ECON 1100 – Global Economics (Section 06) Exam #1 – Fall 2010 (Version D) – Answer Key 1. Which of the following statements is a “Normative Statement”? D. More than one of the above answers is correct. 2. ________________ is an economic system in which the means of production are privately owned and operated for a profit. A. Capitalism 3. The Lorenz Curve provides a direct graphical illustration of D. the distribution of income within a society. 4. “Voluntary Trade” generally D. makes both parties to the trade better off. 5. Paul (a.k.a. DJ Pauly D) and Nicole (a.k.a. Snooki) produce tanning beds and coconut rum. Paul’s Opportunity Cost for producing a bottle of coconut rum is greater than Nicole’s Opportunity Cost for producing a bottle of coconut rum. The_________________________ suggests that they can increase their total output of these two goods if Paul focuses his production on tanning beds while Nicole focuses her production on coconut rum. D. Principle of Comparative Advantage 6. In 2009 High School graduates earned $18,250 per year more than non-High School graduates. If this difference had instead been $20,000 per year, then we would expect A. fewer people to drop out of school before graduating High School. 7. With which of the following statements is there “general agreement” among most economists? C. “The U.S. should not prevent firms from outsourcing work to foreign countries.” 8. Earlier this summer flooding in Pakistan killed over 1,100 people. Around the same time, Tiger Woods shot 18 over par and finished in second to last place at the World Golf Championships–Bridgestone Invitational. If Tiger was more upset about his performance at the Bridgestone Invitational than about the loss of life from the flooding in Pakistan, then it would suggest that he C. is a self-interested individual.9. John recently saw the comedian Ron White perform at the Topeka Performing Arts Center in Topeka, KS. His Total Benefits from seeing this show were $55, while his Total Costs were $70. From this information, it follows that his Economic Surplus B. from attending the show was ($55)–($70) = ($–15) (i.e., negative $15). 10. Which of the following is NOT one of the “Three Basic Economic Questions” that every society must address? B. “How can we guarantee that all individuals in society have access to healthcare?” 11. One of the three types of “Economic Incentives” is “Coercion,” which could be described as B. the use of “force” or “intimidation” to obtain compliance. 12. Jack and Daniel produce whiskey and cola. Jack’s Opportunity Cost for producing a bottle of whiskey is “8 bottles of cola”; Daniel’s Opportunity Cost for producing a bottle of whiskey is “5 bottles of cola.” Based upon this information alone, we know that A. Jack has a Comparative Advantage in the production of cola. 13. On July 30, 2010, the Arizona Diamondbacks traded pitcher Edwin Jackson to the Chicago Whitesox for pitchers Dan Hudson and David Holmberg. Since this voluntary trade took place, we can infer that A. the Arizona Diamondbacks thought the trade was in the best interest of their own organization. 14. When considering potential government policies, it is important to recognize that C. if a policy alters the costs and/or benefits for a decision maker, then the decision maker might change his behavior as a result of the policy. 15. The Index of “Economic Competitiveness” discussed in lecture attempts to measure A. the capacity of the national economy to achieve growth over the medium term, controlling for the current level of development. 16. ____________ 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. D. Adam Smith’s notion of the “Invisible Hand.” 17. The Gini-Coefficient provides a quantitative measure of A. income equality/inequality within a society.18. One of the six primary “economic institutions” in any society is “households.” Within a society, “households” are the primary D. More than one of the above answers is correct. 19. Mike argues, “In 2008 the average tuition at a private University was $27,500 per year. Since these costs are so high, nobody should choose to attend college.” The primary problem with this argument is that it A. only focuses on one particular cost and ignores the many benefits of getting a college education. 20. The behavior of economic decision makers is restricted (or influenced by) C. both formal rules and informal customs. 21. _____________ is the subfield of economics that compares the structure and performance of different types of economic organization. C. Comparative Economic Systems 22. In 2006, the value of the Gini-Coefficient in Ghana was 0.39, while the value of the Gini-Coefficient in Belgium was 0.28. These values directly suggest that B. incomes are distributed “more equally” in Belgium than in Ghana. 23. When resources are scarce, decision makers face tradeoffs. As a result, B. having more of one thing typically means getting by with less of something else. 24. Suppose Mo paid a total of $50 in order to consume 3 pizzas. It follows that D. his Economic Surplus would be equal to $2. 25. Mo’s “Marginal Benefit” for his 4th pizza consumed would be B. $8. 26. We can see the “Incentive Principle” at work by noting that (hint: all of the statements below are correct observations, however only one of them illustrates the “Incentive Principle” by itself): B. If the price of a pizza were to increase from $10 to $15, then Mo would decrease his consumption from 3 pizzas to 2 pizzas. 27. The economic system currently in place in ___________________ would be most accurately described as a “Mixed Economy.” D. All of the above answers are correct.28. John and Anthony work at a convenience store. They get paid by the hour. Upon arrival at work and right before leaving, each worker is supposed to type his employee I.D. number into a computerized time clock (which keeps track of exactly how much time he has worked). Anthony often sleeps late in the mornings and rarely gets to work on time. In such instances, John often “logs-in” for Anthony before Anthony gets to work. John’s behavior is an example of C. a
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