Question 1

Which statement best describes the result of competition among businesses?
A) It ensures that everyone is a winner.
B) It drives higher quality and lower prices in capitalism.
C) It is a primary feature of a communist economic system.
D) It is consistent with the goals of socialism.

Accepted Answer

Competition among businesses in a capitalist economic system drives higher quality and lower prices as companies strive to attract customers and outsell their competitors. This is known as the invisible hand of the market, where self-interest and competition lead to an efficient market and allocation of resources. The other choices are incorrect; everyone cannot be a winner in a competitive market, competition is not a primary feature of communism, and while socialism values equality, it does not necessarily prioritize competition among businesses.

Question 2

Why does the government have laws against monopolies?
A) because these laws are the main way the government ensures an equal distribution of income in the economy
B) because these laws are inconsistent with the role of government in a capitalist system
C) because these laws are the key way the government promotes competition in a capitalist system
D) because these laws are the main reason the Canadian economy is best classified as a socialist system

Accepted Answer

The government has laws against monopolies because they promote competition in a capitalist system. Monopolies have the power to set prices and control the market, which can lead to unfair advantages and limit options for consumers. By promoting competition, the government ensures that businesses must work to offer better products and prices to compete, benefiting the consumer and preventing one company from having too much power.

Question 3

What should the Bank of Canada do if it wants to increase the money supply?
A) buy government securities
B) cut taxes
C) raise the discount rate
D) raise the reserve requirement

Accepted Answer

Buying government securities injects new money into the economy and increases the money supply. Cutting taxes and raising the reserve requirement both have the opposite effect of reducing the money supply, while raising the discount rate is a tool used to control inflation rather than increase the money supply.

Question 4

In which of the following systems do firms compete by selling differentiated products?
A) monopolistic competition
B) natural monopoly
C) monopoly
D) oligopoly

Accepted Answer

Monopolistic competition is a system in which firms compete by selling differentiated products, meaning each firm offers products that are slightly different from those of their competitors. This differentiation can come in the form of branding, packaging, or features, among others. This type of system allows for some degree of price setting power for individual firms, but still has some level of competition. The other choices either involve a single firm dominating the market (monopoly or natural monopoly) or a small number of firms controlling the market (oligopoly).

Question 5

In capitalism, people strive to raise their standard of living. How do businesses contribute to this goal?
A) by offering value to the consumer
B) by forming oligopolistic markets
C) by using available resources
D) by attracting available talent

Accepted Answer

Businesses contribute to raising the standard of living in capitalism by offering value to the consumer. This can be achieved by providing goods and services that meet the needs and wants of consumers at an affordable price, improving quality, and innovating to create new products and services. By doing so, consumers are able to enjoy a higher standard of living in terms of greater access to goods and services that meet their needs and wants.

Question 6

What do we call a market structure with many competitors selling virtually identical products?
A) pure competition
B) oligopoly
C) natural competition
D) monopolistic competition

Accepted Answer

In pure competition, there are many competitors selling virtually identical products. This market structure is characterized by low barriers to entry, a large number of buyers and sellers, and perfect information.

Question 7

What do firms in oligopolistic markets tend to do?
A) They have very small market shares.
B) They avoid price competition whenever possible.
C) They worry about the possibility of new firms entering their market.
D) They keep prices as low as possible.

Accepted Answer

Firms in oligopolistic markets tend to avoid price competition to maintain stable prices and profits, as price wars can be detrimental to all firms involved.

Question 8

The government often allows only one company to provide electricity in a given geographic area because allowing several companies to do so would result in an inefficient duplication of infrastructure. What does this suggest about electric utilities?
A) They are natural monopolies.
B) They are oligopolies.
C) They are duopolies.
D) They are offering customers the right to choice.

Accepted Answer

The fact that only one company is allowed to provide electricity in a given geographic area suggests that electric utilities are natural monopolies. This means that due to the high fixed costs required to provide electricity (such as building and maintaining infrastructure), it is more efficient to have only one company provide the service rather than multiple companies duplicating the infrastructure.

Question 9

How would a market structure that is most likely to result in higher prices, lower quality, and fewer choices for consumers be classified?
A) as a monopoly
B) as monopolistic competition
C) as an oligopoly
D) as pure competition

Accepted Answer

A monopoly occurs when there is only one seller in the market with no close substitutes. This results in the seller having a significant degree of market power which allows them to charge higher prices, reduce the quality of the product, and limit the availability of choices for consumers.

Question 10

Which of the following is NOT a fundamental right of capitalism?
A) the right to own property
B) the right to eliminate competition
C) the right to compete
D) the right to run a business

Accepted Answer

The right to eliminate competition is not a fundamental right of capitalism, as competition is a key aspect of the market-based economic system. The other options, the right to own property, the right to compete, and the right to run a business, are all essential rights in capitalism.

Question 11

If there is a cold spell that ruins many crops of oranges growing in Florida, how will this affect consumers' purchasing behaviour of oranges?
A) They will not buy oranges at all.
B) They will buy less due to the increase in price.
C) They will buy no more or less due to the increase in price.
D) They will buy more due to the increase in price.

Accepted Answer

If there is a cold spell that ruins many crops of oranges growing in Florida, the supply of oranges will decrease, causing an increase in their price. As a result, consumers will be less likely to purchase as many oranges as they would have at the original price. Therefore, the most likely scenario is that they will buy less due to the increase in price.

Question 12

Which of the following is NOT a degree of competition?
A) oligopolistic competition
B) natural competition
C) pure competition
D) monopolistic competition

Accepted Answer

"Natural competition" is not a degree of competition. The four degrees of competition are pure competition, monopolistic competition, oligopolistic competition, and monopoly. "Natural competition" is not a commonly recognized term in economics.

