Economics - Canadian Edition, 16e (Ragan)

Chapter 1 Economic Issues and Concepts

1.1 What Is Economics?

1) Which of the following statements provides the best definition of economics?

A) The study of the most equitable distribution of scarce resources.
B) The study of the use of scarce resources to satisfy unlimited human wants.
C) The study of the production of goods and services.
D) The study of the productive capacity of a nation's factors of production.
E) The study of production and increasing its efficiency.
Answer: B
Diff: 1 Type: MC
Topic: 1.1a. economics/resources
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

2) Society's resources are often divided into broad categories. They are
A) goods and services.
B) factors of consumption.
C) land, labour, and capital.
D) population and natural resources.
E) tangible commodities and intangible commodities.
Answer: C
Diff: 1 Type: MC
Topic: 1.1a. economics/resources
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

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3) Consider the following list: a worker with training in video gaming technology, 10 hectares of
arable land in southern Ontario, a fishing trawler in Nova Scotia, an ice-cream truck at a park in
Quebec. Each of these is an example of
A) a factor of production.
B) a capital resource.
C) a commodity.
D) goods and services.
E) an economic service.
Answer: A
Diff: 1 Type: MC
Topic: 1.1a. economics/resources
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

4) Which of the following is NOT considered a "factor of production" in economics?

A) the espresso machine at your local cafe
B) the barista who makes the coffee
C) the espresso drink you purchase
D) the wood stir sticks
E) the land on which the cafe sits
Answer: C
Diff: 2 Type: MC
Topic: 1.1a. economics/resources
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

2
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5) Consider the following factors of production:
- a pharmaceutical research centre
- a hairstylist's scissors
- Google headquarters
- a cloud computing system
- a stapler at a checkout counter.
Each of these is an example of
A) land.
B) goods.
C) services.
D) capital.
E) labour.
Answer: D
Diff: 2 Type: MC
Topic: 1.1a. economics/resources
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

6) In economics, what word is used to describe the act of using goods or services to satisfy
wants?
A) consumption
B) production
C) purchasing power
D) investment
E) shopping
Answer: A
Diff: 2 Type: MC
Topic: 1.1a. economics/resources
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

3
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7) A basic underlying point in economics is that
A) people have unlimited wants in the face of limited resources.
B) there are unlimited resources.
C) governments should satisfy the needs of the people.
D) people have limited wants in the face of limited resources.
E) governments should never interfere in the workings of a market economy.
Answer: A
Diff: 1 Type: MC
Topic: 1.1b. scarcity and choice
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

8) Which of the following best describes the study of economics?

A) how to plan an economy
B) how to limit human wants so that scarce resources are sufficient
C) why resources are scarce
D) the allocation of scarce resources among alternative uses
E) how to distribute income as equally as possible
Answer: D
Diff: 1 Type: MC
Topic: 1.1b. scarcity and choice
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

9) Economics can best be described as

A) the study of how a society ought to allocate its resources.
B) the study of the use of scarce resources to satisfy unlimited human wants.
C) the application of sophisticated mathematical models to address social problems.
D) a normative science.
E) the study of how to reduce inflation and unemployment.
Answer: B
Diff: 1 Type: MC
Topic: 1.1b. scarcity and choice
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

4
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10) Scarcity is likely to be
A) a problem that will be solved by the proper use of available resources.
B) unique to the twenty-first century.
C) a problem that will always exist.
D) a result of the work ethic.
E) eliminated with a better understanding of economics.
Answer: C
Diff: 2 Type: MC
Topic: 1.1b. scarcity and choice
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

11) Which of the following statements best describes the economic concept of scarcity?
A) Society is not employing all of its available resources in an efficient manner.
B) People's wants can never be satisfied by the available resources.
C) Scarcity afflicts only poor countries.
D) Too many frivolous goods and services are produced at the expense of socially desirable
goods and services.
E) Production is efficient, but distribution is inefficient.
Answer: B
Diff: 2 Type: MC
Topic: 1.1b. scarcity and choice
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

12) Which of the following statements best describes the underlying feature of most economic
problems?
A) People have unlimited wants in the face of limited resources.
B) There are unlimited resources.
C) Resources are distributed fairly.
D) People have limited wants in the face of limited resources.
E) Governments should never interfere in the workings of a market economy.
Answer: A
Diff: 1 Type: MC
Topic: 1.1b. scarcity and choice
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

5
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13) Because resources are scarce, individuals are required to
A) make choices among alternatives.
B) use resources inefficiently.
C) sacrifice production but not consumption.
D) improve distribution but not production.
E) improve production but not distribution.
Answer: A
Diff: 2 Type: MC
Topic: 1.1b. scarcity and choice
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

14) Scarcity implies that choices must be made. Making choices implies
A) the wasteful use of resources.
B) that scarcity can be eliminated.
C) the existence of costs of production.
D) the existence of opportunity costs.
E) both C and D above.
Answer: D
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

15) Which of the following best completes the definition of opportunity cost? The opportunity
cost of choosing any one alternative is the
A) market cost of the next best alternative.
B) value of the next best alternative that is given up.
C) the revenues that would be given up if that alternative is not chosen.
D) value of all other alternatives combined.
E) value of resources used to make that alternative available to the market.
Answer: B
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

6
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16) With a budget of $200 million, the government can choose to purchase 4 helicopters or
repair 200 km of highway.

FIGURE 1-1

Refer to Figure 1-1. For the government, the opportunity cost of one search and rescue helicopter
is
A) 0 kilometres of highway repair.
B) 50 kilometres of highway repair.
C) 100 kilometres of highway repair.
D) 150 kilometres of highway repair.
E) 200 kilometres of highway repair.
Answer: B
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

7
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17) With a budget of $200 million, the government can choose to purchase 4 helicopters or
repair 200 km of highway.

FIGURE 1-1

Refer to Figure 1-1. For the government, the opportunity cost of one kilometre of highway repair
is
A) 1 search and rescue helicopter.
B) 1/2 of a search and rescue helicopter.
C) 1/10 of a search and rescue helicopter.
D) 1/50 of a search and rescue helicopter.
E) 1/100 of a search and rescue helicopter.
Answer: D
Diff: 3 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

8
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18) With a budget of $200 million, the government can choose to purchase 4 helicopters or
repair 200 km of highway.

FIGURE 1-1

Refer to Figure 1-1. If the government chooses to allocate all $200 million to highway repair, we
can say that
A) the opportunity cost of the highway repair is uncertain.
B) the opportunity cost of the highway repair is $0.
C) the opportunity cost of the highway repair is 4 search and rescue helicopters.
D) there is no opportunity cost involved because the government has achieved its objectives.
E) there is no opportunity cost involved because the government stayed within its budget.
Answer: C
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

9
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19) With a budget of $200 million, the government can choose to purchase 4 helicopters or
repair 200 km of highway.

FIGURE 1-1

Refer to Figure 1-1. Which of the following combinations of kilometres of highway repair and
helicopters is unaffordable, given the government's budget of $200 million?
A) B
B) D
C) E
D) F
E) G
Answer: E
Diff: 1 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

10
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20) With a budget of $500 000, a school board can choose to purchase 20 000 textbooks or 2000
laptop computers (or some intermediate combination) for use in classrooms.

