Practice Test For MT 1 PDF

The University of Manitoba Version A Department of Economics ECON 1010 Introduction to Microeconomic Principles Instructor: Rashed Ahmed...

The University of Manitoba Version A Department of Economics ECON 1010 Introduction to Microeconomic Principles Instructor: Rashed Ahmed Practice Question 1 (Full marks = 20) Student name: Student number: Please do not turn this page over until you are told to. Instructions This is a closed-book exam. You are not allowed to use notes, books or any other materials and/or electronic devices. Write the question version in your Bubble Sheet Read each question carefully. Please write your Name and Student ID clearly. Fill the Bubble Sheet in a proper way [Use Pencil only] Date: XX-XX, 2024 Page 1 of 11  TRUE/FALSE - If the answer is True (fill-up circle A), if False (fill-up circle B) in bubble sheet 1) Normative statements are expressions of facts. ⊚ true ⊚ false 2) Individuals face an economic problem but society does not. ⊚ true ⊚ false 3) Macroeconomics explains the behaviour of individual households and business firms; microeconomics is concerned with the behaviour of aggregates or the economy as a whole. ⊚ true ⊚ false 4) Products and services are scarce because resources are scarce. ⊚ true ⊚ false 5) The process by which capital goods are accumulated is known as investment. ⊚ true ⊚ false 6) An economy will always operate at some point on its production possibilities curve. ⊚ true ⊚ false 7) A division of labour enhances society's output by permitting people to take advantage of existing differences in their abilities and skills. ⊚ true ⊚ false 8) Money functions as a medium of exchange in permitting the ready comparison of the relative worth of heterogeneous products. ⊚ true ⊚ false 9) Property rights do not encourage people to cooperate. ⊚ true ⊚ false Page 2 of 11 10) The guiding function of prices indicates that, at equilibrium prices, neither product surpluses nor shortages can occur. ⊚ true ⊚ false 11) The "invisible hand" refers to the many indirect controls which the federal government imposes in a system of mixed capitalism. ⊚ true ⊚ false 12) An increase in consumer incomes will cause a decrease in the demand for an inferior good. ⊚ true ⊚ false 13) If two goods are substitutes in consumption, a decline in the price of one will cause an increase in the demand for the other. ⊚ true ⊚ false 14) If two goods are complements (in consumption), a decline in the price of one will cause an increase in the demand for the other. ⊚ true ⊚ false 15) The law of supply states that, ceteris paribus, there is an inverse relationship between the price of a good and the quantity supplied of the good. ⊚ true ⊚ false MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 16) The "economic perspective" entails: A) rational behaviour by individuals and institutions. B) a comparison of marginal benefits and marginal costs in decision making. C) the altering of behaviour when marginal benefits and marginal costs change. D) all of these are correct. Page 3 of 11 17) How is the economic perspective reflected in lines for fast food? A) Customers select the shortest line because they have perfect information. B) Customers select the shortest line because they believe it will reduce their time cost of obtaining food. C) Lines will typically be of unequal length because of the inefficiencies in counter service. D) The set of food choices is often too complex for most customers and thus creates long lines. 18) Marginal costs exist because: A) the decision to produce more of some product means the sacrifice of other products. B) wants are scarce relative to resources. C) households and businesses make rational decisions. D) most decisions do not involve sacrifices or tradeoffs. 19) The term "other things equal" means that: A) the associated statement is normative. B) many variables affect the variable under consideration. C) the assumption that factors other than those being considered do not change. D) when variable X increases so does related variable Y. 20) Microeconomics is concerned with: A) the aggregate or total levels of income, employment, and output. B) a detailed examination of specific economic units which comprise the economic system. C) the concealing of detailed information about specific segments of the economy. D) the establishing of an overall view of the operation of the economic system. 21) Microeconomics: A) is concerned with the aggregate or total levels of income, employment, and output. B) is not concerned with details, but only with the overall "big picture" of the economy. C) is concerned with individual economic units and specific markets. D) describes the aggregate flows of output and income. 22) Which of the following statements pertains to macroeconomics? A) Because the minimum wage was raised, Mrs. Beepath decided to enter the labour force. B) A decline in the price of soybeans caused farmer Wanek to plant more land in wheat. C) The national productivity rate grew by 1.4 percent last year. D) The Pumpkin Center Chartered Bank increased its interest rate on consumer loans by 1 percent. 23) A positive statement is one which is: A) derived by an abstract generalization. B) suggestive of what should be done. C) subjective and is based on a value judgment. D) objective and is also based on facts. Page 4 of 11 24) Which of the following is a positive statement? A) The humidity is too high today. B) It is too hot to jog today. C) The temperature is 30 degrees today. D) I enjoy summer evenings when it cools off. 25) A positive statement is concerned with: A) some goal which is desirable to society. B) what should be. C) what is. D) the formulation of economic policy. 