Question 13

In which type of system are both producers and consumers free to make their own economic decisions on many basic issues?
A) mercantilism
B) capitalism
C) socialism
D) communism

Accepted Answer

In a capitalist system, producers and consumers are free to make their own economic decisions on many basic issues, such as production, consumption, and pricing. The government's role is limited, and individuals have the opportunity to amass wealth and pursue their own self-interest. This stands in contrast to socialist and communist systems, which have greater government control over economic decisions. Mercantilism, meanwhile, is a historical economic theory that emphasizes exports, trade, and accumulation of wealth.

Question 14

During the second half of the 20th century the economies of many European nations became more socialistic, especially when compared to the economy of Canada. What does this suggest that these European countries had that was different than in Canada?
A) lower taxes
B) more government-owned enterprises
C) a much faster rate of economic growth
D) a more unequal distribution of income

Accepted Answer

The fact that many European nations became more socialistic suggests that they had more government-owned enterprises and a stronger emphasis on government intervention in the economy than in Canada. This does not necessarily imply lower taxes or faster economic growth, nor does it suggest a more unequal distribution of income.

Question 15

When General Motors introduced a promotion offering customers the employee discount prices for any vehicle, Chrysler and Ford followed the trend and offered the same program. This intense price competition among the three major automobile producers resulted in lower profits for all three companies. This outcome illustrates a problem for firms in what type of economic structure?
A) monopolistic competition
B) oligopolistic markets
C) pure monopoly
D) pure competition

Accepted Answer

This situation indicates an oligopolistic market structure, where a few dominant firms compete heavily and follow each other's pricing strategies. The price competition often results in lower profits for all firms.

Question 16

Which of the following structures is used for allocating scarce resources?
A) a factor distributor
B) an econometric plan
C) the gross domestic product
D) an economic system

Accepted Answer

An economic system is a structure that is used for allocating scarce resources. It includes the rules, institutions, and organizations that coordinate economic activity between individuals and businesses. Factors distributors are not a commonly used term in economics, econometric plans are tools used for forecasting economic activity and estimating the impact of policy changes, and GDP is a measure of a country's economic output and does not play a direct role in the allocation of resources.

Question 17

Members of the Canadian Parliament have voted themselves an annual pay raise while the country is operating under a budget deficit. What will be the result of a pay raise for all Members of Parliament?
A) a decrease in social programs
B) an increase in the federal debt
C) an increase in the reserve requirement
D) a decrease in the interest rate

Accepted Answer

A pay raise for Members of Parliament will increase government spending, leading to an increase in the federal debt. It is unlikely to affect social programs or the reserve requirement, and there is no direct impact on interest rates.

Question 18

What is an economic system a structure for?
A) allocating limited resources
B) forecasting trends
C) government
D) measuring gross domestic products

Accepted Answer

An economic system is a structure that helps in allocating the limited resources among various needs and wants of society. It includes mechanisms for production, distribution, and consumption of goods and services.

Question 19

Abraham Lincoln once stated, "You cannot help the poor by destroying the rich. You cannot lift the wage earner by pulling down the wage payer." This quote is most consistent with what type of economic philosophy?
A) capitalist economy
B) communist economy
C) socialist economy
D) planned economy

Accepted Answer

The quote emphasizes the importance of not destroying the rich or wage payer in order to help the poor or wage earner, which is consistent with the principles of a capitalist economy. In such an economic system, there is a focus on private ownership and individual initiative, and the free market is allowed to determine prices and production. The goal is not to redistribute wealth, but rather to encourage economic growth and development that benefits everyone.

Question 20

One of Coca-Cola's slogans is "It's the real thing" and one of Pepsi's slogans is "The choice of a new generation." This is an example of which type of competition?
A) monopolistic competition
B) pure competition
C) monopoly
D) natural competition

Accepted Answer

The slogans used by Coca-Cola and Pepsi are examples of advertising and marketing techniques used in monopolistic competition where firms differentiate their products or services to stand out from their competitors. In monopolistic competition, firms have some control over pricing and advertising is an important strategy to attract customers.

Quiz 3: Economics: The Framework for Business

Which statement best describes the result of competition among businesses?

Why does the government have laws against monopolies?

What should the Bank of Canada do if it wants to increase the money supply?

In which of the following systems do firms compete by selling differentiated products?

In capitalism, people strive to raise their standard of living. How do businesses contribute to this goal?

What do we call a market structure with many competitors selling virtually identical products?

What do firms in oligopolistic markets tend to do?

The government often allows only one company to provide electricity in a given geographic area because allowing several companies to do so would result in an inefficient duplication of infrastructure. What does this suggest about electric utilities?

How would a market structure that is most likely to result in higher prices, lower quality, and fewer choices for consumers be classified?

Which of the following is NOT a fundamental right of capitalism?

If there is a cold spell that ruins many crops of oranges growing in Florida, how will this affect consumers' purchasing behaviour of oranges?

Which of the following is NOT a degree of competition?

In which type of system are both producers and consumers free to make their own economic decisions on many basic issues?

During the second half of the 20th century the economies of many European nations became more socialistic, especially when compared to the economy of Canada. What does this suggest that these European countries had that was different than in Canada?

Which of the following structures is used for allocating scarce resources?

Members of the Canadian Parliament have voted themselves an annual pay raise while the country is operating under a budget deficit. What will be the result of a pay raise for all Members of Parliament?

What is an economic system a structure for?

Abraham Lincoln once stated, "You cannot help the poor by destroying the rich. You cannot lift the wage earner by pulling down the wage payer." This quote is most consistent with what type of economic philosophy?

One of Coca-Cola's slogans is "It's the real thing" and one of Pepsi's slogans is "The choice of a new generation." This is an example of which type of competition?