FIGURE 1-2

Refer to Figure 1-2. For the school board, what is the opportunity cost of one additional laptop
computer?
A) 0 textbooks
B) 1/10 of a textbook
C) 10 textbooks
D) 20 textbooks
E) 2000 textbooks
Answer: C
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

11
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21) With a budget of $500 000, a school board can choose to purchase 20 000 textbooks or 2000
laptop computers (or some intermediate combination) for use in classrooms.

FIGURE 1-2

Refer to Figure 1-2. For the school board, what is the opportunity cost of one additional
textbook?
A) 2000 laptops
B) 1000 laptops
C) 1/100 of a laptop
D) 1/1000 of a laptop
E) 1/10 of a laptop
Answer: E
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

12
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22) With a budget of $500 000, a school board can choose to purchase 20 000 textbooks or 2000
laptop computers (or some intermediate combination) for use in classrooms.

FIGURE 1-2

Refer to Figure 1-2. Suppose the school board chooses to allocate all $500 000 to the purchase of
laptop computers. What is the opportunity cost of this entire purchase?
A) The opportunity cost is 2000 laptops.
B) The opportunity cost is 20,000 textbooks.
C) The opportunity cost is uncertain.
D) The opportunity cost is $0.
E) There is no opportunity cost because the purchase was made within the available budget.
Answer: B
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

13
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23) With a budget of $500 000, a school board can choose to purchase 20 000 textbooks or 2000
laptop computers (or some intermediate combination) for use in classrooms.

FIGURE 1-2

Refer to Figure 1-2. Which of the following combinations of textbooks and laptops is
unaffordable, given the school board's budget of $500 000?
A) A
B) B
C) C
D) D
E) E
Answer: D
Diff: 1 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

14
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24) With a budget of $500 000, a school board can choose to purchase 20 000 textbooks or 2000
laptop computers (or some intermediate combination) for use in classrooms.

FIGURE 1-2

Refer to Figure 1-2. What is the price of a textbook in this example?

A) $25
B) $40
C) $50
D) $100
E) $250
Answer: A
Diff: 1 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

15
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25) With a budget of $500 000, a school board can choose to purchase 20 000 textbooks or 2000
laptop computers (or some intermediate combination) for use in classrooms.

FIGURE 1-2

Refer to Figure 1-2. What is the price of a laptop computer in this example?
A) $25
B) $40
C) $50
D) $100
E) $250
Answer: E
Diff: 1 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

16
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26) The table below illustrates that, in one day, Tristan can produce either 12 fishing lures or
mow 3 lawns, while Thomas can produce either 6 fishing lures or mow 6 lawns.

Fishing Lures Mowed Lawns

Tristan 12 3
Thomas 6 6

TABLE 1-1

Refer to Table 1-1. What is Tristan's opportunity cost of producing one fishing lure?
A) one mowed lawn
B) 3 mowed lawns
C) 1/3 of a mowed lawn
D) 1/4 of a mowed lawn
E) 4 mowed lawns
Answer: D
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Table
Category: Quantitative

27) The table below illustrates that, in one day, Tristan can produce either 12 fishing lures or
mow 3 lawns, while Thomas can produce either 6 fishing lures or mow 6 lawns.

Fishing Lures Mowed Lawns

Tristan 12 3
Thomas 6 6

TABLE 1-1

Refer to Table 1-1. What is Thomas's opportunity cost of producing one fishing lure?
A) 5 lures
B) 1 mowed lawn
C) 1/6 of a lure
D) 1/6 of a mowed lawn
E) There is no opportunity cost.
Answer: B
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Table
Category: Quantitative
17
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28) The table below illustrates that, in one day, Tristan can produce either 12 fishing lures or
mow 3 lawns, while Thomas can produce either 6 fishing lures or mow 6 lawns.

Fishing Lures Mowed Lawns

Tristan 12 3
Thomas 6 6

TABLE 1-1

Refer to Table 1-1. What is Tristan's opportunity cost of producing one mowed lawn?
A) one fishing lure
B) 3 fishing lures
C) 4 fishing lures
D) 6 fishing lures
E) 12 fishing lures
Answer: C
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Table
Category: Quantitative

29) The table below illustrates that, in one day, Tristan can produce either 12 fishing lures or
mow 3 lawns, while Thomas can produce either 6 fishing lures or mow 6 lawns.

Fishing Lures Mowed Lawns

Tristan 12 3
Thomas 6 6

TABLE 1-1

Refer to Table 1-1. What is Thomas's opportunity cost of producing one mowed lawn?
A) 0 fishing lures
B) 1/6 fishing lure
C) one fishing lure
D) 6 fishing lures
E) 12 fishing lures
Answer: C
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Table
Category: Quantitative
18
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30) The table below illustrates that, in one day, Tristan can produce either 12 fishing lures or
mow 3 lawns, while Thomas can produce either 6 fishing lures or mow 6 lawns.

Fishing Lures Mowed Lawns

Tristan 12 3
Thomas 6 6

TABLE 1-1

Refer to Table 1-1. If Tristan and Thomas want to maximize their joint output from one day of
work, how should they specialize their production?
A) Tristan produces 3 mowed lawns; Thomas produces 6 mowed lawns
B) Tristan produces 6 lures; Thomas produces 6 lures
C) Tristan produces 6 lures and 3 mowed lawns
D) Tristan produces 12 lures; Thomas produces 6 mowed lawns
E) Tristan produces nothing, Thomas produces 6 lures and 6 mowed lawns
Answer: D
Diff: 3 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Table
Category: Quantitative

19
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31) The table below illustrates that, in one day, Tristan can produce either 12 fishing lures or
mow 3 lawns, while Thomas can produce either 6 fishing lures or mow 6 lawns.

Fishing Lures Mowed Lawns

Tristan 12 3
Thomas 6 6

TABLE 1-1

Refer to Table 1-1. Which of the following statements about Tristan's and Thomas's opportunity
costs is correct?
A) Tristan has a higher opportunity cost of producing mowed lawns.
B) Thomas has a higher opportunity cost of producing mowed lawns.
C) Tristan has a higher opportunity cost of producing fishing lures.
D) Thomas has a higher opportunity cost of producing fishing lures.
E) Both A and D are correct.
Answer: E
Diff: 3 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Table
Category: Qualitative

20
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32) Madeleine allows herself $100 per month for purchasing coffee. The diagram below
illustrates the choices available to her in each month.

FIGURE 1-3

Refer to Figure 1-3. For Madeleine, the opportunity cost of one regular coffee is
A) 1/4 of a regular coffee.
B) 20 lattes.
C) 4 lattes.
D) 1/4 of a latte.
E) 80 lattes.
Answer: D
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

21
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33) Madeleine allows herself $100 per month for purchasing coffee. The diagram below
illustrates the choices available to her in each month.

FIGURE 1-3

Refer to Figure 1-3. For Madeleine, the opportunity cost of one latte is
A) 1/4 of a regular coffee.
B) 1/4 of a latte.
C) 8 regular coffees.
D) 80 regular coffees.
E) 4 regular coffees.
Answer: E
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

22
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34) Madeleine allows herself $100 per month for purchasing coffee. The diagram below
illustrates the choices available to her in each month.

FIGURE 1-3

Refer to Figure 1-3. If Madeleine chooses to allocate all $100 to buying lattes, we can say that
her opportunity cost in one month is
A) zero because she bought what she desired.
B) zero because she stayed within her budget.
C) 80 cups of regular coffee.
D) 40 cups of regular coffee.
E) 20 cups of regular coffee.
Answer: C
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

23
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35) Madeleine allows herself $100 per month for purchasing coffee. The diagram below
illustrates the choices available to her in each month.

