ECON 1000 (Fall 2017 Section 07) Exam #3B

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1 ECON 1 (Fall 217 Section 7) Exam #3B Multiple Choice Questions: (3 points each) 1. I am taking of the exam. B. Version B 2. In the textbook, was described as an ill-governed kleptocracy in which corruption is not a happy side-effect of power, but the core of the system. A. present day Russia B. Japan during the 199s C. the United States during the 198s D. Great Britain during the 197s. 3. Examining how Real (i.e., inflation adjusted) Household Incomes have changed between 1974 and 24, mean household income of the middle 5th of all households while the mean household income of the top 5th of all households between these years. A. decreased from $39,819 to $28,994; decreased from $112,998 to $98,432. B. decreased from $42,926 to $38,512; increased from $258,48 to $312,784. C. increased from $67,382 to $13,42; decreased from $217,518 to $24,665. D. increased from $48,282 to $55,661; increased from $123,542 to $189, 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 negative Deadweight Loss due to too little trade; a positive Deadweight Loss due to too much trade. D. a positive Deadweight Loss due to too much trade; a negative Deadweight Loss due to too little trade. 5. Focusing on the Average Tax Rate of the Bottom 5% of Income Earners, this figure between 198 and 21 and then between 21 and 213. A. decreased from 5.24% down to 3.64%; decreased more from 3.64% down to 2.1% B. decreased from 8.5% down to 1.56%; increased from 1.56% up to 11.42% C. decreased from 6.1% down to 2.37%; increased from 2.37% up to 3.3% D. increased from 3.86% up to 8.74%; increased more from 8.74% up to 12.56% 6. describes an assessment of the production process which attributes all economic surplus generated from a production process to labor, an idea based upon the ideas of Karl Marx. A. The Condorcet Paradox B. Utilitarian Justice C. The Labor Theory of Value D. The Economic Calculation Problem

2 7. As of 212, government spending on welfare programs in the U.S. was A. roughly $474 billion (about 3% of GDP). B. roughly $952 billion (about 6% of GDP). C. roughly $1,93 billion (about 12% of GDP). D. $, since all government welfare programs were abolished by President George W. Bush in February 21, less than one month after he took office. 8. During our discussion in lecture of government failure resulting from costs of complying with government bureaucracy it was noted that in recent decades people in have been burdened with a complex, irrational, almost incomprehensible system of controls and licenses under which everything needed (government) approval and a stamp, known as the Permit Raj. A. Australia B. Bangladesh C. India D. Pakistan 9. Between 1959 and 214, the poverty rate in the United States has ranged between a A. minimum of 16.9% in 22 and a maximum of 34.5% in B. minimum of 11.1% in 1973 and a maximum of 22.4% in C. minimum of 4.6% in 1959 and a maximum of 24.1% in 214. D. minimum of % in 1979 and a maximum of 18.9% in 28. For question 1, consider the graph below which illustrates the Average Tax Rate as a function of income which results from an income tax in Country A, Country B, and Country C. % ATR in Country A ATR in Country B ATR in Country C Income 1. It appears that the income tax in Country A is a tax, the income tax in Country B is a tax, and the income tax in County C is a. A. proportional; progressive; progressive. B. progressive; regressive; regressive. C. regressive; proportional; progressive. D. regressive; progressive; progressive.

