ECON 1100 Global Economics (Section 09) Exam #1 Fall 2013 (Version B) Multiple Choice Questions ( 2. points each):

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1 ECON 1100 Global Economics (Section 09) Exam #1 Fall 2013 (Version B) 1 Multiple Choice Questions ( 2 2 points each): 1. Economics is the social science that A. focuses exclusively on determining how businesses can earn larger profits. B. studies how people make decisions in the face of scarcity and the resulting impact of such decisions on both society as a whole and on the individual members therein. C. studies the allocation and transfer of power in decision-making, systems of governance, and the effects of public policy. D. None of the above answers is correct. 2. According to the Ease of Doing Business study, in which of the following countries are the costs of complying with bureaucratic regulations lowest? A. New Zealand. B. Canada. C. Italy. D. Russia. 3. Consider the following two statements. Statement 1: A ceiling on rents increases the quantity and quality of available housing. Statement 2: Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. Most economists would A. agree with both Statement 1 and Statement 2. B. disagree with both Statement 1 and Statement 2. C. agree with Statement 1, but disagree with Statement 2. D. agree with Statement 2, but disagree with Statement In the writings of Karl Marx, the bourgeoisie referred to the and the proletariat referred to the. A. uneducated class; educated class. B. taxpayers; welfare recipients. C. business owners; working class. D. smurfs/pheasants; Nobel Laureates. 5. The present economic system of the Canada would be most accurately described as, while the present economic system of Germany. A. Pure Capitalism; would be most accurately described as a Feudalism. B. Pure Socialism; would be most accurately described as Pure Capitalism. C. a Mixed Economy: would be most accurately described as Communism. D. a Mixed Economy; would also be most accurately described as a Mixed Economy.

2 6. Resources including minerals, topographical features, water resources, and land for agriculture (which did not have to be deliberately created by people) are referred to as A. human capital. B. natural assets. C. produced assets. D. tertiary assets. Answer Questions 7 and 8 based upon the information conveyed in the following graph (which illustrates the Marginal Cost and Marginal Benefit of an activity for a decision maker). $ Marginal Cost 0 Q 1 Q 2 Q 4 Q 0 Marginal Benefit 7. Total Benefits (NOT Total Economic Surplus, but Total Benefits) are maximized at. A. Q 1. B. Q 2. C. Q 3. D. Q If the decision maker increased the amount which she was engaging in the activity from Q 1 to Q 2, then A. Total Costs and Total Benefits would both increase, but Total Economic Surplus would decrease. B. Total Costs and Total Economic Surplus would both increase, but Total Benefits would decrease. C. Total Costs, Total Benefits, and Total Economic Surplus would all increase. D. None of the above answers are correct. Q 3

3 9. Armen Alchain and Gordon Tullock A. wrote a letter to FDR in 1939, urging him to have the federal government assist physicists in the U.S. working on research related to the creation of a uranium bomb. B. argued that automobile accident rates could be decreased by installing a sharp, irremovable, foot long, iron spike to the steering wheel of every car. C. developed the ideas behind the notion of the Invisible Hand. D. explained why wealthy societies never face tradeoffs due to scarcity. 10. In regards to a Production Possibilities Frontier, which of the following statements is true? A. An Attainable combination of output can never be characterized by Productive Efficiency. B. A combination of goods is Unattainable if it can possibly be produced with the currently available resources and technology. C. A combination of goods is characterized by Productive Inefficiency if it is not only feasible, but further, if it is possible to increase the production of some good without having to decrease the production of any other good. D. None of the above answers is correct. 11. One of the three primary types of economic incentives is material rewards, which could be described as A. attempts to convince individuals to behave in a certain manner because doing so is the right thing to do. B. the use of torture or other enhanced interrogation techniques in order to elicit information from someone. C. the use of monetary rewards or direct increases in consumption which result from engaging in an activity. D. None of the above answers are correct. 12. The quote on page 12 of the Economics textbook suggests that Milton Friedman believed that Mother Theresa was A. irrational and not self-interested. B. irrational but self-interested. C. rational and self-interested. D. rational but not self-interested. 13. Ralphie got a Red Ryder BB Gun for Christmas last year. He has decided to sell this item to Grover for $40 in order to have some money to buy a new baseball glove. When selling his BB Gun to Grover, Ralphie is exercising which of the following sub-dimension of property rights? A. The right of planning. B. The right to control. C. The right to transfer. D. The right to restitution.

