ECON 1000 (Summer 2018 Section 05) Exam #3AA

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1 ECON 1 (Summer 218 Section 5) Exam #3AA Multiple Choice Questions: (3 points each) 1. I am taking of the exam. A. Version AA 2. One of the 7 Determinants of Productivity, Income, and Wealth is natural talent and ability, which refers to the recognition that differences in income or wealth across individuals could result from differences in A. attributes people are endowed with at birth. B. skills and experiences that people acquire through education, training, and work experience. C. the amount of money that individuals receive as inheritances during their lifetime. D. how hard individuals choose to work. 3. states that the fairest distribution of income and consumption is the one realized when the government establishes and enforces a legal code which respects all voluntary economic interactions between individuals in a society. A. Social Justice B. Libertarian Justice C. Rawlsian Justice D. Utilitarian Justice 4. refers to a situation in which a series of pair-wise majority votes over more than two options leads to a cycling of winners. A. Logrolling B. The Condorcet Paradox C. The Labor Theory of Value D. The Coase Conjecture 5. Which of the following policies could likely reduce Deadweight-Loss in the presence of a negative externality, such as pollution? A. Charge manufacturers a fee (or impose a per unit tax) for each unit of the negative externality that they generate. B. Do nothing (i.e., just let the market allocate the good as is currently the case, with no deliberate government action whatsoever). C. Offer subsidies to manufacturers for increasing the amount of the negative externality that they generate. D. More than one (perhaps all) of the above answers is correct. 6. The magnitude of the % decline in Real GDP during the most recent recession in the U.S. (which lasted from December 27 through June 29) was tied for the largest such decline since WW-II. During this recession GDP declined by. A. 22.3% B. 7.1% C. 4.1% D..5%

2 7. Production and consumption of Good X generates a negative externality, while production and consumption of Good Y generates a positive externality. If each good was simply provided in a free market, then in the market for Good X there would be and in the market for Good Y there would be. A. a positive Deadweight Loss due to too little trade; a positive Deadweight Loss due to too much trade. B. a positive Deadweight Loss due to too much trade; a positive Deadweight Loss due to too little trade. C. a positive Deadweight Loss due to too much trade; zero Deadweight Loss. D. zero Deadweight Loss; a positive Deadweight Loss due to too much trade. 8. wrote A Theory of Justice (1971), in which it was argued that the socially best income distribution is the one which maximizes the well-being of the worst-off member of society. A. John Rawls B. Karl Marx C. Jeremy Bentham D. Robert Nozick For questions 9 and 1, refer to the graph below, which illustrates the Lorenz Curves in Country X and Country Y in 217. Note that the Lorenz Curve for Country X starts out below but eventually intersects and passes above the Lorenz Curve for County Y. 1 CFI A C County Y Lorenz Curve 9. These curves provide a graphical illustration of the A. distribution of income within each country. B. distribution of the tax burden within each country. C. level of inflation in each country. D. level of corruption in each country. B 1 County X Lorenz Curve CFP 1. Suppose Area A =.22, Area B =.6, and Area C =.3. It follows that the value of the Gini-Coefficient is A..72 in Country X and.75 in Country Y. B..56 in Country X and.5 in Country Y. C..28 in Country X and.25 in Country Y. D..12 in Country X and.6 in Country Y.

3 11. Focusing on the Average Tax Rate of the Bottom 5% of Income Earners, this figure between 198 and 213. A. decreased from 32.17% down to 22.54% B. decreased from 6.1% down to 3.3% C. increased from 1.59% up to 15.44% D. increased from 17.27% up to 2.93% 12. refers to decreases in private spending that occur following increases in government spending. A. Expansionary Fiscal Policy B. Contractionary Fiscal Policy C. Crowding Out D. Rent Seeking For Questions 13 through 15, consider a good for which Marginal Private Benefits, Private Costs, Social Benefits, and Social Costs are as illustrated below. $ (Marginal Private Costs) =(Marginal Social Costs) a b c d e Marginal Social Benefits Marginal Private Benefits 1,325 2,75 3,5 4,1 quantity 13. Based upon this graph, it appears as if production and consumption of this good generates A. kleptocracy. B. a business cycle. C. a positive externality. D. a negative externality. 14. The free market level of trade is ; the efficient level of trade is. A. 1,325 units; 3,5 units. B. 2,75 units; 4,1 units. C. 2,75 units; 3,5 units. D. 3,5 units; 2,75 units. 15. At the free market outcome there would be a Deadweight-Loss equal to A. area e. B. area d. C. areas b+c. D. area a.

