ECON 1100 – Global Economics (Section 09) Exam #2 – Spring 2010 (Version D) Multiple Choice Questions (212 points each): 1. Demand a. refers to the entire relationship between the price of a good and the quantity that consumers are willing and able to purchase, all other factors fixed. b. refers to the number of units of a good that consumers are willing and able to purchase at the equilibrium price. c. provides a summary of the behavior of buyers in a market. d. More than one of the above answers is correct. 2. “Deadweight Loss” refers to a. the difference between the “maximum possible Total Social Surplus” and the “realized Total Social Surplus.” b. the burden that consumers incur from having to pay for goods, instead of being given the goods for free. c. the negative impact of industrial production on our scarce environmental resources. d. None of the above answers are correct. 3. Which of the following is NOT one of the “7 Sources of Government Failure”? a. The “Free Rider Problem.” b. “Rent Seeking Behavior.” c. “Capture of Regulators.” d. “Pork Barreling.” 4. In a “free market economy” profits a. serve as a “signaling device,” directing resources to their most valued uses. b. refer to the “gain” that a buyer gets from purchasing a good/service. c. are only earned by firms who generate negative externalities. d. More than one of the above answers is correct. 5. Ty owns a copy of the book “The Economic Naturalist: In Search of Explanations for Everyday Enigmas,” autographed by the author Robert Frank. His reservation price as a seller of this item is $50. Bob’s reservation price as a buyer of this item is $40. If this unit was traded (i.e., transferred from Ty to Bob) a. Social Surplus would be increased by $90. b. Social Surplus would be increased by $10. c. Social Surplus would be decreased by $10. d. Social Surplus would be increased, but the magnitude of the increase depends upon the price at which trade takes place.6. During the last several decades, health officials in the United States have argued that eating too much beef might be harmful to humans. As a result, there has been a significant decrease in the amount of beef produced. Which of the following best explains this decrease in production? a. Beef producers (whose primary concern is the health of their customers) decided to produce relatively less beef. b. Government officials ordered beef producers to produce relatively less beef (out of concern for consumer health). c. Individual consumers (concerned about their own health) decreased their demand for beef (resulting in a decrease in both the equilibrium price and equilibrium quantity of beef). d. Animal Rights Activists have made it difficult for both buyers and sellers of beef to freely trade the good in free markets. 7. A firm with “Market Power” a. would always lose all of their customers if they increased price above their current price. b. must decrease their price in order to increase their quantity of output sold. c. faces a demand curve for its output which is a “horizontal line.” d. More than one of the above answers is correct. 8. Government Spending as a Percentage of GDP in the United States is projected to a. increase to roughly 25% by 2012. b. decrease to less than 35% in 2011. c. remain above 42% for the foreseeable future. d. None of the above answers are correct. 9. Which markets are represented in the simple “Circular Flow Diagram”? a. Markets for “Goods and Services” and markets for “Financial Assets.” b. Markets for “Imports and Exports” and markets for “Factors of Production.” c. Markets for “Goods and Services” and markets for “Factors of Production.” d. Markets for “Financial Assets” and markets for “Imports and Exports.” 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. Antitrust Policy refers to a. government intervention to correct problems caused by externalities. b. government policies enacted with the primary purpose of altering the distribution of income and consumption within a society. c. regulatory and legal action designed to promote freedom of entry into a market and to prohibit the merger or collusion of competitive firms. d. None of the above answers are correct. 12. Which of the following demonstrates the “Law of Demand”? a. Melissa chooses to sell more donuts at $6 per dozen than she chooses to sell at $4.50 per dozen (all other factors fixed). b. Joan chooses to buy more donuts at $4.50 per dozen than she chooses to buy at $6 per dozen (all other factors fixed). c. After Clarissa got a raise at work, she bought more pretzels at $1.50 per bag than he did before his raise. d. After the price of muffins declined by 20%, Sabrina chose to buy fewer donuts. 13. In the market for widgets: the Average Costs of producing 20,000 units of output are $7.19 per unit, the Average Costs of producing 25,000 units of output are $6.98 per unit, and the Average Costs of producing 30,000 units of output are $6.72 per unit. Based upon these figures it would appear as if a. the widget industry is a “Natural Monopoly.” b. production of widgets generates a substantial negative externality. c. widgets are “non-rival in consumption.” d. None of the above answers are correct. 14. In a market in which the “marginal social benefit curve” is above the “demand curve,” it follows that a. there is an “unfair” distribution of Total Social Surplus between buyers and sellers. b. the government has clearly intervened in the market (and prevented the “Invisible Hand” from determining the market outcome). c. the production/consumption of the good generates a positive
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