4 14. Communism refers to an economic system in which A. land ownership is restricted to an aristocratic nobility. B. the means of production are privately owned and operated for profit. C. the means of production are owned by the government. D. the means of production are collectively owned by all of the people in society (without any intervention by a government or state). 15. Adam Smith was A. a 21 st century American Internet Tycoon. B. a 19 th century German philosopher, economist, and revolutionary. C. an 18 th century Scottish economist. D. a 16 th century British monarch. 16. Which of the following type of Economic Institution is NOT a decision maker? A. Firms. B. Households. C. Markets. D. None of the above answers are correct (since each type of institution listed is a decision maker ). For Questions 17 through 19, consider a society consisting of only two workers, Jim and John, who spend their workdays producing either footballs or soup. The productive ability of each worker for each task is summarized in the table below (which states the number of units of each good that the worker could produce in a full day): footballs soup Jim 40 footballs per day 200 bowls of soup per day John 15 footballs per day 300 bowls of soup per day 17. has an Absolute Advantage in the production of footballs; has an Absolute Advantage in the production of soup. A. Jim; Jim. B. Jim; John. C. John; Jim. D. John; John. 18. From the given information, Jim s Opportunity Cost for producing a football is A. (300/15) = 20 bowls of soup. B. (200/40) = 5 bowls of soup. C. (300/200) = 1.5 bowls of soup. D. (15/40) =.375 bowls of soup. 19. John has a Comparative Advantage in A. the production of footballs (but not in the production of soup). B. the production of soup (but not in the production of footballs). C. the production of both footballs and soup. D. the production of neither footballs nor soup.

5 20. Alec Nove described as when the state uses influence, subsidies, grants, [and] taxes [to influence economic decisions], but does not compel. A. Indicative Planning B. Command Planning C. Moral suasion D. Capitalism 21. refers to the freedom of an individual to buy or not buy a good/service at a price determined in an unfettered market. A. Consumer Sovereignty B. The Invisible Hand C. Moral suasion D. The Right to Restitution For Questions 22 and 23, consider a society with the piecewise linear Production Possibilities Frontier (i.e., two straight-line segments) illustrated below Houses 5,780 I II IV VI III V 0 Cars 0 48, Which of the following combinations of output is Attainable and Efficient? A. Point I. B. Point III. C. Point IV. D. More than one (perhaps all) of the above answers is correct. 23. Focus on Points I, II, and V. The value of the Opportunity Cost of Producing a Car (OC Car ) can be ranked as follows at these three points: A. OC Car is equal at all three points. B. OC Car at Point I is equal to OC Car at Point II, but OC Car at Point II is less than OC Car at Point V. C. OC Car at Point I is less than OC Car at Point II, and OC Car at Point II is less than OC Car at Point V. D. None of the above answers are correct (since the graph does not convey enough information to make a comparison of the Opportunity Cost of Producing a Car at these three points).

6 24. Chris states that, A front row ticket to a Justin Bieber concert can resell for as much as $900. At such a high price, no rational person would ever buy these tickets. The primary fault with this logic is that it: A. only focuses on one particular cost and ignores the benefits that some people would realize from seeing Justin Bieber in concert. B. fails to account for the fact that there is only one Justin Beiber, and his fans would be willing to pay any price to see him up close in concert. C. it ignores the fact that many Justin Bieber fans are young girls, who are irrational by definition and never take costs and benefits into account when making decisions. D. None of the above answers are correct (since there is no fault with his logic). For Questions 25 through 27, consider the following information regarding Zayn s Marginal Benefits from consuming pizza (measured in dollars) in August and October (his fundamental preference that is, how much he likes pizza changed between these months): Pizzas Consumed: Marginal Benefits from Consumption, August Marginal Benefits from Consumption, Oct In August, Zayn would realize Total Benefits of $78 if he consumed 3 pizzas. It follows that if he increased his pizza consumption from 3 pizzas to 4 pizzas, his Total Benefits would A. decrease from $78 to $58. B. increase from $78 to $83. C. increase from $78 to $98. D. increase from $78 to $ If the price of each pizza is $13, Zayn would maximize his Total Economic Surplus in August by consuming A. 8 pizzas. B. 5 pizzas. C. 2 pizzas. D. zero pizzas. 27. Suppose that the price of pizza remains constant at $13. As Zayn s preferences for pizza change between August and October (as summarized by the numbers in the table above), Zayn chooses to: A. consume less pizza in October than he consumed in August, consistent with what the Incentive Principle would predict. B. consume less pizza in October than he consumed in August, contradicting what the Incentive Principle would predict. C. consume more pizza in October than he consumed in August, consistent with what the Incentive Principle would predict. D. consume more pizza in October than he consumed in August, contradicting what the Incentive Principle would predict.