FIGURE 1-3

Refer to Figure 1-3. Which of the following combinations of regular coffees and lattes is
affordable over the one-month period, given Madeleine's budget?
A) 15 lattes and 30 coffees
B) 16 lattes and 16 coffees
C) 8 lattes and 50 coffees
D) 4 lattes and 66 coffees
E) 20 lattes and 80 coffees
Answer: B
Diff: 3 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

24
Copyright © 2020 Pearson Canada Inc.
36) Madeleine allows herself $100 per month for purchasing coffee. The diagram below
illustrates the choices available to her in each month.

FIGURE 1-3

Refer to Figure 1-3. What is the price of a regular coffee in this example?
A) $0.80
B) $1.25
C) $2.00
D) $5.00
E) $8.00
Answer: B
Diff: 1 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

25
Copyright © 2020 Pearson Canada Inc.
37) Madeleine allows herself $100 per month for purchasing coffee. The diagram below
illustrates the choices available to her in each month.

FIGURE 1-3

Refer to Figure 1-3. What is the price of a coffee latte in this example?
A) $0.80
B) $1.00
C) $1.25
D) $2.00
E) $5.00
Answer: E
Diff: 1 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

26
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38) Suppose you own a courier service and you use two types of delivery vehicles — Model A,
which costs to purchase, and Model B, which costs $50 000 to purchase. You have a
budget of for the purchase of new vehicles. If you were to draw a budget line to illustrate
the choice between Model A and Model B vehicles, with A on the vertical axis and B on the
horizontal axis, the vertical intercept and the horizontal intercept, respectively, would be
A) 10 and 10.
B) 6 and 6.
C) 0 and 10.
D) 0 and 0.
E) 10 and 6.
Answer: E
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Quantitative

39) Suppose you own a courier service and you use two types of delivery vehicles — Model A,
which costs to purchase, and Model B, which costs $50 000 to purchase. You have a
budget of for the purchase of new vehicles. What is the opportunity cost of one Model A
vehicle?
A) 0
B) 3/5 of a Model B vehicle
C) 5/3 of Model B vehicle
D) 5 Model B vehicles
E) 3 Model B vehicles
Answer: B
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Quantitative

27
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40) Suppose you own a courier service and you use two types of delivery vehicles — Model A,
which costs to purchase, and Model B, which costs $50 000 to purchase. You have a
budget of for the purchase of new vehicles. What is the opportunity cost of one Model B
vehicle?
A) 0
B) 3/5 of a Model A vehicle
C) 5/3 of a Model A vehicle
D) 5 Model A vehicles
E) 3 Model A vehicles
Answer: C
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Quantitative

41) Suppose you own a courier service and you use two types of delivery vehicles — Model A,
which costs to purchase, and Model B, which costs $50 000 to purchase. You have a
budget of for the purchase of new vehicles. Which of the following statements best
describes the shape of your budget line?
A) The budget line is concave to the origin, indicating that the opportunity cost of each model of
vehicle increases with each additional unit purchased.
B) The budget line is convex to the origin, indicating that the opportunity cost of each vehicle
decreases with each additional unit purchased.
C) The budget line is a straight line, indicating that the opportunity cost of each vehicle
decreases with each additional unit purchased.
D) The budget line is a straight line, indicating that the opportunity cost of each model of vehicle
is independent of how many are purchased.
E) The budget line is a straight line, indicating that the opportunity cost of each vehicle increases
with each additional unit purchased.
Answer: D
Diff: 3 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Quantitative

28
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42) Scarcity arises from limited resources. For this reason, all economic choices involve
A) a value judgement.
B) an educated decision.
C) an opportunity cost.
D) complementary ends.
E) greed.
Answer: C
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

43) The opportunity cost of going to college or university for four years is
A) equal to the wage rate a person will earn after graduation.
B) the least valued alternative one forfeits to attend.
C) the cost of tuition and books and four years of lost wages from employment.
D) the cost of tuition, residence fees and books.
E) zero.
Answer: C
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

44) Suppose there are only three alternatives to attending a "free" social event: read a novel (you
value this at $10), go to work (you could earn $20), or watch videos with some friends (you
value this at $25). The opportunity cost of attending the social event is
A) $10.
B) $20.
C) $25.
D) $45.
E) $55.
Answer: C
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Quantitative

29
Copyright © 2020 Pearson Canada Inc.
45) The opportunity cost of producing good A is defined to be
A) the money cost of the factors of production used in good A.
B) the retail price of good A.
C) the cheapest method of producing good A.
D) what must be sacrificed of other goods to get an additional unit of good A.
E) the cost of having to get by using something else in place of good A.
Answer: D
Diff: 1 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

46) Suppose one unit of labour can produce either 5 wool sweaters or 2 pineapples. What is the
opportunity cost of producing one wool sweater?
A) 5 pineapples
B) 2 pineapples
C) 2/5 of a pineapple
D) 5/2 pineapples
E) zero pineapples
Answer: C
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Quantitative

47) Suppose one unit of labour can produce either 5 units of wool or 2 pineapples. What is the
opportunity cost of producing 1 pineapple?
A) 5 units of wool
B) 2 units of wool
C) 2/5 unit of wool
D) 5/2 units of wool
E) zero
Answer: D
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Quantitative

30
Copyright © 2020 Pearson Canada Inc.
48) A small landscaping firm purchases a tractor that, in one day, is capable of drilling 60 fence-
post holes or removing 12 tree stumps (or some intermediate combination). For this landscaper,
what is the opportunity cost of removing one extra tree stump?
A) 1/12th of the cost of the tractor
B) 1/5 of the cost of the tractor
C) drilling 12 fence-post holes
D) drilling 5 fence-post holes
E) There is no opportunity cost.
Answer: D
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Quantitative

49) Suppose a bakeshop with 5 employees can produce both pies and cakes. In one day, if all
resources are devoted to baking pies, the shop can produce 125 pies; if all resources are devoted
to baking cakes, the shop can produce 50. What is the shop's opportunity cost of producing any
one cake?
A) 0.4 pies
B) 0.25 pies
C) 2.5 pies
D) 0.4 cakes
E) 2.5 cakes
Answer: C
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Quantitative

31
Copyright © 2020 Pearson Canada Inc.
50) Suppose a bakeshop with 5 employees can produce both pies and cakes. In one day, if all
resources are devoted to baking pies, the shop can produce 125 pies; if all resources are devoted
to baking cakes, the shop can produce 50. What is the shop's opportunity cost of producing any
one pie?
A) 125 pies
B) 0.4 cakes
C) 2.5 pies
D) 0.4 pies
E) 50 cakes
Answer: B
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Quantitative

51) Katie and Hugh are producing pies and jars of pickles. Katie can produce either 200 jars of
pickles or 100 pies per month. Hugh can produce either 800 jars of pickles or 200 pies per
month. Which of the following statements is correct?
A) Katie's opportunity cost of producing 1 jar of pickles is 2 pies.
B) Katie's opportunity cost of producing 1 jar of pickles is 1/2 of a pie.
C) Hugh's opportunity cost of producing 1 jar of pickles is 4 pies.
D) Hugh's opportunity cost of producing 1 pie is 1/4 jar of pickles.
E) Hugh's and Katie's opportunity costs of producing are the same.
Answer: B
Diff: 3 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Quantitative

