Introduction to Economics
Final Test Solutions
Course Introduction
Introduction to Economics provides a foundational understanding of the principles governing individual and collective decision-making related to resource allocation. The course covers essential concepts such as supply and demand, market structures, opportunity cost, production possibilities, and the roles of households, firms, and government in an economy. Students will explore macroeconomic and microeconomic perspectives, including topics like inflation, unemployment, gross domestic product, and fiscal and monetary policy. Real-world applications and current economic issues are emphasized to help students understand how economic theory influences everyday life and informs public policy decisions.
Recommended Textbook
Economics Canada in the Global Environment 9th Edition by Robin Bade
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Page 2
Chapter 1: What Is Economics
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Sample Questions
Q1) Consider the data in Table 1A.4.1. Suppose z increases from 4 to 5. What will happen to the graph of the relationship between x and y?
A)It will shift to the right.
B)It will shift to the left.
C)It will become positively sloped.
D)both A and C
E)both B and C
Answer: A
Q2) Which one of the following is an example of a factor of production?
A)an insurance policy
B)a donut
C)the skills of a welder
D)an IBM stock certificate
E)a computer game
Answer: C
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Chapter 2: The Economic Problem
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Sample Questions
Q1) Allocative efficiency refers to a situation where
A)opportunity costs are equal.
B)we cannot produce more of any one good without giving up some other good.
C)goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit.
D)opportunity cost is zero.
E)marginal benefit is maximized.
Answer: C
Q2) Any two individuals will gain from exchange
A)unless one has an absolute advantage in producing all goods.
B)if each specializes in the production of the good for which he has the higher opportunity cost.
C)unless they have the same opportunity costs for producing all goods.
D)unless they have different opportunity costs for producing all goods.
E)unless they have the same absolute advantage in producing all goods.
Answer: C
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4
Chapter 3: Demand and Supply
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Sample Questions
Q1) Which one of the following statements best characterizes point B in Figure 3.2.1?
A)Producers would be unwilling to sell the 9,000th apple for less than $0.50.
B)The most that consumers would be willing to pay for the 9,000th apple is $0.50.
C)At a price of $0.50, consumers will be unwilling to buy any apples.
D)At a price of $0.50, there will be an apple shortage.
E)At point B, the market is in equilibrium.
Answer: B
Q2) If we observe an increase in the equilibrium quantity of good A, we know that
A)either the demand for A has increased or the supply of A has decreased or both.
B)either the demand for A has increased or the supply of A has increased or both.
C)either the demand for A has decreased or the supply of A has increased or both.
D)either the demand for A has decreased or the supply of A has decreased or both.
E)the price of A has risen.
Answer: B
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Chapter 4: Elasticity
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Sample Questions
Q1) Given the relationship shown in Figure 4.1.3 between total revenue from the sale of a good and the quantity of the good sold, then
A)this is an inferior good.
B)this is a normal good.
C)the price elasticity of demand is zero.
D)demand for this good is perfectly elastic.
E)the price elasticity of demand is 1.
Q2) In the market for farm crops momentary supply is ________. In the market for farm crops, short-run supply is ________.
A)less elastic than short-run supply; less elastic than long-run supply
B)more elastic than short-run supply; more elastic than long-run supply
C)negative; positive
D)positive; negative
E)perfectly elastic; perfectly inelastic
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Chapter 5: Efficiency and Equity
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Sample Questions
Q1) If production is not at an efficient level, which of the following must be true?
A)Marginal social benefit exceeds marginal social cost.
B)Marginal social cost exceeds marginal social benefit.
C)Production will increase.
D)Production will decrease.
E)none of the above
Q2) Refer to Figure 5.3.2. If the level of output is 150 units, the producer surplus is area A)BCF.
B)ACG.
C)DCE.
D)ACH.
E)HCG.
Q3) The first-come, first-served method of resource allocation allocates resources to A)the wealthiest.
B)people who are willing to take risks.
C)people who are not willing to take risks.
D)the first in line.
