ECON 1100 – Global Economics (Section 03) Exam #2 – Fall 2008 (Version D) – Answer Key Multiple Choice Questions (212 points each): 1. A “Monopolist” d. More than one of the above answers is correct. 2. ____________ are financial enterprises with the primary function of protecting individuals and firms from exposure to risk. c. Insurance Companies 3. Suppose that the U.S. government wants to protect the jobs of U.S. automotive manufacturers. In an attempt to do so, they decide to impose an additional tax of $5,000 on any car that is sold in the U.S. but built in another country. From the perspective of the U.S. government, this trade policy c. has the objective of “protecting the home market.” 4. “Financial Disclosure” refers to c. requirements of firms to publicly report their financial status using a standard system of accounting. 5. _______________ claims that the behavior of firms in an industry is highly dependent upon the ease with which new firms can enter the industry, so that the present state of industry concentration is not the only important factor in predicting firm behavior. b. Contestable Market Theory 6. Which of the following is NOT one of the “7 Sources of Government Failure”? d. Externalities. 7. A “Corporation” is a. a legal entity that can, through the sale of stock, raise capital from a large number of investors, each of whom shares in the profits of the firm. 8. The “Bailey Wildlife Foundation Wolf Compensation Trust” a. desires to “shift the economic responsibility for wolf recovery away from the individual rancher and toward the millions of people who want to see wolf populations restored.” 9. “Rent Seeking Behavior” can be described as a. the expenditure of real resources in an attempt to secure a fixed economic surplus, as opposed to actions which generate an economic surplus.10. Jim lives in a country in which military output is not provided by the government, but rather is supplied by profit maximizing firms and purchased by individual consumers in a free market. Jim chooses to enjoy the benefits of national security which result from military output purchased by others in society, while purchasing “zero units of military output” of his own. This example illustrates c. the Free Rider Problem. 11. In most modern industrialized countries a. between 33% and 50% of workers belong to labor unions. 12. To maximize profit, this firm should d. None of the above answers is correct. 13. The efficient level of output for this good is _________ units. b. 7,000. 14. When this monopolist chooses the level of output and price to maximize profit, b. Consumer’s Surplus is equal to “areas (a)+(b).” 15. As of 2008, the birth rate in Japan was c. approximately 1.27, well below their “replacement fertility rate.” 16. Base upon the graph above, b. production/consumption of this good results in a “positive externality.” 17. The efficient level of trade in this market is ______ units, while the free market level of trade is ______ units. b. (9,200); (7,500) 18. At the “free market outcome” (that is, the outcome without any government intervention in this market), b. Deadweight-Loss would be equal to “area (a).” 19. Which of the following is a good example of a “Pure Public Good”? c. National Defense. 20. If a per unit tax of $1.50 were imposed on buyers in this market, then c. more than 6,000 but fewer than 10,000 units would be traded. 21. Imposing a tax of $2.50 per unit on sellers in this market would generate tax revenue b. equal to “areas (b)+(c).”22. Comparing the outcome which would result from imposing a per unit tax of $2.50 on buyers in this market to the outcome which would result from imposing a per unit tax of $2.50 on sellers in this market, c. Consumers’ Surplus would be equal to “area (a)” under either tax. 23. ___________________ specifies what different parties must do under all possible realizations of external circumstances, and provides for enforcement or compensation for non-performance. b. A Contract 24. Hillary argues that in a wealthy society such as the U.S., all individuals should have “free” access to basic necessities such as prescription drugs and education. This argument for redistribution would seem to be based upon which of the following general justifications for redistribution? c. Social Contract. 25. With regards to economic outcomes for society, during our lifetimes issues related to healthcare are likely to become of a. greater importance, as the median age within most industrialized countries continues to increase. 26. In the “widget industry”: the Average Costs of producing 5,000 units of output are $4.18 per unit, the Average Costs of producing 6,000 units of output are $3.98 per unit, and the Average Costs of producing 7,000 units of output are $3.67 per unit. Based upon these figures it would appear as if c. the widget industry is a “Natural Monopoly.” 27. Consider the “Telephone Equipment” industry and the “Cement Manufacturing” industry. The value of the “Herfindahl-Hirschman Index” for “Telephone Equipment” is (1,061.1), while the value of the “Herfindahl-Hirschman Index” for “Cement Manufacturing” is (466.6). These values directly suggest that b. the “Telephone Equipment” industry is less competitive than the “Cement Manufacturing” industry. 28. The ______________ refers to “who bears the burden of a tax” in terms of “decreased welfare.” b. Incidence of a Tax 29. “In some instances it is difficult or very costly for consumers to gather accurate information on important characteristics of some goods. Therefore, having the government impose and enforce standards on safety, quality, and effectiveness of such goods may assist consumers in making good economic decisions in the marketplace.” This argument provides the b. justification for government regulation of products.30. Which of the following is NOT one of the primary functions of the U.S. Federal Reserve? b. To raise revenue for the Federal Government through taxation. 31. _______________ refers to Government policies related to spending and revenue generation. b. Fiscal Policy 32. ________ an important role in the labor market by regulating the legal age of workers, length of workweek, minimum wages, and other
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