Economic Analysis
Test Bank
Course Introduction
Economic Analysis is a foundational course that introduces students to the principles and methods used to evaluate economic decisions, markets, and policies. It explores both microeconomic and macroeconomic frameworks, equipping students with the analytical tools needed to interpret economic data, assess the impacts of policy changes, and understand the behavior of individuals and firms in various market structures. The course emphasizes critical thinking and quantitative reasoning, providing practical applications relevant to real-world economic problems in business, government, and society.
Recommended Textbook
Exploring Microeconomics 3rd canadian Edition by Robert Sexton
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12 Chapters
1798 Verified Questions
1798 Flashcards
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Page 2
Chapter 1: The Role and Method of Economics
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288 Verified Questions
288 Flashcards
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Sample Questions
Q1) What is the difference between a positive economic statement and a normative one?
A) Positive economic statements are descriptive in nature, while normative economic statements are quantitative.
B) Positive economic statements are used to explain economic behaviour, while normative economic statements are used to predict economic behaviour.
C) Positive economic statements are descriptive in nature, while normative economic statements involve value judgments.
D) Positive economic statements involve value judgments, while normative economic statements are descriptive in nature.
Answer: C
Q2) What is the term for the additional cost incurred as a result of undertaking an action?
A) the total cost
B) the gross cost
C) the marginal cost
D) the marginal benefit
Answer: C
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Chapter 2: Scarcity, Trade-Offs, and Production Possibilities
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166 Verified Questions
166 Flashcards
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Sample Questions
Q1) What is the main reason economists are concerned about the problem of idle or unemployed resources?
A) Government benefits paid to unemployed workers put stress on the federal budget.
B) High rates of crime are related to high rates of unemployed resources.
C) High rates of inflation are caused by idle land, labour, and capital resources.
D) Unemployed resources mean less production and a lower standard of living for the nation.
Answer: D
Q2) Refer to Figure 2-2. What is the opportunity cost of producing an additional cake equal to?
A) 1/4 of a cupcake
B) 4 cupcakes
C) 10 cupcakes
D) 40 cupcakes
Answer: B
Q3) Refer to Figure 2-14. Moving from Point A to Point B, what is the opportunity cost of producing a mountain bike?
Answer: Two shirts
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4
Chapter 3: Supply and Demand
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) A market demand curve is constructed by horizontally summing individual demand curves.
A)True
B)False
Answer: True
Q2) Which of the following statements about the demand for a normal good is the most accurate?
A) It decreases when price rises.
B) It decreases when income falls.
C) It increases when income falls.
D) It increases when price rises.
Answer: B
Q3) Ceteris paribus, if the price of lumber increases, we would expect an increase in the supply of lumber.
A)True
B)False
Answer: False
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Chapter 4: Bringing Supply and Demand Together
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) Refer to Table 4-2. Suppose the supply schedule for Good A changes from S to S because the price of Good B increases. Based on this, what can we conclude?
A) Goods A and B are likely complements in consumption.
B) Good B is not related to Good A.
C) Goods A and B are likely substitutes in production.
D) Goods A and B are likely substitutes in consumption.
Q2) Ceteris paribus, if the market demand for a product decreases, what will happen to the equilibrium quantity and equilibrium price?
A) Quantity will be indeterminate and price will decrease.
B) Quantity and price will both increase.
C) Quantity will increase and price will be indeterminate.
D) Quantity and price will both decrease.
Q3) If the supply curve for housing has the normal positive slope, what is the likely outcome of rent controls?
A) help for low-income families to find suitable housing
B) an increase in the quantity of available housing
C) the creation of a larger shortage than if the supply curve was vertical
D) an improvement in the quality of available housing
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Chapter 5: Elasticity
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) If the demand curve for a product is vertical, then what is the elasticity of demand?
A) equal to zero
B) equal to one
C) greater than one, but less than infinity
D) equal to infinity
Q2) If the income elasticity of demand for lobster is +1.5, a 5 percent increase in income will cause a 7.5 percent increase in the demand for lobster.
A)True
B)False
Q3) The price elasticity of demand for tickets to local hockey matches is estimated to be equal to 0.89. What would an economist advise in order to boost ticket revenues?
A) increasing the price of hockey match tickets, because demand is inelastic
B) decreasing the price of hockey match tickets, because demand is elastic
C) not changing the price of hockey match tickets, because demand is unit elastic
D) increasing the price of hockey match tickets, because demand is elastic
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Chapter 6: Market Efficiency and Market Failure
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151 Verified Questions
151 Flashcards
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Sample Questions
Q1) Which of the following does NOT provide an example of an externality?
A) the view that passers-by and neighbours enjoy when observing your rose garden
B) the pleasure you get from purchasing a new pair of shoes
C) the air pollution generated when you drive your car
D) the free concerts neighbours hear when an accomplished musician practices at home
Q2) Louise loves to eat chocolate. However, every piece of chocolate that Louise eats provides her with less total utility. What can we conclude about Louise's utility from this information?
A) Her marginal utility is negative.
B) Her marginal utility is constant.
C) Her marginal utility is diminishing.
D) Her marginal utility is increasing.
Q3) If a negative externality results from the production of chemicals, an external cost is imposed on parties not directly involved in the market for the chemicals.
A)True
B)False
Q4) Explain why broadcast television is considered a public good.
Q5) What is the difference between private and social costs?
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Chapter 7: Production and Costs
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) Refer to Figure 7-2. The diagram above shows two cost curves representing short-run total cost and total fixed cost. Which letter represents the total cost curve and the total fixed cost curve?