32
Copyright © 2020 Pearson Canada Inc.
52) Suppose Andrea has a job that pays her $50 000 per year (after taxes). She is considering
quitting her job and going to university full time for four years. Tuition fees and books will cost
$12 000 per year. Living expenses in either situation will cost $20 000 per year. What is the
opportunity cost of Andrea's four-year university degree?
A) $128 000
B) $200 000
C) $240 000
D) $248 000
E) $288 000
Answer: D
Diff: 3 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Quantitative

53) Suppose Amin has a job that pays him $87 000 per year (after taxes). He is considering
taking an unpaid leave of absence from his job to complete a 12-month MBA program. Tuition is
$75 000 and books and materials will cost $5000. Living expenses for the 12-month period will
be cheaper by $500 per month, mostly due to lower apartment rental costs. What is the
opportunity cost of Amin's 1-year MBA program?
A) $75 000
B) $76 000
C) $161 000
D) $167 000
E) $175 000
Answer: C
Diff: 3 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Quantitative

33
Copyright © 2020 Pearson Canada Inc.
54) It has been observed that university enrollment in Canada is higher during periods of high
unemployment. A possible explanation for this is that
A) when prospects for getting a job are poor, the opportunity cost of getting a job is lower.
B) when prospects for getting a job are poor, the opportunity cost of doing nothing is higher.
C) during periods of high unemployment, tuition fees are reduced.
D) during periods of high unemployment, the opportunity cost is no longer relevant.
E) when prospects for getting a job are poor, the opportunity cost of going to university is lower.
Answer: E
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

55) Chantal has a full-time job as a geological engineer and earns an annual after-tax salary of
$85 000. She decides to leave her job for 6 months to scuba dive on the Great Barrier Reef in
Australia, and incurs costs of $7500 for course equipment and certification, $2500 for airfare,
and $12 000 for regular living expenses in Australia (equal to her living expenses at home).
What is Chantal's opportunity cost for this 6-month, unpaid leave of absence?
A) $12 000
B) $22 000
C) $42 000
D) $52 500
E) $65 000
Answer: D
Diff: 3 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Quantitative

56) During economic recessions, the opportunity cost of going to university ________ because
the wages a student can expect to earn working in the best alternative ________.
A) increases; decrease
B) decreases; increase
C) increases; increase
D) decreases; decrease
E) remains the same; remain the same
Answer: D
Diff: 2 Type: MC
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative
34
Copyright © 2020 Pearson Canada Inc.
57) A country's production possibilities boundary shows that when a society uses its resources
efficiently,
A) it cannot produce more of one good without producing less of the other good.
B) it can produce more of only one good.
C) it is always possible to produce more of all goods.
D) all points inside the boundary are preferred to all points on the boundary.
E) the supply for goods always exceeds the demand.
Answer: A
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

58) Consider a production possibilities boundary that is drawn concave to the origin and shows
the possible combinations of military goods and civilian goods that a country can produce.
Suppose the country is currently at a point on the boundary. If the production of military goods is
increased, the production of civilian goods will necessarily
A) decrease.
B) remain the same.
C) increase.
D) increase at a decreasing rate.
E) increase at a increasing rate.
Answer: A
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

59) A point lying inside the production possibilities boundary is one at which
A) there is no scarcity.
B) the opportunity cost of producing more output is negative.
C) it is not possible to produce more output with existing resources.
D) the economy has run out of resources.
E) more output could be produced with existing resources.
Answer: E
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

35
Copyright © 2020 Pearson Canada Inc.
60) If a country's production possibilities boundary is drawn as a straight (downward-sloping)
line it indicates
A) decreasing opportunity cost of producing more of either good.
B) the use of the scarce resources in an economy.
C) constant opportunity cost of producing more of either good.
D) an unfair distribution of resources in an economy.
E) increasing opportunity cost of producing more of either good.
Answer: C
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

36
Copyright © 2020 Pearson Canada Inc.
61) The diagram below shows two production possibilities boundaries for Country X.

FIGURE 1-4

Refer to Figure 1-4. The production possibilities boundaries are drawn concave to the origin.
What does this shape of the PPB demonstrate?
A) the decreasing opportunity cost of producing more of either good
B) the scarcity of resources in the economy
C) the constant opportunity cost of producing more of either good
D) the unfair distribution of resources in the economy
E) the increasing opportunity cost of producing more of either good
Answer: E
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

37
Copyright © 2020 Pearson Canada Inc.
62) The diagram below shows two production possibilities boundaries for Country X.

FIGURE 1-4

Refer to Figure 1-4. If Country X, constrained by the production possibilities boundary PPB1, is
producing the combination of goods indicated at point F, it can produce more consumer goods by
moving to one of the points
A) A or E.
B) D or E.
C) A, B, or C.
D) A or B, but not C.
E) A, B, C, D, or E.
Answer: C
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

38
Copyright © 2020 Pearson Canada Inc.
63) The diagram below shows two production possibilities boundaries for Country X.

FIGURE 1-4

Refer to Figure 1-4. If Country X is currently producing at point A, it could move to point B if
A) the cost of producing capital goods were to increase.
B) some resources were switched from the capital goods industries to the consumer goods
industries.
C) the cost of producing consumer goods were to increase.
D) some resources were switched from the consumer goods industries to the capital goods
industries.
E) Country X is no longer able to produce the quantity of capital goods at point A.
Answer: B
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

39
Copyright © 2020 Pearson Canada Inc.
64) The diagram below shows two production possibilities boundaries for Country X.

FIGURE 1-4

Refer to Figure 1-4. If Country X were producing at point C,

A) the opportunity cost of moving to point A is to give up an increase in the production of
consumer goods.
B) the opportunity cost of moving to point A is zero.
C) the opportunity cost of moving to point A is to give up some capital goods.
D) this is the maximum output possible from given resources.
E) it is not possible to move to any point on PPB1 or PPB2 without technological progress.
Answer: A
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

40
Copyright © 2020 Pearson Canada Inc.
65) The diagram below shows two production possibilities boundaries for Country X.

FIGURE 1-4

Refer to Figure 1-4. At point B,

A) the price of capital goods is higher than the price of consumer goods.
B) Country X is producing too many consumer goods and too few capital goods.
C) the price of consumer goods is equal to the price of capital goods.
D) the opportunity cost of producing an extra unit of capital goods is higher than at point A.
E) the opportunity cost of producing an extra unit of consumer goods is higher than at point A.
Answer: E
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

41
Copyright © 2020 Pearson Canada Inc.
66) The diagram below shows two production possibilities boundaries for Country X.

FIGURE 1-4

Refer to Figure 1-4. If Country X, constrained by the production possibilities boundary PPB1, is
currently producing at point A, it can produce more capital goods by moving to point
A) F.
B) E.
C) D.
D) C.
E) B.
Answer: A
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

42
Copyright © 2020 Pearson Canada Inc.
67) The diagram below shows two production possibilities boundaries for Country X.

FIGURE 1-4

Refer to Figure 1-4. Suppose Country X is currently producing at point E. Country X could
achieve production at point D if
A) the given resources were fully employed.
B) the given resources were more efficiently employed.
C) sufficient improvements in technology occurred in either the capital goods industry or the
consumer goods industries.
D) firms reduced output of capital goods.
E) the prices of capital goods and consumption goods fell.
Answer: C
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

43
Copyright © 2020 Pearson Canada Inc.
68) The diagram below shows two production possibilities boundaries for Country X.