E)honest, hard-working people.
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Chapter 6: Governments Actions in Markets
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Sample Questions
Q1) Refer to Figure 6.3.2. Government revenue from the tax is
A)zero.
B)$100.
C)$300.
D)$400.
E)$600.
Q2) Suppose the cost of breaking the law is imposed on the buyers of an illegal good. This action will have its biggest impact on quantity if the demand for the good is
A)inelastic or the supply is inelastic.
B)elastic or the supply is elastic.
C)elastic or the supply is inelastic.
D)inelastic or the supply is elastic.
E)perfectly inelastic.
Q3) In an unregulated housing market with no rent ceiling,
A)marginal social cost is greater than marginal social benefit.
B)marginal social benefit is greater than marginal social cost.
C)marginal social benefit equals marginal social cost.
D)marginal social benefit is negative.
E)marginal social cost is negative.
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Page 8
Chapter 7: Global Markets in Action
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Sample Questions
Q1) Import quotas and tariffs both
A)decrease deadweight loss.
B)cause a loss of revenue to domestic producers.
C)lower prices on imported goods.
D)decrease producer surplus.
E)restrict foreign trade.
Q2) In Figure 7.2.2, with international trade, Canadian firms buy ________ helicopters per year.
A)240
B)480
C)720
D)360
E)600
Q3) In Figure 7.2.1, international trade ________ producer surplus in Canada by
A)increases; $320 million
B)decreases; $192 million
C)increases; $192 million
D)decreases; $320 million
E)decreases; $256 million
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Chapter 8: Utility and Demand
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Sample Questions
Q1) The first can of Coke gives 15 units of utility to Witney, while the second can of Coke increases her total utility to 23. What is the marginal utility of the second can of Coke?
A)24 units
B)8 units
C)38 units
D)11.5 units
E)7.5 units
Q2) A consumer maximizes his utility by purchasing 2 units of good X at $5 per unit and 3 units of good Y at $7 per unit. What is the ratio of the marginal utility from X to the marginal utility from Y?
A)5/7
B)7/5
C)2/3
D)3/2
E)10/21
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10
Chapter 9: Possibilities, Preferences, and Choices
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Sample Questions
Q1) Guy has an income (Y)of $50 with which he can purchase DVDs (D)at $10 each and haircuts (H)at $20 each. Which one of the following represents Guy's budget line?
A)Y = 10QD - 20QH
B)50 = QD + QH
C)Y = 50 + QD + QH
D)20Y = QD + 10QH
E)50 = 10QD + 20QH
Q2) For a normal good, the income effect
A)is negative and the substitution effect is positive.
B)reinforces the substitution effect.
C)is positive and the substitution effect is negative.
D)is equal and opposite to the substitution effect.
E)is zero.
Q3) Which one of the following is always true of the income effect?
A)It leads to a positive income effect.
B)It is positive.
C)It decreases consumption.
D)It leads to a negative income effect.
E)None of the above
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Page 11
Chapter 10: Organizing Production
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Sample Questions
Q1) A firm with a sales department, a production department, and a marketing department is an example of A)team production.
B)joint production.
C)economies of scale.
D)economies of scope.
E)transactions costs.
Q2) In a perfectly competitive market, the Herfindahl-Hirschman Index (HHI) A)is small.
B)is usually greater than 5,000.
C)is greater than 1,000 but less than 2,000.
D)lies between 1,200 and 1,500.
E)is greater than 10,000.
Q3) The possibility that an employee may not work hard is an example of the A)limited liability problem.
B)principal-agent problem.
C)transactions cost problem.
D)technological efficiency problem.
E)partnership problem.
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Page 12
Chapter 11: Output and Costs
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Sample Questions
Q1) The range over which average variable cost is decreasing is the same as the range over which
A)marginal cost is increasing.
B)average fixed cost is decreasing.
C)marginal product is decreasing.
D)average product is decreasing.
E)average product is increasing.
Q2) Which one of the following statements is correct?