4 16. For the U.S. Federal Income Tax, in 21 the value of the Stroup Coefficient was and the value of the Pechman-Okner Coefficient was. A ; B ; C ; D..3665; As of 215, the poverty threshold in the U.S. for a family of four consisting of two adults and two children was A. $693.5 per year. B. $24,36 per year. C. $48,8 per year. D. $8, per year. For questions 18 through 2, consider a situation in which four candidates (Aaron, Bethany, Charles, and Dawn) are potentially running for a vacant U.S. Congressional seat. Voter preferences are summarized by the table below. Assume all people choose to vote and do so sincerely/truthfully (i.e., in-line with actual preferences). Voter Type 1 st Choice 2 nd Choice 3 rd Choice 4 th Choice % of Population [i] Aaron Dawn Bethany Charles 9% [ii] Aaron Bethany Dawn Charles 14% [iii] Aaron Bethany Charles Dawn 7% [iv] Bethany Charles Aaron Dawn 16% [v] Bethany Aaron Charles Dawn 17% [vi] Bethany Aaron Dawn Charles 8% [vii] Charles Dawn Aaron Bethany 1% [viii] Charles Bethany Aaron Dawn 6% [ix] Dawn Aaron Bethany Charles 13% 18. In an election between all four candidates, would receive the most votes. A. Dawn B. Charles C. Bethany D. Aaron 19. If there were a two way election between only Charles and Dawn, which voter types would vote for Charles? A. Only types [i], [ii], [iii], [iv], [v], [vi], [vii], and [viii]. B. Only types [iii], [iv], [v], [vii], and [viii]. C. Only types [iv], [vii], and [viii]. D. Only types [vii], and [viii]. 2. Suppose that the position were filled by first having a vote over all four candidates, followed by a head-to-head runoff between the two highest vote getters. The person chosen as the eventual winner from this process would be. A. Aaron B. Bethany C. Charles D. Dawn

5 21. When discussing government failure resulting from costs of complying with government bureaucracy, it was noted that in order to start a new business in it is necessary to follows 17 procedures, a process which takes over 144 days and costs 88.7% of annual per capita income in the country. A. Singapore B. New Zealand C. Venezuela D. Canada 22. Within our discussion of Logrolling, we noted that argued that politicians in a democracy often act to maximize the probability of their own re-election. A. Ronald Coase B. John Maynard Keynes C. James Buchanan D. Nicolas de Condorcet For questions 23 through 25, consider a market with Supply and Demand as illustrated below. $ Supply a c b d e Demand quantity 1, 15,125 18,9 23. Imposing a per unit tax of $3. on sellers in this market would generate tax revenue of A. exactly $45,375. B. more than $3, but less than $45,375. C. exactly $3,. D. less than $3,. 24. Consider a per unit tax of $3. imposed on buyers. The A. incidence of this tax for buyers is equal to areas (a)+(b). B. incidence of this tax for sellers is equal to areas (c)+(d). C. resulting Deadweight Loss from this tax is equal to area (e). D. More than one (perhaps all) of the above answers is correct. 25. Consider the following two proposed taxes: Tax A is a $1.65 per unit tax imposed on buyers; Tax B is a $1.35 per unit tax imposed on sellers. We can infer that A. the quantity of trade would be identical under Tax A and Tax B. B. producers would prefer Tax A over Tax B. C. Deadweight-Loss would be larger under Tax A than under Tax B. D. None of the above answers are correct.

6 26. When discussing the Highest Marginal Tax Rate under the U.S. Federal Income Tax over time, it was noted that this highest rate was equal to A. 1% in 1945, 25% in 199, and 5% in 215. B. 37.5% in 1945, 75% in 199, and 12.5% in 215. C. 4% in 1945, 2% in 199, and 1% in 215. D. 94% in 1945, 28% in 199, and 39.6% in In advance of the election for Lieutenant Governor, Karen and Sheldon are discussing the different candidates. Karen states: I haven t really researched the positions and backgrounds of the three people running. In order to do so properly I would have to invest a great deal of time, and, after all, the chance of my vote deciding the election is very small and I don t think things will be very different for me regardless of who wins. Her statement is closely related to the issue of A. compensating differentials. B. rational ignorance. C. rent seeking. D. the stabilization function of government. 28. Between 1974 and 214, the value of the Gini Coefficient for the United States A. increased from.62 up to.78. B. increased from.395 up to.48. C. decreased from.442 down to.349. D. decreased from down to.895. For questions 29 and 3 consider the following scenario. Company X wants to construct a new manufacturing facility near an existing residential neighborhood. If they construct and operate the facility, they can do so at one of four different sizes: very small plant, kind of small plant, kind of large plant, or very large plant. However, their economic activity would impose external costs from pollution on the nearby residents. The resulting profit (for Company X ) and external costs (to residents of the adjacent neighborhood) of each possible choice are specified in the table below: no plant very small plant kind of small plant kind of large plant very large plant Profit $ $475, $7, $825, $8, External Costs $ $75, $325, $7, $9, 29. If Company X was able to choose its plant size without having to account for the external cost to nearby residents whatsoever, they would choose A. very small plant. B. kind of small plant. C. kind of large plant. D. very large plant. 3. Suppose that property rights can be clearly defined, individuals must pay compensation if they infringe upon the property rights of others, and the impacted parties can negotiate with one another. We would expect the ultimate outcome to be if the homeowners are given the right to a pollution free environment and if Company X is given the right to pollute the environment. A. no plant; very large plant. B. no plant; kind of large plant. C. very small plant; very small plant. D. kind of small plant; kind of large plant.

7 31. refers to attempts by people to manipulate government action or influence government decisions in order to make themselves better off at the expense of others. A. Rent Seeking B. Public Choice C. Monetary Policy D. Accumulated Savings 32. Under a the Average Tax Rate increases as level of income is increased. A. Pigovian Tax B. Progressive Tax C. Proportional Tax D. Regressive Tax For question 33, consider a society which has realized the changes in and trend in Real GDP illustrated in the graph below. Real GDP $ GDP Growth trend line time August 211 December 212 March 215 January 214 December This country experienced a recession from A. August 211 through December 216. B. December 212 through March 215. C. January 214 through December 216. D. March 215 through July 218. July 218

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