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KSU ECON 1100 - Exam 2 ECON 1100

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ECON 1100 – Global Economics (Section 02) Exam #2 – Fall 2009 (Version A) – Answer Key Multiple Choice Questions (212 points each): 1. ___________ refers to economic inefficiencies which arise as a result of government intervention in markets. d. Government Failure 2. The “Four Firm Concentration Ratio” b. provides a measure of industry concentration, defined as the sum of market shares of the four largest firms in the industry. 3. Between 1991 and 2006, “Government Expenditures as a percentage of GDP” in Germany c. were just under 50% in each year (taking on a mean value of 47.92% over this entire time-period). 4. Hotdogs are a substitute for Hamburgers. It follows that an increase in the price of Hamburgers would c. increase demand for Hotdogs. 5. The reintroduction of the gray wolf into the wilderness of the Western United States during the last several decades 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. 6. ____________ 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. a. Adam Smith’s notion of the “Invisible Hand.” 7. In order to maximize Total Social Welfare, _______ units should be traded. b. 9,200 8. At the “free market outcome” (that is, without any government intervention) d. More than one of the above answers is correct. 9. If the efficient level of trade were to take place, this society would incur a Total External Cost (i.e., the “optimal amount of the negative externality is”) of b. “areas (b)+(c).”10. Consider the “Men’s Footwear” industry and the “Boiler Chicken” industry. Suppose the value of the “Herfindahl-Hirschman Index” for “Men’s Footwear” is (1,973.3), while the value of the “Herfindahl-Hirschman Index” for “Boiler Chickens” is (567.8). These values suggest that c. the “Men’s Footwear” industry is less competitive than the “Boiler Chicken” industry. 11. The primary guiding principle of _________________ is to “strive for the greatest happiness for the greatest number of people.” b. Utilitarianism 12. One of the “6 Determinants of Productivity, Income, and Wealth” is “effort,” which refers to the recognition that differences in income or wealth across individuals could result from differences in b. how hard individuals choose to work. 13. 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 $50,000 to produce 1,000 units of output, and it costs $80,000 to produce 2,000 units of output. Based upon these figures b. this production process would appear to exhibit “Economies of Scale.” 14. A “Rival Good” is one for which c. consumption by one person does diminish the quantity/quality of the good available for consumption by others. 15. An entrepreneur b. is someone who organizes and manages a business, typically with considerable initiative and exposure to risk. 16. If a per unit tax of $1.25 were imposed on buyers in this market, then b. more than 270 units but fewer than 410 units would be traded. 17. Imposing a per unit tax of $1.00 on sellers in this market would generate c. more than $270 but less than $410 of tax revenue. 18. Imposing a per unit tax of $2.25 on buyers would result in a Deadweight-Loss b. equal to “areas (c)+(d).” 19. Consider the following two proposed taxes: (i) a per unit tax of $3.00 imposed on buyers and (ii) a per unit tax of $3.00 imposed on sellers. “Proposal (i)” would d. None of the above answers are correct. 20. “Rent Seeking Behavior” can be described as c. the expenditure of real resources in an attempt to secure a fixed economic surplus, as opposed to actions which generate an economic surplus.21. Chris’ reservation price for purchasing a ticket to see “AC/DC” in concert is $280. If he were to purchase a ticket for $100, then he would b. realize a Consumer’s Surplus of $180. 22. Market provision of Pure Private Goods is often ____________, while market provision of Pure Public Goods is ____________. b. efficient; inefficient. 23. In 2009, government spending in the U.S. (combined, at all levels of government) as a percentage of GDP will be approximately b. 45.19%, 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). 24. Jen 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. Jen 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 her own. This example illustrates a. the Free Rider Problem. 25. A “seller’s reservation price” c. refers to the minimum dollar amount a seller is willing to accept for an item. 26. The efficient level of output for this good is _____ units. b. 1,450 27. To maximize profit, this monopolist would a. charge a price of $10.00 and sell 850 units of output. 28. When this monopolist produces the level of output and charges the price which maximizes profit, b. Deadweight-Loss is equal to “areas (d)+(e).” 29. Consider the demand curve for tacos. A decrease in the price of tacos would be visually illustrated by a. a movement “down” a fixed, unchanged demand curve for tacos. 30. In a free market economy, firms b. produce finished goods and services which are sold to households. 31. _____________ implies that (all other factors fixed) if the price of a good is higher, then firms would want to sell a greater quantity of the good. b. The “Law of Supply”32. In order for a free market to provide the efficient quantity of a good, it is necessary that b. production and consumption of the good does not generate any external benefits or external costs. 33. 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 c. is used as a basic unit of measuring economic activity. 34. Consider the market for “#33


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KSU ECON 1100 - Exam 2 ECON 1100

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