26) A normative statement is one which: A) is based on the law of averages. B) pertains only to microeconomics. C) pertains only to macroeconomics. D) is based upon value judgments. 27) Normative statements are concerned with: A) facts and theories. B) what ought to be. C) what is. D) rational choice involving costs and benefits. 28) The individuals and society both face an economic problem. This problem arises from the fact that: A) wants are limited but the resources are not. B) resources are scarce relative to individual's wants. C) individuals and institutions behave only in their self-interest. D) both wants and resources are unlimited. 29) When an economist says that material wants are insatiable, this means that: A) economic resources are valuable only because they can be used to produce consumer goods. B) economic resources—land, labour, capital, and entrepreneurial ability—are scarce. C) these wants are virtually unlimited and therefore incapable of complete satisfaction. D) the structure of consumer demand varies from time to time and from country to country. 30) The individual's limited income problem: A) persists only because countries have failed to achieve continuous full employment. B) exists because people have a finite amount of income. C) has been solved in all industrialized nations. D) has been eliminated in affluent societies such as Canada and the United States. Page 5 of 11 31) The budget line shows: A) the amount of product A which a consumer is willing to give up to obtain one more unit of product B. B) all possible combinations of two goods which can be purchased, given money income and the prices of the goods. C) all equilibrium points on an indifference map. D) all possible combinations of two goods which yield the same level of utility to the consumer. 32) Which of the following positions did Canada occupy with regard to average income in 2015? A) First B) Fourth C) Ninth D) Twelfth 33) Which of the following statements best describes a mixed economy? A) In a mixed economy, society determines production and the allocation of goods and services only through the market system. B) In a mixed economy, government policies determine the production and the allocation of goods and services, but each individual is free to pursue his or her own self-interest. C) In a mixed economy, the government and private sectors interact in determining production and allocation of goods and services. D) In a mixed economy, the role of individual self-interest is relatively unimportant because government makes most of the economic decisions. 34) The term "laissez faire" suggests that: A) land and other natural resources should be privately owned, but capital should be publicly owned. B) land and other natural resources should be publicly owned, but capital equipment should be privately owned. C) government should not interfere with the operation of the economy. D) government action is necessary if the economy is to achieve full employment and full production. 35) The market system is characterized by: A) extensive government constraints on individual behaviour. B) private ownership of the means of production. C) government control of all production decisions. D) government rationing of all goods and services. 36) In a market system, well-defined property rights are important because they: A) increase unnecessary investment. B) limit destructive economic growth. C) create economic problems. D) encourage economic activity. Page 6 of 11 37) Which is a major feature of pure capitalism? A) price floors and price ceilings in markets B) reallocation of resources from private to public uses C) the right to own private property and control resource use D) central planning by government to provide goods and services 38) By free enterprise, we mean that: A) products are provided free to those who can't afford to buy them. B) individual producers determine how to produce, but government agencies determine what will be produced. C) individuals may obtain resources, organize production, and sell the resulting output in any legal way they choose. D) individuals are free to produce those products that government agencies determine can be produced profitably. 39) Competition is more likely to exist when: A) there is free entry into and exit out of industries. B) there is a single supplier of all goods and services. C) the government purchases most goods and services. D) products are produced by a few large firms. 40) Which is not one of the Five Fundamental Questions? A) How will the goods and services be produced? B) How will the system accommodate change? C) Who will get the goods and services? D) What goods and services should be produced by government? 41) "Consumer sovereignty" refers to the: A) fact that resource prices tend to be high relative to product prices in capitalistic economies. B) idea that the pursuit of self-interest will prove ultimately to be in the public interest. C) notion that the decisions of producers and resource suppliers with respect to the kinds and amounts of goods produced must be appropriate to consumer demands. D) fact that a federal agency exists to protect consumers from harmful and defective products. 42) The term dollar votes means: A) inflation will occur if consumers don't spend wisely. B) voters may be offered dollars to help elect certain political candidates. C) government is responsible for determining what will be considered legal tender. D) consumers "vote" for certain products to be produced by how they spend their incomes. Page 7 of 11 43) Labour, land, and capital are examples of: A) factors of production. B) revenue for businesses. C) goods and services for consumers. D) consumption for consumers. 