ECON 1100 Global Economics (Section 03) Exam #1 Fall 2009 (Version D) Multiple Choice Questions ( 2. points each):

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1 ECON 1100 Global Economics (Section 03) Exam #1 Fall 2009 (Version D) 1 Multiple Choice Questions ( 2 2 points each): 1. The states that a person is more likely to take an action if its benefit rises and less likely to take an action if its cost rises. a. Principle of Comparative Advantage. b. Principle of Absolute Advantage. c. Cost-Benefit Principle. d. Incentive Principle. 2. The current economic system of Spain is best described as a. Pure Socialism. b. Perfect Communism. c. Pure Capitalism. d. a Mixed Economy. 3. refers to the rights related to the ability of an individual to seek employment in the occupation and location of their choosing. a. Economic Competitiveness b. Freedom of Association c. Freedom of Mobility and Employment d. Coercion 4. is/are the currently available stock of machines, factories, and inventories of finished goods available as industrial capital, as well as social capital such as transportation infrastructure, communications infrastructure, and educational institutions. a. Human Capital b. Idle Capital c. Natural Assets d. Produced Assets 5. Armen Alchain and Gordon Tullock a. argued that automobile accident rates could be decreased by installing five point harness seat belts and improved airbags in every car. b. argued that automobile accident rates could be decreased by installing a sharp, irremovable, foot long, iron spike to the steering wheel of every car. c. were the first to recognize that imposing rent controls would lead to a decrease in the quantity/quality of available housing units. d. wrote a letter to FDR in 1939, advising him to have the U.S. government assist physicists in the U.S. working on research related to the creation of a uranium bomb.

2 6. refers to problems that arise because of difficulties associated with getting workers to take actions that are best for the owners of a firm. a. The Mixed Economy Consensus. b. The Principle of Comparative Advantage. c. The Principal/Agent Problem. d. Coercion. 7. A Self-Interested person a. does not care about the well-being of anyone (including themselves). b. cares only about their own well-being (and does not care at all about the well-being of others). c. cares about their own well-being more than the well-being of others. d. cares about the well-being of others more than their own well-being. 8. Privately owned enterprises in a free market economy have a primary goal of a. providing maximum benefits to the consumers of their products. b. making sure that their workers are earning a living wage. c. earning as large a profit as possible. d. damaging the environment. 9. refers to the degree to which decision makers in an economy experience a real system that differs from the nominally defined system. a. Corruption b. Economic Competitiveness c. Economic Freedom d. The Distribution of Income 10. Voluntary Trade generally a. makes buyers better off, but sellers worse off. b. makes sellers better off, but buyers worse off. c. makes both parties to the trade better off. d. makes both parties to the trade worse off. 11. In which of the following countries do individuals enjoy the least amount of Economic Freedom? a. Mexico. b. New Zealand. c. Hong Kong. d. Singapore. 12. The restriction that all workers in the United States must be paid at least $7.25 per hour is an example of a. an organizational rule which makes all members of society better off. b. a law which restricts the behavior of market participants. c. a procedure which restricts the behavior of firms. d. a custom or tradition which has a substantial impact on the labor market.

3 13. In 2002 High School graduates earned $15,150 per year more than non-high School graduates. If this difference had instead been $9,700 per year, then we would expect a. nobody to change their behavior in regards to High School graduation. b. more people to stay in school and earn a High School diploma. c. fewer people to stay in school and earn a High School diploma. d. the government to pass a law requiring everyone to stay in school until the age of Under Command Planning a. rational utility maximizing consumers and profit maximizing firms freely decide which goods to trade and in what quantities. b. the government directly controls all economic activity, and nearly all production takes place in government owned enterprises. c. the government relies upon the voluntary response of the private sector to a set of guidelines jointly formulated by government, industry, and labor. d. None of the above answers is correct. 15. traces its philosophical roots to the work of 19 th Century Philosopher Karl Marx. a. The Mixed Economy b. Capitalism c. Communism d. Socialism 16. Lou manages a fast food Mexican restaurant. While working the register, Pete sometimes doesn t charge his friends for tacos when they come to the restaurant. This situation is an example of a. Indicative Planning. b. A Company Union making workers better off. c. The Principle of Comparative Advantage. d. A Principal/Agent Problem. 17. In a modern economy the behavior of economic decision makers is restricted by a. both formal rules and informal customs. b. neither formal rules nor informal customs. c. formal rules, but not by informal customs. d. informal customs, but not by formal rules. 18. With which of the following statements is there general agreement among most economists? a. The U.S. should eliminate agricultural subsidies. b. Trade restrictions usually reduce general economic welfare. c. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. d. All of the above answers are correct.

