Chapter 1

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Questions and Answers

Which of the following is a normative statement?

Social media is detrimental to the current generation.

Tabulations from data collected in a recent government survey show that 10 percent of adults in the population think that social media ought to be heavily regulated. (correct)

The Toronto Raptors have signed Cameron Payne, a guard who played last season with Chicago and Cleveland.

French fries are not really French.

If an inverse relationship exists between x and y, then an increase in x will cause y to decrease.

True

What does ceteris paribus mean?

Prosperity inevitably follows recession

All other things remain the same (correct)

If event A precedes event B, A has caused B

Economics deals with facts, not values

Which of the following is a positive statement?

The temperature is 22°C. Signup and view all the answers

The role of the entrepreneur involves:

Bearing risks Signup and view all the answers

Economics can best be described as the study of how:

To distribute limited resources among alternative ends Signup and view all the answers

Microeconomics is concerned with the:

Behaviour of individual participants in various markets Signup and view all the answers

Macroeconomics approaches the study of economics from the viewpoint of:

Entire economic sectors Signup and view all the answers

Which of the following is a correct statement?

Though not quantitatively exact, economic laws are useful because they allow us to predict and, therefore, to control or to adjust to events Signup and view all the answers

An economic model usually includes:

Two or more factors that have measurable values Signup and view all the answers

If we say that two variables are directly related, this means that:

An increase in one variable is associated with an increase in the other variable Signup and view all the answers

If we say that two variables are inversely related, this means that:

An increase in one variable is associated with a decrease in the other variable Signup and view all the answers

To produce a total output of 3 TVs and 13 stereos, this economy must:

undergo an outward shift in its production possibilities curve Signup and view all the answers

Assume that a change in government policy results in the increased production of all types of products. It can be concluded that the:

economy was not fully employing its resources before the policy change Signup and view all the answers

Any point inside the production possibilities curve indicates:

that more output could be produced with available resources Signup and view all the answers

Consider the following two tables for North and South Cantinas. If North Cantina is producing 2 hamburgers and 17 hot dogs while South Cantina is producing 2 hamburgers and 21 hot dogs, what can be concluded?

South Cantina is fully employing its resources but North Cantina is not Signup and view all the answers

The shape of each production possibilities curve:

illustrates the law of increasing opportunity costs Signup and view all the answers

The concept of opportunity cost is best represented by:

move from point B to point C along PP1 Signup and view all the answers

An improvement in technology could be expected to:

shift the production possibilities curve from PP1 to PP2 Signup and view all the answers

The economic problem is essentially one of deciding how to make the best use of:

Limited resources to satisfy unlimited wants Signup and view all the answers

Economists assume that people customarily behave rationally, meaning that people:

Virtually always weigh the personal benefits and costs of every available action and choose an action on the basis of their individual wants Signup and view all the answers

An economist who says that consumer wants are inexhaustible means that:

Consumers wants are virtually unlimited and, therefore, incapable of being fully satisfied Signup and view all the answers

The fundamental problem of economics is:

The scarcity of productive resources relative to consumer wants Signup and view all the answers

A product has utility if it:

Satisfies consumer wants Signup and view all the answers

The economic problem stems from the fact that:

Resources are scarce relative to people's demand for goods and services Signup and view all the answers

Utility refers to the:

Satisfaction that a consumer derives from a good or service Signup and view all the answers

The study of economics is carried out because:

Resources are scarce in relation to consumer wants Signup and view all the answers

To maximize utility, a consumer who derives greater satisfaction from writing music than from studying drama will choose to:

Write music Signup and view all the answers

The scarcity problem:

Persists because a society's consumer wants exceed its available economic resources Signup and view all the answers

Because of scarcity, the efficient use of resources is:

An important economic goal in all economies Signup and view all the answers

Which of the following expressions best states the idea of opportunity cost?

"There is no such thing as a free lunch." Signup and view all the answers

As used in economics, the notion of scarcity means that:

Resources are not so plentiful that all consumer wants can be fulfilled Signup and view all the answers

The notion of opportunity cost applies to:

Economies of all ideological persuasions Signup and view all the answers

Stocks and bonds are not considered to be an economic resource because they:

Do not add to the economy's stock of real capital Signup and view all the answers

Which of the following is not an illustration of the notion of opportunity cost?

A growing economy can produce more ice cream and more ice cream cones at the same time Signup and view all the answers

The money payments made to owners of human resources are:

Wages, salaries, or profit Signup and view all the answers

The notion of opportunity cost is best defined as:

The utility that could have been gained by choosing an action's best alternative Signup and view all the answers

Which of the following best describes your opportunity cost of downloading a free app on your smartphone?

The time you spent downloading and registering the app Signup and view all the answers

Economic resources do NOT include:

Stocks and bonds Signup and view all the answers

The production possibilities curve illustrates the basic principle that:

If all the resources of an economy are fully used, more of one item could be produced only if less of another item is produced Signup and view all the answers

Which of the following is a capital resource?

A dump truck Signup and view all the answers

A total output of 3 TVs and 4 stereos:

Involves the employment of an economy's scarce resources at less than their full capacity Signup and view all the answers

Points A, B, C, D, and E in a production possibilities curve diagram show:

Combinations of bicycles and computers that a society can produce by fully employing its resources. Signup and view all the answers

If a society is currently producing 9 bicycles and 4 computers, the decision to increase computer output to 6 costs:

4 bicycles Signup and view all the answers

If a society is currently producing the combination of bicycles and computers shown by point D on the production possibilities curve, the production of 2 more bicycles:

Costs 1 computer. Signup and view all the answers

The law of increasing opportunity costs is reflected in a production possibilities curve that:

Bows out to the right. Signup and view all the answers

The United States economy most closely approximates a:

Modern mixed economy Signup and view all the answers

Which basic economic question is associated with a factory's decision to automate its production process with robots?

