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KSU ECON 1100 - Exam 2 ECON 1100

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ECON 1100 – Global Economics (Section 08) Exam #2 – Spring 2010 (Version B) Multiple Choice Questions (212 points each): 1. One of the principle functions of money is that it serves as a “unit of account.” This role could be described by recognizing that money is a. an asset that can be used as a means to hold wealth. b. an asset used as payment when purchasing goods and services. c. used as a basic unit of measuring economic activity. d. something which people count on to help them in acquiring goods and services. 2. The “Average Costs” of producing a level of output are simply “Total Costs divide by level of output.” In the market for widgets it costs: $40,000 to produce 1,000 units of output, $70,000 to produce 2,000 units of output, and $96,000 to produce 3,000 units of output. Based upon these figures a. this production process would appear to exhibit “Economies of Scale.” b. consumption of widgets generates a substantial negative externality. c. production of widgets results in a government failure. d. None of the above answers are correct. 3. In a free market economy, households a. produce goods and services which they sell to firms. b. provide labor and other factors of production to firms. c. receive income from firms in the form of wages and rents. d. More than one of the above answers is correct. 4. A “seller’s reservation price” a. refers to the maximum dollar amount a buyer is willing to pay for an item. b. refers to the minimum dollar amount a seller is willing to accept in exchange for an item. c. is visually illustrated by the height of the supply curve. d. More than one of the above answers is correct. 5. In 2009, government spending in the U.S. (combined, at all levels of government) as a percentage of GDP was approximately a. 11.43%, well below the average over the entire history of our country. b. 29.77%, which is not the lowest value in the entire history of our country but is the lowest in the past 41 years. c. 46.22%, 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). d. 62.97%, higher than in any previous year in the entire history of our country.6. The ______________ refers to “who bears the burden of a tax” in terms of “decreased welfare.” a. “Free Rider Problem.” b. Tax Evasion Metric c. Incidence of a Tax d. Progressivity of a Tax For Questions 7 through 9, consider a good for which the Marginal Private Benefits, Private Costs, Social Benefits, and Social Costs from production/consumption are as illustrated below. 7. From this graph, it is clear that a. the good is being provided by a government agency (in order to correct for a market failure which would otherwise result from the seller having “too much market power”). b. production/consumption of this good generates a negative externality. c. production/consumption of this good generates a positive externality. d. More than one of the above answers is correct. 8. In order to maximize Total Social Welfare, _______ units should be traded. a. 0 b. 7,400 c. 14,500 d. 22,800 9. At the “free market outcome” (that is, without any government intervention) a. 14,500 units would be traded. b. there would be a Deadweight-Loss equal to “area (f).” c. Total Consumers’ Surplus would be equal to zero. d. More than one of the above answers is correct. $ quantity 00Marginal Private Costs Marginal Social Costs (Marginal Private Benefits) = (Marginal Social Benefits) 18.00 7,400 14,500 10.00 24.00 (a) (b) (c) (f) (d) (e) 22,80010. Government Failure may arise because: “Once created, government agencies often take on a ‘life of their own.’ Employees of such agencies often have incentives to ‘expand the scope of their agency’ in order to increase their own job security.” This phenomenon is known as a. Rent Seeking Behavior. b. Collective Action. c. Agency Inertia. d. Capture of Regulators. 11. In general, “Deadweight Loss” a. provides a measure of inefficiency, defined as the difference between “maximum possible Total Social Surplus” and “realized Total Social Surplus.” b. provides a measure of the costs borne by third parties as a result of industrial pollution generated by the production of goods/services. c. will be positive in a market in which “more than the efficient quantity is traded,” but negative in a market in which “less than the efficient quantity is traded.” d. More than one of the above answers is correct. 12. Lead is an important input in the production of Crystal. If the price of Lead were to decrease, then a. Demand for Crystal would increase. b. Supply for Crystal would increase. c. the equilibrium price of Crystal would increase. d. More than one of the above answers is correct. 13. Suppose a new per unit tax is placed on sellers of “fast food French Fries.” This tax will _______________ Total Consumers’ Surplus and _______________ Total Producer’s Surplus. a. decrease; not change. b. decrease; increase. c. not change; decrease. d. decrease; decrease. 14. Incomes may differ across different individuals in a free market society due to a. only factors which are beyond the control of the individual (such as their “endowment at birth of natural talent and ability”). b. only factors which are under the direct control of the individual (such as “how much education to acquire”). c. some factors which are under the control of the individual (such as “how much education to acquire”) and some factors which are beyond the control of the individual (such as their “endowment at birth of natural talent and ability”). d. None of the above answers are correct (since in general, income prospects in a free market society are essentially “entirely random”).15. Which of the following is a good example of a “Pure Public Good”? a. a “Whopper” from Burger King. b. an Atlanta Thrashers game at Philips Arena. c. Public Transportation (e.g., the subway system). d. National Defense. 16. ___________ broadly refers to government policies designed to reshape the allocation of wealth, income, and consumption across individuals in society. a. Redistribution b. Anti-Trust Policy c. Government Failure d. The Incidence of a Tax 17.


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KSU ECON 1100 - Exam 2 ECON 1100

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