sample midterm - COMM394: Government and Business Florencia...

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Unformatted text preview: COMM394: Government and Business Florencia Jaureguiberry SAMPLE MIDTERM EXAM Name: ___________________________________ ID: ___________________________________ Time: 75 minutes Total Marks: 75 Before you start, read all questions and allocate your time wisely. Write down the answers in the answer sheet provided, along with your name, ID and section. If you need more space, there's a blank sheet at the end of the answer booklet. Part I. Multiple Choice (30 points total). Each correct response is worth 2 marks. 1. The claim that "Expo would not cost taxpayers a cent because any losses would be covered by the provincial lottery" illustrates a misunderstanding of a. opportunity cost b. incentive effects c. marginalism d. production efficiency e. allocational efficiency f. government failure 2. Which of the following should not be included in calculating the opportunity cost to a student of attending a college football game? a. the cost of hot dogs and drinks he would purchase at the game. b. hours of undisturbed study time while everyone else is at the game. c. the goods you could buy with the money you would receive by selling your ticket. d. the opportunity to watch other games on television. 3. The Cost Benefit Principle says that someone should take an action if a. The opportunity cost of the action is sufficiently low. b. The marginal cost of the action is greater than the marginal benefit of the action. c. The benefits of the action exceed the costs of the action. d. The benefits of the action are not too small. 4. To an economist, the cost of a college education THE UNIVERSITY OF BRITISH COLUMBIA a. Can be measured by the dollar cost of tuition, books, and fees provided that allowance is made for inflation. b. Must include the income the student could have earned if he had decided to work instead of attending college. c. Is greater than the benefit of a college education for students who do not apply d. themselves to their studies. e. Is very small for those students fortunate enough to be supported by their parents. 5. It is necessary for a student to wait in line to obtain a ticket to a basketball game. But students are not required to purchase their tickets. Which of the following correctly explains why the cost of a ticket is not the same for all students? a. Some students care to sit closer to the playing floor than others. b. Some students enjoy watching basketball more than others. c. Some students are more loyal fans than others. d. Some students have more valuable alternative uses of their time than others. 6. a. b. c. d. 7. a. b. c. d. A firm with market power faces a demand schedule for its product that is Horizontal at the market price. Highly elastic at the market price. Downward sloping. Highly insensitive to price. Which of the following is an example of a negative externality? Your neighbors enjoy listening to your garage band. Bees pollinating flowers on adjacent property. A friend taking a cell phone call during a concert. Whales swimming in international waters. 8. A negative externality will result in an equilibrium quantity of an activity that is _________ the socially optimal quantity because marginal social cost is _________ than marginal private cost. a. Above, Less. b. Above, Greater. c. Below, Less d. Below, Greater. THE UNIVERSITY OF BRITISH COLUMBIA 9. a. b. c. The optimal quantity of a pollutant such as sulfur dioxide is Zero provided that eliminating the pollutant still allows firms to produce. The quantity such that maximizes consumer surplus. The quantity where the marginal benefit of pollution reduction equals the marginal cost of pollution reduction. d. Zero even if some firms must exit the industry. 10. Adam Smith says that self interest works like an "invisible hand" to move resources and goods in ways that make individuals better off. What does the invisible hand theory assume about the information possessed by buyers and sellers? a. Information is costly to acquire. b. Information provides benefits to buyers and sellers. c. Information is not required to make the invisible hand work. d. Information is freely available to buyers and sellers. 11. When buyers and sellers are not equally well informed about a good, there is a. Unfairness. b. Asymmetric information. c. Risk aversion. d. A negative information externality. 12. An allocation of goods and services is not efficient if a. Trades are possible that make both parties better off. b. Consumer surplus is below its maximum possible level. c. The distribution of goods is highly unequal. d. The demand for an important consumer product is highly inelastic. 13. To say that people make marginal decisions means that a. they usually wait until the last minute before making a decision to buy b. they weigh the additional costs and additional benefits of various activities before they make a decision c. most people just barely get by on the incomes they earn and live from day to day on the very edge of subsistence d. given a choice, most people would prefer to make their own decisions concerning the things that affect their lives e. they consider the total cost and benefit of various activities before they make a purchase THE UNIVERSITY OF BRITISH COLUMBIA 14. You currently subscribe to two magazines and are trying to decide whether you should subscribe to a third. What should determine your decision, if you are rational? a. total cost of the magazines compared to the total satisfaction you would receive b. total amount of satisfaction you would get from the magazines c. enjoyment you would get out of the third magazine d. cost of the third magazine, including the time it takes to read it e. additional cost of the third magazine compared to the additional enjoyment you would get from it 15. Which of the following is true of public goods? a. The market mechanism helps to signal the quantity that is demanded by the public. b. Payment for consumption is efficiently provided by market prices. c. Consumption by one person does not preclude consumption of the same good by another person. d. The public sector is guided to produce the correct quantity by market prices. e. Voluntary contributions will be sufficient to finance the production of public goods Part II. True/False/Uncertain. (5 points each, 20 total) Discuss the following statements analytically. Your answer should explain aspects of the statement that are correct (if any) and aspects of the statement that are false (if any). 1. Vancouver city government provision of bus transportation is best justified by the fact that bus transportation is a public good. 2. The photo radar system generated only $20 million in net revenues. The province paid $35 million for equipment and startup costs. Clearly the program was a failure. 3. Property crime has increased in Vancouver at an alarming rate. Policing should be increased to the point where the total cost of additional policing equals the total benefit. (Provide a graph supporting your answer.) 4. Management efficiency is attained when it is impossible to reallocate the resources among a group of people in such a way as to make at least one person better off without making anybody else worse off. THE UNIVERSITY OF BRITISH COLUMBIA Part III. Short Answers (5 points each, 25 total) Critique (discuss analytically) the following statements. 1. Explain the "marginalist principle". Provide one example. 2. Define the characteristics of a public good, and provide one example. 3. Discuss the allocational effects of a monopoly. 4. What sort of externality would you associate with "a SARS pandemic"? Explain 5. Why is the transitional gains trap considered a "trap"? THE UNIVERSITY OF BRITISH COLUMBIA ...
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This note was uploaded on 04/27/2008 for the course COMM 394 taught by Professor Florencia during the Winter '08 term at The University of British Columbia.

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