Eco100CarrSolvedTest3s

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Unformatted text preview: Page 1 \ m dcqfiym » ECONOMICS 100 TERM TEST , FRIDAY, MARCH 20'04 ANSWER ALL QUESTIONS , NO MARKS DEUCTED FOR INCORRECT ANSWERS labour union can raise wages by increasing the demand for the product. . decreasing the supply of labour. . raising employment. .‘increasing the demand for labour. . Improving productivity. Attempts by government lobbyists in Ottawa to influence the government's subsidy to the shipbuilding industry represents a. an inefficient public choice. b. the government acting like a monopolist. rent seeking . d. an externality. e. asymmetric information. It is inefficient for the government to charge a price for consuming a good, such as public health information, because 00")! @ e. too much of the information will be produced. the price cannot be set to cover all research costs. no one will be willing to pay to consume this information. the marginal cost of providing this information is zero. gtoo little of the information will be provided. The free—rider problem means that a. b. C. e. the private market will produce the efficient amounts of a public good. too many people will over consume a public good. government will not be able to produce an efficient amount of a public good. . it is impossible or impractical to make people pay for a public good. people need to pay a government user fee to pay for the good's production. The reason that public defense is considered the classic example of a public good is that a. b. d. e. all citizens want public defense protection. society deems public defense as too important to be provided by the private sector. the benefits of public defense cannot be kept from those who do not PaY- military technology is too expensive for private firms to provide. it would be immoral for private firms to provide this essential commodity. ') Page 2 . ' s 6. According to the Coase Theorem, in principle, externalities will NOT ,ause market failure if ’ property rights are well defined. b. government intervention is conducted efficiently. c. marginal social costs and marginal social benefits are measured accurately. d. property rights do not exist. e. the number of third parties is extremely large. '7. ‘Consider a production process that involves a positive externality. Which of the following statements about this production is true? a. A per unit tax could be imposed on the producer to achieve the socially optimal level of production. b. Marginal social benefit is less than marginal private benefit. c. Marginal social cost is more than marginal private cost. d. Without government intervention the market will produce too much of > this good. . eK A subsidy to producers could increase production to the socially optimal level. 8. All of the following are plausible examples of market failure due to externalities EXCEPT: a. long traffic jams every day on the Central Artery in Boston. b. the despoiling of lakes and forests by acid rain produced by North American industry. g? the high salaries enjoyed by professional sports stars. . the low revenues, despite acclaimed programming, of public television stations in the U.S. who are funded by voluntary donations, but whose programs can be seen by anyone with a TV. e. a beekeeper who benefits from locating next to an apple orchard. 9. Private markets will produce efficient levels of pollution if a. left alone by government regulators. b. regulated by government through direct controls. C) the appropriate tax per unit pollution is administered. d. the producers are aware of the immorality of polluting. e. polluting firms are closed down. 10. A typical economist‘s position on allocating resources to control pollution is that a. all forms of water and air pollution should be eliminated. b. government policies to reduce pollution have zero opportunity cost. €:§ 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. Page3 11. The optimal amount of pollution abatement is generally between 0 and 100 percent. One hundred percent abatement would be optimal if a. the marginal cost of abatement is positive but less than the marginal benefit of abatement. (j the marginal cost of abatement is always zero. _ c. the marginal cost of abatement exceeds the marginal benefit of abatement at all levels of abatement. d. the marginal benefit of abatement is 100. e. none of the above. I . 12. Which of the following are defined as transfer payments? a. unemployment insurance benefits b. construction costs of a new government—owned airport c. salaries of welfare case workers d. welfare payments @both A and D 13. The Laffer curve a. relates the marginal tax rate to the average tax rate. b. relates the government's income tax yield to the average tax rate. c. relates the government's sales—tax yield to the marginal tax rate. (:) shows that tax revenues reach a maximum at some marginal tax rate below 100 percent. e. shows that tax revenues reach a maximum when the marginal tax rate is zero. 14. The Canadian federal income tax is progressive in its structure because it has a. marginal and average rates that rise and are equal at most levels of a UK income. marginal rates that are higher than average rates at most levels of income. ~ c. average rates that rise but marginal rates that are constant at most levels of income. d. marginal rates that are lower than average rates at most levels of income. a e. average and marginal rates that are constant at most levels of income. 