3 11. The Distribution Function of Government refers to A. government policies intended to encourage free riders. B. government policies aimed at altering the final levels of consumption of goods/services across consumers/households, usually with the intention of realizing a fairer apportionment of consumption/income/wealth. C. 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. D. government policies aimed at minimizing fluctuations in overall macroeconomic activity. 12. Based upon a poverty threshold of $1.9 per day, between 1981 and 215 the percentage of people living in poverty for the world as a whole A. increased moderately from 27.4% to 31.2%. B. decreased dramatically from 44.3% to 9.6%. C. decreased slightly from 23.1% to 2.6%. D. remained essentially constant, changing from 4.2% to 4.1%. For questions 13 through 15, consider a market with Supply and Demand as illustrated below. $ a Supply b c d e Demand quantity 13. Imposing a per unit tax of $3. on sellers in this market would generate tax revenue of A. less than $6,. B. exactly $6,. C. more than $6, but less than $93,. D. more than $93,. 14. Consider a per unit tax of $2.7 imposed on buyers. The incidence of this tax for sellers is A. zero. B. positive, but less than areas (c)+(e). C. exactly equal to areas (c)+(e). D. positive, and greater than areas (c)+(e). 15. Consider the following two proposed taxes: Tax A is a $2. per unit tax imposed on buyers; Tax B is a $4. per unit tax imposed on sellers. We can infer that A. producers would prefer Tax A over Tax B. B. Deadweight-Loss would be larger under Tax A than under Tax B. C. the quantity of trade would be identical under Tax A and Tax B. D. None of the above answers are correct.

4 16. Which of the following was discussed in lecture to illustrate how something akin to the Coasian Solution to Externalities has been implemented in practice? A. How imposing a tax on a good which generates a positive externality can reduce Deadweight Loss. B. Why a free market would tend to provide less than the efficient amount of national defense. C. How total social welfare (on a global level) was likely decreased by President Barack Obama flying to Copenhagen in order to lobby the International Olympic Committee on behalf of Chicago s bid to host the 212 Summer Olympics. D. How the Defenders of Wildlife established the Bailey Wildlife Wolf Compensation Trust in order to facilitate the re-introduction of the gray wolf into the wild in the western United States. 17. refers to monetary payments made to certain individuals, which directly alter the distribution of income within society (thereby indirectly altering the distribution of consumption within society). A. A compensating differential B. Redistribution in-kind C. Consumption support D. Income support For questions 18 and 19, refer to the graph below, which illustrates the Lorenz Curves in Country X and Country Y in 215. Note that the Lorenz Curve for Country Y starts out below but eventually intersects and passes above the Lorenz Curve for County X. 1 CFI A C County X Lorenz Curve B County Y Lorenz Curve CFP These curves provide a graphical illustration of the A. external benefits realized in each country from positive externalities. B. level of inflation in each country. C. level of corruption in each country. D. distribution of income within each country. 19. Suppose (Area A)=(.19), (Area B)=(.7), and (Area C)=(.4). It follows that the value of the Gini- Coefficient is A..8 in Country X and.14 in Country Y. B..23 in Country X and.26 in Country Y. C..27 in Country X and.24 in Country Y. D..46 in Country X and.52 in Country Y.

5 2. As of 215, the poverty threshold in the U.S. for a family of four consisting of two adults and two children was A. $6, per year. B. $24,36 per year. C. $8, per year. D. $4,4 per year. 21. The U.S. Social Security Payroll Tax (in which the first $118,5 of income is taxed at a marginal rate of 6.2%, while additional income is not taxed at all) is a A. Rawlsian tax. B. Progressive tax. C. Proportional tax. D. Regressive tax. 22. The country of Rawlslandia imposes an income tax which reduces the value of its Gini Coefficient from.35 to.28. This implies that the value of the Pechman-Okner Coefficient for this tax is equal to. A..63 B..25 C..2 D..7 For questions 23 and 24, consider a situation in which three different candidates (Emily, Fred, and Gregory denoted E, F, and G) are seeking an office. The person to fill the position will be decided by a vote. Voter preferences are summarized by the table below. Assume throughout that all people vote and cast their vote sincerely/truthfully (i.e., in-line with their actual preferences). Voter Type 1 st Choice 2 nd Choice 3 rd Choice % of Population [i] Emily Fred Gregory 2% [ii] Fred Emily Gregory 24% [iii] Emily Gregory Fred 12% [iv] Fred Gregory Emily 4% [v] Gregory Fred Emily 18% [vi] Gregory Emily Fred 22% 23. In an election between all three candidates, would receive the most votes. A. Gregory B. Emily C. Fred D. None of the above are correct (since the table does not provide enough information to answer this question). 24. Given these voter preferences, in a series of pairwise majority votes there is A. not a Condorcet Paradox. B. a Condorcet Paradox, since Emily would beat Fred, Gregory would beat Emily, but Fred would beat Gregory. C. a Condorcet Paradox, since Fred would beat Emily, Gregory would beat Fred, but Emily would beat Gregory. D. a Condorcet Paradox, since Gregory would beat Emily, Fred would beat Emily, and Fred would beat Gregory.

