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KSU ECON 1100 - Exam 3 ECON 1100

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ECON 1100 – Global Economics (Section 06) Exam #3 – Spring 2011 (Version B) Multiple Choice Questions (212 points each): 1. _______________ refers to economic inefficiencies which arise as a result of government intervention in markets. A. Market Failure B. Government Failure C. The Free Rider Problem D. Excess Supply 2. In 2010, government spending in the U.S. (combined, at all levels of government) as a percentage of GDP was approximately A. 4.92%, well below the average over the entire history of our country. B. 29.84%, higher than in any previous year in the entire history of our country. C. 34.65%, which is not the lowest value in the entire history of our country but is the lowest in the past 47 years. D. 43.85%, higher than the percentage in all but three previous years in the entire history of our country (with the “exceptions” being 1943, 1944, and 1945). 3. Which of the following was discussed in lecture to illustrate how something akin to the “Coasian Solution to Externalities” has been implemented in practice? A. How the “Defenders of Wildlife” established the “Bailey Wildlife Wolf Compensation Trust” in order to facilitate the re-introduction of the gray wolf into the wild in the western United States. B. Why total costs of production for many utilities is often minimized by having only one single producer in any particular geographic area. C. How total social welfare (on a global level) was likely decreased by President Barack Obama flying to Copenhagen in order to lobby the International Olympic Committee on behalf of Chicago’s bid to host the 2012 Summer Olympics. D. Why a free market would tend to provide less than the efficient amount of national defense. 4. In order for a free market to provide the efficient quantity of a good, it is necessary that A. there are either very few sellers or very few buyers of the good. B. the good in question is non-rival in consumption and non-excludable. C. production and consumption of the good does not generate any substantial external benefits or external costs. D. More than one (perhaps all) of the above answers is correct.5. Before the start of the semester, Michelle bought a used copy of the textbook for her biology class for $45. If the price of the book had instead been only $40, then we can infer that A. the Social Surplus from the transaction would have had to be negative. B. she would not have purchased the used book, but instead would have bought a new copy of the book. C. her Consumer’s Surplus from this purchase would have been $5 larger. D. None of the above answers are correct. 6. In a free market economy, _____________ serves as a vital signaling device, directing resources to their most highly valued uses. A. Ronald Coase B. monopolists C. Deadweight-Loss D. profit 7. A “buyer’s reservation price” A. is visually illustrated by the vertical distance between the supply curve and demand curve. B. refers to the maximum dollar amount a buyer is willing to pay for an item. C. refers to the minimum dollar amount a seller is willing to accept for an item. D. More than one (perhaps all) of the above answers is correct. 8. Which of the following is NOT one of the “7 Sources of Government Failure”? A. Pork Barreling. B. Capture of Regulators. C. Rent Seeking Behavior. D. None of the above answers is correct (since each option is a potential source of Government Failure). 9. A “4th of July Fireworks display at Centennial Olympic Park” A. is not easily “Excludable” (i.e., is “Non-excludable”). B. is perfectly “Rival in Consumption.” C. provides an example of an inefficiency that results from a monopolist maximizing profit. D. None of the above answers are correct. 10. The “Incidence of a Tax” refers to A. which individual is legally responsible for writing a check to pay the tax. B. who bears the burden of the tax in terms of decreased welfare. C. which level of government is imposing the tax. D. More than one (perhaps all) of the above answers is correct.11. Which of the following could NOT result in a “Change in Supply” for “DVD Players”? A. A decrease in the price of plastic (an input used in the production of DVD Players). B. A decrease in the market price of DVD Players. C. An increase in the number of sellers of DVD Players. D. An improvement in the technology used to produce DVD Players. For Questions 12 through 14, consider a monopolist facing Demand and with Marginal Costs and Marginal Revenue as illustrated below. 12. The efficient level of output for this good is ________ units. A. 5,700 B. 3,100 C. 2,850 D. 1,600 13. When this monopolist maximizes profit, A. Total Consumers’ Surplus in the market is equal to zero. B. he charges $20.50 for each unit of output sold. C. he sell 3,100 units of output. D. More than one (perhaps all) of the above answers are correct. 14. When this monopolist chooses the price and quantity which maximizes profit, there is a Deadweight-Loss equal to A. Area (g). B. Areas (a)+(b). C. Areas (a)+(b)+(c)+(d)+(e). D. Areas (e)+(f). $ quantity 00Demand Marginal Revenue Marginal Costs of Production 9.00 13.0020.50 1,600 4,300 3,100 e d 28.50 g c f 5,700 a b 2,85015. Which economic function of government refers to the “government production of goods or regulation of business, in order to get the ideal mix of products produced (i.e., with each good produced in the ideal quantity and at the ideal quality)”? A. The Allocation Function of Government. B. The Distribution Function of Government. C. The Free Rider Function of Government. D. The Stabilization Function of Government. For questions 16 through 18, refer to the graph below. This graph illustrates the supply and demand for pizza in 2011. 16. In this market there would be ____________ at a price of $9.99. A. neither excess demand nor excess supply. B. excess supply C. excess demand D. both excess demand and excess supply. 17. In equilibrium _________ pizzas will be traded, each at a price of _______ . A. (2,650); ($6.30). B. (2,650); ($15.20). C. (5,130); ($11.00). D. (7,490); ($28.70). 18. In equilibrium A. Deadweight-Loss is equal to “Areas (c)+(e).” B. Total Consumers’ Surplus is equal to “Areas (a)+(b)+(c).” C. Total Producers’ Surplus is equal to “Areas (b)+(d)+(f).” D.


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KSU ECON 1100 - Exam 3 ECON 1100

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