ECON 1100 – Global Economics (Section 10) Exam #3 – Fall 2013 (Version D) – Answer Key

1. Government Spending as a Percentage of GDP in the United States is projected to A. remain above 42% for the foreseeable future.

2. The reintroduction of the gray wolf into the wilderness of the Western United States during the last several decades A. illustrates how an approach similar to the “Coasian Solution” to the problem of externalities can help to internalize an externality.

3. On October 5, 2013, current Heavyweight Champion Wladimir Klitschko (aka, Dr. Steelhammer) defeated Alexander Povetkin by unanimous decision in Moscow, Russia, bringing his professional record to 61-3. This fight was only available in the U.S. on “Pay Per View.” The broadcast of this bout on “Pay Per View” is excludable but non-rival, and was therefore a A. Club Good.

4. The ______refers to the “trap” in which countries are poor because they cannot afford to save and invest, but they cannot easily save and invest because they are poor. C. Vicious Cycle of Poverty

5. The trade protections for dairy products which are presently in place in the U.S. result in ______per person per year over society as a whole. A. net costs of approximately $5.25.

6. “Market Failure” can be described as a situation in which C. the “free market outcome” is NOT efficient.

7. At the “free market outcome” (i.e, without any government intervention) ______units would be traded, but the efficient level of trade is ______units. C. 35,000; 18,400.

8. At the “free market outcome” there would be a Deadweight-Loss equal to A. “area (c).”

9. If the efficient level of trade were to take place, this society would incur a Total External Cost equal to (i.e., the “optimal amount of the negative externality is”) A. “areas (a)+(b).”

10. A firm operating in a “Perfectly Competitive Market” has “No Market Power.” Such a firm B. would lose all of its customers if it increased price above the prevailing market price. 11. Between 1980 and 2007 the “percentage of income earned by the Top 10% of households in the United States” C. increased from roughly 32.13% of society’s income up to roughly 48.05% of society’s income.

12. ______argues that society should “strive for the greatest happiness for the greatest number of people.” C. Utilitarian Justice

13. Suppose that “Good Z” 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 Z” were simply sold in a market, we would expect A. less than the efficient amount of “Good Z” to be traded.

14. Mary’s income is higher than Benny’s income. Two of the notable differences between their jobs are that Benny gets to work in a climate controlled office building year-round and Mary runs a greater risk of being injured on the job. This would seem to suggest that the difference in incomes between the two individuals is A. a compensating differential.

15. 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 (2,250 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. B. 1,787

16. “Country A” currently has GDP of $250,000,000. Suppose this country is able to realize a constant GDP growth rate of 4% per year. As a result, GDP would be equal to $1,000,000,000 (i.e., “4 times larger”) in approximately ____ years. B. 36

17. If Tax B is imposed, the price paid by buyers with the tax in place would be B. greater than $3.49 but less than $5.49.

18. Tax A would generate ______of tax revenue for the government. A. less than $40,000,000

19. 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? C. “Tax B would result in a greater decrease in Total Producers’ Surplus than would Tax A.”

20. For the United States, the value of the Gini-Coefficient ______between 1989 and 1998 and then ______between 1998 and 2007. D. increased from .431 to .456; increased further from .456 to .463.

21. One of the “7 Determinants of Productivity, Income, and Wealth” is “effort,” which refers to the recognition that differences in income or wealth across individuals could result from differences in B. how hard individuals choose to work.

22. 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 D. the Free Rider Problem.

23. Within our discussion in lecture about how levels of real household income have changed over time for different segments of the population in the United States, it was noted that between 1980 and 2007 D. the rich, middle class, and poor all became richer.

24. Suppose that the use of hand sanitizer creates a positive externality equal to 85¢ per bottle of sanitizer used. At the “free market outcome,” the equilibrium amount of hand sanitizer used would be ______the socially optimal (i.e., efficient) amount. A. less than

25. ______refers to monetary payments made to certain individuals in society, with the intent of directly altering the distribution of income. A. Income Support

26. The Incidence of a Tax refers to A. who bears the burden of the tax in terms of decreased welfare.

27. Based upon this graph, we can tell that C. income in “Country Z” was distributed less equally in 2013 than in 1988.

28. Suppose (Area A)=(.15), (Area B)=(.17), and (Area C)=(.18). It follows that between 1988 and 2013 the value of the Gini-Coefficient in “Country Z” D. increased from (.30) to (.64).

29. Economic Development C. is defined as improvements (over time) in a society’s quality of life and standard of living.

30. To maximize profit, this firm should charge a price of _____ and sell _____ units. C. $5.45; 4,200.

31. The efficient level of output for this good is _____ units. A. 6,600

32. When this monopolist chooses the price and quantity which maximizes profit A. Deadweight-Loss is equal to “areas (e)+(h)”

33. The Labor Theory of Value, which states that the value of a commodity depends upon only the amount of labor required to produce the commodity, is most closely associated with the ideas of A. Karl Marx.

34. “Cobb and Douglas Public Health” inspects restaurants and assigns grades based upon compliance with health codes in an effort to D. reduce a market failure due to lack of information.

35. Which of the following countries is plagued by a very high level of corruption? C. Nigeria.

36. A good is “Excludable” if C. it is easy (or relatively costless) to prevent consumption by those who do not pay for the good.

37. In advance of the election for City Council, Chris and Edward are discussing the different candidates. Chris states: “I haven’t really researched the positions and backgrounds of the people running. 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 C. rational ignorance.

38. The ______is an international agency whose primary goals are to stabilize international exchange rates and to lend money to countries that have problems financing their international transactions. A. International Monetary Fund (IMF)

39. Between 1792 and 1901, Federal Government Spending in the U.S. as a Percentage of GDP took on a mean value of A. 2.74%.

40. Which of the following was NOT one of the 7 sources of government failure discussed in lecture? A. Capital Flight.