ECON 1100 Global Economics (Section 05) Exam #1 Fall 2010 (Version A) 1 Multiple Choice Questions ( 2 2 points each): 1. A Self-Interested person A. cares only about their own well-being (and does not care at all about the well-being of others). B. cares about the well-being of others more than their own well-being. C. cares about their own well-being more than the well-being of others. D. None of the above answers are correct. 2. Under Command Planning A. the government relies upon the voluntary response of the private sector to a set of guidelines jointly formulated by government, industry, and labor. B. the government directly controls nearly all economic activity, and almost all production takes place in government owned enterprises. C. rational, utility maximizing consumers freely decide which goods to purchase and in what quantities. D. rational, profit maximizing firms decide which goods to produce and in what quantities. 3. refer to the informal guidelines which dictate how much of the day-to-day behavior of an institution is conducted. A. Enterprises B. Procedures C. Rules within an Organization D. Laws (or, more broadly, the Legal Framework) 4. Consider the following two statements. Statement 1: Fiscal Policy has a significant stimulative impact on a less than fully employed economy. Statement 2: The Federal budget should be balanced in every single year. Most economists would A. agree with both Statement 1 and Statement 2. B. disagree with both Statement 1 and Statement 2. C. agree with Statement 2, but disagree with Statement 1. D. agree with Statement 1, but disagree with Statement 2. 5. Which of the following statements is true? A. All Attainable combinations of output are Inefficient. B. A combination of goods is Unattainable if it cannot possibly be produced with the currently available resources and technology. C. A combination of goods is Attainable so long as it can possibly be produced with the currently available resources and technology. D. More than one of the above answers are correct.
6. On September 4, 2009, 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 a wildfire which was then burning in southern California (a fire which claimed the lives of two firefighters). In this situation, Gov. Schwarzenegger was attempting to obtain the desired information by A. consumer sovereignty. B. coercion. C. offering a material incentive. D. moral persuasion. For Questions 7 though 9, consider a society facing the Production Possibilities Curve illustrated below: Corn 1,350 1,000 800 500 B C D 375 0 Tanks 0 300 420 600 7. Which of the following output combinations is not feasible or unattainable? A. A (300 Tanks and 375 bushels of Corn). B. B (420 Tanks and 800 bushels of Corn). C. C (600 Tanks and 1,000 bushels of Corn). 8. If this society wanted to produce 475 bushels of Corn, then their maximum output of Tanks would be A. exactly 420 Tanks. B. more than 420 but fewer than 600 Tanks. C. exactly 600 Tanks. D. more than 600 Tanks. 9. Supposing that this society is producing efficiently, it follows that the Opportunity Cost of producing the 420 th Tank is A. less than the Opportunity Cost of producing the 200 th Tank. B. exactly equal to the Opportunity Cost of producing the 200 th Tank. C. greater than the Opportunity Cost of producing the 200 th Tank. D. None of the above answers are necessarily correct (since we do not have enough information to make such a comparison between the Opportunity Cost of the 200 th Tank and the Opportunity Cost of the 420 th Tank). A
10. The Principle of Comparative Advantage states that A. a person is more likely to take an action if its benefits rises, and less likely to take an action if its cost rises. B. 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. C. 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. D. having more of one thing usually means getting by with less of something else. For questions 11 and 12, refer to the graph below, which illustrates the Lorenz Curve in Brazil in 1998, 2005, and 2010. Cumulative fraction of total income 1 2010 Lorenz Curve for Brazil 0 0 1 2005 Lorenz Curve for Brazil 1998 Lorenz Curve for Brazil Cumulative fraction of total population 11. Based upon this graph, we can tell that A. a greater amount of output was produced in Brazil in 2005 than in 2010. B. average incomes in Brazil were higher in 1998 than in 2005. C. income in Brazil was distributed more equally in 2010 than in 2005. D. the unemployment rate in Brazil was higher in 2010 than in 1998. 12. Based upon the Lorenz Curves illustrated above, we can infer that for Brazil the value of the Gini-Coefficient A. increased between 1998 and 2005, but then decreased between 2005 and 2010. B. increased between 1998 and 2005, and then increased further between 2005 and 2010. C. decreased between 1998 and 2005, and then decreased further between 2005 and 2010. D. was exactly equal to zero in 1998 and exactly equal to one in 2010.