15. The terms of trade reflect the a. amount of absolute advantage held by one country over another. b. conditions under which trade takes place, as established by the World Trade Organization. c. difference in opportunity costs between two countries. quantity of domestic goods that must be exported to get a unit of imported goods. e. quantity of imports that must be purchased to sell a unit of exported goods. Page4 . ' s I 16. International trade permits a country to a. produce and consume beyond its production possibilities boundary. b. shift its production possibilities boundary outward. c. lower the per-unit production costs of all goods which it is producing. d. expand its production possibilities while holding constant its consumption possibilities. @5 consume beyond its production possibilities boundary. 17. If Canada imposes a 15 percent tariff on a commodity, all of the following will occur, EXCEPT: a. a reduction in the consumption of the commodity in Canada. b. a reduction in the quantity imported of the commodity. $9 an upward shift in the commodity's demand curve. . an increase in the price consumers pay for the commodity in Canada. e. an increase in tariff revenue collected by the Canadian government. 18. Assume Canada is trading with a country that has lower costs of production. If Canada imposes a tariff large enough to equalize the foreign country's price, then a. Canada would lose the benefits of comparative advantage. b. this tariff will eliminate exploitation of Canadian markets. c. Canada would gain absolute advantage. a "playing field" will be created. e. all Canadians would realize an increase in their standard of living. 19. The reasoning behind protectionist policies is . create a level playing field. . promote exports. . raise government revenues through tariffs. . maximize world production. to shield local producers from foreign competition. Q05!” 20. If the current account section of the balance of payments is in deficit, then we can be sure that the . y ‘ ~ capital account is in surplus. (Cfiéfium‘flfi JAE—Nth? éifé- serif: {‘mfiémeb b. capital account is also in deficit. \’ ' ' k c. combination of the capital account and the official financing account must be in deficit. d. total debts exceed the total credits. e. official financing account must be in surplus. 21. Suppose a Canadian grocery chain imports one million kilograms of cheese from a Swiss exporter at $2 per kilogram. Ceteris paribus, the effect in the currency markets would be to i? increase the demand for Swiss francs in the foreign—exchange market. b. decrease the number of Canadian dollars needed to buy one Swiss franc. c. increase the number of Swiss francs needed to buy one Canadian dollar. d. increase the supply of Swiss francs in the foreign-exchange market. e. increase the demand for Canadian dollars in the foreign-exchange market. Page 5 22. In a competitive foreign-exchange market between the dollar and the pound sterling, a price of pounds (in terms of dollars) above the market equilibrium would a. result in the quantity of pounds demanded being greater than the ‘ quantity supplied. ' b. indicate that some people who wish to purchase pounds will not be able to do so at the current exchange rate. Q? lead to an appreciation of the dollar. ' result in the quantity of dollars supplied being greater than the quantity demanded. e. lead to a depreciation of the dollar. -?3. If nominal national income increased 10 percent over a certain period of time while real national income increased by 20 percent then ' a. everybody in the economy became worse off. b. inflation has occurred during this time period. c. the labour force increased by 10 percent. QB the price level has declined by about 10 percent. e. the price level has increased by approximately 10 percent. 24. In Shoetown, a rancher takes $0 worth of inputs and produces animal skins, which he sells to the tanner for $400. The tanner then sells leather to the shoemaker for $700, and the shoemaker then sells $1200 worth of shoes. The GDP for this economy is a. $800. b. $1000. © $1200. d. $2300. e. $2500. 25. Which of the following is included in current calculations of GDP? . computers exported to Europe. 3. the purchase of a vintage automobile. 0- volunteer work. d- the value of vegetables from a home garden. e. _welfare payments. UCp‘dl uncut U1 DLUUUHIILB 1 1 UJCBDUI 0.14. bill I University, of Toronto March 3, 2006 ECONOMICS 100 Term Test Answer all questions. Page 1. If there were complete equality of income, the Lorenz curve would be a. close to the horizontal axis. (:> the diagonal line. c. a curve close to the diagonal line. d. a curve substantially below the diagonal line. e. nonexistent. 