A)When marginal product is increasing, average product is decreasing.
B)When average product is less than zero, marginal product is positive.
C)When marginal product is increasing and greater than average product, average product is increasing.
D)When marginal product is zero, total product is at its minimum.
E)When average product exceeds marginal product, marginal product is increasing.
Q3) Economies of scale are present when
A)the LRAC curve slopes downward.
B)average total cost remains constant as input increases.
C)average total cost rises as output increases.
D)the LRAC curve is horizontal.
E)total fixed cost increases.
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Chapter 12: Perfect Competition
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Sample Questions
Q1) When a perfectly competitive market is in long-run equilibrium,
A)at least one firm makes an economic profit.
B)all firms make zero economic profit.
C)firms enter the market if other firms are making an economic profit.
D)firms exit the market if other firms are incurring an economic loss.
E)marginal revenue equals minimum average variable cost.
Q2) Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm. The average fixed cost of producing the 4th balloon is
A)$4.30.
B)$4.80.
C)$4.70.
D)$4.50.
E)$1.00.
Q3) Technological change
A)brings only temporary gains to producers.
B)brings only temporary gains to consumers.
C)brings permanent gains to producers.
D)decreases the number of firms in an industry.
E)decreases the number of consumers in a market.
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Page 14
Chapter 13: Monopoly
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Sample Questions
Q1) Refer to Figure 13.2.2. If the single-price monopoly shown in Figure 13.2.2 is maximizing profit, what is total economic profit?
A)$3
B)$4
C)$6
D)$9
E)$7
Q2) Sue's Surfboards is the sole renter of surfboards on Big Wave Island. Sue does not price discriminate. For Sue's Surfboards, the change in total revenue from each additional surfboard rented is her
A)marginal revenue, which is less than the rental price of a surfboard.
B)marginal cost, which is constant regardless of how many surfboards are rented.
C)marginal revenue, which is equal to the rental price of a surfboard.
D)marginal cost, which is greater than the rental price of a surfboard.
E)marginal revenue, which is equal to average total cost in the long run.
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Chapter 14: Monopolistic Competition
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Sample Questions
Q1) Consider a monopolistically competitive industry which is in long-run equilibrium. Which of the following is true?
A)All firms charge a price equal to average total cost.
B)All firms charge a price equal to marginal cost.
C)All firms make an economic profit.
D)The demand, average total cost, and marginal cost curves all intersect at the same point.
E)Firms have an incentive to enter the industry.
Q2) An advantage of monopolistic competition over perfect competition is
A)economic profit.
B)product variety.
C)excess capacity.
D)efficiency.
E)economies of scale.
Q3) Product differentiation exists within an industry when A)there are no substitutes for the product.
B)the firm can sell all it wants at the given price.
C)the market is a monopoly.
D)the market is perfectly competitive.
E)there are close but not perfect substitutes for the product.
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Chapter 15: Oligopoly
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Sample Questions
Q1) A cartel is a group of firms which agree to
A)behave competitively.
B)raise the price of their products.
C)lower the price of their products.
D)increase the amount they produce.
E)cheat on each other.
Q2) Refer to Fact 15.1.1. During the past few years, the energy-drink market has changed from ________ to ________.
A)oligopoly; perfectly competitive
B)monopolistically competitive; perfectly competitive
C)oligopoly; monopolistically competitive
D)near monopoly; oligopoly
E)near monopoly; perfectly competitive
Q3) All of the following except ________ are noncriminal offences under the Competition Act.
A)refusal to deal
B)mergers
C)false advertising
D)abuse of a dominant market position
E)exclusive dealing
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Chapter 16: Externalities
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Sample Questions
Q1) The marginal private cost curve (MC)is a positively-sloped straight line starting at the origin. If marginal external cost increases as output increases, then the marginal social cost curve is a positively-sloped straight line
A)parallel to and above the MC curve.
B)parallel to and below the MC curve.
C)starting at the origin, above the MC curve, and with a slope greater than the MC curve.
