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ECONOMICS 100 (Carr)
Practice Term Test 3 Answer ALL of the following multiple-choice questions.
1. The Lorenz Curve presents all of the following information except:
a. The percentage of income received by the top 5 percent of families.
b. The percentage of income received by the poorest 30% of families.
c. The level of inequality for an income distribution.
d. The dollar income of the poorest 20% of families. 2. A “binding minimum wage”…
a. …protects suppliers from having to pay high wages.
b. …reduces the labour turnover rate.
c. …is below the labour market’s equilibrium wage rate.
d. …must be commissioned by the Supreme Court.
e. …increases wage rates above the current equilibrium rate. 3. Tradable emissions permits…
a. …combine the virtues of decentralized decision-making with the setting of
maximum permissible levels of pollution
b. …do not effect pollution levels, but raise tax revenues for the government who
uses those monies to repair the environment
c. …are more effective that pollution taxes when you can’t measure pollution levels
d. …is an example of protectionist policy
e. All of the above 4. The virtues of international trade are extolled throughout economic literature. Among
other things, trade allows a country to…
a. …shift its production possibilities boundary outward.
b. …expand its production possibilities while holding constant its consumption possibilities.
c. …produce and consume beyond its production possibilities boundary.
d. …consume beyond its production possibilities boundary.
e. …lower the per-unit production costs of all goods which it is producing. 5. In perfect competition, firms continue to hire additional units of variable inputs up to
the point that…
a. …marginal revenue is zero.
b. …there is positive economic profits
c. …marginal cost is zero
d. …the contribution to cost is the same as to revenue
e. …the contribution to profit is the same as to revenue 1 © Prep101 http://www.prep101.com/freestuff 6. A progressive tax system is one in which…
a. …marginal and average tax rates are constant for all levels of income.
b. …marginal and average rates are equal, but increase with levels of income.
c. …marginal rates are constant, while average tax rates rise with income levels.
d. …marginal rates are higher than average tax rates for most levels of income.
e. …marginal rates are lower than average tax rates for most levels of income. 7. Which of the following are transfer payments?
a. Construction costs for crown corporations (government-owned businesses)
b. Wages for government employees
c. Employment insurance benefits
d. Welfare payments
e. both C and D 8. Suppose the market for ding-dongs is perfectly competitive. If the price of dingdongs is above equilibrium level, what is true about the market?
a. There will be a rightward shift of the demand curve.
b. Buyers will accept and begin paying the higher price.
c. There will be a surplus of demand.
d. The quantity supplied will be greater than the quantity demanded.
e. There will be a leftward shift of the supply curve. 9. What is the main justification for protectionist policies?
a. To create a level playing field between domestic and foreign producers.
b. To protect foreign producers’ profits from falling international prices.
c. To help local firms enter domestic industries with large barriers to entry.
d. To protect domestic producers from foreign competition.
e. To protect the employees of foreign firms from poor working conditions. 10. Suppose Hartoom Inc. produces widgets. The last hour of labour was hired for $10,
and that hour produces 5 widgets, which sell for $3 each. That hour of labour adds
____ to the firm’s profit and ____ labour should be hired.
a. $-40, less
b. $15, more
c. $5, more
d. $-10, less 2 © Prep101 http://www.prep101.com/freestuff 11. Suppose Canada and Mexico are the only two economies in the universe. Further,
suppose neither country has an absolute advantage in the production of clocks.
Which of the following statements is true?
a. Neither country will import clocks from the other.
b. Neither country will enjoy a comparative advantage in the production of clocks.
c. One country will produce and export clocks as long as one has a comparative
advantage in its production.
d. The opportunity cost of producing clocks will be the same in both countries.
e. Neither country will produce clocks. 12. What is the fundamental coordinating mechanism of a free-market economy?
a. Allocative efficiency
b. Productive efficiency.
c. Profit maximization.
d. The price system.
e. Opportunity cost. 13. Why is public defence considered the classic example of a public good?
a. It is morally inappropriate for the private sector to provide an essential commodity.
b. Public defence is too important to be left to the private sector.
c. Public defence is too expensive a venture for private firms to provide.
d. One cannot keep the benefits of public defence from those who do not pay.
e. The entire populace wants public defence. 14. Which of the following is NOT an example of market failure due to externalities?
a. Traffic jams due to rush hour congestion
b. Environmental damage caused by pollution from private industry.
c. The high salaries enjoyed by Hollywood celebrities.
d. The low revenues of university radio stations, funded only by voluntary
donations, because access thereto is not restricted. 15. Assume Meighoo Inc. produces dog leashes in a perfectly competitive industry. This
industry is not subject to any pollution control measures. Moreover, we know that
Meighoo Inc. is a major polluter. From the perspective of an environmental
economist, which of the following is true.
a. The price of the product is too high.
b. Marginal social cost are less than marginal social benefit.
c. Private costs are less than social costs.
d. Pollution is below the optimum level. 3 © Prep101 http://www.prep101.com/freestuff 16. An economist’s position on allocating resources to control pollution would be that:
a. All forms of water and air pollution should be eliminated
b. Government policies to reduce pollution have zero economic cost.
c. The reduction of pollution should proceed up to the point where the marginal cost
of pollution control equals the marginal benefit to society.
d. The extent of pollution control should be based only on a comparison of total
costs and total benefits.
e. It is not allocatively efficient to reduce pollution. 17. A product is susceptible to the free-rider problem when the good is…
a. rivalrous and excludable
b. rivalrous and non-excludable
c. non-rivalrous and excludable
d. non-rivalrous and non-excludable
e. None of the above 18. Using the income approach to calculating gross national, we include:
a. the values of the final products of all the firms in the economy.