2. A demand for a factor of production is said to be "derived" because the factor's demand depends ‘a. entirely on the cost of the factor. fibl entirely on corporate advertising. c. heavily on government policy. d. heavily on public choice. Cg} on the demand for the good or services it helps to make. 3. If the last hour of labour, hired for $18, produces 8 units of output selling for $10 per unit, labour should be hired in this situation since the wage is MRP. a. more; greater than (:) mOre; less than c. less; greater than d. less; less than 1e; no; equal to 4. Wage differentials exist because la. there are noncompetitive forces operating in labour markets. b. discrimination affects labour market outcomes. c. working conditions are not the same for all jobs. d. workers have different levels of education and experience. all of the above create wage differentials. 5. A labour union can raise wages by a. increasing the demand for the product. decreasing the supply of labour. c. raising employment. -d. increasing the demand for labour. e. Improving productivity. 6. All of the following statements describe situations of market failure EXCEPT: a. the market prices are not the "right" ones marginal social benefits are equal to marginal social costs c. the quantities produced and consumed are not in the "right" proportion d. negative and positive externalities exist in the economy e. information asymmetries exist in the economy Page 2 7. All of the following are plausible examples of market failure due to externalities EXCEPT: a. long traffic jams every day on the Central Artery in Boston. b. the despoiling of lakes and forests by acid rain produced by North American industry. the high salaries enjoyed by professional sports stars. d. the low revenues, despite acclaimed programming, of public television stations in the U.S. who are funded by voluntary donations, but whose programs can be seen by anyone with a TV. e. a beekeeper who benefits from locating next to an apple orchard. 8. If a firm produces a good and its consumption generates external benefits, then a. the government could subsidize the production of this good to improve H efficiency. at market equilibrium, the marginal social benefit is greater than N the marginal cost of producing the last unit. c. at the market equilibrium, the output would be less than the socially optimal amount. d. the firm will not produce an additional amount unless it can internalize the external benefits. e. all of the above. 9. Economist Ronald Coase argued that as long as property rights are well—defined, externalities a. will never arise. y b. will not be eliminated by private negotiation. (é) may be efficiently accounted for in private negotiations. . must be a source of market failure that can be dealt with only by the government. e. only exist in the nonrenewable resource industry. 10. Which of the following does NOT constitute a common—property resource? a. international fishing waters b. a national park with free access CD privately owned ranch land d. a sport—fishing river e. common cattle grazing land 11. An example of a public good is a. housing. fii information c. coffee. d. food. e. natural gas. 12. Which of the following is true of public goods? Na. They cannot be publicly provided. L They are unlikely to be provided by private, profit—seeking firms. c. They are essentially negative externalities. d. They respond to market signals. e. The firms producing them must be listed on a public stock exchange. Page 3 13. All of the following are examples of public goods EXCEPT: a. a lighthouse. b. national defense. ‘ post—secondary education . d. a flood control system. e. public health information. 14. The reason that public defense is considered the classic example of a public good is that a. all citizens want public defense protection. b. society deems public defense as too important to be provided by the private sector. <:) the benefits of public defense cannot be kept from those who do not pay. d. military technology is too expensive for private firms to provide. e. it would be immoral for private firms to provide this essential commodity. 15. When the marginal costs of pollution abatement equal the marginal penefits, any further reductions in pollution will lower net social benefits. b. pollution has been eliminated. c. any further reductions in pollution will continue to increase net social benefits. d. then the firm is likely to increase output. e. then the firm is likely to decrease output. 16. Zero pollution is not a desirable social goal because a. the marginal benefit is equal to zero. b. the marginal cost is equal to zero. (:) the cost of complete pollution elimination will be far greater than the benefit. d. the benefit of complete pollution elimination will be far greater than the cost. e. it is good to have jobs in the "pollution fighting" industries. 