Exam 1 Exam Date: Wednesday, February 26, 2003
Read these Instructions carefully! You must follow them exactly!
I) On your Scantron card you must print three things:
1) Print your full name clearly;
2) Print the day and time of your section (for example MW 1:25);
3) Print the number I have written in ink on the upper right corner of
your copy of this test. (This number tells me which version of the
test you have. Without it your test cannot be graded properly and
you get no credit for your answers.)
II) Answer on your Scantron card, using a #2 pencil.
III) Warning: SOME QUESTIONS MUST BE ANSWERED SEVERAL
TIMES! Such questions will begin with a phrase such as this:
(Repeat answer on Scantron lines 37, 38 and 39)
Remember to do it!
IV) You must turn in this printed exam along with your Scantron card, otherwise
your score on this exam is "F".
Questions:
1. (Repeat answer on Scantron lines 23, 24 and 25.) Consider each of the following statements about taxes.
1) If the buyer sends the tax proceeds to the government, the market price of the good will be higher than if the seller sends tax to the government.
2) If you want a tax to be "efficient" (as discussed in lecture), pick a market in which both supply and demand are as inelastic as possible.
3) In lecture we have said that if you wish the sellers to bear the burden of a tax, it is important to be sure that the seller, not the buyer, collect the money and send it to the government.
Then choose which of the following is most accurate:
A) Only 1 and 3 are true.
B) Only 2 is true.
C) Only 2 and 3 are true.
D) Only 1 and 2 are true.
E) Only 1 is true.
Use the following to answer question 2:
2. (Repeat answer on Scantron lines 26, 27 and 28.) Consider each of the following statements about taxes and subsidies.
1) There are two reasons why taxes often are collected from the seller rather than from the buyer, first because buyers often have more votes than sellers, and second because collection costs are often lower if the tax is collected from the buyers.
2) In the above tax diagram, triangle "a" is the efficiency cost of the tax and area "b" is the revenue from the tax.
3) The burden of a tax will fall more heavily on whichever group (suppliers or demanders) has the more elastic curve, for example if the demand curve is very inelastic and the supply curve is elastic, then the burden of the tax will fall more on the suppliers.
Then choose which of the following is most accurate:
A) Only 1 is true.
B) Only 2 is true.
C) Only 3 is true.
D) Only 1 and 2 are true.
E) None of 1, 2 or 3 are true.
3. (Repeat answer on Scantron lines 29, 30 and 31.) Consider each of the following statements about price ceilings and price floors.
1) The minimum wage law gives higher income to teenagers who are able to find work but lower incomes to many teenagers who become unemployed because of the law.
2) The minimum wage law makes it easier for smart, reliable, well connected teenagers to steal jobs from poorly educated teenagers and minority teenagers.
Then choose which of the following is most accurate:
A) Only 1 is true.
B) Only 2 is true.
C) Both 1 and 2 are true.
D) No answer is true.
4. (Repeat answer on Scantron lines 32, 33 and 34.) Consider each of the following statements about international economics.
1) Based on what was said in lecture, if a small country trades with a large country, the small country will capture a larger share of the pareto gains from trade than the large country, because prices change more in the small country.
2) Even if a country is experiencing pareto gains from international trade, this does not mean that everyone in that country is in fact benefiting from the international trade.
3) If some event occurs which causes no changes except that Joe gains $100, Fred loses $50 and Suzy loses $40, then an economist would say the event has created a pareto gain even though more people have lost than have gained.
Consider each of the following statements about international economics.
A) None of the statements 1, 2 or 3 are true.
B) All of statements 1, 2 and 3 are true.
C) Only 2 is true.
D) Only 3 is true.
E) Only 2 and 3 are true.
5. (Repeat answer on Scantron lines 35, 36 and 37.) Consider each of the following statements about international economics.
1) The exchange rate will tend to equal the trade currency ratios of internationally traded goods and claims.
2) The foreign exchange markets exist because international exporters and importers wish to specialize in either exporting or importing, but not both.
3) If trade-currency ratios for internationally traded goods and claims, and the exchange rate, all start out equal to 2 Pesos per Lira, and then the trade-currency ratio for goods rises to 2.2 while the trade-currency ratio for claims falls to 1.8, the exchange rate is probably going to rise toward 2.2 rather than decline toward 1.8.
Consider each of the following statements about international economics.
A) Only statements 1 and 2 are true.
B) Statements 1, 2 and 3 all are true.
C) Only statements 1 and 3 are true.
D) Only statements 2 and 3 are true.
E) Only statement 1 is true.
Use the following to answer question 6:
6. Refer to the graph above. Assume the market is initially in equilibrium at price P1. If government imposes a per unit tax equal to the distance from point a to point c in the graph, the amount of revenue government will collect from this tax is equal to:
A) the amount of the per unit tax multiplied by Q1.
B) the amount of the per unit tax multiplied by Q2.
C) the area of the triangle abc.
D) the area of the triangle bcd.
7. According to the benefit principle of taxation, government should design taxes to be paid by those who:
A) are most able to bear the burden of the tax.
B) are least able to bear the burden of the tax.
C) benefit most from paying the tax.
D) receive the benefit of the good or service funded by the tax.
8. (Repeat answer on Scantron lines 38 and 39.) An important difference between price ceilings and taxes is that price ceilings __________ and taxes __________.
