ECON 1100 – Global Economics Exam #2 – Fall 2010 (Version A) Multiple Choice Questions (212 points each): 1. In a free market economy, households A. produce most finished goods and services. B. sell finished goods and services to firms. C. receive income from firms in the form of wages and rents. D. More than one of the above answers is correct. 2. “Deadweight Loss” generally refers to A. the difference between the “maximum possible Total Social Surplus” and the “realized Total Social Surplus.” B. the profits that firms make in a free market economy. C. the burden that firms incur from having to pay for inputs, instead of being given them for free. D. the negative impact of industrial production on our scarce environmental resources. 3. Chris owns a copy of the new CD “A Year Without Rain” by Selena Gomez & the Scene. His reservation price as a seller of this item is $10. Kerry’s reservation price as a buyer of this item is $7. If this unit was traded (i.e., transferred from Chris to Kerry) A. Social Surplus would be increased by $7. B. Social Surplus would be decreased by $3. C. Social Surplus would be decreased by $10. D. Social Surplus would be decreased by $17. 4. Antitrust Policy refers to A. government intervention to correct problems caused by externalities. B. regulatory and legal action designed to promote freedom of entry into a market and to prohibit the merger or collusion of competitive firms. C. taxation structures which result in a more equal distribution of income. D. a government project which creates a relatively small benefit for citizens of a particular legislative district, while spreading much larger costs over the entire population. 5. In a free market, the equilibrium quantity of trade and equilibrium price of a good are determined by A. neither buyers nor sellers, but rather by a government bureaucrat. B. only the buyers in the market. C. only the sellers in the market. D. the interaction of both self interested buyers and self interested sellers in the marketplace.6. Last weekend Brenda won $1,800 at a casino in Biloxi, Mississippi. She decided to use the money to purchase a new TV from Walmart. She was able to use the money to acquire the new TV since money serves as a A. store of value. B. unit of account. C. government failure. D. medium of exchange. 7. Which of the following is a good example of a “Pure Public Good”? A. Public Transportation (e.g., the subway system). B. an Atlanta Thrashers game at Philips Arena. C. National Defense. D. three fried fish tacos from Pure Taqueria in Woodstock, GA. 8. Someone who organizes and manages a business, typically with considerable initiative and exposure to risk is referred to as _________________. A. a central planner B. an entrepreneur C. a government bureaucrat D. a free rider 9. A firm operating in a “Perfectly Competitive Market” has “No Market Power,” which implies that the firm A. must decrease their price in order to increase the quantity of output sold. B. faces a demand curve for its output that is a “vertical line.” C. would lose all of their customers if they attempted to increase price above the prevailing market price. D. More than one of the above answers is correct. 10. Jacob leaves near Centennial Olympic Park in downtown Atlanta. From the balcony of his apartment, he is able to get a good view of the July 4th “AirTran Airways Fireworks Spectacular.” When he decides to view the fireworks display from his apartment, his decision to do so in no way affects the benefits that others derive from viewing the fireworks. This observation suggests that the fireworks display A. is being supplied by a monopolist, and is therefore being supplied at a level which generates an inefficiency from “too much trade.” B. is at least somewhat non-rival in consumption. C. is a good that is easily excludable. D. None of the above answers are correct. 11. The “Incidence of a Tax” refers to A. the amount of revenue that is generated from a tax. B. which individual is legally responsible for writing a check to pay the tax. C. which level of government is imposing the tax. D. who bears the burden of the tax in terms of decreased welfare.12. Kevin 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. Kevin chooses to enjoy the benefits of national security which result from military output purchased by others, while purchasing zero units of military output of his own. This example illustrates A. Adam Smith’s “Invisible Hand.” B. the Free Rider Problem. C. Agency Inertia D. Rent-Seeking Behavior. For questions 13 through 15 refer to the graph below, which illustrates “Marginal Private Benefits,” “Marginal Private Costs,” “Marginal Social Benefits,” and “Marginal Social Costs” in the market for Phosphate Fertilizers. 13. Based upon this graph, it appears as if this good A. generates a positive externality. B. generates a negative externality. C. is a “pure public good.” D. is produced by a “natural monopolist.” 14. Focusing on the 3,490th unit of output, producing/consuming this unit A. would lead to an increase in Total Social Welfare. B. would generate an “external cost” of $10.20. C. would generate an “external cost” of $24.50. D. More than one of the above answers is correct. 15. At the “free market level of trade” there would be a Deadweight-Loss A. equal to “areas (a)+(b).” B. equal to “area (c)+(d).” C. equal to “area (e).” D. of zero. $ quantity 00Supply = (Marginal Private Costs) Marginal Social Costs = (Marginal Private Costs) + (Marginal External Costs) Demand = (Marginal Private Benefits) = (Marginal Social Benefits) 1,320 2,290 3,490 19.25 24.50 27.65 34.70 a b d e c16. ___________ refers to unselfish concern for the welfare of others. A. Altruism B. Utilitarianism C. Adam Smith’s “Invisible Hand” D. Socialism For questions 17 through 20, refer to the graph below. This graph illustrates the supply and demand for hats in 2010. 17. If the consumer of the 2,080th hat were given a hat for free, her resulting Consumer’s Surplus would be A. $14.50. B. $9.40. C.
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