q2) Empirical evidence suggests that ability,effort,and chance are not likely to be significant contributors to wage differences.
A)True
B)False
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Page 21
Chapter 20: Income Inequality and Poverty
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Sample Questions
Q1) According to the Human Resources and Skills Development Canada measure of poverty,what was Canada's poverty rate in 2007
A)10.1 percent
B)11.6 percent
C)13.7 percent
D)14.9 percent
Q2) Which question does studying distribution of income help to answer
A)How much do people earn?
B)How much experience is needed in different jobs?
C)How is inequality in our society measured?
D)How do people adjust their behaviour due to taxation?
Q3) What do economists call the regular pattern of income variation over a person's lifetime
A)the life cycle
B)the life pattern effect
C)the cyclical redundancy effect
D)the periodic cycle
Q4) Explain what is meant by "in-kind transfer" programs.Briefly outline the pros and cons associated with an in-kind transfer program.
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Chapter 21: The Theory of Consumer Choice
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Q1) The slope at any point on an indifference curve equals the absolute price at which one consumer is willing to substitute one good for the other.
A)True
B)False
Q2) Refer to Figure 21-7.Which effect would cause the shift from point B to point C
A)the substitution effect of an increase in the price of potato chips
B)the income effect of an increase in the price of potato chips
C)the substitution effect of a decrease in the price of potato chips
D)the income effect of a decrease in the price of potato chips
Q3) Which statement best explains the relationship between indifference curves and consumer preferences
A)A consumer is equally satisfied with any indifference curve.
B)A consumer prefers indifference curves with positive slopes.
C)A consumer prefers higher indifference curves to lower indifference curves.
D)A consumer is generally unable to place all consumption bundles on an indifference curve.
Q4) A rise in the interest rate will cause people to consume more when they are old.
A)True
B)False
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Chapter 22: Frontiers of Microeconomics
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Q1) The species of organism whose members always rationally weigh all the relevant costs and benefits in choosing the best course of action is called what
A)Homo economicus
B)Homo sapiens
C)Homo rationalicus
D)Homo microcosmicus
Q2) The problem that arises when one person performs a task on behalf of another person is called the lemons problem.
A)True
B)False
Q3) In the employer-worker relationship,the employer is regarded as the principal,and the worker is regarded as the agent.
A)True
B)False
Q4) The tendency of many people to procrastinate supports the view that people are consistent over time.
A)True
B)False
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