D)starting at the origin, below the MC curve, and with a slope less than the MC curve.
E)starting above the origin, with a slope less than the MC curve.
Q2) Suppose that recycling rubber for running shoes creates an external benefit of $2.00 per tonne of rubber. There are no external costs. The efficient amount of rubber will be recycled when the government creates a
A)subsidy of more than $2.00 per tonne of rubber.
B)subsidy of $2.00 per tonne of rubber.
C)tax of more than $2.00 per tonne of rubber.
D)tax of $2.00 per tonne of rubber.
E)voucher valued at $2.10 a tonne of rubber.
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Chapter 17: Public Goods and Common Resources
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Sample Questions
Q1) If a good is a public good,
A)anyone can be excluded from enjoying its benefits.
B)no one can be excluded from enjoying its benefits.
C)consumers must pay a high price to enjoy its benefits.
D)it is rival and excludable.
E)economies of scale exist over the entire range of output for which there is a demand.
Q2) In Table 17.2.1, which of the proposals would be supported by political parties according to the principle of minimum differentiation?
A)Current income distribution
B)Proposal A
C)Proposal B
D)Proposal C
E)Proposal A or C
Q3) Growing voter income can lead to the growth of the government sector because
A)public goods are income elastic.
B)public goods are income inelastic.
C)richer voters are more likely to be rationally ignorant.
D)richer voters do not care about overprovision of government goods.
E)as income increases, more public goods become private goods.
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Page 19
Chapter 18: Markets for Factors of Production
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Sample Questions
Q1) Refer to Figure 18.3.3. Suppose the government passes a minimum wage law that prohibits anyone from hiring labour at less than $8 per hour. The monopsonist will hire
A)250 hours of labour.
B)300 hours of labour.
C)350 hours of labour.
D)400 hours of labour.
E)450 hours of labour.
Q2) Refer to Table 18.3.1. Table 18.3.1 gives information about the labour market in Lantis, a community in which the labour market is perfectly competitive. The equilibrium wage rate is ________ an hour and the quantity of labour employed is ________ hours per day.
A)$25; 600
B)$25; 200
C)$15; 400
D)$5; 200
E)$5; 600
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Chapter 19: Economic Inequality
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Sample Questions
Q1) In Canada, the highest income tax rates are in A)Quebec.
B)Manitoba.
C)Alberta.
D)Ontario.
E)British Columbia.
Q2) In Figure 19.1.3, the middle 20 percent of all families receive what share of income?
A)10 percent
B)20 percent
C)30 percent
D)40 percent
E)50 percent
Q3) Which diagram is used by economists to illustrate the distribution of income or wealth?
A)Lorenz curve
B)normal bell-shaped distribution
C)wage differential curve
D)low-income cut-off curve
E)marginal revenue product diagram
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Page 21
Chapter 20: Measuring Gdp and Economic Growth
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Sample Questions
Q1) The largest component of GDP using the expenditure approach is A)investment.
B)consumption expenditure. C)exports.
D)government expenditure. E)imports.
Q2) Gross domestic product is
A)the final value of all goods produced in a country in a given time period.
B)the market value of all goods and services produced in a country during a given time period.
C)the market value of all the final goods and services produced in a country during a given time period.
D)the average value of output produced in a country in a given time period.
E)the market value of all the intermediate goods and services produced in a country during a given time period.
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22
Chapter 21: Monitoring Jobs and Inflation
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Sample Questions
Q1) Structural unemployment arises in part because
A)there are not enough jobs available.
B)of technological change.
C)people become discouraged when they cannot find jobs.
D)people will not quit their present jobs until they can find suitable employment elsewhere.
E)of unrealistic wage expectations.
Q2) People become unemployed when they A)retire.
B)are on maternity leave.
C)quit working to go to university.
D)leave university and start seeking work.
E)become discouraged searchers.
Q3) Refer to Table 21.3.1. The reference base period is 2014. The CPI in 2002 is A)100.
B)157.
C)129.
D)63.
E)152.
