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KSU ECON 1100 - Exam 1 ECON 1100

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ECON 1100 – Global Economics (Section 02) Exam #1 – Fall 2008 (Version B) Multiple Choice Questions (212 points each): 1. The ______________ states that an individual should undertake an action if and only if the additional benefits from doing so are at least as great as the additional costs of doing so. a. The Economic Calculation Problem b. Incentive Principle c. Cost-Benefit Principle d. Principle of Comparative Advantage 2. Which of the following is NOT one of the “Three Basic Economic Questions” that every society must address? a. “What mix of goods/services should we produce?” b. “What productive resources should be used to produce which goods/services?” c. “How can we guarantee that everyone in society has access to a quality education?” d. “How should the goods/services that we produced be allocated across individuals for consumption?” 3. Michelle and Amy each spend their workday making computers and harvesting hard shelled crabs. Michelle’s opportunity cost for making a computer is 4 bushels of crabs. Amy’s opportunity cost for making a computer is 3 bushels of crabs. Based upon this information, we know that a. Michelle has an Absolute Advantage in making computers. b. Amy has an Absolute Advantage in making computers. c. Amy has a Comparative Advantage in making computers. d. More than one of the above answers is correct. 4. ____________ suggests that: under certain conditions, the behavior of self-interested decision makers in free markets will lead to outcomes which are good for all individuals in society. a. Karl Marx’s idea of Communism. b. Adam Smith’s notion of the “Invisible Hand.” c. Ronald Coase’s solution to the problem of externalities. d. The Principal/Agent Problem 5. The economy of Germany is best described as a. a Pure Communist Economy. b. a Pure Capitalistic Economy. c. a Mixed Economy. d. a Third World Economy.6. The “Incentive Principle” states that a. 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. b. an action should be taken if and only if the additional benefits of taking the action are at least as great as the additional costs of taking the action.. c. developed countries are able to enjoy a Comparative Advantage in the production of all goods. d. an individual is more likely to take an action if its benefits rise or if its costs fall. 7. Within the last month the book “Sarah: How a Hockey Mom Turned Alaska’s Political Establishment Upside Down” became one of the “Top 10” selling books on Amazon.com. Previous to this time, only 7,000 copies of the book were in print. This sudden change in the observed market outcome is most likely a result of a. a general increase in the price of other books that people might buy instead of this book. b. a change in consumer preferences. c. a tremendous increase in consumer income. d. a decrease in the wage rate that the publisher of the book has to pay to it’s employees. 8. “Habitat for Humanity” is a good example of a. a Household. b. a Labor Organization. c. a Non-Governmental Organization. d. None of the above answers is correct. 9. Supply a. refers to the entire relationship between the price of a good and the quantity that firms are willing and able to sell, all other factors fixed. b. provides a summary of the behavior of sellers in a market. c. describes a “stable state” that will persist as long as market factors do not change. d. More than one of the above answers is correct. 10. As the price of gasoline decreases from $3.689 per gallon to $3.479 per gallon, Jason increases his weekly consumption from 8 gallons to 14 gallons. This observation of his behavior illustrates a. that firms in a free market economy derive pleasure from seeing their consumers suffer financially. b. that Jason would realize a “negative economic surplus” from his purchase of 8 gallons of gas per week at the high price of $3.689 per gallon. c. the “Principle of Comparative Advantage.” d. the “Incentive Principle.”11. The behavior of economic decision makers is restricted by the “Legal Framework,” “Rules within Organizations,” “Procedures,” and “Custom, Culture and Tradition.” “Procedures” refer to a. the degree to which a decision maker faces a “real system” which differs from the “nominally defined system.” b. self imposed rules which limit behavior that are written and codified. c. informal guidelines which dictate how much of the day-to-day behavior of an institution is conducted. d. rules that are made and enforced by some level of government. 12. When resources are scarce, decision makers face tradeoffs. As a result, a. in equilibrium, there will be “Excess Demand.” b. wealthy individuals can choose to purchase any combination of goods and services that they wish. c. having more of one thing typically means getting by with less of something else. d. market based economies tend to perform less effectively than planned economies. For questions 13 and 14, consider the Production Possibilities Curve illustrated below: 13. Point A in the graph above is a. unattainable b. attainable but inefficient c. clearly the best combination of output for this society to produce. d. More than one of the above answers is correct. 14. If this society used all of its productive resources to produce only Cars, then they could produce a. exactly 1,100 Cars b. more than 1,100 Cars. c. zero units of Wheat. d. More than one of the above answers is correct. Cars Wheat D B C 0 400 805 1,020 1,100 600 400 0 A 65015. An entrepreneur a. is a firm with the primary goal of producing a product of very low quality. b. is the individual who makes the decisions in a centrally planned economy. c. is someone who organizes and manages a business, typically with considerable initiative and exposure to risk. d. None of the above answers are correct. 16. In which of the following countries do individuals enjoy the least amount of “Economic Freedom”? a. The United States. b. Hong Kong. c. Cuba. d. Japan. 17. One of the principle functions of money is that it serves as a “store of value.” This role could be described by recognizing that money a. is an asset used as payment when


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KSU ECON 1100 - Exam 1 ECON 1100

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