Foundations of Economics Exam Questions
Course Introduction
Foundations of Economics introduces students to the essential principles and concepts that underpin modern economic thought. The course covers both microeconomics and macroeconomics, examining how individuals, households, firms, and governments make choices regarding scarce resources. Topics include supply and demand, market equilibrium, opportunity cost, elasticity, production and costs, market structures, and the role of government in the economy. Additionally, students will explore key macroeconomic indicators, such as GDP, inflation, and unemployment, as well as fiscal and monetary policy tools. By the end of the course, students will develop a foundational understanding of economic reasoning and how economic forces shape decision-making in everyday life and broader society.
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 is the best example of a marginal change
A)After graduating from university, Neville's income increases from $1000 per month to $1,100 per month.
B)Jadelyn completes the six-month probationary period at her job and is now paid $11.25 per hour instead of $11.00.
C)Housing prices in an area increase by 50% when a new freeway is built in a small town.
D)A hard freeze wipes out half of the potato crop in Prince Edward Island and the price of potatoes doubles.
Answer: B
Q2) How can trade benefit a family
A)by allowing the family to buy a greater variety of goods and services at a lower cost
B)by allowing each person to buy only the goods and services they want most
C)only if the family is not in economic competition with other families
D)trade can only benefit entire nations, not individuals
Answer: A
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Chapter 2: Thinking Like an Economist
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Q1) Sir Isaac Newton developed the theory of gravity after observing an apple fall from a tree.What is this an example of
A)a controlled experiment used to develop scientific theory
B)being in the right place at the right time
C)a natural consequence
D)the interplay between observation and theory in science
Answer: D
Q2) When is an economic outcome said to be efficient
A)if the economy is using all of the resources it has available
B)if the economy is conserving its resources for the future
C)if the economy is getting all it can from the scarce resources it has available
D)if the economy is able to produce more than its current production without additional resources
Answer: C
Q3) A circular-flow diagram is a visual model of how an economy is organized.
A)True
B)False
Answer: True
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Chapter 3: Interdependence and the Gains From Trade
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Q1) What is trade based on A)absolute advantage
B)comparative advantage
C)production costs
D)relative dollar prices
Answer: B
Q2) If there is trade,which of the following is most likely
A)A country is worse off because it becomes dependent on other countries.
B)A country will produce a greater variety of goods and services to trade.
C)A country's consumption possibilities frontier can be outside its production possibilities frontier.
D)A country will experience a lower unemployment rate.
Answer: C
Q3) Refer to Figure 3-5.What is the opportunity cost of one pair of ballet slippers for Ginger
A)1/4 pair of tap shoes
B)1/3 pair of tap shoes
C)3/4 pair of tap shoes
D)4/3 pairs of tap shoes
Answer: C
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Chapter 4: The Market Forces of Supply and Demand
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Q1) Market demand is given as Q<sub>D </sub>= 300 - 3P.Market supply is given as Q<sub>S </sub>= 2P + 100.If price increases from $40 to $45,what is the price elasticity of demand
A)0.4
B)0.8
C)1.3 D)1.8
Q2) If Francis receives an increase 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 decrease
C)Francis's demand for luxury goods to increase
D)Francis's demand for inferior goods to increase
Q3) Refer to the Figure 4-5.Which of the four graphs represents the market for cars after new technology was installed on assembly lines
A)graph A
B)graph B
C)graph C
D)graph D
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Chapter 5: Elasticity and Its Application
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Q1) The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change.
A)True
B)False
Q2) 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 to changes in the price of the good
D)if the quantity demanded responds substantially to changes in the price of the good
Q3) If a change in the price of a product results in no change in total revenue,what must be the case
A)The demand for the product must be elastic.
B)The demand for the product must be inelastic.
C)The demand for the product must be unit elastic.
D)The demand for the product must be revenue inelastic.
Q4) A linear demand curve becomes more elastic as price falls.