FIGURE 1-4

Refer to Figure 1-4. A shift of the production possibilities boundary from PPB1 to PPB2 implies
A) a movement from full employment to some unemployment.
B) that if point E is the new choice of outputs, productivity has increased in the consumer goods
industry.
C) that productive capacity in the capital goods industries has improved.
D) an inevitable decrease in total output.
E) that productive capacity in the consumer goods industry has improved.
Answer: C
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

44
Copyright © 2020 Pearson Canada Inc.
69) The diagram below shows two production possibilities boundaries for Country X.

FIGURE 1-4

Refer to Figure 1-4. Growth in the country's productive capacity is illustrated by

A) a point like D outside the boundary.
B) a movement from a point inside the boundary such as C to the boundary.
C) the movement between points on a given boundary.
D) a single point such as A on the boundary.
E) an outward shift of the boundary, for example from PPB1 to PPB2.
Answer: E
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

45
Copyright © 2020 Pearson Canada Inc.
70) The diagram below shows two production possibilities boundaries for Country X.

FIGURE 1-4

Refer to Figure 1-4. An outward shift of the production possibilities boundary from to
indicates which of the following?
A) an increase in the price of raw materials for consumer goods
B) growth in the country's productive capacity
C) an increase in the price of raw material for capital goods
D) more of the country's resources are being used
E) the country's resources are being used less efficiently
Answer: B
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

46
Copyright © 2020 Pearson Canada Inc.
71)

FIGURE 1-5

Refer to Figure 1-5. Suppose the relevant production possibilities boundary is the one labelled B.
This boundary implies that
A) the concept of opportunity cost is not at work in this economy.
B) the opportunity cost of producing either capital goods or consumer goods does not depend on
how much of each good is produced.
C) consumer goods are preferred to capital goods.
D) in this society, the resources are not efficiently employed.
E) capital goods are preferred to consumer goods.
Answer: B
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

47
Copyright © 2020 Pearson Canada Inc.
72)

FIGURE 1-5

Refer to Figure 1-5. Which production possibilities boundaries are consistent with increasing
opportunity costs?
A) boundary A only
B) boundaries A and B
C) boundary C only
D) boundaries B and C
E) boundaries A, B, and C
Answer: C
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

48
Copyright © 2020 Pearson Canada Inc.
73)

FIGURE 1-5

Refer to Figure 1-5. Which production possibilities boundaries exhibit decreasing opportunity
costs?
A) boundary B only
B) boundaries A and C
C) boundaries A and B
D) boundary A only
E) boundary C only
Answer: D
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

49
Copyright © 2020 Pearson Canada Inc.
74) If there is always a three-for-one trade-off between the production of goods X and Y, then
the production possibilities boundary for X and Y is
A) a downward-sloping curve convex to the origin.
B) semicircular.
C) a downward-sloping straight line.
D) a downward-sloping straight line that is broken at one point.
E) a downward-sloping curve concave to the origin.
Answer: C
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Quantitative

75) On a diagram of a production possibilities boundary, the concept of scarcity is illustrated by

the
A) points on the boundary.
B) area within the boundary.
C) distance from the origin to the boundary.
D) negative slope of the boundary.
E) unattainable points outside the boundary.
Answer: E
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

76) On a diagram of a production possibilities boundary, the concept of opportunity cost is

illustrated by the
A) distance from the origin to the boundary.
B) negative slope of the boundary.
C) boundary being concave to the origin.
D) unattainable points outside the boundary.
E) area bounded by the two axes and the boundary.
Answer: B
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

50
Copyright © 2020 Pearson Canada Inc.
77) On a diagram of a production possibilities boundary, the concept of choice is illustrated by
the
A) negative slope of the boundary.
B) unattainable combinations outside the boundary.
C) need to select among the alternative attainable points along or inside the boundary.
D) the concave shape of the boundary.
E) the distance from the origin to the boundary.
Answer: C
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

78) Consider the production possibilities boundary (PPB) of an economy. Economic growth is
illustrated by
A) the negative slope of the PPB.
B) an outward shift of the PPB.
C) a movement onto the PPB.
D) a movement along the PPB.
E) the movement to a point outside of the PPB.
Answer: B
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

79) Suppose there are only two goods produced in our economy—snowplows and helicopters. If
there is always a two-for-one tradeoff between the production of these two goods (in terms of
opportunity cost), then the production possibilities boundary between snowplows and helicopters
is
A) a downward-sloping curve convex to the origin.
B) circular.
C) a downward-sloping straight line.
D) a downward-sloping straight line with slope equal to -1.
E) a downward-sloping curve concave to the origin.
Answer: C
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

51
Copyright © 2020 Pearson Canada Inc.
80) A straight-line production possibilities boundary differs from a concave boundary in which
of the following ways?
A) The straight-line boundary illustrates constant opportunity costs, whereas the concave
boundary illustrates increasing opportunity costs.
B) The concave boundary illustrates constant opportunity costs, whereas the straight-line
boundary illustrates decreasing opportunity costs.
C) The straight-line boundary does not show scarcity, whereas the concave boundary does.
D) The straight-line boundary shows opportunity cost, whereas the concave boundary does not.
E) A straight-line boundary is associated with a command economy, whereas a concave
boundary is associated with a free-market economy.
Answer: A
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

81) Consider Canada's production possibilities boundary. Suppose a scientific breakthrough

leads to a lower-cost method of producing battery-operated cars in Canada. The likely effect
would be to move Canada's current production
A) to a point beyond its new production possibilities boundary.
B) to a point inside its new production possibilities boundary.
C) possibilities boundary outward.
D) possibilities boundary inward.
E) above the level of U.S. production.
Answer: C
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

52
Copyright © 2020 Pearson Canada Inc.
82) Consider Canada's production possibilities boundary. Suppose fire destroys many millions of
hectares of valuable Canadian forest. The effect on the Canadian economy would be best
illustrated by ________ the production possibilities boundary.
A) a movement inside
B) a movement along
C) a movement to a point beyond
D) a shift outward of
E) an inward shift of
Answer: E
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

83) Consider Canada's production possibilities boundary. During the nineteenth and early
twentieth centuries, millions of people immigrated to western Canada. The effect on the
Canadian economy was to
A) move it to a point beyond its new production possibilities boundary.
B) move it inside its new production possibilities boundary.
C) shift its production possibilities boundary inward.
D) shift its production possibilities boundary outward.
E) move it along an unchanged production possibilities boundary.
Answer: D
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

84) In recent years, several large Canadian-owned mining and resource companies have been
sold to foreign owners. The immediate effect on Canada's production possibilities boundary is
A) a shift outward.
B) a shift inward.
C) no change.
D) a movement along.
E) a movement to a point beyond the boundary.
Answer: C
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

53
Copyright © 2020 Pearson Canada Inc.
85) The world price of oil fell in 2014-2015 from over $100 per barrel to less than $50. As a
producer of oil, what effect did this change have on Canada's production possibilities boundary?
A) a shift outward
B) a shift inward
C) movement to a point beyond the boundary
D) movement to a point within the boundary
E) no change
Answer: E
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

86) Suppose drought destroys many millions of acres of valuable Canadian farmland. The effect
on the Canadian economy would be to move
A) it along its production possibilities boundary.
B) its production possibilities boundary inward.
C) it beyond its production possibilities boundary.
D) its production possibilities boundary outward.
E) None of the above. There would be no change in Canada's production possibilities boundary.
Answer: B
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

87) A move from inside the production possibilities boundary to the boundary itself could be
caused by
A) the employment of previously idle resources.
B) a reallocation of resources from military to civilian goods.
C) technological progress.
D) an increase in the labour supply.
E) an improvement in the government's ability to control its spending.
Answer: A
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

54
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88) Consider a production possibilities boundary showing the quantity of military goods and the
quantity of civilian goods on the two axes. A movement along the production possibilities
boundary could be caused by
A) the employment of previously idle resources.
B) the reallocation of resources between military and civilian goods.
C) the growth of productive capacity.
D) an increase in the labour supply.
E) technological progress.
Answer: B
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Category: Qualitative

55
Copyright © 2020 Pearson Canada Inc.
89) The downward-sloping line in the diagram below shows the combinations of health care and
education expenditures that the government can afford with a given amount of tax revenue.

