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What does the word "margin" mean?


A) edge
B) distance
C) inside
D) measure

E) B) and C)
F) C) and D)

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Market failure refers to a situation in which the market does not allocate resources efficiently.

A) True
B) False

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How are goods and services allocated in a market economy?


A) by government decisions
B) by giving each individual just enough for a decent standard of living
C) by the actions of all firms and consumers
D) by inherited rights and properties

E) A) and D)
F) All of the above

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In each of the following situations, identify the relevant economic principle and explain how it applies. a) Larissa has lived in her own house for many years. However, rents have recently increased so much that Larissa considers moving into a smaller house and renting out her own. b) Tashonna is a talented singer and she strongly wants to pursue an artist's career. However, she is two years short of graduating from law school. She is certain she will never be a lawyer because she does not like it and has no gift to be a lawyer. However, her family insists she finish her studies, since she has already spent so much time and money on law studies. What should she do? c) There are a few industrial sites in town, producing essential goods and services for the residents and providing the citizens with vital jobs. However, the businesses, including an airport in the very downtown, also produce pollution, congestion, and noise. People understand the blessings of economic and civil freedoms and are pleased and proud to have productive activities in their town. They started, though, to crave for a more pleasant place to live in. What economic principle can give these people some guidance about what to do?

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a) Though Larissa does not pay rent for ...

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According to an economic principle, what is the effect of government intervention in the presence of a market failure?


A) Government action does not improve on the market outcome because sometimes public policies simply reward the politically powerful.
B) Government action does not improve on the market outcome because some leaders are not fully informed.
C) Government action can sometimes improve on the market outcome.
D) Government action will always improve on the market outcome.

E) A) and C)
F) A) and D)

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An economic principle is that people respond to incentives. Identify the incentives and discuss the possible outcomes in each of the following situations. a) A Liberal government decides to increase the level of required health benefits that firms pay on behalf of their employees. b) The City of Winnipeg decides to set a rather high regulated parking fee in downtown in order to reduce traffic congestion. c) A very popular hip-hop singer asks his managers to set concert prices very low such that everybody can afford them. d) The government of Canada subsidizes the purchases of new electric cars. e) A provincial government subsidizes tuition fees for all students who get admitted to college for the whole period of studies. f) A father gives his daughter $50 when she gets a grade of D at school, $100 for a C, $500 for a B, and $1000 for an A.

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a) People will increase their demand for...

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How good are markets at organizing economic activity?


A) Markets are usually a good way to organize economic activity.
B) Markets are usually inferior to central planning as a way to organize economic activity.
C) Markets fail and are therefore not a good way to organize economic activity.
D) Markets are a good way to organize economic activity in developed nations, but not in less developed nations.

E) B) and C)
F) None of the above

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Which situation best illustrates a marginal change?


A) Nancy retires and takes a part-time job. She was working 40 hours per week, but now works 10 hours per week.
B) Provincial University has announced that due to provincial budget deficits, tuition must rise by 25% next year.
C) Adam moved from Edmonton to Toronto and now pays 40% more for rent than before.
D) Banff, which usually receives 600 cm of snow per year, received 620cm last year.

E) None of the above
F) All of the above

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A worker in Bangladesh can earn $1 per day making cotton cloth on a handloom. A worker in Canada can earn $100 per day making cotton cloth with a mechanical loom. What accounts for the difference in wages?


A) Canadian textile workers belong to a union.
B) There is little demand for cotton cloth in Bangladesh and great demand in Canada.
C) Labour is more productive making cotton cloth with a mechanical loom than with a hand loom.
D) Bangladesh has a low-wage policy to make its textile industry more competitive in world markets.

E) B) and D)
F) C) and D)

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A rational decision maker takes an action if and only if the marginal cost exceeds the marginal benefit.

A) True
B) False

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In the short run, what does the tenth principle of economics illustrate?


A) the tradeoff between inflation and unemployment
B) the tradeoff between equity and efficiency
C) labour productivity in an economy
D) the level of government intervention in a market economy

E) A) and B)
F) C) and D)

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Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short run.

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To lower inflation, the government may c...

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What is NOT a characteristic of markets?


A) Firms decide whom to hire and what to produce.
B) Government policies do not affect the decisions of firms and households.
C) Households decide which firms to work for and what to buy with their incomes.
D) Firms and households guide the decisions based on profit and self-interest.

E) B) and D)
F) None of the above

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What is the effect of an increase in the money supply in the economy?


A) It increases unemployment in the short run.
B) It increases inflation in the long run.
C) It increases inflation in the short run.
D) It increases unemployment in the long run.

E) None of the above
F) A) and B)

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According to Adam Smith, what is the success of decentralized market economies primarily due to?


A) the basic benevolence of society
B) society's justice (legal) system
C) individuals' self-interest
D) basic human survival instincts

E) B) and D)
F) A) and B)

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Which of the following is most likely to generate an externality?


A) Children buy birthday presents for their friends.
B) A couple vaccinates their young children.
C) A newlywed couple buys furniture for their condo.
D) A family purchases a van so they can easily get their kids to hockey practice.

E) A) and B)
F) A) and C)

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The government can potentially improve market outcomes if market inequalities or market failure exist.

A) True
B) False

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In Canada, incomes have historically grown about 2% per year. At this rate, how long will it take for incomes to double?


A) 10 years
B) 25 years
C) 35 years
D) 50 years

E) A) and B)
F) B) and C)

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Suppose your accounting professor has been offered a corporate job with a 20 percent pay increase. Why has he decided NOT to take the job?


A) The marginal cost of leaving was greater than the marginal benefit.
B) The marginal benefit of leaving was greater than the marginal cost.
C) The marginal benefit of leaving was less than the marginal cost.
D) The marginal benefit of teaching was greater than the marginal cost.

E) A) and D)
F) A) and C)

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What is the best example of a marginal change?


A) After graduating from university, Makena's income increases from $1000 per month to $5000 per month.
B) In 2018 minimum wage in Saskatchewan increased from $11.4 |0 per hour to $14.00.
C) Housing prices in an area increased by 20% when a new highway connected a small city to the provincial capital.
D) A hard freeze wipes out half of the grape crop in Ontario and the price of Ontario wine doubles.

E) A) and C)
F) All of the above

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