A)True
B)False
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Chapter 6: Supply, demand, and Government Policies
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Sample Questions
Q1) Refer to Figure 6-8.What is the equilibrium price in the market before the tax is imposed
A)$3.00
B)$5.00
C)$6.00
D)$8.00
Q2) Refer to Figure 6-10.What is the share of the tax burden per unit that buyers would pay
A)$1.00
B)$1.50
C)$2.50
D)$3.50
Q3) Refer to Figure 6-13.What is the amount of the tax per unit imposed
A)$6
B)$8
C)$14
D)$16
Q4) A binding minimum wage in a competitive labour market creates unemployment.
A)True
B)False
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) Refer to Table 7-2.If the market price is $6.90,who will purchase the good
A)David, Laura, and Ty
B)Ty, Mallory, and Audrey
C)Laura and Ty
D)David and Laura
Q2) Refer to Table 7-4.At a price of $6,how large would total surplus be
A)more than it would be at the equilibrium price
B)less than it would be at the equilibrium price
C)more than it could be when price is $9
D)less than it could be when price is $3
Q3) What do the decisions of buyers and sellers that affect people who are not participants in the market create
A)market power
B)externalities
C)profiteering
D)a black market
Q4) The equilibrium of supply and demand in a market maximizes the total benefits received by buyers and sellers.
A)True
B)False
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Chapter 8: Application: the Costs of Taxation
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Sample Questions
Q1) Refer to Figure 8-5.What would be the deadweight loss in this market as a result of the tax
A)$600
B)$900
C)$1500
D)$1800
Q2) Refer to Figure 8-5.What would happen to consumer surplus if the tax were imposed on the buyer
A)It would fall by $900.
B)It would fall by $1800.
C)It would fall by $2700.
D)It would fall by $3600.
Q3) How is the benefit received by sellers in a market measured
A)by the supply curve
B)by producer surplus
C)by the amount sellers receive for their product
D)by the sellers' costs
Q4) The deadweight loss of a tax rises even more rapidly than the size of the tax.
A)True
B)False
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Chapter 9: Application: International Trade
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Sample Questions
Q1) Refer to Figure 9-6.If this country allows free trade in wagons,what will be the result
A)Consumers will gain more than producers will lose.
B)Producers will gain more than consumers will lose.
C)Producers and consumers will both gain equally.
D)Producers and consumers will both lose equally.
Q2) Figure 9-3 represents the domestic hoverboard market in Canada.What would be the equilibrium price and the equilibrium quantity of hoverboards in Canada before trade
A)P , Q
B)P , Q
C)P , Q
D)P , Q
Q3) Refer to Figure 9-10.What would be domestic production and domestic consumption,respectively,after trade
A)300 and 900
B)600 and 300
C)600 and 600
D)600 and 900
Q4) How is an import quota similar to,and different than,an equivalent tariff
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Chapter 10: Externalities
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Sample Questions
Q1) What are two ways to reduce pollution that require firms to pay to pollute
A)corrective taxes and pollution permits
B)corrective taxes and a command-and-control policy
C)pollution permits and a command-and-control policy
D)pollution regulations and pollution permits
Q2) What is one way to internalize a technology spillover
A)with taxes
B)with patents
C)with government regulations
D)with private bargaining
Q3) What effect are corrective taxes typically advocated to correct
A)positive externalities
B)negative externalities
C)spillover technology
D)overproduction of goods with high social value
Q4) Which impact does positive externality have
A)It causes the product to be overproduced.
B)It provides an additional benefit to market participants.
C)It benefits consumers because it results in a lower equilibrium price.
D)It is a benefit to a market bystander.
12
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Clean air and clean water are both public goods.
A)True
B)False
Q2) Because general knowledge is not excludable,which of the following results
A)The government contributes to its production.
B)The cost generally outweighs the benefit to society.
C)Private markets would choose to not supply any general knowledge to society.
D)General knowledge cannot be supplied to the market by anyone since it is not a product.
Q3) Why does the market not provide national defence
A)It is impossible to prevent any single person from enjoying the benefit of national defence.
B)The fixed cost of national defence is too high.
C)The necessary resources for national defence are not available in the private sector.
D)Private sectors are not willing to pay for it.
Q4) The free-rider problem arises when the number of beneficiaries is large and exclusion of any of them is impossible.