17. If there is a negative externality associated with production of some good, which of the following is true? a. The marginal social cost is always less than the marginal social benefit. b. Regardless of the externality, allocative efficiency is achieved when the firm's price is equal to its marginal private cost. c. At society's optimal level of output, marginal social cost minus marginal private cost is negative. (:> At the firm's optimal level of output, marginal social cost minus marginal private cost is positive. e. All of the above statements are true. 18. When we say that a cost has been internalized, we mean that the a. opportunity cost of production is passed on to the consumer. b. private cost of production is borne by the producer: (:) producer must bear the external costs that he imposes. d. consumer must bear the net social benefits imposed by the producer. e. firm is accurately accounting for opportunity costs. Page 4 19. ,a. b. C9 d. e. 20. Private markets will produce efficient levels of pollution if left alone by government regulators. regulated by government through direct controls. the appropriate tax per unit pollution is administered. the producers are aware of the immorality of polluting. polluting firms are closed down. Which of the following is required to achieve progressivity in the tax system? a. b. C. _ a marginal tax rate average tax rate is a marginal tax rate average tax rate is an average tax rate average tax rate is a marginal tax rate average tax rate is equal to the average tax rate rising with income) equal to the average tax rate falling with income) above the marginal tax rate falling with income) above the average tax rate rising with income) (implying that the (implying that the (implying that the (implying that the 21. The increase in a nation's standard of living resulting from specialization and trade is called a, the terms of trade. (E) the gains from trade. c. autarky. d. absolute advantage. e. comparative advantage. 22. The existence of absolute advantage a. implies that there will be no benefits from trade between two . nations. ED refers to a situation where one country can produce one unit of a given product with fewer resources than the other country. c. fosters the self—sufficiency of the two nations. d. refers to a situation in which one country can produce one unit of all goods with fewer resources than can another country. e. is not physically possible. 23. There are no gains from specialization and trade between two countries when a. neither country has an absolute advantage in the production of any ‘_ good. ‘ neither country has a comparative advantage in the production of any good. c. opportunity costs differ between the two countries. d. there are no economies of scale. e. one country has an absolute advantage in the production of all goods. 24. If two countries each produce wool and cotton, we know that the country with the lower opportunity cost for cotton (in terms of wool) will also have rar'a comparative advantage in the production of wool. @, c. d. e. a comparative advantage in the production of cotton. an absolute advantage in the production of wool. an absolute advantage in the production of cotton. an absolute advantage in the production of both wool and cotton. Page 5 25. Spain is currently producing 90 units of wine and 10 units of cheese, but to produce 10 more units of cheese it must sacrifice 30 units of wine. Portugal produces 45 units of wine and 45 units of cheese, but to produce 10 more units of cheese it must sacrifice 10 units of wine. It can be concluded that a. Portugal has absolute advantage in both wine and cheese production. b. Portugal has absolute advantage in wine production and Spain has absolute advantage in cheese production. c. Spain has absolute advantage in both wine and cheese production. c, Spain has comparative advantage in wine production and Portugal has a comparative advantage in cheese production. Department of Economics * Professor J.L. Carr University of Toronto March 9, 2007 ECONOMICS 100 Term Test 3 Page 1 1. Suppose that a professional association strengthened the limits to entry into their profession and at the same time lengthened its apprenticeship erogram. The likely effect_§ould be that the supply curve for labour will shift to the left. b. the supply curve for labour will shift to the right. ‘c;both the demand and supply curves for labour will shift to the left. d. the demand curve for labour will shift to the right. e. there will be an increase in the quantity of labour supplied. 2. All of the following are plausible examplesiofi market failure-due to externalities EXCEPT: a. long traffic jams every day on the Central Artery in Boston. b. the despoiling of lakes and forests by acid rain produced by North American industry. (5) the high salaries enjoyed by professional sports stars. . the low revenues, despite acclaimed programming, of public television stations in the U.S. who are funded by voluntary donations, but whose programs can be seen by anyone with a TV. e. a beekeeper who benefits from locating next to an apple orchard. 