ECON 1100 – Global Economics (Section 09) Exam #1 Answer Key – Fall 2007 (Version C) Multiple Choice Questions (212 points each): 1. A “Rational Decision Maker” should c. consider both the benefits and costs of different courses of action. 2. Economic Surplus refers to d. the difference between Total Benefits and Total Costs of an activity. 3. Joe and Mo produce raincoats and shirts. Joe’s Opportunity Cost for producing a raincoat is “10 shirts”; Mo’s Opportunity Cost for producing a raincoat is “8 shirts.” Based upon this information alone, we know that a. Mo has a Comparative Advantage in the production of raincoats. 4. Michelle enjoys playing golf. In August she played 18 rounds of golf. Her Marginal Benefit of the 18th round was $10, while her Marginal Cost of the 18th round was $25. Based upon this information alone, b. her Economic Surplus would have been larger if she had instead played 17 rounds of golf. 5. A Production Possibilities Curve provides a graphical illustration of c. the maximum amount of one good that can be produced for every possible level of production of another good. 6. The “Principal/Agent Problem” refers to a. problems that arise because of difficulties associated with getting agents (e.g., workers) to take actions that are best for principals (e.g., firms). 7. At a price of $3.10, there would be _______ in this market. a. “excess supply” 8. In equilibrium b. 14,450 units are traded. 9. If 20,500 were traded, then the resulting Deadweight-Loss would be d. equal to “Area (F).” 10. A “Nongovernmental Organization” may exist in order to d. All of the above answers are correct. 11. Privately owned enterprises in a free market economy have a primary goal of d. earning as large a profit as possible.12. Based upon this graph, we can tell that d. there was greater income inequality in France in 1950 than in 2007. 13. Based upon the Lorenz Curves illustrated above, we c. can tell that the value of the Gini-Coefficient in France in 2007 was less than the value of the Gini-Coefficient in France in 1950. 14. _____________ states that a society can produce a greater amount of output when individuals focus their production on those activities for which they possess a comparative advantage. a. The Principle of Comparative Advantage 15. Hotdogs are a substitute for Hamburgers. It follows that an increase in the price of Hotdogs would a. increase Demand for Hamburgers. 16. Consider the market for “Runner Peanuts.” Between 2006 and 2007: equilibrium quantity increased from 2,485 tons to 2,632 tons, while equilibrium price fell from $412.37 per ton to $410.19 per ton. This observed change would result from a. an increase in Supply. 17. Which of the following is NOT one of the “Three Basic Economic Questions” that every society must address? c. “How can we reduce our Carbon Footprint?” 18. In which of the following countries do individuals enjoy the greatest amount of Economic Freedom? c. Hong Kong. 19. Indexes of “Economic Competitiveness” attempt to measure b. the capacity of the national economy to achieve growth over the medium term, controlling for the current level of development. 20. _____________ refer(s) to “the skills, education, and training which individuals in the labor force possess.” a. Human Capital 21. _________ is an economic system in which the means of production are privately owned and operated for a profit. d. Capitalism 22. The “Circular Flow Diagram” a. illustrates the interaction between households and firms in a simplified free market economy.23. John owns a 500 acre peanut farm just outside of Tifton, GA. He generates revenues of approximately $525,000 per year from selling the peanuts he grows on his farm. Which of the following property rights is he exercising when he keeps the income generated by selling the peanuts he grows on his farm? a. the “Cash-Flow Right.” 24. Most modern economies are most accurately described as c. Mixed Economies 25. Deadweight-Loss refers to d. the difference between “maximum possible Total Social Surplus” and “realized Total Social Surplus.” 26. A “buyer’s reservation price” b. refers to the maximum dollar amount a buyer is willing to pay for an item. 27. In a free market economy, households d. All of the above answers are correct. 28. A ___________ is a labor organization consisting of all workers that perform a similar job task, regardless of what company they are employed by. a. Craft Union or Occupational Union 29. Point B in the graph above is c. attainable but inefficient 30. If this society used all of its productive resources to produce only Guns, then they could produce d. 1,150 Guns. 31. The “Incentive Principle” states that: c. a person is more likely to take an action if its benefits rise and less likely to take an action if its costs rise. 32. A “Self-Interested” person a. cares about their own well-being more than the well-being of others. 33. In 2005 the Unemployment Rate in Greece was 10.6% while the Unemployment Rate in Iceland was 2.5%. These figures directly imply that a. the fraction of the workforce that could not find jobs was greater in Greece than in Iceland. 34. One of the Three Principle Functions of Money is that it serves as a “store of value.” This function can be described by recognizing that money is a. an asset that can be used as a means of holding wealth.35. The “Law of Supply” implies that d. All of the above answers are correct. 36. Michael owns a guitar autographed by Pete Doherty of the band “Babyshambles.” His reservation price as a seller of this item is $500. If he were to sell this item for $700, then he would realize a b. Producer’s Surplus of $200 from the sale of this item. 37. Which of the following economic resources is not an example of a “Natural Asset”? c. The Hyundai Motor Manufacturing Plant in Montgomery, AL. 38. Under “Command Planning” a. the government directly controls nearly all economic activity, and almost all production takes place within enterprises operated by the government. 39. One of the three types of “Economic Incentives” is “Moral Persuasion,” which could be described as a. attempts to convince individuals to behave in a certain manner because it is “the right thing
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