b. the rent, wages and salaries, interest and profits accruing to all households and
firms in the economy, as well as depreciation.
c. the value-add of all firms in the economy.
d. the rents, wages and salaries, and interest accruing to all households and firms but
exclude profits since these are a return on capital. 4 © Prep101 http://www.prep101.com/freestuff Use the following table for questions 19 and 20. This table shows the output potential for
Guyana and Jamaica with the use of one unit of input (i.e. 1 hour of labour). Guyana
Jamaica Sugar Cane (bushels)
14 Cocoa (bushels)
3 19. If Guyana transferred 1 hour of labour from cocoa to sugar cane production and
simultaneously, Jamaica did the opposite…
a. Total sugar cane production would increase by 9 bushels.
b. Total sugar cane production would fall by 11 bushels.
c. Total sugar cane production would fall by 9 bushels.
d. Total cocoa production would increase by 17 bushels.
e. Total cocoa production would fall by 9 bushels 20. To reap the benefits of trade and specialization…
a. Guyana should produce both products and not trade with Jamaica.
b. Jamaica should produce both products and not trade with Guyana.
c. Jamaica should export cocoa and import Guyanese sugar cane.
d. Jamaica should export sugar cane and import Guyanese cocoa.
e. Jamaica should reduce/eliminate its consumption of cocoa. 21. If all of the firms in a given industry operate where _______, there is no reason for
a. there are no positive externalities
b. there are no negative externalities
c. price is equal to private marginal cost
d. marginal social benefit is equal to marginal social cost
e. the demand curve is perfectly elastic 22. If, for a given period of time, real national income increased by more than nominal
national income, then we know…
a. the entire populace is worse off.
b. the price level has increased - inflation
c. the price level has decreased – deflation
d. the price level has not changed - stagnation
e. exports are more than imports – a positive trade balance 5 © Prep101 http://www.prep101.com/freestuff 23. Suppose interest rates are 6 percent in Lebanon and 8 percent in Switzerland. The
current exchange rate is 1,300 Lebanese liras per Swiss franc. Expectations are that
in one year the exchange rate will become 1,274 liras per franc. Suddenly, new
information changes expectations towards a constant exchange rate (it will remain
1,300 liras per franc). What will happen?
a. Everything will stay the same.
b. Savings in liras will be sold, and francs will be bought and loaned in Switzerland
c. People will borrow in Lebanon and lend in Switzerland
d. The demand for Swiss francs will increase
e. b), c), and d) 24. In a hypothetical country, a miner takes $0 worth of inputs to mine bauxite, which she
sells to the smelter for $100,000. The smelter then sells sheets of aluminium to the
car manufacturer for $350,000. The car manufacturer then sells her entire inventory
of cars for $575,000, to the car salesman. The car salesman then sells these cars for
$750,000. The GDP for this economy is
e. $1,775,000. 25. Suppose an American company imports 7 hundred tonnes of bauxite from a Guyanese
exporter at $100,000 per tonne. If nothing else changes, what is the effect in currency
a. increased supply of Guyanese dollars in the foreign exchange market.
b. increased number of Guyanese dollars in the foreign exchange market.
c. increased demand for American dollars in the foreign exchange market.
d. increased demand for Guyanese dollars in the foreign exchange market
e. decreased number of American dollars needed to buy one American dollar. 26. If a production process results in a negative externality…
a. a competitive market will over-produce the good.
b. a competitive market will produce less than the socially optimal level.
c. marginal social benefit is more than marginal social cost.
d. marginal social cost is less than marginal private cost
e. a subsidy to firms could bring production to the socially optimal level. 6 © Prep101 http://www.prep101.com/freestuff 27. What is meant by the expression “the cost has been internalized”?
a. The opportunity cost of production is borne by the producer.
b. The private cost of production is fully covered by revenues.
c. The producer bears the external costs that it imposes.
d. The consumer bears the net social benefits imposed by the producer. 28. In 2001, the Kangol Corp. produced $1 million worth of hats but only sold $750,000
worth. With respect to GDP, what happens to the remaining $250,000 worth of
a. They are counted towards 2002’s GDP, when the rest of the inventory is sold.
b. They are “disappear” from national accounts since they were not sold in the year
they were produced.
c. They are counted towards 2001’s GDP.
d. None of the above. 29. Economically speaking, a tariff will…
a. discourage the development of new products and production levels, making the
industry more able to compete in the global market.
b. discourage the development of new products and production levels, disabling the
industry’s competitiveness in the global market.
c. encourage the development of new products and production levels, making the
industry more able to compete in the global market.
d. encourage the development of new products and production levels, disabling the
industry’s competitiveness the global market. 30. Syria produces 50 units of yogurt and 15 units of olive oil; to produce 5 more units of
olive oil, it must sacrifice 10 units of yogurt. Palestine produces 30 units of yogurt
and 25 units of olive oil; to produce 10 more units of olive oil, it must sacrifice 5
units of yogurt. From this information, we can conclude…
a. Palestine has an absolute advantage in the production of both yogurt and olive oil.
b. Syria has an absolute advantage in the production of both yogurt and olive oil.
c. Palestine has an absolute advantage in the production of yogurt and Syria has an
absolute advantage in the production of olive oil.
d. Syria has a comparative advantage in the production of yogurt.
e. Palestine has a comparative advantage in the production of yogurt. 7 ...
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This note was uploaded on 09/18/2010 for the course ECON 100 taught by Professor Carr during the Spring '10 term at University of Toronto.
- Spring '10