4 19. refer(s) to the skills, education, and training which individuals in the labor force possess. a. Human Capital b. Produced Assets c. Natural Assets d. A Labor Organization For Questions 20 though 22, consider a society facing the Production Possibilities Curve illustrated below: Pumpkins 1,350 E 1, C 500 D A 375 B Footballs 20. Which of the following combinations of output is feasible and efficient? a. A (300 Footballs and 500 Pumpkins). b. B (150 Footballs and 375 Pumpkins). c. C (210 Footballs and 1,000 Pumpkins). d. More than one of the above answers is correct. 21. If this society wanted to produce 210 Footballs, then the maximum number of Pumpkins which they could produce would be a. fewer than 500 Pumpkins. b. exactly 500 Pumpkins. c. exactly 800 Pumpkins. d. exactly 1,000 Pumpkins. 22. Consider the three combinations of output A, D, and E illustrated above. Of these three output combinations, the Opportunity Cost of Producing a Football is greatest a. at point A. b. at point D. c. at point E. d. None of the above answers is necessarily correct (since the above graph does not convey enough information to be able to make a comparison of Opportunity Costs at these three points).

5 23. Ty owns a 50 acre peanut farm just outside of Ty Ty, GA. He has decided to stop farming, and will instead construct and manage a shopping center on his property. When changing his use of his land in this manner, which of the following property rights is he exercising? a. The Mixed Economy Consensus. b. The Control Right. c. The Disposal Right. d. The Cash-Flow Right. 24. Economics is the a. social science that studies patterns of social relationships, social interaction, and culture among individuals. b. social science that studies decision making in the face of scarcity, and the implications of such decisions on individuals and society. c. social science that analyzes how societies allocate and transfer decisionmaking power, the roles and systems of governance, and political behavior. d. study of the Earth and its lands, features, inhabitants, and phenomena. 25. A Company Union a. consists of members who are employed by a single enterprise, irrespective of the task they perform within the enterprise. b. consists of members who perform similar jobs or tasks, regardless of what enterprise they are employed by. c. is a type of a Non-Governmental Organization, with the primary goal of lobbying the government in an attempt to influence government policy. d. None of the above answers are correct. 26. Two Economic Systems can differ from each other with respect to a. the means of coordinating economic activity. b. the incentive systems that influence individual behavior. c. the extent of individual rights. d. All of the above answers are correct. 27. For the Environmental Sustainability Index discussed in class, The United States had an Index Value of 53.2 (on a 100 point scale), while Spain had an Index Value of From these values, one should reasonably infer that a. Spain is clearly doing an exceptional job and The United States is doing a horrible job of dealing with environmental issues. b. The United States is clearly doing an exceptional job and Spain is doing a horrible job of dealing with environmental issues. c. Spain is likely to face an energy crisis within the next decade, while The United States is not. d. the long term environmental sustainability of the economic system in The United States and of the economic system in Spain are roughly equivalent to one another.

