True/False
Indicate whether the statement is true or
false.
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1.
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In economics efficiency refers to the property of society getting the most it
can from its scarce resources.
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2.
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Adam Smith argues that participants in the economy are motivated by
self-interest and that the “invisible hand” of the market place guides this self-interest
into promoting inefficient coordination in the market place.
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3.
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Adam Smith argues that when the government prevents prices from adjusting
naturally to supply and demand, it aids the invisible hand’s ability to coordinate the millions
of households and firms that make up the economy.
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4.
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A market economy allocates resources through the decentralized decisions of many
firms and households as they interact in markets for goods and services.
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5.
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Inflation is an increase in the overall level of prices in the economy and is
usually caused by growth in the quantity of money.
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Multiple Choice
Identify the choice that best completes the
statement or answers the question.
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1.
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For most students, the largest single cost of a college education is
a. | the income given up to attend school. | b. | the cost of tuition, fees, and
books. | c. | the cost of room and board. | d. | transportation, parking, and
entertainment. |
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2.
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One effect of a government-imposed seat belt law has been
a. | a reduction in the number of pedestrian deaths. | b. | safer driving
practices. | c. | an increase in the number of accidents. | d. | a decrease in the
number of accidents. |
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3.
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Benefits from trade would NOT include
a. | the ability to specialize. | b. | an increase in the variety of goods and
services available. | c. | reduced competition. | d. | lower
prices. |
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4.
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In a market economy, economic activity is guided by
a. | consumers that only buy what they want. | b. | businesses that
control production. | c. | central planners in government
agencies. | d. | prices as incentives to both buyers and sellers. |
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5.
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The income of a typical worker in Canada is most closely linked to which of the
following?
a. | our population | b. | the productivity of our
workforce | c. | the number of labor unions | d. | government
policies |
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6.
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The value or cost of a good or service that is given up by choosing one
alternative over another is called
a. | an explicit cost | b. | an opportunity cost | c. | a historical
cost | d. | an accounting cost |
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7.
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Government regulation of the economy may not be beneficial because of
a. | special-interest groups | b. | an imperfect political
process | c. | insufficient information among policy-holders | d. | all of the
above |
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8.
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Scarcity arises because of
a. | a finite amount of resources | b. | poverty | c. | too little money in
an economy | d. | all of the above |
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9.
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Market failure means that
a. | the market fails to allocate resources efficiently | b. | people fail to know
what they like | c. | the government fails to provide the goods and services voters
want | d. | producers fail to earn high profits |
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10.
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Trade between two countries
a. | can make both countries better off | b. | can benefit one country but not
both | c. | causes one country to gain and the other country to lose | d. | has, at best, no
impact on the everyday lives of ordinary citizens |
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11.
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Economics is primarily the study of
a. | how to make money in the stock market | b. | how to operate a business
successfully | c. | how society manages it scarce resources. | d. | government
policies |
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12.
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The” invisible hand” that Adam Smith wrote about as coordinating
economic activity is
a. | God. | b. | The government | c. | man’s natural
affinity for his fellow-man | d. | The price
system |
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13.
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Henry compares the cost of enrolling in 15 hours at university with the cost of
enrolling in 18 hours at university. This is an example of
a. | irrational behaviour by Henry | b. | being worried about things you can’t
control | c. | increasing cost | d. | thinking at the
margin |
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14.
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When economists say: “There is no such thing as a free lunch,” they
mean any of the following except
a. | scarce resources have alternative uses | b. | if resources are used to make the lunch, they
are not available for other purposes | c. | in a profit-motivated economy, lunch makers
always charge for their services | d. | the resources used to make the lunch might have
been used to make dinner |
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Short Answer
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1.
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Calculate the opportunity cost of your coming to university for one year.
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2.
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Assume that Mr. Lee values his time at $50 per hour because he has the
opportunity to do consulting, and that Tom Smith, a student, values his time at $2 per hour. Assume
that it costs $400 to fly from their hometown in Manitoba to Toronto, and that the fight takes six
hours. Assume that it costs $200 to take a bus, and that the bus trip takes 24 hours.
a. What is the cheaper way
for Mr. Lee to travel from his hometown to Toronto? Why?
b.
Which transportation is cheaper for Tom Smith? Why?
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3.
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What explains the large differences in living standards among countries and over
time?
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4.
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List the four principles of economics that describe how people make
decisions.
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Matching
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Choose the item in Column (2) that best matches an item in Column (1) a. | equity | b. | economics | c. | market
power | d. | opportunity cost | e. | scarcity |
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1.
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the limited nature of society’s resources
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2.
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the property of distributing economic prosperity fairly among the members of
society.
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3.
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whatever must be given up to obtain some item
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4.
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the ability of a single economic actor to have a substantial influence on
market prices
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5.
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the study of how society manages its scarce resources.
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