ECON 1100 – Global Economics (Section 01) Exam #1 – Fall 2007 (Version A) 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. Incentive Principle b. Principle of Comparative Advantage c. Cost-Benefit Principle d. The Principal/Agent Problem 2. Mike can assemble 5 bicycles in a single day, while Nancy can assemble 8 bicycles in a single day. Based upon this information alone, we know that a. Mike possesses an Absolute Advantage in assembling bicycles. b. Nancy possesses an Absolute Advantage in assembling bicycles. c. Nancy posses a Comparative Advantage in fixing computers. d. None of the above answers are correct. 3. In 2002 College graduates earned $18,750 per year more than High School graduates. If this difference had instead been $30,000 per year, then we would expect a. more people to pursue a college education. b. fewer people to pursue a college education. c. that everybody would find it beneficial to pursue a college education. d. that college students would not be willing to pay as much tuition in order to get a college degree. 4. The “Principle of Comparative Advantage” states that a. an individual is more likely to take an action if its benefits rise or if its costs fall. 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. developed countries are able to enjoy an Absolute Advantage in the production of all goods. d. developed countries are able to enjoy a Comparative Advantage in the production of all goods. 5. “Voluntary Trade” generally a. makes everyone worse off. b. makes everyone better off. c. makes buyers better off, but sellers worse off. d. makes sellers better off, but buyers worse off.6. Supply refers to a. a “stable state” that will persist as long as market factors do not change. b. the entire relationship between the price of a good and the quantity that firms are willing and able to sell, all other factors fixed. c. the amount of a good that firms want to sell at the equilibrium price. d. a summary of the behavior of buyers in a market. 7. Chris’ reservation price for purchasing a ticket to see “Velvet Revolver” in concert is $200. If the price of a ticket is $60, then he will a. not buy a ticket. b. buy a ticket, but realize a Consumer’s Surplus of $0 from the purchase. c. buy a ticket, and realize a Consumer’s Surplus of $140 from the purchase. d. buy a ticket, and realize a Consumer’s Surplus of $200 from the purchase. For questions 8 and 9, consider the Production Possibilities Curve illustrated below: 8. Point B in the graph above is a. unattainable b. attainable and efficient c. attainable but inefficient d. clearly not the best combination for this society to produce. 9. If this society used all of its productive resources to produce only Guns, then they could produce a. zero Guns. b. exactly 400 Guns. c. exactly 1,100 Guns. d. more than 1,100 Guns. Guns Roses D B C 0 40 80 100 1,100 600 400 0 A 6510. One of the principle functions of money is that it serves as a “medium of exchange.” This role could be described by recognizing that money a. is an asset that can be used as a means to hold wealth. b. is an asset used as payment when purchasing goods and services. c. is used as a basic unit of measuring economic activity. d. is only of “medium importance” to most individuals in society. 11. Which of the following conditions is necessary for the free market outcome to be efficient? a. there must be no “external effects.” b. there must be many buyers and many sellers in the market. c. market participants must be able to acquire accurate information at relatively low cost. d. All of the above are necessary for the free market outcome to be efficient. 12. One of the desirable features of a free market system is that “disequilibria are self correcting.” This characteristic can be best described as follows: a. the large short term profits for successful innovations serve to direct research efforts toward the activities that are most valued by society. b. for central planning to realize an efficient outcome it would first be necessary to gather and analyze a tremendous amount of information across many markets – such gathering of information is not necessary for a free market system to achieve efficiency. c. profits serve as a vital “signaling device” in free market economies, directing resources to their most valuable use. d. if market conditions change, market forces will lead to a “new equilibrium,” without the need for a central authority to redirect resources. 13. This past Monday Amanda watched the Braves beat the Marlins at Turner Field. While at the game she ate 3 hotdogs. Her Marginal Benefits for the third hotdog was $2. Each hotdog cost $4. Based upon this information, we can tell that a. her Economic Surplus would have been greater if she had instead eaten only two hotdogs. b. her Economic Surplus would have been greater if she had instead eaten four hotdogs. c. she ate the number of hotdogs that maximized her Economic Surplus. d. her Economic Surplus would have been greater if she had instead watched the game on TV at home. 14. __________ states that all other factors fixed, a greater quantity of a good will be demanded at lower prices. a. Adam Smith’s “Invisible Hand” b. The “Law of Supply” c. The “Law of Demand” d. The “Buyer’s Reservation Price”15. __________ is the subfield of economics that compares the structure and performance of different types of economic organization. a. Public Finance b. Industrial Organization c. Comparative Economic Systems d. The Structure-Conduct-Performance Paradigm For questions 16 through 18 refer to the graph below, which illustrates Supply and Demand for onions in 2007. 16. In equilibrium, _____ units would be traded each at a price of _____. a. 10,250; $6.10. b. 7,250; $4.00. c. 3,700; $6.10. d. 3,700; $2.50. 17. If 3,700 were traded, then the resulting Deadweight-Loss a. would be equal to “area (a).” b. would be equal to “area (f) plus area (g).”
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