ECON 11 Global Economics (Section 7) Exam #3 Spring 213 (Version A) 1 Multiple Choice Questions ( 2 2 points each): 1. Qihong was born in China. Throughout his entire life he has excelled academically. After earning a Master s degree from the China University of Mining and Technology in Beijing, he came to the United States to pursue a PhD. Upon completion of his PhD he was hired by a prestigious research university in Oklahoma, where he works to this day. This story provides an illustration of the A. economic calculation problem. B. catch-up effect. C. brain drain. D. None of the above answers are correct. 2. The refers to the government production of goods or regulation of business, intended to ensure that best mix of products is produced (i.e., with each good produced in the ideal quantity and at the ideal quality). A. Free Rider Function of Government B. Allocation Function of Government C. Stabilization Function of Government D. Distribution Function of Government 3. The World Bank is A. an international agency that lends money to individual countries for projects that promote economic development. B. a European government agency that attempts to actively pick industries to support as a base for economic development. C. a private enterprise with the primary purpose of providing foreign private investment to Less Developed Countries, since such investments are often quite profitable (due to low prices of labor and other inputs in LDC s). D. a U.S. government agency with the explicit goal of buying up all land around the world with known oil reserves (so that the U.S. will not have to be dependent on foreign oil in the future). 4. In advance of the election for County Sheriff, Drew and Scott are discussing the different candidates. Scott states: I haven t really researched the positions and backgrounds of the two 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. His statement is most closely related to the issue of A. capital flight. B. rational ignorance. C. regulatory capture. D. kleptocracy.
5. If a per unit tax is placed on buyers of a product, the price ultimately paid by buyers will, while the price ultimately received by sellers will. A. remain unchanged; decrease. B. increase; decrease. C. increase; increase. D. increase; remain unchanged. 6. Consider a good for which there is a positive externality. If this good were provided by the market, then A. trade would have to take place at a price of $. B. less than the efficient amount of the good would be traded. C. every single unit of the good for which any consumer has a positive reservation price would be traded. D. None of the above answers are correct. For questions 7 and 8 consider the following scenario. Company Z 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 five different plant sizes: size 1, size 2, size 3, size 4, or size 5. However, their economic activity would impose external costs from pollution on nearby residents. The resulting profit (for Company Z ) and external costs (to residents of the adjacent neighborhood) of each possible choice are stated in the table below: no plant size 1 size 2 size 3 size 4 size 5 Profit $ $4, $65, $775, $825, $8, External Costs $ $2, $5, $1, $175, $3, 7. If Company Z was allowed to choose its plant size without having to account for the external cost to nearby residents whatsoever, they would choose. However, the socially efficient outcome is for Company Z to choose. A. no plant ; a plant of size 4 B. a plant of size 1 ; a plant of size 2 C. a plant of size 4 ; a plant of size 3 D. a plant of size 5 ; no plant 8. 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 Z is given the right to pollute the environment. A. a plant of size 4 ; a plant of size 4 B. a plant of size 3 ; a plant of size 3 C. no plant ; a plant of size 4 D. no plant ; a plant of size 5
For questions 9 through 12 refer to the graph below, which illustrates Marginal Private Benefits, Marginal Private Costs, Marginal Social Benefits, and Marginal Social Costs in the market for Good X. $ Marginal Social Costs = (Marginal Private Costs) + (Marginal External Costs) 18.2 12.1 8.5 6.1 3. (i) (iii) (ii) (iv) 1,22 3,9 6,25 Supply = (Marginal Private Costs) Demand = (Marginal Private Benefits) = (Marginal Social Benefits) quantity 9. Based upon this graph, it appears as if this good A. is a club good. B. is sold by a firm with substantial market power. C. generates a positive externality. D. generates a negative externality. 1. The free market level of trade is, while the efficient level of trade is. A. units; 3,9 units. B. 3,9 units; 6,25 units. C. 6,25 units; units. D. 6,25 units; 3,9 units. 11. At the free market level of trade there would be a Deadweight-Loss equal to A. zero. B. areas (i)+(ii). C. area (iii). D. area (iv). 12. This society could realize the efficient level of trade in this market if it imposed a per unit tax of A. $3. on sellers. B. $6. on buyers. C. $12.1 on buyers. D. $15.2 on sellers.