FIGURE 1-6

Refer to Figure 1-6. The levels of health and education expenditures at point C
A) are less than at point D.
B) are equal to those of point A and point B.
C) are more cost-effective than those at points A, B, and D.
D) could be achieved if the prices of health and/or education increased.
E) are not attainable with the government's current budget.
Answer: E
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

56
Copyright © 2020 Pearson Canada Inc.
90) The downward-sloping line in the diagram below shows the combinations of health care and
education expenditures that the government can afford with a given amount of tax revenue.

FIGURE 1-6

Refer to Figure 1-6. If the government's spending on health and education is given by point B, a
move to point A must involve
A) less spending on health.
B) zero opportunity cost.
C) less spending on education.
D) less spending in total.
E) more spending on education.
Answer: C
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

57
Copyright © 2020 Pearson Canada Inc.
91) The downward-sloping line in the diagram below shows the combinations of health care and
education expenditures that the government can afford with a given amount of tax revenue.

FIGURE 1-6

Refer to Figure 1-6. Suppose the government's current spending is shown by point D. In this
case,
A) the government is not spending its total available budget for these two items.
B) more education expenditures can be achieved only by sacrificing some existing health
expenditures.
C) more health expenditures can be achieved only by sacrificing some existing education
expenditures.
D) the government is spending more than its total budget.
E) the prices of education and health care have increased beyond the government's ability to pay.
Answer: A
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Qualitative

58
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92) Figure 1-7 shows the production possibilities boundary for an economy that produces two
goods—cotton and bananas.

FIGURE 1-7

Refer to Figure 1-7. A production possibilities boundary is shown for an economy that produces
two goods—cotton and bananas, both measured in tonnes produced per year. Suppose the
economy is currently producing at point A. What is the opportunity cost to this economy of
increasing production of bananas by 100 tonnes?
A) There is no opportunity cost.
B) 60 tonnes of cotton
C) 100 tonnes of cotton
D) 1440 tonnes of bananas
E) 1500 tonnes of bananas
Answer: B
Diff: 1 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

59
Copyright © 2020 Pearson Canada Inc.
93) Figure 1-7 shows the production possibilities boundary for an economy that produces two
goods—cotton and bananas.

FIGURE 1-7

Refer to Figure 1-7. A production possibilities boundary is shown for an economy that produces
two goods—cotton and bananas, both measured in tonnes produced per year. Suppose the
economy is currently producing at point D. What is the opportunity cost of increasing production
of bananas by 100 tonnes?
A) There is no opportunity cost.
B) 420 tonnes of cotton
C) 100 tonnes of cotton
D) 60 tonnes of cotton
E) 920 tonnes of cotton
Answer: E
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

60
Copyright © 2020 Pearson Canada Inc.
94) Figure 1-7 shows the production possibilities boundary for an economy that produces two
goods—cotton and bananas.

FIGURE 1-7

Refer to Figure 1-7. A production possibilities boundary is shown for an economy that produces
two goods—cotton and bananas, both measured in tonnes produced per year. Suppose this
economy is currently producing 1280 tonnes of cotton and 200 tonnes of bananas. What is the
opportunity cost of increasing production of bananas by 100 tonnes?
A) 100 tonnes of cotton
B) 360 tonnes of cotton
C) 360 tonnes of bananas
D) 920 tonnes of cotton
E) There is no opportunity cost.
Answer: B
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

61
Copyright © 2020 Pearson Canada Inc.
95) Figure 1-7 shows the production possibilities boundary for an economy that produces two
goods—cotton and bananas.

FIGURE 1-7

Refer to Figure 1-7. A production possibilities boundary is shown for an economy that produces
two goods—cotton and bananas, both measured in tonnes produced per year. Suppose this
economy moves from point D to point F, where it is then producing bananas exclusively. Which
of the following explanations best describes the opportunity cost involved in producing this extra
100 tonnes of bananas?
A) The opportunity cost is very high in this case because resources that are probably much better
suited to producing cotton are now being devoted to producing bananas.
B) The opportunity cost is very low in this case because resources that are probably much better
suited to producing cotton are now being devoted to producing bananas.
C) The opportunity cost is very high in this case because resources that are probably much better
suited to producing bananas are now being devoted to producing cotton.
D) The opportunity cost is very low in this case because resources that are probably much better
suited to producing bananas are now being devoted to producing cotton.
E) The opportunity cost of producing the extra bananas is independent of the amount being
produced.
Answer: A
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative
62
Copyright © 2020 Pearson Canada Inc.
96) Figure 1-7 shows the production possibilities boundary for an economy that produces two
goods—cotton and bananas.

FIGURE 1-7

Refer to Figure 1-7. A production possibilities boundary is shown for an economy that produces
two goods—cotton and bananas, both measured in tonnes produced per year. If the economy
moves from point C to point D, what is the opportunity cost of each extra tonne of bananas
produced?
A) 0.36 tonnes of cotton
B) 3.6 tonnes of cotton
C) 3.75 tonnes of cotton
D) 36 tonnes of cotton
E) 375 tonnes of cotton
Answer: B
Diff: 3 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

63
Copyright © 2020 Pearson Canada Inc.
97) Figure 1-7 shows the production possibilities boundary for an economy that produces two
goods—cotton and bananas.

FIGURE 1-7

Refer to Figure 1-7. A production possibilities boundary is shown for an economy that produces
two goods—cotton and bananas, both measured in tonnes produced per year. Which of the
following statements best describes the difference in opportunity costs that this economy faces at
point A compared to point E?
A) The opportunity cost is 1500 tonnes of cotton at point A, compared to 500 tonnes at point E.
B) The opportunity cost is 500 tonnes of cotton at point A, compared to 1500 tonnes at point E.
C) The opportunity cost of producing an extra tonne of bananas is much higher at point A than at
point E.
D) The opportunity cost of producing an extra tonne of bananas is much lower at point A than at
point E.
E) The opportunity cost of producing an extra tonne of bananas is the same at point A as at point
E.
Answer: D
Diff: 2 Type: MC
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how
each is illustrated by the production possibilities boundary.
Graphics: Graph
Category: Quantitative

64
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1.2 The Complexity of Modern Economics

1) A modern economy like Canada's is largely organized by

A) governments at all levels coordinating the activities of firms and citizens.
B) individuals forming cooperative enterprises and labour unions.
C) individuals following their own self-interest, doing what seems best for themselves.
D) benevolent individuals pursuing the public interest.
E) the self-interested behaviour of a small number of individuals.
Answer: C
Diff: 2 Type: MC
Topic: 1.2a. self-organizing economy
Skill: Recall
Learning Obj.: 1-2 View the market economy as self-organizing in the sense that order emerges
from a large number of decentralized decisions.
Category: Qualitative

