ECON 1100 Global Economics (Section 02) Exam #1 Spring 2009 (Version C) Multiple Choice Questions ( 2. points each):

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1 ECON 1100 Global Economics (Section 02) Exam #1 Spring 2009 (Version C) 1 Multiple Choice Questions ( 2 2 points each): 1. The states that an action should be taken if and only if the additional benefits from taking the action are at least as great as the additional costs of doing so. a. Cost-Benefit Principle. b. Incentive Principle. c. Irrational Behavior Principle. d. Principle of Comparative Advantage. 2. is the subfield of economics that compares the structure and performance of different types of economic organization. a. The Structure-Conduct-Performance Paradigm b. International Trade c. Comparative Economic Systems d. Public Finance 3. Ed and Fred produce Coats and Shirts. In any single day, Ed can make either 40 Coats or 10 Shirts. If Fred spends an entire day making Coats, he can make 50 Coats. Based upon this information alone, we know that a. Ed s Opportunity Cost for Coats is exactly equal to his own Opportunity Cost for Shirts. b. Fred has a Comparative Advantage in the production of Coats. c. Fred has an Absolute Advantage in the production of Coats. d. Ed has a Comparative Advantage in the production of both Coats and Shirts. 4. Mary attended the Hawks-Magic game at Philips Arena on Wednesday, 1/7/09. Her Total Benefits from doing so were $100, while her Total Costs from doing so were $130. From this information alone, it follows that her Economic Surplus a. from attending the game was ($130)-($100)=($30). b. from attending the game was ($100)-($130)=(-$30) (that is, negative $30). c. from attending the game was ($100)+($130)=($230). d. None of the above answers are correct, since more information is needed to calculate her realized Economic Surplus from attending the game. 5. For the most part, the behavior of decision makers in Market Economies is primarily influenced by a. the government, through the mandates of Command Planning. b. Coercion. c. Moral Persuasion. d. Material Incentives.

2 6. Suppose that in 2005 College graduates earned $12,150 per year more than High School graduates. If this difference had instead been $14,900 per year, then we would likely expect a. fewer High School graduates to enroll in College. b. more High School graduates to enroll in College. c. that every High School graduate would pursue a College degree. d. the High School graduation rate to increase to 100%. 7. is an economic system in which the means of production are privately owned and operated for a profit. a. Fascism b. Capitalism c. Communism d. Socialism 8. With which of the following statements is there general agreement among most economists? a. A minimum wage increases unemployment, particularly among young and unskilled workers. b. The U.S. government should not prevent firms from outsourcing work to foreign countries. c. Trade restrictions usually reduce general economic welfare. d. All of the above answers are correct. 9. A Rational Decision Maker should a. consider both the benefits and costs of different courses of action. b. consider the costs, but not benefits, of different courses of action. c. consider the benefits, but not costs, of different courses of action. 10. Privately owned enterprises in a free market economy have a primary goal of a. providing maximum benefits to the consumers of their products. b. damaging the environment. c. earning as large a profit as possible. d. making working conditions of employees as bad as possible. 11. The Incentive Principle states that a. having more of one thing usually means getting by with less of something else. b. a person is more likely to take an action if its benefits rises, and less likely to take an action if its cost rises. c. directly provides an explanation for why unskilled workers are easily exploited in a Capitalist economic system. d. a society can produce a greater amount of total output when individuals focus their production on those activities for which they have a comparative advantage.

3 12. The current economic system of Great Britain is best described as a. a Mixed Economy. b. Pure Capitalism. c. Pure Socialism. 13. One of the six primary economic institutions in any society is Households. Households a. specifically refer to groups of people that unite in order to collectively negotiate for improved terms of employment (including compensation and working conditions). b. are the ultimate consumers of most finished goods/services in a society. c. are the primary producers of goods/services within a society. 14. Which of the following provides an example of government establishing a law which is relevant for the functioning of a modern economy? a. A specification of obligations under the tax system. b. Health Codes. c. Environmental Regulations. d. All of the above answers are correct. 15. 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 Incentive Principle b. Economic Surplus c. The Principal/Agent Problem d. The Mixed Economy 16. A Normative Statement a. involves value judgments and attempts to make an explicit comparison of the relative desirability of alternative options based upon these values. b. can (in principle) be confirmed or refuted by gathering and examining data and other evidence. c. makes a claim that attempts to describe how the world actually is or how the world actually functions. 17. Within the last month, flooding in Fiji directly led to the death of 7 people and the Pittsburgh Steelers beat the Arizona Cardinals in Super Bowl XLIII by a score of 27 to 23. If Cardinals quarterback Kurt Warner is more upset about the outcome of the Super Bowl than about the loss of life in Fiji, then it suggests that he a. does not understand the Principle of Comparative Advantage. b. is not as nice of a person as Steelers quarterback Ben Roethlisberger. c. is a self-interested individual. d. is an irrational individual.