13. Innovation is defined as A. an advance in knowledge. B. the application of new knowledge to produce either a new product or an existing product more efficiently. C. the tendency for capital to leave a developing country in search of a higher expected return (with less risk) elsewhere. D. an increase in the general level of prices. 14. Angela is the chief economic advisor for the country of Oceania, which currently imports nearly all of its clothing. Angela suggests imposing a 25% tariff on imported clothing in order to discourage domestic consumers from buying foreign made clothing. She argues that this is the most effective way to develop the domestic clothing industry (thereby providing desperately needed jobs for the workers of Oceania). The policy that she is favoring can be described as A. the economic calculation problem. B. the invisible hand. C. import substitution. D. export promotion. For questions 15 through 17, consider the following scenario: The current price for a 1 pack of Slim Jims is $3.19, at which 5 million units are consumed in the U.S. per year. Mir works as a research economist for a think tank in Washington, D.C. He is concerned that people consume too much of this unhealthy snack. In an attempt to decrease consumption he suggests imposing either: a per unit tax of $1 on buyers of Slim Jims (Tax A) or a per unit tax of $1 on sellers of Slim Jims (Tax B). 15. If Tax B is imposed, the price paid by buyers with the tax in place would be A. exactly equal to $4.19. B. greater than $3.19 but less than $4.19. C. exactly equal to $3.19. D. greater than $2.19 but less than $3.19. 16. Tax A would generate of tax revenue for the government. A. exactly $159,5, B. more than $5,, but less than $159,5, C. exactly $5,, D. less than $5,, 17. Comparing the outcome that would result from Tax A to the outcome that would result from Tax B, which of the following statements is correct? A. Tax B would result in a greater decrease in Total Producers Surplus than would Tax A. B. Tax A would generate more tax revenue than would Tax B. C. Both Tax A and Tax B would decrease consumption; further, the decrease in consumption would be of the same magnitude under either tax. D. More than one (perhaps all) of the above answers is correct.
18. From the founding of the U.S. up through 27, Government Spending as a Percentage of GDP was only ever above 4% in three years (1943, 1944, and 1945). In 28 this measure took on a value of 4.47%. Between 29 and 212 this measure A. ranged in value between 43.99% and 46.49%. B. sharply decreased, from a value of 39.98% in 29 down to 27.56% in 212. C. sharply increased, from a value of 41.57% in 29 up to 65.92% in 212. D. None of the above answers are correct. 19. During our discussion of current values of life expectancy at birth for different countries around the world in lecture, it was noted that life expectancy at birth in the U.S. is presently 78.37 years. This figure A. is neither the lowest nor the highest in the world, easily evidenced by the fact that the corresponding figure in Japan is 83.91 years and the corresponding figure in China is 74.68 years. B. is lower than every other country in the world (since the country with the next lowest figure, Ethiopia, has a life expectancy of 79.12 years). C. is higher than every other country in the world (since the country with the next highest figure, India, has a life expectancy of only 75.93 years). D. None of the above answers are correct. 2. Market Failure is defined as a situation in which A. voluntary trade makes both buyers and sellers worse off. B. Total Social Surplus is decreased as a direct result of government intervention in the economy. C. a seller has substantial control over the price of the good that she sells. D. the free market outcome is inefficient, in that there is a positive Deadweight Loss at the free market level of trade. 21. Suppose that Mexico is able to realize a constant GDP growth rate of 6% per year. As a result, Mexico s GDP would double in approximately years. A. 72 B. 16.67 C. 12 D. 6 22. A good is Excludable if A. consumption by one person does not diminish the quantity/quality of consumption by others. B. consumption by one person does diminish the quantity/quality of consumption by others. C. it is difficult (or very costly) to prevent consumption by those who do not pay for the good. D. it is easy (or relatively costless) to prevent consumption by those who do not pay for the good.
23. Public Choice is defined as A. decisions made by people in the general public. B. the academic subfield which uses the tools and framework of economics to analyze issues that traditionally fall within the domain of political science. C. the academic subfield which that compares and contrasts the structure and the performance of different types of economic organization. D. a good that is non-rival in consumption and non-excludable. For Questions 24 and 25, consider a society facing the tradeoffs between Consumption Goods and Capital Goods which are illustrated by the Production Possibilities Frontiers below. The curve labeled 1995 PPF illustrates the PPF of this society in 1995. In 1995 this society chose Point A on this curve. As a result, by 213 the society faced the PPF labeled 213 PPF A. If they had instead chosen Point B in 1995, then they would have realized 213 PPF B by 213. Capital Goods 213 PPF - B 213 PPF - A 1995 PPF C Consumption Goods 24. The outward shift of the PPF (from 1995 PPF to 213 PPF A ) which occurred between 1995 and 213 directly illustrates A. rent seeking. B. the free rider problem. C. economic development. D. economic growth. 25. If this society had instead chosen Point C in 1995, then the relevant PPF in 213 would likely lie somewhere in the graph above. A. below the curve labeled 1995 PPF (i.e., closer to the origin) B. between the curves labeled 1995 PPF and 213 PPF A C. between the curves labeled 213 PPF A and 213 PPF B D. beyond the curve labeled 213 PPF B (i.e., further from the origin) B A