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Page 23
Chapter 22: Economic Growth
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Sample Questions
Q1) The key difference between the neoclassical growth theory and the classical growth theory is that
A)capital is not subject to diminishing returns under classical growth theory.
B)capital is subject to diminishing returns under classical growth theory.
C)increases in population drive workers' incomes back down to the subsistence level in classical growth theory.
D)growth in the neoclassical growth theory ends with a population explosion.
E)in classical growth theory, the pace of technological change influences the economic growth rate but economic growth does not influence the pace of technological change.
Q2) An assumption of the new growth theory is that
A)people earn a subsistence real wage in the long run.
B)all technological advances are the result of chance.
C)the marginal product of all types of capital increases as more capital is accumulated.
D)the growth rate of labour productivity depends on people's ability to innovate.
E)technological advances encourage international trade.
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Chapter 23: Finance, Saving, and Investment
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Sample Questions
Q1) In Canada's economy, investment is financed by
A)C + I + G + X - M.
B)C + S + T.
C)S + T + M.
D)S + (T - G)+ (X - M).
E)S + (T - G)+ (M - X).
Q2) Choose the statement that is incorrect.
A)According to the Ricardo-Barro effect, taxpayers are rational people who know that a budget deficit today means that future taxes will be higher and future disposable incomes will be smaller.
B)According to the Ricardo-Barro effect, a budget deficit has no effect on either the real interest rate or investment.
C)Most economists believe that the Ricardo-Barro effect holds in the market for loanable funds.
D)According to the Ricardo-Barro effect, the quantity of loanable funds demanded increases when a government budget deficit occurs, and private saving and the private supply of loanable funds increase to match the quantity of loanable funds demanded.
E)All of the above statements are correct.
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Chapter 24: Money, the Price Level, and Inflation
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Q1) The Bank of Canada is the lender of last resort. This means banks may borrow money from the Bank of Canada
A)whenever they are short of reserves.
B)overnight.
C)if they have sufficient securities to support the loan.
D)if the banking system as a whole is short of reserves.
E)to finance a sudden and dramatic increase in overseas reserves.
Q2) The money multiplier will decrease if the currency drain ratio
A)increases or the desired reserve ratio increases.
B)decreases or the desired reserve ratio decreases.
C)decreases or the desired reserve ratio increases.
D)increases or the desired reserve ratio decreases.
E)decreases and the monetary base increases.
Q3) On the average in Canada, the inflation rate and the money growth rate minus real GDP growth rate
A)move in opposite directions.
B)are not related.
C)rise and fall together.
D)are always rising.
E)are always equal.
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Chapter 25: The Exchange Rate and the Balance of Payments
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Q1) Refer to Fact 25.4.1. What is the imports?
A)13 billion turkeys
B)7 billion turkeys
C)11 billion turkeys
D)9 billion turkeys
E)12 billion turkeys
Q2) If the current account is in deficit and the capital and financial account is also in deficit, then the official settlements account balance is A)negative.
B)positive.
C)probably close to zero, but could be either negative or positive.
D)zero.
E)equal to the sum of the current account and the capital account.
Q3) The Canadian exchange rate appreciates if A)prices increase in the United States and other countries but remain constant in Canada.
B)the Canadian interest rate falls.
C)the U.S. interest rate rises.
D)all of the above
E)none of the above
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Chapter 26: Aggregate Supply and Aggregate Demand
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Q1) Refer to Figure 26.3.1. Econoworld is at its short-run macroeconomic equilibrium. There is a difference between ________ real GDP and potential GDP of $________ billion.
A)above full-employment equilibrium; 40
B)above full-employment equilibrium; 20
C)below full-employment equilibrium; 40
D)below full-employment equilibrium; 20
E)full-employment equilibrium; 0
Q2) Refer to Table 26.3.3. When the economy is at its short-run macroeconomic equilibrium,
A)the unemployment rate is below its natural rate.
B)the unemployment rate is above its natural rate.
C)the money wage rate will rise.