4 18. When considering potential government policies, it is important to recognize that a. if a policy alters the costs and/or benefits for a decision maker, then the decision maker might change his behavior as a result of the policy. b. wealthy countries generally possess a Comparative Advantage over poor countries in the production of all goods. c. voluntary trade generally makes sellers better off but buyers worse off. d. most businesses are not run by rational decision makers. 19. Zack and A.C. produce surfboards and oranges. Zack possesses an Absolute Advantage in the production of both surfboards and oranges. Further, Zack s opportunity cost of producing a surfboard is lower than A.C. s opportunity cost of producing a surfboard. The Principle of Comparative Advantage suggests that they can increase their total output of these two goods if a. Zack focuses his production on surfboards while A.C. focuses his production on oranges. b. Zack focuses his production on oranges while A.C. focuses his production on surfboards. c. Zack produces all of the oranges and all of the surfboards for the society, while A.C. produces neither of the two goods. 20. One of the three types of Economic Incentives is Coercion, which could be described as a. an economic system in which the means of production are privately owned and operated for a profit by individual entrepreneurs. b. attempts to convince individuals to behave in a certain manner because it is the right thing to do. c. the use of force or intimidation to obtain compliance. d. the use of monetary rewards or direct increases in consumption which result from engaging in an activity. 21. The Mixed Economy a. refers to an economic system in which there are both privately owned/operated enterprises and government owned/operated enterprises. b. traces its philosophical roots to the intellectual work of 20 th Century Philosophers Richard Marx and Kevin Cronin. c. remains a theoretical construct, having never been implemented in practice in any society. 22. broadly refers to rights related to the ability of an individual to seek employment in the occupation and location of their choosing. a. The Disposal Right b. Freedom of Speech c. Freedom of Mobility and Employment d. Adam Smith s Invisible Hand

5 23. The Environmental Sustainability Index discussed in lecture and in the textbook a. is an Outcome or Performance Based Classification of different economic systems. b. suggests that countries such as France and The United States are doing a horrible job of dealing with environmental issues, while countries such as India and North Korea are doing a very good job of dealing with environmental issues. c. attempts to quantify the impact of an economy on the environment and the long-term environmental sustainability of an economic system. For questions 24 and 25 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 24. Based upon this graph, we can tell that in 2008 a. incomes in Canada were distributed more equally than were incomes in Australia. b. average incomes were higher in Canada than in Australia. c. more people were unemployed in Australia than in Canada. 25. Based upon the Lorenz Curves illustrated above, we can infer that a. the value of the Gini-Coefficient in Canada in 2008 was equal to 1, while the value of the Gini-Coefficient in Australia in 2008 was equal to 0. b. the value of the Gini-Coefficient in Canada in 2008 was smaller than the value of the Gini-Coefficient in Canada in c. the value of the Gini-Coefficient in Canada in 2008 was less than the value of the Gini-Coefficient in Australia in d. None of the above answers are correct, since the Gini-Coefficient value for a country is completely unrelated to the shape of its Lorenz Curve.

