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KSU ECON 1100 - Exam 1 ECON 1100

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ECON 1100 – Global Economics (Section 05) Exam #1 – Summer 2011 (Version A) – Answer Key 1. The Cost-Benefit Principle states that B. an action should be taken if and only if the additional benefits from taking the action are at least as great as the additional costs of doing so. 2. Positive Statements B. are “fact based statements” which provide “predictions about outcomes” without any judging of their desirability. 3. ____________ is the branch of economics which studies how individual decision-makers behave and interact with each other (often with a focus on how individual households and/or firms behave and interact with each other in markets). C. Microeconomics 4. When considering potential government policies, it is important to recognize that B. if a policy alters the costs and/or benefits for a decision maker, then the decision maker might change his behavior as a result of the policy. 5. The highest rates of Unionization in the world are found A. in Scandinavian countries. 6. One of the principle functions of money is that it serves as a “medium of exchange.” This role could be described by recognizing that money is B. an asset used as payment when purchasing goods and services. 7. Consider the following two statements. Statement 1: “The Federal Government should be required to run a balanced budget in every year.” Statement 2: “Trade Restrictions reduce general economic welfare.” Most economists would C. agree with Statement 2, but disagree with Statement 1. 8. The “Circular Flow Diagram” C. illustrates the interaction between households and firms in a simplified free market economy. 9. Suppose that in 2005 High School graduates earned $16,750 per year more than non-High School graduates. If this difference had instead been $20,000 per year, then we would expect B. fewer people to drop out of school before graduating High School.10. On November 16, 2010, the Atlanta Braves traded infielder Omar Infante and pitcher Mike Dunn to the Florida Marlins for second baseman Dan Uggla. Since this voluntary trade took place, we can infer that D. both the Atlanta Braves and the Florida Marlins thought the trade was in the best interest of their own organization. 11. _______________ specifies what different parties must do under all possible realizations of external circumstances, and provides for enforcement or compensation for non-performance. A. A Contract 12. A “Self-Interested” person D. cares about his own well-being more than the well-being of others. 13. In most countries, Government plays an important role in economic matters by B. specifying property rights (thereby defining who is allowed to own and control the means of production). 14. Beth and Donald spend their workdays producing pizzas and bicycles. Which of the following statements must be true? B. “If Donald has a Comparative Advantage in the production of pizzas, then Beth must have a Comparative Advantage in the production of bicycles.” 15. John and Anthony work at a convenience store. They get paid by the hour. Upon arrival at work and right before leaving, each worker is supposed to type his employee I.D. number into a computerized time clock (which keeps track of exactly how much time he has worked). Anthony often sleeps late in the mornings and rarely gets to work on time. In such instances, John often “logs-in” for Anthony before Anthony gets to work. John’s behavior is an example of B. a Principal/Agent Problem. 16. The Sierra Club and the United Way are examples of which of the following type of Economic Institution? B. Non-Governmental Organizations. 17. A.C. and Zack produce surfboards and oranges. A.C.’s opportunity cost of producing a surfboard is lower than Zack’s opportunity cost of producing a surfboard. The ___________________ suggests that they can increase their total output of these two goods if A.C. focuses his production on surfboards while Zack focuses his production on oranges. D. Principle of Comparative Advantage 18. Suppose Mo paid a total of $60 in order to consume 4 pizzas. It follows that A. his Economic Surplus would be equal to $20.19. Mo’s “Marginal Benefit” for his 5th pizza consumed would be B. $8. 20. We can see the “Incentive Principle” at work by noting that (hint: all of the statements below are correct observations, however only one of them illustrates the “Incentive Principle” by itself): B. If the price of a pizza were to decrease from $16 to $12, then Mo would increase his consumption from 2 pizzas to 3 pizzas. 21. Privately owned enterprises in a free market economy have a primary goal of B. earning as large of a profit as possible. 22. The __________________ is a curve which illustrates the “maximum amount of one good which can be produced for every possible level of production of another good.” D. Production Possibilities Curve 23. 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. 24. Consider a society consisting of only three people: Amy, Bill, and Chuck. Amy and Bill spend all day producing clothing and food. At the end of each day they bring their output to Chuck, who then divides it between the three individuals. The “basic economic question” that Chuck is answering for this society is the B. Distributional Decision. 25. Which of the following type of Economic Institution is NOT a “decision making” institution? D. None of the above answers are correct (since each type of institution listed is a “decision making” institution). 26. Which of the following markets is represented in the “Circular Flow Diagram”? B. Markets for “Factors of Production.” 27. Economics is the C. social science that studies decision making in the face of scarcity, and the implications of such decisions on individuals and society. 28. Which of the following combinations of output is ‘not feasible’ or ‘unattainable’? A. “A” (30 Tanks and 1,800 bushels of Corn). 29. If this society wanted to produce 25 Tanks, then their maximum output of Corn would be C. more than 1,580 but less than 1,800 bushels of Corn.30. Supposing that this society is producing an efficient combination of output, the “opportunity cost of producing the 22nd Tank” is


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KSU ECON 1100 - Exam 1 ECON 1100

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