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Practice Questions
Econ 1012B
1.
A)
B)
C)
D)
E)
Which of the following is NOT a behavioural postulate of economics?
For each person, some goods are scarce.
People are not willing to give up one good to get more of other goods.
The law of diminishing returns.
Each person desires many goods.
All of the above are behavioural postulates of economics.
2. Which of the following would be part of economics?
A) The federal government deciding which Quebec advertising firms receive money
under its former Cultural Sponsorship Program.
B) A student deciding whether to take an economics course or an English literature
course.
C) A three-year old deciding whether to play with his or her colouring book or take a
nap.
D) All of the above are economic choices.
3.
A)
B)
C)
D)
Economics assumes all of the following EXCEPT that
decision-makers often make choices that are not in their best interests.
decision-makers have alternatives.
decision-makers make optimal choices.
decision-makers have scarce resources.
4. Which of the following is true of economic models?
A) They include assumptions of the behaviour of decision makers that MAY NOT
always be true of all decision-makers in the real world.
B) They include assumptions on the behaviour of decision makers that ARE always true
of all decision-makers in the real world.
C) They include all the factors affecting decision-makers in the real world.
D) They never simplify the real world.
5.
A)
B)
C)
D)
The marginal benefit from consuming another unit of a good
must equal the marginal cost, or the unit will not be consumed.
must be less than the marginal cost, or the unit will not be consumed.
equals the increase in total benefits from consuming the unit.
equals the total benefit obtained from the consumption of all prior units.
6. The sunk costs of studying for a test are 100; the marginal benefits are 200.
Following economic reasoning, you should
A) study for the test.
B) not study for the test.
C) study for the test until the marginal benefit falls to 100.
D) obtain more information before making a decision.
7. Suppose the marginal cost of dating a particular person is 30 while the marginal
benefit is 40. Following economic reasoning you should
A) date that person.
B) not date that person.
C) determine what your sunk costs are.
D) determine what your total benefits and total costs are.
Use the following to answer questions 8-10:
Marginal benefit
500
400
300
200
100
0
2
3
4
5
Number of trips
8. Refer to the graph above. If the marginal cost of each weekend trip this year is $600
no matter how many trips Rodney takes, then assuming he is rational, Rodney will
A) take 3 trips this year.
C) take 1 trip this year.
B) take 2 trips this year.
D) not take any trips this year.
9. Refer to the graph above. If the marginal cost of each weekend trip this year is $299
no matter how many trips Rodney takes, then assuming he is rational, Rodney will
A) take 4 trips this year. B) take 3 trips this year. C) take 2 trips this year. D)
take 1 trip this year.
10. Refer to the graph above. Rodney has taken three trips to New York City at an
average cost of $400 per trip. Which of the following is true?
A) Rodney is not rational. He should have taken more trips.
B) The third trip did not provide Rodney with any additional gain.
C) Given the available information, we cannot determine whether Rodney is rational.
D) At this cost, Rodney should have chosen to go to New York City twice.
11. The table below shows how the marginal benefit of pizza dinners varies according to
the number consumed per month.
Dinners
per month
1
2
3
4
Marginal benefit
$4.00
$3.00
$2.00
$1.00
Suppose the price per dinner is $4.99 and accurately reflects the marginal cost of the
dinners. Assuming that the purchaser is rational the purchaser
A) will not consume any pizza dinners this
C) will consume 2 pizza dinners this
month.
month.
B) will consume 1 pizza dinner this month.
D) will consume 3 pizza dinners this
month.
12. Alan is sitting in a bar drinking beers that cost $1 each. According to the economic
decision rule, Alan will quit drinking when
A) the marginal benefit to him of an additional beer is less than $1.
B) the marginal cost to him of an additional beer is less than the marginal benefit.
C) the marginal cost to him of an additional beer is greater than $1.
D) the marginal benefit to him of an additional beer is greater than $1.
13. You've purchased a car for $10,000 and now are deciding whether to have a sunroof
installed for $400 and a security system installed for $200. The marginal cost of
adding both the sunroof and security system is:
A) $10,600. B) $10,000. C) $400. D) $600.
14. A student who has paid non-refundable tuition of $45 a lecture estimates the
marginal benefit of each lecture to be $60. What additional information would she
need to make a rational decision to attend class?
A) The tuition for other classes.
B) The value of her time that she could spend doing something else.
C) The value of the professor's time.
D) None; she has enough information.
15. Which of the following statements about the concept of opportunity cost is true?
A) The opportunity cost of a decision includes only monetary outlays.
B) The opportunity cost of a decision is the net benefit foregone by not undertaking the
next best alternative.
C) All decisions have zero opportunity cost.
D) The opportunity cost of some decisions is zero.
16.
A)
B)
C)
D)
When your wages rise
the opportunity cost of an hour of work decreases.
the opportunity cost of an hour of leisure stays the same.
the cost of working increases.
the opportunity cost of an hour of leisure increases.
17. The opportunity cost of spending $100 million on a new fighter plane might include
all of the following except
A) the health care benefits that could have been provided by the $100 million.
B) the infrastructure that could have been built with the $100 million.
C) the wages earned by the workers who built the plane.
D) the technologies that might have been developed with the $100 million.
18. When applying the concept of opportunity cost to the pollution of a lake, an
economist would probably conclude that
A) all pollution in the lake should be eliminated, regardless of cost.
B) no pollution in the lake should be eliminated, regardless of benefit.
C) pollution should be eliminated as long as the benefit from a clean-up exceeds the
opportunity cost.
D) pollution should be eliminated as long as the opportunity cost of a clean-up exceeds
the cost of the resources required for the clean-up.
19.
A)
B)
C)
D)
The invisible hand theory argues that
markets allocate resources inefficiently unless the government intervenes.
prices fall when the quantity supplied is less than the quantity demanded.
prices rise when the quantity supplied is greater than the quantity demanded.
markets allocate resources efficiently through the price mechanism.
20.
A)
B)
C)
D)
Markets are efficient if
they produce low prices.
they allocate resources to their best possible uses.
they maximize output.
they minimize resource use.
21. Many drugs are illegal in Canada. Despite this law, illegal drugs are usually
available at a price many times higher than they would be if the drugs weren't
illegal. The high price of illegal drugs is an example of
A) the invisible hand affecting political forces.
C) the failure of the invisible hand.
B) political forces affecting the invisible hand.
D) the failure of political forces.
22. Which statement best summarizes the theory of the invisible hand?
A) Political forces direct people's selfish desires (tempered by social and economic
forces) to the common good.
B) Social forces direct people's selfish desires (tempered by political and economic
forces) to the common good.
C) Economic forces direct people's selfish desires (tempered by political and social
forces) to the common good.
D) Social, political, and economic forces act against people's selfish desires to promote
the common good.
23.
A)
B)
C)
D)
All of the following are questions involving normative economic issues except
How should the government deal with the next recession?
Should the government transfer money from the rich to the poor?
How are price and quantity demanded related?
Should government allow two large companies to merge?
24. An economic study concludes that an increase in the corporate tax rate would reduce
business investment next year. This conclusion is an example of
A) normative analysis. B) a value judgment. C) the science of economics. D)
positive analysis.
25. "Price controls are bad for the economy and should not be used" is an example of
A) positive economics.
C) the science of economics.
B) normative economics.
D) Marshallian economics.