6 28. On September 4, Gov. Arnold Schwarzenegger offered a $100,000 reward for anyone who could provide information leading to the arrest and conviction of the arsonists who set the wildfire currently burning in southern California (a fire which has thus far claimed the lives of two firefighters). In this situation, Gov. Schwarzenegger is attempting to obtain the desired information by a. coercion. b. Command Planning. c. moral persuasion. d. offering a material incentive. Answer Questions 29 through 32 based upon the following information regarding Gene s Total Benefits from consuming pizza during the last week of August 2009 (measured in dollars): Number of Pizzas Consumed: Total Benefits from Consuming Pizza: If Gene were to pay a total of $100 in order to consume 5 pizzas, then a. his Economic Surplus would be exactly equal to zero. b. his Economic Surplus would be $100. c. his Economic Surplus would be $200. d. he would realize a negative Economic Surplus. 30. Gene s Marginal Benefit for his 2 nd pizza consumed would be a. $105. b. $65. c. $25. d. $ If pizza was being given away for free, then in order to maximize his Economic Surplus Gene should a. not eat any pizza (i.e., consume zero units of pizza). b. eat 6 pizzas. c. eat as many pizzas as humanly possible (which over the course of an entire week would be much more than 7 pizzas). d. still offer to pay for the pizza he eats, since doing so is the right thing to do. 32. We can see the Incentive Principle at work by recognizing that (note: even if a statement below is correct, it might not necessarily illustrate the Incentive Principle ): a. If Gene has an Absolute Advantage in the production of pizza, then he should clearly make pizzas for a living. b. If each pizza costs $45, Gene would not purchase any pizza. c. If the price of pizza were to decrease from $12 to $8, Gene would not change his consumption of pizza. d. If the price of a pizza were to increase from $10 to $17.50, Gene would decrease his consumption from 4 pizzas to 2 pizzas.

7 33. Positive Statements a. are the only types of statements that economists ever make. b. cannot (even in principle) be confirmed or refuted, since such statements implicitly involves value judgments. c. are fact based statements which provide predictions about outcomes without any judgment on the desirability of the outcomes. d. More than one of the above answers is correct. 34. Jack and Daniel produce whiskey and bread. Jack s Opportunity Cost for producing a unit of whiskey is 10 loaves of bread ; Daniel s Opportunity Cost for producing a unit of whiskey is 8 loaves of bread. Based upon this information alone, we know that a. Daniel has a Comparative Advantage in the production of whiskey. b. Daniel has an Absolute Advantage in the production of whiskey. c. in order for this society to maximize the amount of output they produce, Jack should focus on producing bread while Daniel focuses on producing whiskey. d. More than one of the above answers is correct. 35. Observing that average annual income per person is $55,600 in Norway, $16,200 in Poland, and $1,100 in Nepal would begin to support a claim that a. people who live in Norway must be happier than people who live in Poland, who in turn must be happier than people who live in Nepal. b. the global economy is rigged, in that countries which are currently poor will likely remain poor for generations to come. c. the most important determinant of average income within a country is the amount of natural resources that a country possesses. d. the global distribution of incomes is highly skewed, in that there are tremendous differences in average incomes across different countries. 36. Habitat for Humanity is an example of a a. Household. b. Labor Organization. c. Non-Governmental Organization. d. profit maximizing Enterprise. 37. The economy of the former Soviet Union a. achieved Karl Marx vision of an ideal communist society, since the ownership and use of all resources was in the hands of the people without any intervention whatsoever by the government. b. perhaps provides the best example of a large society with an economic system close to pure capitalism. c. perhaps provides the best example of a large society with an economic system close to pure socialism. d. functioned so efficiently that the country produced a combination of goods beyond its production possibilities curve year after year after year.

8 38. Mike argues that, In 2008, average college tuition in the U.S. was $14,500 per year. Since these costs are so high, nobody should go to college. The primary problem with this argument is that it: a. implicitly assumes that people consider things such as costs and benefits when making important decisions, which is clearly not true. b. fails to recognize that in the U.S. (as in most industrialized countries) the decision of whether or not to attend college is not made by the individual but is rather mandated by the central government. c. fails to recognize that all rational people will attend State Universities, since they offer tuition lower than the overall average tuition. d. only focuses on one particular cost and ignores the many benefits of a college education. For questions 39 and 40 refer to the graph below, which illustrates the Lorenz Curves for Canada and Australia in Cumulative % of total income 100 Lorenz Curve for Canada Lorenz Curve for Australia Cumulative % of total population 39. Based upon this graph, we can tell that in 2008 a. more people were unemployed in Australia than in Canada. b. incomes in Canada were distributed more equally than were incomes in Australia. c. average incomes were higher in Canada than in Australia. d. None of the above answers are correct. 40. Based upon the Lorenz Curves illustrated above, we can infer that in 2008 the value of the Gini-Coefficient was a. larger in Canada than in Australia. b. larger in Australia than in Canada. c. equal in value to (0.50) in both Canada and Australia. d. None of the above answers are correct, since the value of the Gini- Coefficient is completely unrelated to the shape of the Lorenz Curve.

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