3. A homeowner decides to buy three large dogs that sleep outdoors and who howl at the moon. An externality associated with this decision is .a'. the increased work for the homeowner in yard cleanup. b. the cost of purchasing the dogs. (;§ the neighbors' lost sleep. L . the homeowner's lost sleep. e. all of the above. 4. Consider a production process that involves a positive externality. Which of the following statements about this production is true? a. A per unit tax could be imposed on the producer to achieve the socially optimal level of production. b. Marginal social benefit is less than marginal private benefit. ‘6; Marginal social cost is more than marginal private cost. d. Without government intervention the market will produce too much of N this good. é, A subsidy to producers could increase production to the socially ’ optimal level. 5. Which of the following best describes the reason for over fishing in Canadian offshore fisheries? a. Fishing has depleted fish stocks, leading to smaller catches. (§>The private marginal cost incurred by current fishermen is less than i the social marginal cost. 0; The private marginal cost incurred by future generations of fishermen is greater than the private marginal cost incurred by current fishermen. d. The Canadian government explicitly encourages fishing through subsidies to fishermen. Page2 6. The reason that public defense is considered the classic example of a public good is that. a. all citizens want public defense protection. b. society deems public defense as to° important to be provided by the '7 private sector. the benefits of public defense cannot be kept from those who do not pay. d.nfilitary technology is too exPensive for private firms to provide. e. it would be immoral for private firms to provide this essential commodity. 7. Attempts by government lobbyists in~0ttawauto influence the government” subsidy to the shipbuilding industry represents” a. an inefficient public choice. " b. the government acting like a monopolist. @ rent seeking . . an externality. e. asymmetric information. 8. When a firm has internalized an externality, a.the firm produces at less than the optimal level of output. b.the firm produces at more than the optimal level of output. .ciit is not possible to achieve allocative efficiency. d.its marginal social cost is_zerolx the firm bears the entirex‘Social Cost of production. J 9. When the marginal costs of pollution abatement equal the marginal benefits, ‘ (Epany further reductions in pollution will lower net social benefits. .pollution has been eliminated. .C.any further reductions in pollution will continue to increase net social benefits. d;then the firm is likely to increase output. e.then the firm is likely to decrease output. 10. Zero pollution is not a desirable social goal because a- the marginal benefit is equal to zero. D: the marginal cost is equal to zero. _ éggthe cost of complete pollution elimination will be far greater than ' the benefit. the benefit of complete pollution elimination will be far greater d. than the cost: a ‘ ’w" " “ . _ H 8. it is good to have jobs in the "pollution fighting" industries. Page 3 '11. If there is a negative externality associated with production of some good, which of the following is true? a. The marginal social cost is always less than the marginal social benefit. b. Regardless of the externality, allocative efficiency is achieved when ‘ the firm's price is equal to its marginal private cost. 'c, At society's optimal level of output, marginal social cost minus v marginal private cost is negative. At the firm's optimal level of output, marginal social cost minus marginal private cost is positive. e.All of the above statements are true. 12. Suppose that in 1998, the "Big Three" automobile manufacturers produced 2 million cars priced at $20,000 each, and, in 1999, they produced 1 million cars priced‘at $40,000 each. Ceteris paribus, the resulting effect on nominal national income is are decrease because_fewer cars were produced. b.a decrease because the price of each car decreased. fic.an increase because the price of the cars produced has doubled. (g)no change. ;insufficient information to know. 13. Total value added in an economy is equal to the value of {all final goods produced. b. all final and intermediate goods produced. "c._all inputs and outputs in the economy. ‘d. all profits of all firms in the economy. e; the sum of the value-of primary, intermediate and final L4. In Shoetown, a rancher takes $0 worth of inputs and produces animal skins, which he sells to the tanner for $400. The tanner then sells leather to the shoemaker for $700, and the shoemaker then sells $1200 worth of shoes. The GDP for this economy is a. $800. b. $1000. ' $1200 $2300. e. $2500 .5. Which of the following statements concerning investment and investment goods is true? a.Capital stock includes investment in stocks and bonds. b.Accumulation of inventories does not count as current investment. ;”¢.Rental payments are included as investment expenditures. “d.The capital consumption allowance refers to funds used to increase the existing stock of capital. 