A) create shortages; do not
B) create shortages; result in no dead weight loss
C) result in dead weight loss; do not
D) result in dead weight loss; create shortages
9. (Repeat answer on Scantron lines 40 and 41.) __________ activities are designed to transfer surplus from one group to another.
A) Welfare
B) Surplus
C) External
D) Rent-seeking
10. Which of the following statements is true?
A) Supply and demand tend to be more elastic in the long run than in the short run.
B) Supply and demand tend to be more inelastic in the long run than in the short run.
C) Supply is elastic in the short run, while demand is elastic only in the long run.
D) Supply is inelastic in the short run, while demand is inelastic only in the long run.
11. (Repeat answer on Scantron lines 42 and 43.) A(n) ________ is good which if supplied to one person must be supplied to all and whose consumption by one individual does not prevent its consumption by another individual.
A) private good
B) public good
C) external good
D) internal good
12. An increase in the equilibrium quantity of personal computers and a decrease in their equilibrium price is most likely due to:
A) improved technology which has caused supply to shift rightward.
B) improved technology which has caused supply to shift leftward.
C) greater popularity which has caused demand to shift rightward.
D) an increase in the number of computer users which has caused demand to shift rightward.
Use the following to answer question 13:
13. Refer to the graph above. When quantity supplied equals quantity demanded, consumer surplus and producer surplus are shown by:
A) area A plus area B.
B) area E plus area F.
C) area A plus area F.
D) area A plus area C plus area F.
14. (Repeat answer on Scantron lines 44 and 45.) The existence of a market surplus implies that price is:
A) above equilibrium and must fall to restore equilibrium.
B) above equilibrium and must rise to restore equilibrium.
C) below equilibrium and must fall to restore equilibrium.
D) below equilibrium and must rise to restore equilibrium.
Use the following to answer question 15:
15. (Repeat answer on Scantron lines 46, 47 and 48.) Refer to the graph above. The graph (or graphs) which most likely shows a decrease in supply is:
A) C only.
B) A and C.
C) D only.
D) B and D.
16. One purpose of the IMF is to
A) channel low-interest loans to developing countries to foster economic growth.
B) work out repayment plans for developing countries with large international debts.
C) promote international economic cooperation among the leading industrial democracies.
D) negotiate trade agreements between nations.
17. The ratio of U.S. imports to U.S. GDP is about
A) 3 percent.
B) 14 percent.
C) 30 percent.
D) 60 percent.
18. (Repeat answer on Scantron lines 49 and 50.) The difference between the goods and services a country exports and those it imports is called:
A) the balance of trade.
B) a trade deficit.
C) a trade surplus.
D) the balance of payments.
19. On which of the following does the federal government spend the smallest amount?
A) Defense.
B) Income security.
C) Interest.
D) Health and education.
20. What form of business is the most common in the United States?
A) Non-profit businesses.
B) Corporations.
C) Sole proprietorships.
D) Partnerships.
21. Capitalism differs from mercantilism because:
A) craft guilds rather than merchants own capital.
B) the "invisible hand" is more important than the government.
C) industrialists' views are represented by craft guild organizations.
D) the state plays a more active role in coordinating economic activity.
22. Under mercantilism:
A) merchants played a more important political role than kings.
B) the invisible hand played a more important role than the government.
C) there emerged nation-states ruled by kings who coordinated the economic activity.
D) economic rather than social and political forces made the central economic decisions.
Answer Key -- Ex 1 S03 all vA Micro
1. B Only 2 is true.
Origin: GTA Micro Questions....2
2. A Only 1 is true.
Origin: GTA Micro Questions....3
3. C Both 1 and 2 are true.
Origin: GTA Micro Questions....5
4. B All of statements 1, 2 and 3 are true.
Origin: GTA Micro Questions....7
5. A Only statements 1 and 2 are true.
Origin: GTA Micro Questions....8
6. B the amount of the per unit tax multiplied by Q2.
Origin: Chapter 7: Taxation and Government.......39
7. D receive the benefit of the good or service funded by the tax.
Origin: Chapter 7: Taxation and Government.......64
8. A create shortages; do not
Origin: Chapter 7: Taxation and Government.......128
9. D Rent-seeking
Origin: Chapter 7: Taxation and Government.......138
10. A Supply and demand tend to be more elastic in the long run than in the short run.
Origin: Chapter 7: Taxation and Government.......153
11. B public good
Origin: Chapter 5: Supply and Demand in Practice....132
12. A improved technology which has caused supply to shift rightward.
Origin: Chapter 5: Supply and Demand in Practice....29
13. B area E plus area F.
Origin: Chapter 4: Supply and Demand....129
14. A above equilibrium and must fall to restore equilibrium.
Origin: Chapter 4: Supply and Demand....97
15. C D only.
Origin: Chapter 4: Supply and Demand....65
16. B work out repayment plans for developing countries with large international debts.
Origin: Chapter 3: U.S. Economy in a Global.......129
17. B 14 percent.
Origin: Chapter 3: U.S. Economy in a Global.......92
18. A the balance of trade.
Origin: Chapter 3: U.S. Economy in a Global.......79
19. D Health and education.
Origin: Chapter 3: U.S. Economy in a Global.......64
20. C Sole proprietorships.
Origin: Chapter 3: U.S. Economy in a Global.......31
21. B the "invisible hand" is more important than the government.
Origin: Chapter 2: Economic Organization of.......140
22. C there emerged nation-states ruled by kings who coordinated the economic activity.
Origin: Chapter 2: Economic Organization of.......138