6 26. Which of the following is not an example of a Natural Asset? a. The 1.7 trillion tons of coal reserves in the United States. b. The San Diego Bay, a natural harbor adjacent to San Diego, CA. c. The Kia Motors plant currently under construction in West Point, GA. d. The 17+ billion barrels of oil reserves estimated to be in the Alaska National Wildlife Reserve (ANWR). For Questions 27 though 29, consider a society facing the Production Possibilities Curve illustrated below: Corn 2,700 2,000 1,600 1,000 B C D 750 A 0 0 Tanks Which of the following combinations of output is feasible and efficient? a. A (75 Tanks and 750 bushels of Corn). b. B (115 Tanks and 1,600 bushels of Corn). c. C (115 Tanks and 2,000 bushels of Corn). 28. Suppose that starting at Point B (i.e., 115 Tanks and 1,600 bushels of Corn), this society wanted to increase Tank production by 60 units. Based upon the graph above a. they could not do so, even if they produced zero bushels of Corn. b. they could do so, while also increasing their Corn output by 400 bushels. c. they could do so, but would have to decrease their output of Corn by exactly 600 bushels. d. they could do so, but would have to decrease their output of Corn by more than 600 bushels. 29. If this society wanted to produce 1,800 bushels of Corn, then a. the maximum number of Tanks they could produce is some number greater than 80 but less than 115. b. they could produce a positive number of Tanks, but fewer than 80 Tanks. c. they would not be able to produce any Tanks.

7 30. Jane enjoys going to the movies. This past December she saw 4 movies in the theatre. Her Marginal Benefit of the 4 th movie was $9, while her Marginal Cost of the 4 th movie was $12. Based upon this information, we know that a. her Economic Surplus would have been larger if she had instead gone to the movies only 3 times. b. her Economic Surplus was clearly maximized by going to the movies exactly 4 times. c. her Economic Surplus would have been even larger if she had instead gone to the movies 5 times. d. None of the above answers is correct. 31. Laurie spends each hour of her work day making soup or baking bread. In order to increase her output of soup she must spend more time making soup and less time baking bread (thereby decreasing her output of bread). This scenario illustrates that a. she is allocating her time inefficiently, since she does not have a comparative advantage in the production of soup. b. she could clearly earn a higher income if all of the bread bakers throughout the world formed a craft union. c. she only bothers to bake any bread because it is the right thing to do. d. she faces a tradeoff between soup output and bread output, since her labor time is scarce. 32. Consider a society consisting of only three people: Al, Beth, and Chuck. Al and Beth spend all day producing shoes and food. At the start of each day, Chuck tells each of them how much time they should spend making each of the two goods. The basic economic question that Chuck is answering for this society is the a. Production Decision. b. Choice of Technique. c. Extent of Government Ownership. d. Distributional Decision. 33. When Karen goes to work at Karl s Cell Phone Kiosk in the Town Center at Cobb, she is acting as a. a member of a household, consuming a finished good/service. b. a member of a household, supplying labor to an enterprise. c. a member of a Government Agency, regulating the behavior of a business. 34. refers to an environment in which all decisions regarding the use of resources are made by a single, central authority. a. Indicative Planning b. Adam Smith s Invisible Hand. c. Decentralization d. Centralization

8 35. One of the distinct property rights discussed in lecture was the cash-flow right, which refers to a. the right to receive income or other benefits generated by the use of the resource. b. the right to exchange or sell a resource at a price deemed appropriate by the owner. c. the right to use a resource in the way the owner sees fits. d. the right of all citizens over the age of 18 to vote in federal elections. 36. The National Rifle Association (NRA) is an example of a. a private enterprise with the primary goal of maximizing profit. b. a Non-Governmental Organization that exists primarily to lobby the government in an attempt to influence government behavior. c. a Non-Governmental Organization that exists primarily to provide services to a particular group. d. a central planner in an economic system which relies primarily upon command planning. 37. The All Toyota Labor Union in Japan is an example of a a. Company Union. b. Craft Union (or Occupational Union). c. highly inefficient government bureaucracy. d. Non-Governmental Agency, which exists primarily to serve as a center of common interest for its members. 38. refer to the informal guidelines which dictate how much of the day-to-day behavior of an institution is conducted. a. Procedures b. Labor Organizations c. Laws (or, more broadly, the Legal Framework) d. Rules within an Organization 39. Voluntary Trade generally makes a. both buyers and sellers worse off. b. buyers better off but sellers worse off. c. sellers better off but buyers worse off. 40. Based upon the Structure Based Classifications discussed in lecture and in the textbook a. the U.S. has a greater capacity to achieve growth over the medium term, controlling for the current level of development than any other country (i.e., the U.S. was 1 st in the ranking of economic competitiveness ). b. the U.S. has the highest level of corruption in the world. c. individuals have more economic freedom in Cuba than in Singapore. d. All of the above answers are correct.

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