44) A result of a fall in the price of gasoline, consumers buy more gasoline and take more driving vacations. This situation is an illustration of: A) the income effect. B) the substitution effect. C) diminishing marginal utility. D) the demand for inferior goods. 45) The income and substitution effects account for: A) the upward sloping supply curve. B) the downward sloping demand curve. C) movements along a given supply curve. D) the "other things equal" assumption. 46) Graphically, the market demand curve is: A) steeper than any individual demand curve which comprises it. B) greater than the sum of the individual demand curves. C) the horizontal sum of individual demand curves. D) the vertical sum of individual demand curves. 47) An "increase in the quantity supplied" suggests a: A) rightward shift of the supply curve. B) movement up along the supply curve. C) movement down along the supply curve. D) leftward shift of the supply curve. 48) In competitive markets a surplus or shortage will: A) never exist. B) cause buyer and seller reactions which tend to eliminate the surplus or shortage. C) cause shifts in the demand and supply curves. D) cause buyer and seller reactions which tend to intensify the surplus or shortage. 49) An "increase in efficiency" suggests that an economy: A) has moved from a point outside of, to a point on, its production possibilities curve. B) has decided to produce more consumer goods and fewer capital goods. C) has moved from a point on, to a point inside, its production possibilities curve. D) is able to get more output from a given amount of inputs. Page 8 of 11 50) Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity? A) an increase in supply B) an increase in demand C) a decrease in supply D) a decrease in demand 51. Suppose you have a money income of $25, all of which you spend on Coke and popcorn. In the diagram, the prices of Coke and popcorn, respectively, are (a) $1.25 and $2.50. (b) $2.50 and $1.25. (c) $2.50 and $5.00. (d) 0.80 and $0.40. 52. Assume that a consumer has a given budget or income of $10 and that she can buy only two goods, apples or bananas. The price of an apple is $2.00 and the price of a banana is $1.00. If the consumer spent all of her budget on just apples or just bananas, how many apples or bananas maximum would she be able to buy? (a) 5 apples or 12 bananas (b) 4 apples or 5 bananas (c) 4 apples or 2 bananas (d) 5 apples or 10 bananas 53. Assume that a consumer has a given budget or income of $12 and that she can buy only two goods, apples or bananas. The price of an apple is $2.00 and the price of a banana is $1.00. If the consumer decides to buy 3 apples, how many bananas can she also buy with the remainder of her budget, assuming she exhausts her income? (a) 6 bananas (b) 12 bananas (c) 8 bananas (d) 10 bananas 54. Production Possibilities for Canada A B C D E F Capital goods 5 4 3 2 1 0 Consumer goods 0 10 18 24 28 30 Refer to the table. If Canada is producing at production alternative B, the opportunity cost of the 5th unit of capital goods will be Page 9 of 11  (a) 8 units of consumer goods. (b) 10 units of consumer goods. (c) 30 units of consumer goods. (d) 0 units of consumer goods. 55. A nation can produce two products: tanks and autos. The table below is the nation's production possibilities schedule. The marginal opportunity cost of the third unit of tanks is (a) 2 units of tanks. (b) 200 units of autos. (c) 350 units of autos. (d) 300 units of autos. 56. In the circular flow model: (a) households supply factors of production to firms. (b) households receive income through the factor market. (c) households spend income in the product market. (d) all of these hold true. 57. In terms of the circular flow diagram households make expenditures in the -------- market and receive income through the ------- market. (a) product; financial (b) factor; product (c) capital; product (d) product; factor 58. Freedom of enterprise is defined as: (a) the freedom of firms to obtain and use resources to produce goods and services. (b) employ and dispose of their property as they see fit. (c) buy property. (d) set up any form of business. entity. 59. When the price of a product decreases, a consumer is able to buy more of it with a given money income. This describes: (a) the income effect. (b) the cost effect. (c) the inflationary effect. (d) the substitution effect. Page 10 of 11 60. A shift to the right in the demand curve for product A can be most reasonably explained by saying that: (a) consumer incomes have declined and they now want to buy less of A at each possible price. (b) the price of A has increased and, as a result, consumers want to purchase less of it. (c) consumer preferences have changed in favour of A so that they now want to buy more at each possible price. (d) the price of A has declined and, as a result, consumers want to purchase more of it. 61. The demand curve for a product might shift as the result of a change in: (a) consumer tastes. (b) consumer incomes. (c) the prices of related goods. (d) all of these answers are correct. 62. A market supply schedule for a product indicates that: (a) as the product's price falls, producers produce more. (b) there is a direct relationship between price and quantity supplied. (c) there is an inverse relationship between price and quantity supplied. (d) as a product's price rises, producers produce less. 63. At the point where the demand and supply curves for a product intersect: (a) the "selling price" and the "buying price" need not be equal. (b) the market may, or may not, be in equilibrium. (c) either a shortage or a surplus of the product might exist, depending on the degree of competition. (d) the quantity which consumers want to purchase and the amount producers choose to sell are the same. Page 11 of 11