Question 1

Which of the following is not an example of an economic trade-off that a firm has to make?

Accepted Answer

A) whether it is cheaper to produce with more machines or with more workers 
B) whether it is to outsource the production of a good or service 
C) whether or not consumers will buy its products 
D) whether it should produce more of its product

Question 2

The economic analysis of minimum wage involves both normative and positive analysis.Consider the following consequences of a minimum wage:
a)The minimum wage law causes unemployment.
b)A minimum wage law benefits some groups and hurts others.
c)In some cities such as San Francisco and New York, minimum wage laws are necessary for low-skilled workers to stay in the city.
d)The gains to winners of a minimum wage law should be valued more highly than the losses to losers because the latter primarily comprises businesses.
Which of the consequences above are positive statements and which are normative statements?

Accepted Answer

A) a, b, and c are positive statements and d is a normative statement. 
B) a and b are positive statements, c and d are normative statement. 
C) Only a is a positive statement, b, c and d are normative statements. 
D) a and c are positive statements, b and d are normative statements.

Question 3

Which of the following is a normative economic statement?

Accepted Answer

A) The price of gasoline is too high. 
B) The current high price of gasoline is the result of strong worldwide demand. 
C) When the price of gasoline rises, the quantity of gasoline purchased falls. 
D) When the price of gasoline rises, transportation costs rise.

Question 4

Table 1.1
 $\begin{array}{|c|c|}
\hline \begin{array}{c}
\text { Hours } \
\text { Open }
\end{array} & \begin{array}{c}
\text { Total Revenue } \
\text { (dollars) }
\end{array} \
\hline 1 & \$ 50 \
\hline 2 & 75 \
\hline 3 & 95 \
\hline 4 & 110 \
\hline 5 & 120 \
\hline 6 & 125 \
\hline
\end{array}$ 
Lydia runs a small nail salon in the town of New Hope. She is debating whether she should extend her hours of operation. Lydia figures that her sales revenue will depend on the number of hours the nail salon is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $10 per hour.
-Refer to Table 1.1.What is Lydia's marginal cost if she decides to stay open for two hours instead of one hour?

Accepted Answer

A) $10 
B) $20 
C) $25 
D) $40

Question 5

Consider the following economic agents:
a)the government
b)consumers
c)producers
Who, in a centrally planned economy, decides what goods and services will be produced with the scarce resources available in that economy?

Accepted Answer

A) the government 
B) producers 
C) consumers 
D) consumers and producers 
E) the government, consumers and producers

Question 6

Economists assume that rational behavior is useful in explaining choices people make

Accepted Answer

A) because irrational people do not make economic choices. 
B) even though people may not behave rationally all the time. 
C) because individuals act rationally all the time in all circumstances. 
D) even though people rarely, if ever, behave in a rational manner.

Question 7

Suppose your provincial government encouraged new medical school graduates to take over rural and small town practices from doctors wishing to retire by paying both the new and retiring doctors $100,000.These doctors would be exemplifying the economic idea that

Accepted Answer

A) people are rational. 
B) people respond to economic incentives. 
C) optimal decisions are made at the margin. 
D) equity is more important than efficiency.

Question 8

Explain the difference between a firm's revenue and its profit.

Accepted Answer

The answer of Explain the difference between a firm's revenue...

Question 9

When voluntary exchange takes place, both parties gain from the exchange.

Accepted Answer

A) True 
 B)False

Question 10

Why is it necessary for all economic systems to not only provide people with goods and services, but also restrict them from getting as much of these goods and services as they wish?

Accepted Answer

A) Failure to do this could reduce the efficiency of the system by producing some goods and services that are not as highly valued as others. 
B) Failure to do this could lead to an inequitable allocation of goods and services produced. 
C) Failure to do this could lead to drastic shortages of good and services. 
D) Failure to do this could reduces efficiency and leads to an inequitable allocation of output.

Question 11

As the minimum wage rises

Accepted Answer

A) the price of takeout coffee will rise. 
B) the price of takeout coffee will fall. 
C) there will be a shortage of coffee. 
D) there will be a surplus of coffee.

Question 12

The three fundamental questions that any economy must address are

Accepted Answer

A) What will be the prices of goods and services; how will these goods and services be produced; and who will receive them? 
B) What goods and services to produce; how will these goods and services be produced; and who receives them? 
C) Who gets jobs; what wages do workers earn; and who owns what property? 
D) How much will be saved; what will be produced; and how can these goods and services be fairly distributed?

Question 13

Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks and compact cars.What fundamental economic question are they addressing by making this range of products?

Accepted Answer

A) How to produce goods that consumers want? 
B) Why produce a variety of automobiles? 
C) What to produce? 
D) Who to produce automobiles for?

Question 14

DeShawn's Detailing is a service that details cars at the customers' homes or places of work.DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service.For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package.Should DeShawn continue to offer the engine detailing service?

Accepted Answer

A) Yes, he still makes a profit by selling the engine detailing service with the basic detailing package. 
B) Yes, but only if he raises the price of the basic detailing package. 
C) No, his marginal benefit is less than his marginal cost. 
D) More information is needed for DeShawn to make this decision.

Question 15

Which of the following statements about economic resources is true?

Accepted Answer

A) Economic resources include financial capital and money. 
B) Economic resources are also called factors of production. 
C) Economic resources are used only by businesses. 
D) All economic resources are man-made.

Question 16

The basic economic problem of ________ has always existed and will continue to exist.

Accepted Answer

A) scarcity 
B) efficiency 
C) inflation 
D) recession

Question 17

________ increases economic efficiency because it forces firms to produce and sell goods and services as long as the additional benefit to consumers is greater than the additional cost of production.

Accepted Answer

A) Competition 
B) Voluntary exchange 
C) Equity 
D) A centrally planned economy

Question 18

Markets promote

Accepted Answer

A) equity and competition. 
B) voluntary exchange and equality. 
C) equity and equality. 
D) competition and voluntary exchange.

Question 19

Which of the following correctly describes the relationship between economic efficiency and economic equity?

Accepted Answer

A) They are both automatically achieved in a free market economy. 
B) They always call for opposite outcomes. 
C) There is no conflict between the two goals. 
D) There is often a trade-off between the two.

Question 20

If a straight line passes through the point x = 14 and y = 3 and also through the point x = 4 and y = 10, the slope of this line is

Accepted Answer

A) negative 11 divided by 6. 
B) seven tenths. 
C) negative seven tenths. 
D) 6 divided by 11.

Exam 1: Economics: Foundations and Models