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One tradeoff society faces is between efficiency and equity. Define each term. If the Canadian government redistributes income from the rich to the poor, explain how this action affects equity as well as efficiency in the economy.

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Efficiency is the property of society ge...

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Which of these activities will most likely result in an external benefit?


A) A university student buys a deck of cards to play solitaire in her dorm room.
B) An elderly woman plants a flower garden on the vacant lot next to her house.
C) An executive purchases a book to read on a business trip.
D) A ten-year-old buys new Nikes with his allowance money he has saved.

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

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According to economists, what do people respond to?


A) laws
B) incentives
C) threats more than rewards
D) positives, but not negatives

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

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Although the Phillips curve is controversial, what do most economists believe?


A) that society faces a tradeoff between unemployment and inflation in the short run only
B) that society faces a tradeoff between unemployment and inflation in the long run only
C) that no tradeoff exists between unemployment and inflation
D) that society faces a continuous tradeoff between unemployment and inflation

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

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What can hinder the invisible hand's ability to coordinate the decisions of the firms and households in the economy?


A) government actions that distort prices
B) increased competition in the market
C) extended periods of unemployment
D) a dramatic reduction in consumer spending

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

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When is a good considered scarce in a society?


A) when more output of the good is possible
B) when everyone in that society cannot have all they want of the good
C) when the government restricts production of the good
D) when only the richest people in the economy can buy all they want of the good

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

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What happens when government policies are being designed?


A) There is usually a tradeoff between equity and efficiency.
B) Equity and efficiency goals are usually independent of each other.
C) Equity can usually be achieved without an efficiency loss.
D) Increasing efficiency usually results in more equity.

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

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From which Greek words is the word economy derived?


A) "environment"
B) "one who manages a household"
C) "one who participates in a market"
D) "conservation"

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

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Which is the most accurate statement about trade?


A) Trade can make every nation better off.
B) Trade makes some nations better off and others worse off.
C) Trading for a good can make a nation better off only if the nation cannot produce that good itself.
D) Trade helps rich nations and hurts poor nations.

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

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Stan buys a 1966 Mustang, which he plans to restore and sell. He anticipates that the cost of the car and the repairs will be $8,000 and that he can sell it for $10,000. When he has spent $7,000, he discovers he needs to replace the engine, which will cost $4,000. He can sell the car without the new engine for $9,000. What should Stan do?


A) complete the repairs and sell the car for $10,000
B) cut his losses and sell the car now for $9,000
C) never try such an expensive project again
D) be totally indifferent between finishing the project and selling the car now

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

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The average cost per seat on a bus trip from Montreal to Toronto is $140. Suppose no refreshments are served and 3 seats are empty. How could the bus company increase its profit?


A) if it charged no less than $140 for the 3 remaining seats
B) if it charged more than $140 for the 3 remaining seats
C) if it charged any ticket price above $0 for the remaining seats
D) if it left the seats empty

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

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What is a marginal change?


A) a long-term trend
B) a large, significant adjustment
C) a change for the worse, and so is usually short-term
D) a small incremental adjustment

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

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To raise productivity, what could policymakers do?


A) increase spending on education
B) lower tax credits to firms for capital improvements
C) reduce the number of imports allowed into the economy
D) eliminate minimum wage laws

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

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Which of the following is NOT included in the decisions that every society must make?


A) what goods will be produced
B) who will produce the goods
C) what determines consumer preferences
D) who will consume the goods

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

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Trade allows each person to specialize in the activities he or she does best, thus increasing each individual's productivity.

A) True
B) False

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How does the "invisible hand" direct economic activity?


A) through advertising
B) through prices
C) through central planning
D) through government regulations

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

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What is one definition of equity?


A) equality
B) efficiency
C) fairness
D) similarity

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

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To improve living standards, what should policymakers do?


A) impose restriction on foreign competition
B) formulate policies designed to increase productivity
C) impose tougher immigration policies
D) provide tax breaks for the middle class

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

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Monica has spent $30,000 purchasing and repairing an old cabin, which she expects to sell for $40,000 once the repairs are complete. She discovers that she needs an additional repair, which will cost $20,000, in order to complete the repairs. She can sell the cabin as it is now for $25,000. What should she do?


A) She should cut her losses and take the $25,000.
B) She should never sell something for less than it cost.
C) She should complete the repairs and sell the cabin.
D) It doesn't matter which action she takes; the outcome is the same either way.

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

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What is one necessary role of government in a market economy?


A) to tax goods and services that are most desired by consumers
B) to maintain welfare programs for the poor
C) to provide services such as pensions
D) to enforce property rights

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

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