ECON 1100 – Global Economics (Section 01) Exam #2 Answer Key – Fall 2007 (Version B) Multiple Choice Questions (212 points each): 1. The “Allocation Function of Government” refers to b. Government production of goods or regulation of business, to ensure that the “right mix” of products are produced, each in the “ideal quantity” and at the “ideal quality.” 2. The U.S. Federal Income Tax d. is a Progressive Tax. 3. _______________ says that in order for a tax to be “fair,” two individuals of equal economic capacity should have equal tax burdens. c. The notion of horizontal equity 4. “Protecting the Home Market” refers to c. trade policies which give domestic firms advantages at supplying a good within their own country. 5. Which of the following is NOT one of the primary functions of a central bank? b. to loan money to low income home buyers at below market interest rates. 6. Union membership in the U.S. b. peaked around 1955, when about one-third of the workforce was unionized. 7. Market Failure refers to d. a situation in which the “free market outcome” is inefficient. 8. A good is “Excludable” if d. it is easy (or relatively costless) to prevent consumption by those who do not pay for the good. 9. Which of the following is NOT one of the “6 Determinants of Productivity, Income, and Wealth”? c. Pork-Barreling. 10. Consider the “Light Bulb” industry and the “Textile” industry. The value of the “Herfindahl-Hirschman Index” for “Light Bulbs” is (2,849.0), while the value of the “Herfindahl-Hirschman Index” for “Textiles” is (94.4). These values directly suggest that d. the “Light Bulb” industry is less competitive than the “Textile” industry.11. A firm with “market power” will generally produce c. less than the efficient level of output. 12. Government provision of “subsidized housing” is a good example of d. redistribution in-kind. 13. In the presence of a “positive externality,” the free market forces would d. More than one of the above answers is correct. 14. “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. 15. Antitrust Policy refers to a. regulatory and legal action designed to promote freedom of entry into a market and to prohibit the merger or collusion of competitive firms. 16. A ___________ is a benefit of an activity that is realized by someone not directly engaging in the activity. a. positive externality 17. A “Collective Good” is b. non-rival in consumption and excludable. 18. ______ refers to government policies related to spending and revenue generation. d. Fiscal policy 19. Base upon the graph above, a. production/consumption of this good results in a “negative externality.” 20. At the “free market outcome” (that is, the outcome without any government intervention in this market) b. Deadweight-Loss would be positive. 21. The efficient level of trade in this market is ____ units, while the free market level of trade is ____ units. b. (9,500); (11,250) 22. Ann’s income is $50,000 per year, while Brenda’s income is $100,000 per year. Ann pays 2% of her income in State Income Taxes, while Brenda pays 5% of her income in State Income Taxes. From these observations alone it appears as if a. the State Income Tax is a Progressive Tax. 23. Ownership and Property Rights b. evolve over time and must be continually redefined as new technologies and new external factors emerge.24. The “Average Tax Rate” b. is defined as the amount of total taxes paid divide by total income. 25. Which of the following is NOT one of the primary policy tools of a Central Bank? d. Redistribution In-Kind. 26. Credit Unions c. are one of the four primary types of “depository institutions.” 27. _____________ is the recognition that if public goods were supplied in the marketplace, many individuals would attempt to enjoy benefits of units purchased by others, without making any financial contribution to the provision of the good. a. The Free Rider Problem 28. The highest rates of Unionization in the world are found c. in Scandinavian countries. 29. “Pork Barrel Projects” refer to b. public expenditures that give a relatively small benefit to citizens of a particular legislative district, while spreading much larger costs over the entire population. 30. The _________ justification for Income Redistribution argues that a wealthy society has an obligation to guarantee everyone a “minimum standard of living.” c. Social Contract 31. Redistribution broadly refers to government policies b. aimed at altering the distribution of income within a society. 32. A “Non-Rival Good” is one for which a. consumption by one person does not diminish the quantity/quality of consumption by others. 33. _____________ argued that an efficient outcome can be realized in the presence of an externality if we can “internalize the externality” by clearly and completely defining property rights and allowing parties to negotiate with each other. b. Ronald Coase 34. “Financial Disclosure” refers to c. requirements of firms to public report their financial status using a standard system of accounting. 35. _____________ are financial enterprises with the primary function of protecting individuals and firms from exposure to risks. a. Insurance Companies36. A __________ is a legal entity that can, through the sale of stock, raise capital from a large number of individuals, each of whom shares in profits. a. Corporation 37. Issues related to “healthcare” a. are likely to increase in importance in the near future, since the populations of most industrialized countries are becoming “older.” 38. The justification of Government regulation of products is that c. for some goods it is very difficult or costly for consumers to gather accurate information on important characteristics of the good. 39. C4 (the “Four Firm Concentration Ratio”) in the “Semiconductor” industry is 41.7, while C4 in the market for “Dolls, Toys, and Games” is 40.0. Based upon this information alone we can be certain that a. there are more than four firms in both of these industries. 40. ___________ refers to unselfish concern for the welfare of
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