7 28. Consider the following two statements: (I) Hockey legend Gordie Howe scored a total of 801 goals during his NHL career. and (II) Daniel Kahneman and Vernon Smith received the Nobel Prize in economics in Statement (I) is a, and Statement (II) is a. A. Positive; Positive. B. Positive; Normative. C. Normative; Positive. D. Normative; Normative. 29. specifies what different parties must do, whatever the external circumstances, and provides for enforcement or compensation for nonperformance. A. A Contract B. A Market C. Indicative Planning D. The Invisible Hand 30. Clara and Emily spend their workdays making dolls and baking cakes. Clara has both an Absolute Advantage and a Comparative Advantage at baking cakes. It follows that A. Clara must also have a Comparative Advantage at making dolls (but either worker could have the Absolute Advantage at making dolls). B. Emily must have both an Absolute Advantage and a Comparative Advantage at making dolls. C. Emily must have a Comparative Advantage at making dolls (but either worker could have the Absolute Advantage at making dolls). D. Emily must have an Absolute Advantage at making dolls (but either worker could have the Comparative Advantage at making dolls). 31. Bob has $45 to spend and wants to buy a new pair of jeans and a carton of cigarettes. Each item costs exactly $45, so he can only purchase one of the two. This scenario directly illustrates the basic concept that A. when resources are scarce, people face tradeoffs. B. most consumers are irrational. C. society can produce more output when workers specialize in production. D. None of the above answers are correct. 32. The Cost-Benefit Principle states that A. a society can produce more output when individuals focus their production on those activities for which they have a comparative advantage. B. a person is more likely to take an action if its benefits rises, and less likely to take an action if its cost rises. C. when making decisions, households tend to focus on benefits while firms tend to focus on costs. D. a person should take an action if and only if the additional benefit of doing so is greater than or equal to the additional cost of doing so.

8 33. Consider a society consisting of only three people: Bea, Arthur, and Maude. Bea and Arthur spend all day producing clothing and food. At the start of each day Maude tells the two workers how much clothing and how much food they need to jointly produce. The fundamental economic question that Maude is answering for this society is the A. Scarcity Decision. B. Entrepreneurial Decision. C. Distributional Decision. D. Production Decision. 34. When considering potential government policies, it is important to recognize that A. a system of planning will always lead to higher levels of income and wealth than a market based system. B. if a policy alters the costs and/or benefits for a decision maker, then the decision maker might change his behavior as a result of the policy. C. voluntary trade generally makes sellers better off but buyers worse off. D. Republicans care primarily about people, while Democrats care primarily about special interests. 35. According to the results of the Economic Freedom of the World Study, in which of the following countries do people have a greater amount of economic freedom than the United States? A. Hong Kong. B. China. C. Singapore. D. More than one (perhaps all) of the above answers is correct. 36. The economy of the former Soviet Union A. was the first society that evolved from Capitalism to Feudalism. B. perhaps provides the best historical example of a large society with an economic system close to pure socialism. C. operated under Indicative Planning, and therefore did not contain any households. D. None of the above answers is correct. 37. Eli and Peyton produce footballs and athletic shoes. Eli s opportunity cost of producing a football is lower than Peyton s opportunity cost of producing a football. The suggests that they can increase their total output of these two goods if Eli focuses his production on footballs while Peyton focuses his production on athletic shoes. A. Law of Comparative Advantage B. Law of Absolute Advantage C. Cost-Benefit Principle D. Incentive Principle

9 38. George bought a used umbrella from Martha. Since this voluntary trade took place, we can infer that it made A. Martha better off, but George worse off. B. George better off, but Martha worse off. C. both George and Martha worse off. D. both George and Martha better off. 39. A(n) refers to the rules and methods put in place by a society to answer the three fundamental economic questions. A. Legal System B. Contract C. Economic System D. Production Possibilities Frontier 40. A normative statement A. aims to assess the desirability of how the world is or functions. B. is a type of statement that no reputable economist would ever make (since economists only ever make scientific or fact-based statements ). C. can eventually be proven right or wrong by gathering enough data and evidence. D. More than one (perhaps all) of the above answers is correct.

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