ECON 1100 – Global Economics Exam #2 – Fall 2010 (Version C) Multiple Choice Questions (212 points each): 1. Which of the following could NOT result in a “Change in Supply” for “MP3 Players”? A. An increase in the number of sellers of MP3 Players. B. An decrease in the market price of MP3 Players. C. An improvement in the technology used to produce MP3 Players. D. A decrease in the price of plastic (an input used in the production of MP3 Players). 2. Consider a good that is non-rival in consumption and non-excludable. If such a good were traded in a free market, then A. less than the efficient amount of the good would be traded. B. the efficient amount of the good would be traded. C. more than the efficient amount of the good would be traded. D. firms selling the good would have a great deal of “market power.” 3. The reintroduction of the gray wolf into the wilderness of the Western United States during the last several decades A. was funded by a government agency and was therefore inefficient. B. led to ranchers in the region realizing an “external cost” as a result of an increase in the number of their livestock being killed by wild animals. C. proves that the proposed “Coasian Solution” to the problem of externalities does not work. D. More than one of the above answers is correct. 4. The “incidence” of a tax identifies which individuals in society A. are able to effectively lobby the government in order to decrease their own tax burden. B. are legally responsible for writing a check to the government to pay the tax. C. bear the burden of the tax in terms of decreased welfare. D. are able to easily take illegal actions in order to avoid paying the tax. 5. 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. Agency Inertia. B. Utilitarianism. C. Collective Action. D. Rent Seeking Behavior.6. Between 1991 and 2006, “Government Expenditures as a percentage of GDP” in Germany A. decreased drastically, from just over 70% in 1991 to slightly below 10% by 2006. B. increased dramatically, from just under 15% in 1991 to slightly more than 80% by 2006. C. were less than 20% in every single year. D. were just under 50% in each year (taking on a mean value of 47.92% over this entire time-period). 7. In a “free market economy” profits A. are only earned by firms who produce products of lower quality. B. are only earned by firms who are able to exploit workers. C. serve as a “signaling device,” directing resources to their most valued uses. D. More than one of the above answers is correct. 8. Demand A. provides a direct summary of how consumer purchases change as per capita income increases. B. refers to the entire relationship between the price of a good and the number of units that consumers are willing and able to purchase, all other factors fixed. C. refers to the amount of a good that consumers are willing to buy at the equilibrium price. D. More than one of the above answers is correct. 9. In the presence of a “positive externality,” the free market would generally A. provide less than the efficient amount of the good. B. provide more than the efficient amount of the good. C. have trade take place at a price of $0. D. More than one of the above answers is correct. 10. Which markets are represented in the simple “Circular Flow Diagram”? A. Markets for “Imports and Exports” and markets for “Factors of Production.” B. Markets for “Goods and Services” and markets for “Factors of Production.” C. Markets for “Financial Assets” and markets for “Imports and Exports.” D. Markets for “Goods and Services” and markets for “Financial Assets.” 11. Which of the following is NOT one of the “7 Sources of Government Failure”? A. Pricing by firms with Market Power. B. Rent-Seeking Behavior. C. Capture of Regulators. D. Collective Action.12. 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 levels in a free market society are essentially “entirely random”). For questions 13 through 15, refer to the graph below. This graph illustrates the supply and demand for shirts in 2010. 13. In this market there would be ____________ at a price of $11.40. A. neither excess demand nor excess supply. B. both excess demand and excess supply. C. excess supply D. excess demand 14. In equilibrium, Total Consumers’ Surplus is exactly equal to A. “area (a).” B. “areas (a)+(b)+(c).” C. “areas (a)+(b)+(d).” D. None of the above answers are correct. 15. If 2,730 units were traded, Deadweight-Loss would be A. exactly equal to “areas (d)+(e).” B. exactly equal to “area (f).” C. positive, but less than “area (f).” D. equal to zero. price 00Demand 2010 quantity Supply 2010 17.00 10.60 8.75 1,050 2,200 2,940 a b c d e f16. Ronald Coase argued that problems related to externalities may be solved by A. completely banning the activity which generates the externality. B. “internalizing the externality,” by clearly and completely defining property rights, and then allowing affected parties to negotiate. C. redistributing income from wealthy people to poor people, in order to “strive for the greatest happiness for the greatest number of people.” D. imposing a tax on the good which generates the externality. For Questions 17 through 19, consider a monopolist facing Demand and with Marginal Costs and Marginal Revenue as illustrated below. 17. The efficient level of output for this good is _____ units. A. 1,700 B. more than 1,700 but
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