D)the long-run aggregate supply curve will shift eventually shift leftward to return to full employment.
E)potential GDP will eventually increase.
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Chapter 27: Expenditure Multipliers
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Q1) Refer to Figure 27.2.1. When real GDP is equal to Yc, then aggregate planned expenditure is
A)less than real GDP, and real GDP decreases.
B)less than real GDP, and real GDP increases.
C)greater than real GDP, and real GDP decreases.
D)equal to real GDP, and real GDP neither increases nor decreases.
E)greater than real GDP, and real GDP increases.
Q2) The formula for the multiplier in an open economy is
A)1/(1 + slope of the AE curve).
B)1/(1 - marginal propensity to import).
C)1/(1 + marginal propensity to import).
D)1/(1 - slope of the AE curve).
E)1/(1 - MPC).
Q3) An increase in business investment at a constant price level
A)shifts the AE curve downward and decreases equilibrium expenditure.
B)increases the slope of the AE curve and increases equilibrium expenditure.
C)shifts the AE curve upward and increases equilibrium expenditure.
D)decreases the slope of the AE curve and decreases equilibrium expenditure.
E)has no effect on the AE curve.
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Page 29
Chapter 28: The Business Cycle, Inflation, and Deflation
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Sample Questions
Q1) According to the real business cycle theory, during a recession the demand for labour ________ and the supply of labour ________.
A)increases; decreases
B)decreases; does not change
C)does not change; decreases
D)decreases; decreases
E)decreases; increases
Q2) The economy starts out at a full-employment equilibrium. Some events then occur that generate a demand-pull inflation. All of the following events except an increase in ________ might start a demand-pull inflation.
A)the money wage rate
B)exports
C)the quantity of money
D)government expenditure
E)transfer payments
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Chapter 29: Fiscal Policy
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Source URL: https://quizplus.com/quiz/29209
Sample Questions
Q1) A tax cut on capital income
A)does not affect potential GDP because the interest rate affects aggregate expenditure only.
B)does not affect potential GDP because it has no impact on the supply of labour.
C)increases potential GDP because workers have greater incentives to work.
D)increases potential GDP because the supply of loanable funds increases.
E)increases potential GDP because households have more disposable income to spend.
Q2) Which of the following is not a source of government revenues?
A)personal income taxes
B)transfer payments
C)corporate income taxes
D)indirect taxes
E)investment income
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Chapter 30: Monetary Policy
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Source URL: https://quizplus.com/quiz/29211
Sample Questions
Q1) The two parts of the inflation-control target are that the inflation-control target range will be ________ percent a year, and policy will aim at keeping the trend of inflation at ________ percent a year.
A)3 to 5; 4
B)1 to 3; 2
C)2 to 4; 3
D)0 to 2; 1
E)-1 to 1; 0
Q2) If a central bank wants to implement a contractionary policy that decreases real GDP, it conducts an open market operation by ________ securities. Bank reserves ________ and the supply of loanable funds ________. The quantity of money
________.
A)selling; decrease; decreases; decreases
B)purchasing; decrease; decreases; decreases
C)purchasing; decrease; increases; decreases
D)selling; increase; increases; increases
E)purchasing; increase; increases; increases
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Chapter 31: Macro Only: International Trade Policy
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Source URL: https://quizplus.com/quiz/29212
Sample Questions
Q1) A country
A)imports those goods in which it has a comparative advantage.
B)exports those goods in which it has a comparative advantage.
C)imports goods produced in countries with lower wage rates.
D)exports goods produced by domestic industries with low wages relative to its trading partners.
E)B and D are correct.
Q2) In industrial countries, there is more reliance on ________, as opposed to ________ for government revenue.
A)tariffs; tax collection
B)import quotas; tariffs
C)tariffs; import quotas
D)import quotas; tax collection
E)tax collection; tariffs
Q3) Of the following, in which decade were Canada's tariffs at their lowest level?
A)1990s
B)1970s
C)1950s
D)1930s
E)1890s
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