How to produce? Signup and view all the answers

What basic economic question is associated with a marketing research survey to determine popular fruit combinations for a frozen yogurt dessert?

What to produce? Signup and view all the answers

Which economic question is related to a scenario where people on a deserted island demand an equal share of food despite unequal work effort?

For whom to produce? Signup and view all the answers

Match the following markets with their descriptions:

The product market = Businesses sell consumer products to households. The resource market = Businesses buy economic resources from households. Signup and view all the answers

How is the basic question 'what to produce' answered in a market economy?

Consumers indirectly answer this question through their purchasing behaviour. Signup and view all the answers

Which of the following is a drawback of a market economy?

Inefficient use of scarce resources. Signup and view all the answers

How is the basic question 'what to produce' answered in a command economy?

The government answers this question directly for its citizens. Signup and view all the answers

Which of the following is a drawback of a command economy?

Inefficient use of scarce resources Signup and view all the answers

Between the early 1990s and late 2000s, India's and China's economies steadily grew by an annual average of:

8 percent and 10 percent respectively Signup and view all the answers

Modern mixed economy refers to an economy:

With both private and public sectors Signup and view all the answers

The Canadian economy most closely approximates a:

Modern mixed economy Signup and view all the answers

The unemployment rate includes:

Brewery workers who have been laid off recently Signup and view all the answers

Inflation is defined as:

A rise in the average level of prices Signup and view all the answers

The Kyoto Protocol:

Was signed by over 170 countries, including Canada Signup and view all the answers

According to Adam Smith, the most significant single cause of economic progress has been:

The division of labour Signup and view all the answers

Laissez-faire suggests that:

Government should not interfere with the operation of the economy Signup and view all the answers

Study Notes

The Economic Problem

The economic problem is the problem of having unlimited wants, but limited resources.

Scarcity

Resources are scarce in relation to consumer wants.
Scarcity means that the available quantity of a resource is less than the total demand for it.
Scarcity is a fundamental problem of economics.

Human Behavior

Economists assume that people behave rationally, meaning they weigh the personal benefits and costs of every available action and choose an action based on their individual wants.

The Study of Economics

The study of economics is necessary because resources are scarce in relation to consumer wants.
The efficient use of resources is an important economic goal in all economies.
Economics is the study of how to distribute limited resources among alternative ends.

Microeconomics and Macroeconomics

Microeconomics is concerned with the behavior of individual participants in various markets.
Macroeconomics approaches the study of economics from the viewpoint of entire economic sectors.

Economic Models

Economic models are abstractions of reality that emphasize basic economic relationships by abstracting from the complexities of the real world.
Economic models are simplified representations of economic reality, used to understand economic phenomena.

Resources

Resources include natural resources, human resources, and capital resources.
Economic resources do not include stocks and bonds.
The money payments made to owners of human resources are wages, salaries, or interest.

Entrepreneurship

The role of the entrepreneur involves bearing risks.

Definition of Economics

Economics can be described as the study of how to distribute limited resources among alternative ends.
Economics is primarily the study of how to use scarce resources among alternative ends.### Economic Models
Economics is concerned with explaining how economies operate, not with how they should operate
Economic laws are useful for predicting and controlling events
Economics is a scientific field, similar to physics and chemistry

Independent and Dependent Variables

An economic model usually includes two or more factors that have measurable values
Independent variables affect dependent variables
The value of the dependent variable is determined by the value of the independent variable

Relationships between Variables

A direct relationship exists between two variables if an increase in one variable is associated with an increase in the other variable
An inverse relationship exists between two variables if an increase in one variable is associated with a decrease in the other variable
Ceteris paribus, or "all other things remaining equal," is an assumption used to isolate the relationship between two variables
The ceteris paribus assumption allows one to focus on the relationship between two variables while holding other factors constant

Positive and Normative Statements

A positive statement is a statement of fact, based on objective evidence
A normative statement is a statement of opinion or value judgment
Economists distinguish between positive and normative statements to separate facts from value judgments

Utility and Opportunity Cost

A product has utility if it satisfies consumer wants
Utility refers to the satisfaction derived from a good or service
Opportunity cost is the value of the next best alternative that is given up when a choice is made### Opportunity Cost
Opportunity cost is relevant to economies of all ideological persuasions.
It is not limited to consumers or businesses, but applies to both.
It does not disappear even if poverty is eliminated.
It applies to governments as well.

Definition of Opportunity Cost

Opportunity cost is the utility that could have been gained by choosing an action's best alternative.
It is not the monetary price of any productive resource, product, or the amount of labor used to produce a unit of a product.

Production Possibilities Curve

The production possibilities curve illustrates the basic principle that if all resources of an economy are fully used, more of one item can be produced only if less of another item is produced.
The curve shows all combinations of products that can be produced and those that cannot be produced.
It does not show all levels of production that are consistent with a stable price level.
Any point inside the curve indicates that resources are not fully employed, and more output could be produced with available resources.
Any point outside the curve indicates that the economy is trying to produce more than it is capable of, and some of the resources would be idle.

Opportunity Cost and Production Possibilities Curve

The production possibilities curve is a frontier between all combinations of products that can be produced and those that cannot be produced.
The curve illustrates the law of increasing opportunity costs.
An improvement in technology can shift the production possibilities curve outward, indicating that more of both products can be produced.
A change in consumer preferences or a change in government policy can also shift the production possibilities curve.

Other Key Points

The concept of opportunity cost is best represented by the movement from one point to another on the production possibilities curve.
The shape of the production possibilities curve indicates that resources are not perfectly shiftable from one use to another.
An economy that is not fully employing its resources is represented by a point inside the production possibilities curve.

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