ECON 1100 – Global Economics (Section 02) Exam #1 – Fall 2008 (Version B) – Answer Key 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. c. Cost-Benefit Principle 2. Which of the following is NOT one of the “Three Basic Economic Questions” that every society must address? c. “How can we guarantee that everyone in society has access to a quality education?” 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 c. Amy has a Comparative Advantage in making computers. 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. b. Adam Smith’s notion of the “Invisible Hand.” 5. The economy of Germany is best described as c. a Mixed Economy. 6. The “Incentive Principle” states that 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 b. a change in consumer preferences. 8. “Habitat for Humanity” is a good example of c. a Non-Governmental Organization. 9. Supply 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 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 c. informal guidelines which dictate how much of the day-to-day behavior of an institution is conducted. 12. When resources are scarce, decision makers face tradeoffs. As a result, c. having more of one thing typically means getting by with less of something else. 13. Point A in the graph above is b. attainable but inefficient 14. If this society used all of its productive resources to produce only Cars, then they could produce d. More than one of the above answers is correct. 15. An entrepreneur c. is someone who organizes and manages a business, typically with considerable initiative and exposure to risk. 16. In which of the following countries do individuals enjoy the least amount of “Economic Freedom”? c. Cuba. 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 b. is an asset that can be used as a means to hold wealth. 18. Consider a market in which there is currently “Inefficiency from too much trade.” This observation suggests that c. we are trading some units for which buyer’s reservation price is less than seller’s reservation price. 19. The “Principal/Agent Problem” refers to b. problems that arise because of difficulties associated with getting agents (e.g., workers) to take actions that are best for principals (e.g., firms).20. Erin owns a 800 acre peanut farm just outside of Tifton, GA. She has decided to stop farming and sell her land to a housing developer. When selling her land, which of the following property rights is she exercising? d. the “Disposal Right.” 21. One of the desirable features of a free market system is that “disequilibria are self correcting.” This characteristic can be best described as follows: b. if market conditions change, market forces will lead to a “new equilibrium,” without the need for a central authority to redirect resources. 22. Based upon this graph, we can tell that b. there was greater income inequality in Spain in 1955 than in 2008. 23. Based upon the Lorenz Curves illustrated above, we can tell that the value of the Gini-Coefficient in Spain b. decreased between 1955 and 2008. 24. John attended the Atlanta Falcons-Tampa Bay Buccaneers football game on Sunday, September 14, 2008. His Total Benefits from doing so were $120, while his Total Costs from doing so were $150. It follows that d. his Economic Surplus from attending the game was negative. 25. In equilibrium, _____ units would be traded each at a price of _____. c. 1,450; $3.90. 26. If 2,225 were traded, then the resulting Deadweight-Loss c. would be equal to “area (e).” 27. Supposing boiler chickens are a normal good, if there were an increase in consumer income, then a. the new equilibrium price would be greater than $3.90. 28. __________ is the subfield of economics that compares the structure and performance of different types of economic organization. d. Comparative Economic Systems 29. The __________________ illustrates the interaction between households and firms in a simplified free market economy. a. Circular Flow Diagram30. Within the last week, New England Patriots quarterback Tom Brady injured his left knee, ending his 2008 season. Also during this time there was a collision between a commuter train and freight train in Los Angeles which killed 17 people (and injured 137 others). If Tom Brady is more upset about his knee injury than about the loss of life from the train accident, then it suggests that d. Tom Brady is a self-interested individual. 31. In a free market economy, households d. More than one of the above answers is correct. 32. For the most part, the behavior of decision makers in Market Economies is primarily influenced by a. Material Incentives 33. Which of the following is NOT one of the primary economic institutions that characterize a modern economy? c. The Demand Curve. 34. Which of the following conditions is necessary for the free market outcome to be efficient? b. market participants must be able to acquire accurate information at
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