2) An insight first fully developed by Adam Smith is that

A) without benevolence production would not occur.
B) all individuals are motivated solely by self-interest.
C) self-interest, not benevolence, is the foundation of economic order.
D) self-interest undermines effective economic order.
E) individual self-interest is the only necessary force for social order.
Answer: C
Diff: 1 Type: MC
Topic: 1.2a. self-organizing economy
Skill: Recall
Learning Obj.: 1-2 View the market economy as self-organizing in the sense that order emerges
from a large number of decentralized decisions.
Category: Qualitative

3) An important insight by Adam Smith, which was more fully developed over the next century,
is that in a free market the resources available to a nation are organized so as to produce the
goods and services that people want with the least possible amount of resources. This concept is
known in economics as
A) productivity.
B) division of labour.
C) specialization.
D) benevolence.
E) efficiency.
Answer: E
Diff: 2 Type: MC
Topic: 1.2a. self-organizing economy
Skill: Recall
Learning Obj.: 1-2 View the market economy as self-organizing in the sense that order emerges
from a large number of decentralized decisions.
Category: Qualitative

65
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4) In the Canadian economy, most decisions regarding resource allocation are made by
A) consumers and producers interacting in the price system.
B) the various levels of government.
C) negotiation between unions and firms.
D) business firms only.
E) legal contract.
Answer: A
Diff: 1 Type: MC
Topic: 1.2a. self-organizing economy
Skill: Recall
Learning Obj.: 1-2 View the market economy as self-organizing in the sense that order emerges
from a large number of decentralized decisions.
Category: Qualitative

5) With reference to the circular flow of income, how is the allocation of resources largely
decided?
A) by central authorities only
B) by central authorities and firms only
C) by firms and individuals acting independently
D) by political parties and firms only
E) by individuals only
Answer: C
Diff: 1 Type: MC
Topic: 1.2b. circular flow of income and expenditure
Skill: Recall
Learning Obj.: 1-2 View the market economy as self-organizing in the sense that order emerges
from a large number of decentralized decisions.
Category: Qualitative

6) The key decision makers in a market economy are

A) individuals, firms, and government.
B) individuals, non-profit organizations, and the Bank of Canada.
C) governments and all institutions under government control.
D) large corporations and labour organizations.
E) corporations and governments.
Answer: A
Diff: 1 Type: MC
Topic: 1.2b. circular flow of income and expenditure
Skill: Recall
Learning Obj.: 1-2 View the market economy as self-organizing in the sense that order emerges
from a large number of decentralized decisions.
Category: Qualitative

66
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7) Economists usually assume that individuals and firms, respectively, maximize
A) income and sales.
B) savings and profits.
C) wages and revenues.
D) utility and profits.
E) expenditures and profits.
Answer: D
Diff: 2 Type: MC
Topic: 1.2b. circular flow of income and expenditure
Skill: Recall
Learning Obj.: 1-2 View the market economy as self-organizing in the sense that order emerges
from a large number of decentralized decisions.
Category: Qualitative

8) Which of the following is illustrated by the circular flow of income?

A) the flows of expenditures and income in a household
B) that firms own the factors of production
C) the interaction of individuals and firms through the factors and goods markets
D) that the flow of payments moves in the same direction as the flow of goods
E) that there is no relationship between goods markets and factor markets
Answer: C
Diff: 2 Type: MC
Topic: 1.2b. circular flow of income and expenditure
Skill: Recall
Learning Obj.: 1-2 View the market economy as self-organizing in the sense that order emerges
from a large number of decentralized decisions.
Category: Qualitative

9) Which of the following represents a typical "real" flow (as opposed to a financial flow) in the
circular flow of income?
A) goods going from producers to consumers
B) factor services going from producers to consumers
C) goods going from consumers to producers
D) money payments going from consumers to producers
E) money payments going from producers to consumers
Answer: A
Diff: 1 Type: MC
Topic: 1.2b. circular flow of income and expenditure
Skill: Recall
Learning Obj.: 1-2 View the market economy as self-organizing in the sense that order emerges
from a large number of decentralized decisions.
Category: Qualitative

67
Copyright © 2020 Pearson Canada Inc.
10) If some income earned by households is not spent on output, or if some income earned by
firms is not spent on factor services, the circular flow of income will
A) stop.
B) run over.
C) expand.
D) contract.
E) explode.
Answer: D
Diff: 2 Type: MC
Topic: 1.2b. circular flow of income and expenditure
Skill: Applied
Learning Obj.: 1-2 View the market economy as self-organizing in the sense that order emerges
from a large number of decentralized decisions.
Category: Qualitative

11) The famous economist who first described the division of labour was
A) Karl Marx.
B) Milton Friedman.
C) David Ricardo.
D) John Maynard Keynes.
E) Adam Smith.
Answer: E
Diff: 1 Type: MC
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is
facilitated by money.
Category: Qualitative

12) Which of the following statements about specialization and trade are correct?
A) They developed only in the twentieth century.
B) They exist only in capitalist economies.
C) They arose as humans changed from nomadic and self-sufficient food gatherers to settled
food producers.
D) They developed only where government and political institutions were stable.
E) They occur only in the private sector.
Answer: C
Diff: 1 Type: MC
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is
facilitated by money.
Category: Qualitative

68
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13) If an economy exhibits the specialization of labour, we know that
A) a barter economy is more suitable.
B) most production is artisanal in nature.
C) each worker is self-sufficient.
D) job security is ensured.
E) different individuals are producing different products.
Answer: E
Diff: 1 Type: MC
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is
facilitated by money.
Category: Qualitative

14) Which of the following statements best describes a barter system of exchange?
A) It involves the trading of goods directly for other goods.
B) It requires the use of money.
C) It eliminates the transactions costs involved in exchange.
D) It developed late in history.
E) It is the most efficient form of exchange.
Answer: A
Diff: 1 Type: MC
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is
facilitated by money.
Category: Qualitative

15) Specialization of labour led to greater efficiency in the allocation of resources because of
A) greater reliance on self-sufficiency.
B) the use of barter.
C) the principle of comparative advantage.
D) an increase in total work effort.
E) the opportunity cost of labour increased.
Answer: C
Diff: 2 Type: MC
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is
facilitated by money.
Category: Qualitative

69
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16) A greater specialization of labour leads to which of the following major results?
A) The overall output of the economy declines.
B) There is an increased need for government to intervene in the marketplace.
C) The circular flow of income contracts.
D) There is a greater need for trade.
E) Each worker must become more self-sufficient.
Answer: D
Diff: 2 Type: MC
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is
facilitated by money.
Category: Qualitative

17) A farmer selling tomatoes and corn at a roadside, and a currency trader in Hong Kong are
each participating in
A) barter.
B) a market.
C) an involuntary transaction.
D) flexible manufacturing.
E) international trade.
Answer: B
Diff: 1 Type: MC
Topic: 1.2c. division of labour, specialization and trade
Skill: Applied
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is
facilitated by money.
Category: Qualitative

18) Which of the following has most contributed to the globalization of the economy?
A) the decreased importance of agriculture
B) reductions in transportation and communication costs
C) the shift toward a market economy in China
D) tariffs and trade barriers
E) the decline in the relative importance of manufacturing
Answer: B
Diff: 1 Type: MC
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is
facilitated by money.
Category: Qualitative

70
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19) Which of the following results from the introduction of money for use in transactions?
A) exchange becomes easier and this promotes the specialization of labour
B) an increased use of barter
C) the specialization of labour becomes more difficult
D) self-sufficiency is assured
E) society is able to satisfy all wants
Answer: A
Diff: 2 Type: MC
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is
facilitated by money.
Category: Qualitative

20) The barter system of exchange is inefficient because

A) "fair" values cannot be defined without the use of money.
B) bargaining power is unequal between rich and poor.
C) the double coincidence of wants may not exist.
D) markets do not exist.
E) exchange partners need to know each other.
Answer: C
Diff: 2 Type: MC
Topic: 1.2c. division of labour, specialization and trade
Skill: Applied
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is
facilitated by money.
Category: Qualitative

21) Which of the points below are true of money?