6 25. were two of the central figures in the formulation of the ideas of Utilitarian Justice, which argues that total social welfare can be increased by income redistribution, so long as people have a diminishing marginal utility for money. A. John Rawls and Robert Nozick B. Jeremy Bentham and John Stuart Mill C. Max Lorenz and Corrado Gini D. Joseph Pechman and Benjamin Okner 26. A pay-per-view broadcast of a boxing fight is excludable but non-rival. This good is therefore a A. Club Good. B. Common Good. C. Public Good. D. Private Good. 27. Regulatory Capture refers to a situation in which A. firms in a regulated industry influence a regulatory agency to the point where the agency makes decisions which are in the best interest of the firms (even if the decisions are not in the best interest of the public). B. government regulators collect bribes from the firms being regulated. C. legislators trade votes in order to have multiple policies enacted (each of which would otherwise not garner a majority of support). D. voters remain uninformed about the views and policy positions of candidates in an election. For questions 28 and 29, consider a situation in which representatives from five legislative districts need to consider two proposals. The surplus that would be realized by constituents in each legislative district for each project is given by the table below. District 1 District 2 District 3 District 4 District 5 Proposal I Proposal II First suppose that each proposal is considered separately, with representatives voting for/against each based upon surplus realized by constituents of his/her own district. Under this procedure, Proposal I would be and Proposal II would be. A. approved; approved. B. approved; defeated. C defeated; approved. D. defeated; defeated. 29. Now suppose that the representatives from District 4 and District 5 agree to trade votes the representative from District 4 votes in favor of Proposal II in exchange for the representative from District 5 voting in favor of Proposal I. Continue to suppose that the other representatives vote truthfully (i.e., in the best interest of their own constituents) and that there is a separate vote on each proposal. When the representatives from Districts 4 and 5 trade votes in this manner, A. both proposals are rejected and the realized value of total social surplus is unchanged (i.e., realized total social surplus is the same at it would be if no vote trading took place). B. both proposals are approved and the realized value of total social surplus is decreased (i.e., realized total social surplus is smaller than it would be if no vote trading took place). C. both proposals are approved and the realized value of total social surplus is increased (i.e., realized total social surplus is larger than it would be if no vote trading took place). D. both proposals are approved and the realized value of total social surplus is unchanged (i.e., realized total social surplus is the same at it would be if no vote trading took place).

7 3. Jen lives in a country in which military output is not provided by the government, but rather is supplied by profit maximizing firms and purchased by individual consumers in a free market. Jen chooses to enjoy the benefits of national security which result from military output purchased by others in society, while purchasing zero units of military output of her own. This example illustrates A. Adam Smith s Invisible Hand. B. the Condorcet Paradox. C. the Maximin Criterion. D. the Free Rider Problem. For Questions 31 through 33, consider a good for which Marginal Private Benefits, Private Costs, Social Benefits, and Social Costs are as illustrated below. $ Marginal Social Costs 23.1 Marginal Private Costs c d a b e f (Marginal Private Benefits) = (Marginal Social Benefits) 6,2 11,8 16,4 quantity 31. Based upon this graph, it appears as if production and consumption of this good generates a A. pecuniary externality. B. Condorcet externality. C. positive externality. D. negative externality. 32. Focusing on the 11,8 th unit, the Marginal External Cost for society from producing/consuming this unit is equal to. A. $1. B. $13.1 C. $23.1 D. $ At the free market outcome there would be a Deadweight-Loss equal to A. area (f). B. areas (a)+(b)+(c)+(d)+(e). C. areas (c)+(d). D. areas (a)+(b).

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