Principles of Economics - D089 TESTS Questions and Answers

Which type of economy is characterized by a government that plans and controls all economic activity? - Command Correct! A command economy is a centralized economic system in which all economic decisions are made by the nation's government. What is an example of a normative economic statement? - Marginal tax rates should be lowered on high-income individuals. Correct! A marginal tax rate is the amount of money an individual pays in taxes on each additional dollar earned. This statement uses the word "should", which makes it a value judgment or opinion and a normative statement. Which characteristic is associated with natural resources from a business perspective? - They exist without human effort. Correct! Natural resources are found in nature without any human effort. How can the available supply of natural resources be increased? - Discovering new ways to extract resources Correct! The discovery of different ways to extract natural resources can make them more available. A ski resort sells tickets online at $70 per ticket. The resort is not selling many tickets, so it offers a two-for-one opportunity. Which economic principle is being used? - People respond to incentives. Correct! The incentive of a sale or coupon changed the cost from $70 to $35, making the ski trip more affordable and desirable. This incentive is what likely changed buyers' behaviours. What are the characteristics of the production possibility frontier graph? - Tradeoffs in choices and downward sloping Correct! The graph of the production possibility frontier reflects trade-offs in choices and is downward sloping. How is scarcity represented on the production possibility frontier? - By there being attainable and unattainable points Correct! The production possibility frontier depicts the impact of scarcity by providing a clear mark between the set of attainable and unattainable points. The government imposes new safety regulations on the production of gas stoves. What will happen in the market for gas stoves? - Supply decreases. Correct! New government regulations on producers will make it more expensive to produce gas stoves and will decrease supply. The price of steel has increased by 5%, which leads to an increase in quantity supplied by 8%. Which outcome can be concluded from the demand and supply of steel? - The supply of steel is elastic. Correct! Because the quantity supplied increased by more than 5%, it is reasonable to conclude that the supply of steel is elastic. An individual wants to sell a car that frequently requires costly repairs. Although the car performs worse and requires more repairs than similar products, the seller hopes to get a price equal to better performing cars since the buyers will not know about the problems. Why is this seller able to charge a price equal to other sellers? - Asymmetric information Correct! The seller has more information relevant to the transaction about the car than the buyer does. Which market failure is overcome by a money-back guarantee strategy using mailorder catalogs? - Imperfect information Correct! A money-back guarantee helps instill confidence in the buyer about the quality of the product by refunding purchase price if the buyer is dissatisfied. Why do high labor-cost countries typically have more capital than low labor-cost countries? - Firms choose technology that requires more capital than labor to offset higher labor costs. Correct! Firms minimize costs by choosing a mix of inputs according to their relative cost. Firms operating in high labor cost countries will use more capital than firms operating in low labor cost countries. A bakery operates in an industry with many competitors and easy entry and exit. The firms in the industry are price takers. What is the price elasticity of demand for the bakery's bread? - Perfectly elastic Correct! In a perfectly competitive market, the price elasticity of demand is infinite