1) Money eliminates the need for barter.
2) Money allows for specialization of labour and expansion of trade.
3) Money facilitates the development of a market economy.
4) Trade did not take place before the introduction of money.
A) only 1
B) only 1 and 2
C) only 1 and 4
D) only 1, 2, and 3
E) All of the points are true.
Answer: D
Diff: 2 Type: MC
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is
facilitated by money.
Category: Qualitative

71
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22) Money facilitates trade and specialization by
A) allowing an efficient barter system to develop.
B) increasing the value of gold.
C) eliminating the need for barter.
D) reducing the shift of resources between uses.
E) providing employment for coin makers.
Answer: C
Diff: 1 Type: MC
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is
facilitated by money.
Category: Qualitative

1.3 Is There an Alternative to the Market Economy?

1) An economic system that relies primarily upon custom and habit in economic decision making
is referred to as a
A) market system.
B) traditional system.
C) command system.
D) mixed system.
E) communist system.
Answer: B
Diff: 1 Type: MC
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

2) In practice, the term "centrally planned economy" refers to an economy in which

A) the government makes ALL production and consumption decisions.
B) the mix of market and command principles is heavily weighted towards the latter.
C) all commodities are rationed.
D) the military is in control of the government.
E) economic decisions are made in the geographic centre of the country.
Answer: B
Diff: 2 Type: MC
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

72
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3) Karl Marx argued that
A) technological change was not important in improving living standards.
B) a free-market system would produce a low level of total output.
C) benevolence, not self-interest, produced an effective economic order.
D) centrally planned economies could provide a more equitable distribution of total output than
capitalist economies.
E) the unfettered market system driven by self-interest leads to the best social outcome.
Answer: D
Diff: 1 Type: MC
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

4) When discussing types of economic systems, the Canadian economy is best described as
A) primarily a public ownership economy.
B) primarily free-market decision making.
C) traditional.
D) a command economy.
E) a mixed economic system.
Answer: E
Diff: 1 Type: MC
Topic: 1.3. alternative economic systems
Skill: Applied
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

5) With regard to various economic systems, most economists agree that

A) the mix of market and command principles that exists in Canada is the best.
B) the optimal mix of market and command systems remains constant over time.
C) most production and consumption decisions are more efficiently coordinated by markets than
through central planning.
D) government intervention in the economy is only justified in time of war.
E) command economies have been very successful in distributing income in socially just ways.
Answer: C
Diff: 2 Type: MC
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

73
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6) Which countries have mostly public ownership of resources?
A) United States and Canada
B) Cuba and North Korea
C) France and Germany
D) Sweden and Norway
E) Brazil and Argentina
Answer: B
Diff: 1 Type: MC
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

7) Behaviour in free-market economies is

A) determined by a central authority.
B) based primarily on custom and habit.
C) mostly directed by self-interest.
D) mostly affected by elements of tradition and government command.
E) random and unpredictable.
Answer: C
Diff: 1 Type: MC
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

8) In command economies, economic behaviour is

A) largely determined by a central authority.
B) based primarily on custom and habit.
C) directed by individual self-interest.
D) largely affected by elements of tradition and market incentives.
E) random and unpredictable.
Answer: A
Diff: 1 Type: MC
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

74
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9) In mixed economies, economic behaviour is
A) largely determined by a central authority.
B) based primarily on custom and habit.
C) directed only by self-interest.
D) affected by elements of tradition, government command, and market incentives.
E) random and unpredictable.
Answer: D
Diff: 1 Type: MC
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

10) In traditional economies, economic behaviour is

A) largely determined by a central authority.
B) based primarily on custom and habit.
C) directed only by self-interest.
D) affected by elements of tradition, government command, and market incentives.
E) random and unpredictable.
Answer: B
Diff: 1 Type: MC
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

11) Complex economic plans for many economic sectors are most associated with a
A) free-market system.
B) mixed market system.
C) command economy.
D) feudal system.
E) traditional economy.
Answer: C
Diff: 1 Type: MC
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

75
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12) Most modern economies in the world today
A) have pure market exchange.
B) are similar to feudal systems.
C) are mostly run by government decree.
D) have a mix of traditional, command and market elements.
E) are complex systems that defy description and analysis.
Answer: D
Diff: 2 Type: MC
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

13) In the current Canadian economy, the majority of choices on how resources are allocated are
made by
A) the various levels of government.
B) negotiation between unions and firms.
C) business firms only.
D) legal contracts.
E) consumers and firms through the price system.
Answer: E
Diff: 1 Type: MC
Topic: 1.3. alternative economic systems
Skill: Applied
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

14) Comparison of economic systems indicates that

A) most nations have either a purely socialist economy or a purely capitalist economy.
B) most countries have mixed economies.
C) socialist economies are clearly superior in producing consumer goods.
D) capitalist economies are clearly superior in distributing income.
E) all countries have largely traditional economies.
Answer: B
Diff: 2 Type: MC
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

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Copyright © 2020 Pearson Canada Inc.
15) Many economies in central and Eastern Europe, including the countries of the former Soviet
Union, are still in the process of moving from a command economy to a market economy. In the
first years of this transition, most of these countries experienced sharp drops in output and
reductions in living standards. Economists generally see this as
A) the failure of the market system.
B) the triumph of capitalism over communism.
C) an indication of the extreme difficulty of transition from one type of economic system to
another.
D) an indication that these economies should return to being command economies.
E) the difficulty of corruption in non-market economies.
Answer: C
Diff: 2 Type: MC
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

16) In a pure market economy, the role of government is limited to provision of :

i) a basic legal and institutional structure.
ii) intervention in the allocation of resources in some areas of the economy.
iii) redistribution of income.
iv) stabilization of economic conditions generally.

Which of the above points is true?

A) Only i).
B) Only i) and ii).
C) Only i) and iv).
D) Only i), ii), and iv).
E) All of the points are provided by government in a pure market economy.
Answer: A
Diff: 2 Type: MC
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

77
Copyright © 2020 Pearson Canada Inc.
17) In a modern mixed economy the government ensures that key institutions are in place to
facilitate voluntary transactions between economic agents. These key institutions are
A) labour and capital markets.
B) the House of Commons and the Senate.
C) the Department of Finance and the Bank of Canada.
D) securities regulators and the court system.
E) private property and freedom of contract.
Answer: E
Diff: 2 Type: MC
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of
free markets, tradition, and government intervention.
Category: Qualitative

78
Copyright © 2020 Pearson Canada Inc.