26. The trade protections for the softwood lumber industry which are presently in place in the U.S. result in per person per year over society as a whole. A. net benefits of approximately $17.95. B. net benefits of approximately $28.56. C. net costs of approximately $2.3. D. net costs of approximately $712. For Questions 27 through 29, consider a monopolist facing Demand and with Marginal Costs and Marginal Revenue as illustrated below. $ 7.35 5.45 3.6 2.25 a c b d e f Marginal Costs of Production Demand quantity 4,2 Marginal Revenue 8,375 of Monopolist 6,75 27. To maximize profit, this firm should charge a price of and sell units. A. $7.35; 12,5. B. $5.45; 4,2. C. $3.6; 6,75. D. $2.25; 4,2. 28. The efficient level of output for this good is units. A. 4,2 B. 6,75 C. 8,375 D. 12,5 29. When this monopolist sets the price and sells the quantity which maximizes her profit, A. Deadweight-Loss is equal to areas (e)+(f). B. Consumers Surplus is equal to areas (a)+(b)+(c)+(d)+(e). C. less than the efficient level of trade takes place. D. More than one (perhaps all) of the above answers is correct. 12,5
3. Suppose that Good Y is a commodity for which: (i) consumption by one person does not diminish the quantity of the good available for others to consume and (ii) it is nearly impossible to prevent consumption by people who do not pay for the good. As a result, if Good Y were simply sold in a market, we would expect A. more than the efficient amount of Good Y to be traded. B. exactly the efficient amount of Good Y to be traded. C. less than the efficient amount of Good Y to be traded. D. None of the above answers are necessarily correct (since we need to know something about costs of production in order to be able to determine whether the resulting level of trade will be more than, less than, or exactly equal to the efficient level of trade). 31. is the process by which a legislator votes to approve one bill in exchange for favorable votes from other members on other bills. A. Kleptocracy B. Logrolling C. Rent Seeking D. Rational Ignorance 32. 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. Why a free market would tend to provide less than the efficient amount of national defense. B. 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. 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 216 Summer Olympics. D. How the level of government spending as a percentage of GDP in the U.S. has increased consistently over time. 33. In lecture we made some observations on Average Annual Working Time per worker across several different countries. Of the foreign countries on this list, the one with the highest figure was Mexico (2,25 hours per year) and the one with the lowest figure was Germany (1,413 hours per year). In comparison, the corresponding figure for the U.S. was hours per year. A. 1,156 B. 1,787 C. 2,698 D. None of the above answers are correct (since a value of Average Annual Working Time per worker was not reported for the U.S.).
34. A society could expect to achieve economic growth if it realized A. a decrease in the number of workers in its labor force. B. an increase in the quality of its labor force (e.g., an increase in the average level of education of workers). C. an increase in the available quantity of physical capital (e.g., factories, computers, electricity generating plants, etc.). D. More than one (perhaps all) of the above answers is correct. 35. A large Mighty Meaty pizza (i.e., a pizza topped with a red sauce base, mozzarella cheese, pepperoni, sausage, ground beef, ham, and applewood smoked bacon) from Mellow Mushroom is A. non-rival in consumption and non-excludable. B. non-rival in consumption and excludable. C. rival in consumption and non-excludable. D. rival in consumption and excludable. 36. The Economic Calculation Problem, argues that A. calculating the true economic value of a worker can only be done under a socialist system. B. market outcomes are more likely to be efficient when large and significant costs of complying with government bureaucracy are present. C. a system of planning will never be able to achieve efficient outcomes, precisely because under such a system the planners do not have access to the information generated by market transactions. D. market outcomes will never be efficient, unless the good being traded is sold by a monopolist. 37. Which of the following is NOT one of the four sources of market failure discussed in lecture? A. Profit maximization by a firm with market power. B. Market provision of a good which generates an externality. C. Market provision of a public good. D. Regulatory capture. 38. Economic Development A. is measured quantitatively as the percentage increase in Real GDP. B. is defined as improvements (over time) in a society s quality of life and standard of living. C. is simply a consequence of whether or not a country has access to natural resources (and is therefore entirely determined by chance or nature ). D. None of the above answers are correct.
39. Production of widgets generates a significant amount of pollution. Which of the following policies could likely reduce Deadweight-Loss in the presence of this negative externality? A. Offer subsidies to widget manufacturers who decrease their level of production/pollution (i.e., pay the polluter to not pollute). B. Offer subsidies to widget buyers, inducing them to increase their chosen level of widget consumption. C. Both (A) and (B) will likely reduce Deadweight-Loss in the presence of this negative externality. D. Neither (A) nor (B) will reduce Deadweight-Loss in the presence of this negative externality (since, in general, government intervention in a market in which there is a negative externality will always result in an increase in the value of Deadweight-Loss ). 4. 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. present day Germany C. Great Britain during the 197s D. the United States during the 193s
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