A)True
B)False
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) Refer to Scenario 12-1.If a tax of $2 is levied on each slice of turkey,what is the deadweight loss of the tax
A)$0
B)$3
C)$6
D)$8
Q2) What is the single largest expenditure by provincial governments
A)social services
B)debt service
C)health
D)education
Q3) Refer to Table 12-2.If the price of a weekend ski pass is $138 and this price reflects the actual unit cost of providing a weekend of skiing,how much consumer surplus accrues to Allyn and Greg,respectively
A)$37 and $17
B)$47 and $27
C)$49 and $35
D)$85 and $65
Q4) Evaluate the statement: Tax loopholes increase the efficiency of tax systems.
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Chapter 13: The Costs of Production
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Sample Questions
Q1) What does diminishing marginal product imply
A)The marginal cost of an extra worker is unchanged.
B)The marginal cost of an extra worker is less than the previous worker's marginal cost.
C)The marginal product of an extra worker is less than the previous worker's marginal product.
D)The marginal product of an extra worker is greater than the previous worker's marginal product.
Q2) Although economists and accountants treat many costs differently,they both treat the cost of capital the same.
A)True
B)False
Q3) When is marginal cost equal to average total cost
A)when average variable cost is falling
B)when average fixed cost is rising
C)when marginal cost is at its minimum
D)when average total cost is at its minimum
Q4) Implicit costs are costs that do not require an outlay of money by the firm.
A)True
B)False
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.
A)True
B)False
Q2) Refer to Figure 14-4.This firm will exit the market for any price equal to which line segment
A)BC
B)OC
C)OD
D)CD
Q3) Refer to Figure 14-2.Which statement best reflects the situation faced by the firm when price falls from P4 to P
A)The firm will suffer a loss equal to (P4 - P ) × Q .
B)The firm will earn profit equal to (P4 - P ) × Q .
C)Marginal revenue is now lower than marginal cost at the previous level of output (Q ), so it decreases production.
D)Marginal revenue is now higher than marginal cost at the previous level of output (Q ), so it increases production.
Q4) List and describe the characteristics of a perfectly competitive market.
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Chapter 15: Monopoly
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Sample Questions
Q1) If a monopolist is able to perfectly price discriminate,which outcome results
A)Consumer surplus is always increased.
B)Total surplus is always decreased.
C)Consumer surplus and deadweight losses are transformed into monopoly profits.
D)The price effect dominates the output effect on monopoly revenue.
Q2) In comparison to the price a competitive firm charges,monopoly pricing has the effect of causing what outcome
A)a higher level of output
B)a higher price
C)a larger consumer surplus
D)smaller deadweight losses
Q3) What situation is described by perfect price discrimination
A)The monopolist knows the exact willingness to pay of each of its customers.
B)The monopolist charges exactly two different prices to exactly two different groups of customers.
C)The monopolist maximizes consumer surplus.
D)The monopolist experiences a zero economic profit.
Q4) Why does a monopoly firm not have a supply curve?
Q5) Explain the benefits and costs of competition law.
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Chapter 16: Monopolistic Competition
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Q1) When a new firm enters a monopolistically competitive market,what will happen to the individual demand curves faced by all existing firms in that market
A)They will shift to the left.
B)They will shift to the right.
C)They will remain unchanged, but the quantity demanded will increase.
D)They will remain unchanged, but the quantity demanded will decrease.
Q2) As some incumbent firms exit a monopolistically competitive market,what happens to profits of existing firms and product diversity in the market
A)Profits of existing firms decline and product diversity in the market decreases.
B)Profits of existing firms decline and product diversity in the market increases.
C)Profits of existing firms rise and product diversity in the market decreases.
D)Profits of existing firms rise and product diversity in the market increases.
Q3) Why does a typical monopolistically competitive firm face a downward-sloping demand curve?
Q4) What is meant by the term "excess capacity" as it relates to monopolistically competitive firms?