4:) Housing construction is classified as investment expenditure rather than consumption expenditure. Page4 16. Transfer payments are not included in the government component in the calculation of GDP because they do not represent a payment for a good or a service. 0. they are not Counted as income by any economic agent. c. they do not generate additional income in the economy. d. it is diffiCult to assess the market value of a transfer payment. e. they are small enough to ignore when computing the national accounts. 17. Suppose that in 1999, ABC Corporation produced $18 million worth of natural gas pipes but was able to sell only $16 million worth} Is the remaining $2 million increase in inventories part of GDP_for 1999? a. Yes, since changes in inventories are part of consumption w 1 expenditures. '(E) Yes, since they are part of the economy's output in 1999. c. No, since changes in inventories are part of actual investment. d. No, since they are part of the economy's output only when sold. e. None of the above. 18. Trade, whether between individuals or nations, generally promotes a. self—sufficiency. ‘ specialization. c. lower living standards. d. higher product prices. e. autarky. 19. The existence of absolute advantage a. implies that there will be no benefits from trade between two nations. refers to a situation where one country can produce one unit of a givéfihproduct with fewer resources than the other country. C. fosters the Self-sufficiency of the two nations. d. refers to a situation in which one Country can produce one unit of all goods with fewer resources than can another country. e. is not physically possible. 20. If two countries each produce wool and cotton, we know that the country with the lower opportunity cost for cotton (in terms of wool) will also have a. a comparative advantage in the production of wool. ‘ a comparative advantage in the production of cotton. c. an absolute advantage in the production of wool. d. an absolute advantage in the production of cotton. e. an absolute advantage in the production of both wool and cotton. Page5 21. Spain is currently producing 90 units of wine and 10 units of cheese, but to produce 10 more units of cheese it must sacrifice 30 units of wine. Portugal produces 45 units of wine and 45 units of cheese, but to produce 10 more units of cheese it must sacrifice 10 units of wine. It can be concluded that a,?ortugal has absolute advantage in both wine and cheese production. ‘71.Portugal has absolute advantage in wine production and Spain has c.absolute advantage in cheese production. d.Spain has absolute advantage in both wine and cheese production. ©Spain has comparative advantage in wine production and Portugal has a comparative advantage in cheese production. This production possibilities schedule shows how much cotton and cocoa can be produced in Peru and Brazil with one unit of equivalent resources. Cotton Cocoa Beans (bales) (bushels) Peru 2 4 Brazil 1 6 TABLE 34-3’ 22. In Table 34—3, if one unit of resources is shifted from cotton to cocoa beans in Brazil, and one unitxof resources is shifted from cocoa beans to cotton in Peru, world output would increase by as 2 bales of cotton. [email protected] 1 bale of cotton and 2 bushels of cocoa beans. c. 6 bushels of cocoa beans. d. 3 bales of cotton and 10 bushels of cocoa beans. e. 2 bales of cotton and 1 bushel of cocoa beans. .a 23. A business which contends that it needs temporary protection so that it can grow large enough to compete with foreign producers is using an argument known as the infant-industry case for tariffs. ;li.m0nopolistic competition case for tariffs. c.national defense case for tariffs. d.price fluctuations case for tariffs. e.social advantages case for tariffs. 24. If wages in India are lower than those in Canada, a. tariffs should be imposed on imports from India to protect Canadian workers. 6% Canadian consumers may benefit by purchasing some low—cost goods from India. c. Canada may have a comparative advantage in all products. d. India may have a comparative advantage in all products. 8. India probably has an absolute advantage in all products due to its low labour costs. Page 6 25. Assume Canada is trading with a country that has lower costs of production. If Canada imposes a tariff large enough to equalize the toreign country's price, then ;;a'-. Canada would lose the benefits of comparative advantage. 13'. this tariff will eliminate exploitation of Canadian markets. a: Canada would gain absolute advantage. I a "playing field". will be created. all Canadians would realize an increase in their standard of living. ...
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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.

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