13. Economics is A. the social science that studies the allocation and transfer of power in decision-making, systems of governance, and the effects of public policy in a society. B. the social science that studies decision making in the face of scarcity, and the implications of such decisions on individuals and societies. C. the social science that studies human mental functions and behavior, with a focus on phenomena such as perception, cognition, personality, and interpersonal relationships. D. None of the above answers are correct. 14. LeBron James chose to skip college and enter the NBA draft in 2003 straight out of high school. The fact that he made this choice suggests that A. he could not have gotten accepted into any college. B. he is irrational, since the marginal benefits of attending college always outweigh the marginal costs of doing so. C. he would have realized no benefits whatsoever from getting a college education. D. he properly understood that his opportunity cost of attending college was very high. 15. Armen Alchain and Gordon Tullock A. wrote The Communist Manifesto in the mid 1800 s. B. 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. C. were the first to recognize that imposing trade restrictions will almost always increase overall, general economic welfare. D. argued that automobile accident rates could be decreased by installing a sharp, irremovable, foot long, iron spike to the steering wheel of every car. 16. Which of the following provides an example of government establishing a law which is relevant for the functioning of a modern economy? A. The Establishment and Enforcement of Contracts. B. Environmental Regulations. C. Minimum Wage Laws. D. All of the above answers are correct. 17. 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. Consumer Sovereignty B. Natural Assets C. Produced Assets D. Human Capital
18. Evan and Xavier spend each workday assembling bicycles and fixing computers. Evan can assemble 20 bicycles in a single day, while Xavier can assemble 15 bicycles in a single day. Based upon this information alone, we know that A. Evan possesses an Absolute Advantage in assembling bicycles. B. Evan possesses a Comparative Advantage in assembling bicycles. C. Xavier possesses an Absolute Advantage in fixing computers. 19. The economy of the former Soviet Union A. failed to achieve Karl Marx s vision of an ideal communist society, since in practice the ownership and use of most resources was controlled by the government (and not by the people without any intervention whatsoever by the government). B. functioned so efficiently that the country produced a combination of goods beyond its production possibilities curve year after year after year. C. perhaps provides the best example of a large society with an economic system close to pure socialism. 20. Positive Statements A. attempt to describe how the world should be or how the world could be improved upon. B. are fact based statements which provide predictions about outcomes without any judging of their desirability. C. are the only types of statements which economists ever make. 21. The United Way is which of the following type of economic institution? A. A Non-Governmental Organization. B. A Government Agency. C. A Household. D. A Labor Organization. 22. The current economic system of France is best described as A. a Mixed Economy. B. Pure Capitalism. C. Pure Communism. D. Pure Socialism. 23. was a 19 th century German philosopher, economist, and revolutionary, who wrote Das Kapital and in considered by many to be the most influential economist in the history of Socialism. A. John Popper B. Richard Marx C. Karl Marx D. Karl Popper
24. is the branch of economics which studies how individual decisionmakers behave and interact with each other (often with a focus on how individual households and/or firms behave and interact with each other in markets). A. Comparative Economic Systems B. Macroeconomics C. Microeconomics D. Money and Banking 25. Kenny has $75 to spend and wants to purchase either a new amplifier for his guitar or a new MP3 player. Each good costs exactly $75, so he can only purchase one of the two items. This scenario illustrates the basic concept that A. free market systems generally do a very poor job of allocating consumption goods. B. specialization can allow societies to produce greater quantities of output. C. people face tradeoffs. D. people respond to incentives. 26. Consider a society consisting of only three people: Amy, Bill, and Chuck. Amy and Bill spend all day producing clothing and food. At the end of each day they bring their output to Chuck, who then divides it between the three individuals. The basic economic question that Chuck is answering for this society is the A. Choice of Economic System. B. Choice of Technique. C. Production Decision. D. Distributional Decision. 27. For two individuals who engage in the same two productive activities, it is generally impossible for one of the two individuals to A. have a Comparative Advantage in both activities. B. have an Absolute Advantage in both activities. C. gain from trading with the other individual. 28. In which of the following countries do individuals enjoy the least amount of Economic Freedom? A. Hong Kong. B. Russia. C. Singapore. D. New Zealand. 29. Privately owned enterprises in a free market economy have a primary goal of A. earning as large of a profit as possible. B. producing products that are of the lowest possible quality. C. tricking consumers into thinking that they are environmentally conscious. D. None of the above answers are correct.
30. Paula enjoys going to the movies. In August she saw 8 movies in the theatre. Her Marginal Benefit of the 8 th movie was $14.75, while her Marginal Cost of the 8 th movie was $9.50. Based upon only this information, her Economic Surplus A. would have been smaller if she had instead gone to the movies 7 times. B. would have been larger if she had instead gone to the movies 7 times. C. was clearly maximized by going to the movies exactly 8 times. D. would have been larger if she had instead gone to the movies 9 times. 31. refers to the freedom of an individual to buy or not buy a good/service at a price determined in an unfettered market. A. Consumer Sovereignty B. The Principal/Agent Problem C. Freedom of Mobility and Employment D. Indicative Planning 32. From the discussion of Structure Based Classifications in lecture and the text A. individuals have very little economic freedom in the U.S. B. the U.S. damages the environment more than any other country in the world. C. 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 ). 33. Which of the following is an example of a Natural Asset? A. The college education which has been acquired by 40+ million people in the United States. B. The 17+ billion barrels of oil reserves estimated to be in the Alaska National Wildlife Reserve (ANWR). C. The Kia Assembly Plant which recently opened in West Point, GA. 34. In order to make good decisions, a rational decision maker should A. ignore the costs of an action and instead focus only on benefits. B. ignore the benefits of an action and instead focus only on costs. C. take an action if and only if the total benefit of doing so is greater than the total cost of doing so. D. take an action if and only if the marginal benefit of doing so is greater than the marginal cost of doing so. 35. 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 Cost-Benefit Principle. B. Moral Persuasion. C. The Invisible Hand. D. The Principal/Agent Problem.
36. Which of the following is NOT a basic characteristic of Capitalism? A. Factors of production are privately owned. B. Income is distributed on the basis of need. C. Businesses make their own production and pricing decisions. D. Economic decisions occur in markets. 37. Which of the following is NOT one of the six primary economic institutions which characterize a modern economy? A. Economic Resources (or Factors of Production). B. Households. C. Markets. D. Enterprises. 38. refers to attempts to convince individuals to behave in a certain manner because doing so is the right thing to do. A. The Invisible Hand B. Coercion C. Command Planning D. Moral Persuasion 39. Voluntary Trade generally A. makes buyers better off, but sellers worse off. B. makes sellers better off, but buyers worse off. C. makes both buyers and sellers worse off. D. makes both buyers and sellers better off. 40. The is a curve which illustrate the maximum amount of one good which can be produced for every possible level of production of another good. A. Phillips Curve B. Equity/Efficiency Trade-off Curve C. Lorenz Curve D. Production Possibilities Curve
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