ECON 1100 – Global Economics (Section 09) Exam #2 – Fall 2007 (Version C) Multiple Choice Questions (212 points each): 1. A “Collective Good” is a. non-rival in consumption and excludable. b. non-rival in consumption and non-excludable. c. rival in consumption and excludable. d. rival in consumption and non-excludable. 2. Most Credit Unions a. restrict who is allowed to become a member. b. are able to earn profits greater than those earned by commercial banks. c. perform many of the same functions as a “commercial bank” or a “savings and loan bank.” d. More than one of the above answers is correct. 3. A Progressive Tax is one for which a. total tax revenue decreases as the tax rate is increased. b. the Average Tax Rate increases as the level of income increases. c. the Average Tax Rate decreases as the level of income increases. d. the Marginal Tax Rate becomes negative at very high levels of income. 4. ____________ are financial enterprises with the primary function of protecting individuals and firms from exposure to risk. a. Insurance Companies b. Company Unions c. Venture Capitalists d None of the above answers are correct. 5. “Direct Transfer Payments” refer to a. benefits from an activity that are realized by someone not engaging in the activity. b. the provision of consumption goods by the government, provided to consumers at zero cost or reduced cost. c. cash payments from the government to individuals. d. payments made by consumers, in order to obtain the benefits of an excludable good. 6. Which of the following is NOT one of the “7 Sources of Government Failure”? a. Capture of Regulators. b. Pork Barreling. c. Rent-Seeking Behavior. d. Externalities.7. ____________ refers to Government policies that determine the nation’s “money supply.” a. Tax Policy b. Fiscal Policy c. Monetary Policy d. Income Support 8. ____________ 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. a. Government Failure b. Contestable Market Theory c. Pork Barreling d. Joseph Schumpeter 9. Government provision of “subsidized housing” is a good example of a. income support. b. indirect taxation. c. redistribution in-kind. d. government provision of information. 10. An industry in which there are very high fixed costs or declining marginal costs of production is a a. Contestable Market. b. Natural Monopoly. c. Artificial Monopoly. d. Perfectly Competitive Market. 11. Which of the following is a good example of a “Pure Public Good”? a. the “2 Fish Value Basket Combo” from Long John Silver’s. b. National Defense. c. Public Transportation (e.g., the subway system). d. Industrial Pollution. 12. 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 a. the “Telephone Equipment” industry is less competitive than the “Cement Manufacturing” industry. b. the “Cement Manufacturing” industry is less competitive than the “Telephone Equipment” industry. c. there is a single, monopolist cement manufacturer in the U.S. d. it is more costly to produce telephone equipment than it is to produce cement.13. Most modern industrialized countries a. have made labor unions illegal. b. legally allow unions to exist, but still have rates of Unionization near 0%. c. have rates of Unionization between 33% and 50%. d. have rates of Unionization near 90%. For Questions 14 through 16, consider a monopolist facing Demand and with Marginal Costs and Marginal Revenue as illustrated below. 14. To maximize profit, this firm would a. charge a price of $2.25 and sell 3,500 units of output. b. charge a price of $5.45 and sell 3,500 units of output. c. charge a price of $3.60 and sell 5,500 units of output. d. charge a price of $2.25 and sell 7,000 units of output. 15. The efficient level of output for this good is _____ units. a. 0. b. 3,500. c. 5,500. d. 7,000. 16. When this monopolist produces the level of output which maximizes profit, a. Deadweight-Loss is equal to zero. b. Deadweight-Loss is equal to “area (a)” plus “area (b).” c. Deadweight-Loss is equal to “area (c)” plus “area (d).” d. Deadweight-Loss is equal to “area (e)” plus “area (f).” $ quantity 00Demand Marginal Revenue of Monopolist Marginal Costs of Production 2.253.605.453,500 7,000 5,500 a b e c d f17. The _______________ argument for Income Redistribution suggests a wealthy society has an obligation to guarantee everyone a “minimum standard of living.” a. Social Contract b. Social Control c. Utilitarian d. Demand Stabilization For Questions 18 through 20, consider a good for which Marginal Private Benefits, Private Costs, Social Benefits, and Social Costs are as illustrated below. 18. Base upon the graph above, a. this good is clearly a pure public good. b. production/consumption of this good results in a “negative externality.” c. production/consumption of this good results in a “positive externality.” d. None of the above answers are correct. 19. The efficient level of trade in this market is ____ units, while the free market level of trade is ____ units. a. (0); (9,750) b. (6,400); (8,600) c. (8,600); (6,400) d. (9,750); (0) 20. At the “free market outcome” (that is, the outcome without any government intervention in this market), Deadweight-Loss would be equal to a. “area (a)” plus “area (b).” b. “area (c).” c. “area (d).” d. zero. $ quantity 00Marginal Private Benefits Marginal Social Benefits (Marginal Private Costs) = (Marginal Social Costs) 6,400 8,600 9,750 49.00 27.50 a b c d21. 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. Collective
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