A) X is the total cost curve, and Y is the total fixed cost curve.
B) Y is the total cost curve, and X is the total fixed cost curve.
C) Y is the total cost curve, and Z is the total fixed cost curve.
D) X is the total cost curve, and Z is the total fixed cost curve.
Q2) In the long run, firms can vary all inputs in the production process.
A)True
B)False
Q3) Which of the following is an example of an implicit cost of production?
A) the income an entrepreneur could have earned working for someone else
B) the cost of labour for a farmer who tills his fields
C) the income of a labourer in a factory that assembles DVD players
D) the cost of raw materials used to produce bread in a bakery
Q4) Which of the following is most likely a variable cost for a business?
A) payments for electricity
B) the lease payment on a warehouse used by the business
C) the loan payment on funds borrowed when a new building is constructed
D) the opportunity cost of the heavy equipment installed in a factory
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Chapter 8: Perfect Competition
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155 Verified Questions
155 Flashcards
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Sample Questions
Q1) The graph above represents a price-taking firm producing q units of output. Is the firm making a profit, experiencing a loss, or earning a normal profit? Should the firm increase output, decrease output, or shut down? Explain.
Q2) Refer to Figure 8-8. If the market price equals $45, what is the maximum profit that the firm can earn?
A) $0
B) approximately $9750
C) approximately $19 500
D) approximately $29 250
Q3) Refer to Table 8-2. What is a firm that expands from producing 1000 to 2000 kilograms of blueberries in the long run experiencing?
A) an increasing average fixed cost
B) economies of scale
C) diseconomies of scale
D) constant returns to scale
Q4) Firms should shut down in the short run whenever price is less than the average total cost.
A)True
B)False
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Chapter 9: Monopoly
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155 Verified Questions
155 Flashcards
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Sample Questions
Q1) Which of the following can serve as a barrier to entry?
A) legal restrictions
B) specialization and division of labour
C) shortage of resources
D) the law of supply
Q2) Which of the following contributes to the existence of monopoly power?
A) patents
B) constant returns to scale
C) the shortage of critical resources
D) the law of diminishing returns
Q3) What is the patent system intended to do?
A) Reward innovators by granting them temporary monopolies.
B) Give small businesses a competitive edge over larger businesses.
C) Spread information among firms as quickly and economically as possible.
D) Prevent natural monopolies from unfairly exploiting their cost advantages.
Q4) A natural monopoly exists when one large firm can produce a product at a lower per unit cost than can smaller firms.
A)True
B)False
Q5) How can economies of scale lead to monopoly?
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Chapter 10: Monopolistic Competition and Oligopoly
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99 Verified Questions
99 Flashcards
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Sample Questions
Q1) When monopolistically competitive firms advertise, what are they attempting to do?
A) increase demand and elasticity of demand
B) capture increasing returns to scale
C) increase demand and reduce elasticity of demand
D) create barriers to entry
Q2) What is the biggest difference between monopoly and monopolistic competition?
A) Monopolistic competitors charge a price in excess of marginal cost.
B) Monopolists can differentiate their products.
C) Monopolistic competitors face a more elastic demand curve than monopolists.
D) Monopoly faces a downward-sloping demand curve.
Q3) Referring to Figure 10-5, what is the Nash equilibrium?
A) Restaurant A shouldn't advertise and Restaurant B should advertise.
B) Restaurant A shouldn't advertise and Restaurant B shouldn't advertise.
C) Restaurant A should advertise and Restaurant B should advertise.
D) Restaurant A should advertise and Restaurant B shouldn't advertise.
Q4) The theory of monopolistic competition is based on product differentiation.
A)True
B)False
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Page 12
Chapter 11: Labour Markets and the Distribution of Income
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188 Verified Questions
188 Flashcards
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Sample
Questions
Q1) What income groups are most likely to benefit from provincial and federal subsidies to higher education? Why?
Q2) Which of the following will NOT result in a leftward shift of the market demand curve for labour?
A) a decrease in labour productivity
B) an increase in the wage rate
C) a decrease in the firm's product price
D) a decrease in demand for the firm's product
Q3) Families often strive to treat all members equally. Would this be an effective economic policy for the society?
Q4) Would the owner of a profit-maximizing fast-food establishment hire another worker for $55 per day if that worker added faster service, increasing sales and revenue by $98 per day? Why or why not?
Q5) In which of the following areas have unions NOT found it particularly difficult to organize workers in?
A) service industries
B) white-collar occupations
C) public sectors, such as education
D) agriculture
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Chapter 12: The Environment
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49 Verified Questions
49 Flashcards
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Sample Questions
Q1) Suppose that your neighbour's dog barks every morning and wakes you up. The marginal benefit of the sleep that you lost is $100. Your neighbour's marginal benefit from owning the dog is $120. Suggest how a private transaction might make you both better off. What if the marginal benefit of your sleep was $120 and your neighbour's marginal benefit from owning the dog was $100.
Q2) The government must determine the optimal method of reducing pollution when transferable pollution rights are implemented.
A)True
B)False
Q3) Refer to Figure 12-2, which represents the costs and benefits of pollution control. What is the optimal amount of spending on pollution control?
A) P3Q1
B) P1Q1
C) P3Q3
D) P2Q2
Q4) The Province of Ontario has recently banned the use of cellular telephones in automobiles. Do cellular phones create a negative externality?
Q5) Why do tradable pollution permits provide an incentive to reduce pollution?
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