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Chapter 17: Oligopoly
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Q1) For the oligopolist that does not collude with its competitors,there are two factors that affect the decision to raise production.What are these factors
A)the input effect and the output effect
B)the production effect and the cost effect
C)the output effect and the price effect
D)the cost effect and the price effect
Q2) Suppose a perfectly competitive market is taken over by three or four firms.What result would we expect regarding market output and the price of the product
A)an increase in market output and an increase in the price of the product
B)an increase in market output and an decrease in the price of the product
C)a decrease in market output and an increase in the price of the product
D)a decrease in market output and a decrease in the price of the product
Q3) In the case of oligopolists successfully maintaining monopoly profits,what is the effect of the profit-maximizing level of production
A)bad for consumers and bad for the oligopolists
B)bad for consumers and good for the oligopolists
C)good for consumers and bad for the oligopolists
D)good for consumers and good for the oligopolists
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Chapter 18: The Markets for the Factors of Production
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Q1) What do we know about the slope of an individual worker's labour supply curve
A)It cannot slope downward.
B)It slopes downward if that person responds to a higher wage by taking fewer hours of leisure per week.
C)It slopes downward if that person responds to a higher opportunity cost of leisure by working fewer hours per week.
D)It is horizontal if that person works the same number of hours per week, regardless of the opportunity cost of leisure.
Q2) If Firm X is a competitive firm in the market for labour,it has little influence over the wage it pays its employees.
A)True
B)False
Q3) Along the horizontal axis of the production function,what do we typically measure
A)the total revenue
B)the marginal product
C)the total product
D)the quantity of inputs
Q4) Why may the labour supply curve not be upward sloping?
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Chapter 19: Earnings and Discrimination
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Q1) Wage differences that cannot be explained by the number of years of training are likely to be the result of factors associated with which of the following
A)demand, but not supply
B)supply, but not demand
C)compensating differentials
D)conditions of regulated markets
Q2) When competitive labour markets are in equilibrium,what does the neoclassical theory of labour predict
A)The distribution of wages across the economy will be bell-shaped.
B)The wage paid to each worker is equal to that worker's marginal product of labour.
C)Each worker is paid the value of his/her marginal contribution to the economy.
D)The minimum wage will be binding.
Q3) Government policies and programs have been very successful in reducing evidence of discrimination in labour markets.
A)True
B)False
Q4) Does it matter if the main source of discrimination is employers, co-workers, or customers?
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Chapter 20: Income Inequality and Poverty
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Sample Questions
Q1) Based on Canadian income data from 2011,approximately how many times as much income as the bottom fifth did the second fifth of all families receive
A)3.4
B)6.0
C)7.2
D)9.0
Q2) Which conclusion does diminishing marginal utility suggest
A)More is always preferred to less.
B)The well-being of society is maximized when the distribution of income is equal.
C)The poor are less efficient at spending money than the rich.
D)The poor receive more satisfaction than the rich from the last dollar they respectively spend.
Q3) What is the R-factor? How did the R-factor change from 1976 to 2011 in Canada?
Q4) What do income mobility studies suggest about poverty
A)It cannot be alleviated by privately sponsored antipoverty programs.
B)It cannot be alleviated by government sponsored antipoverty programs.
C)It is a long-term problem for a relatively large number of families.
D)It is not a long-term problem for most families.
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Chapter 21: The Theory of Consumer Choice
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Q1) Jonathan is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires.When the substitution effect dominates the income effect,how is an increase in the interest rate likely to influence saving
A)It is likely to increase saving.
B)It is likely to decrease saving.
C)It is likely to increase saving now and decrease saving later.
D)It is likely to decrease saving now and increase saving later.
Q2) If a consumer's income increases,the budget constraint will pivot on the X axis so that the consumer will be able to consumer more of both goods.
A)True
B)False
Q3) 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
Q4) Explain the relationship between the budget constraint and the indifference curve at consumer optimum.
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Chapter 22: Frontiers of Microeconomics
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Sample Questions
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 moral hazard problem and the desire of firms to lessen that problem serve as a plausible explanation for a firm paying above-equilibrium wages to its workers.
A)True
B)False
Q3) "Signalling" refers to actions by an informed party for what sole purpose
A)telling another party that the signaller has information to reveal, without actually revealing that information
B)conveying false information
C)confusing another party
D)credibly revealing private information
Q4) How can we use the theories of asymmetric information to analyze the 2007-2009 financial crisis
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