Econ Final Practice

At a most basic level, Economics deals primarily with the concept of

scarcity.

____________ refers to a process by which inputs are transformed into an output.

Production

Suppose Marginal Benefits are given by MB and Marginal Costs are given by MC1. If the decision maker increased Q from Q=2,200 to Q=2,300, then

Total Costs and Total Benefits would both increase, but Total Economic Surplus would decrease

Suppose that Marginal Costs change from MC1 to MC2 (with Marginal Benefits still given by MB). It follows that as a result of this change in Marginal Costs,

the optimal choice of Q would decrease, consistent with the Incentive Principle.

China’s opportunity cost of producing a car is 800 units of wheat. India’s opportunity cost of producing a unit of wheat is 1 500 of a car. From this information alone we know that

China has the Comparative Advantage in producing wheat and India has the Comparative Advantage in producing cars

Which of the following statements regarding a Production Possibilities Frontier is true?

“Output combinations beyond the frontier are unattainable (i.e., not feasible).”

Which of the following could be a possible explanation for the change in supply between 2022 and 2024 illustrated above? Between 2022 and 2024 there was

a decrease in the number of potential producers of beef

Supposing that the demand for beef was unchanged between 2022 and 2024, it follows that in 2024 equilibrium price will be __________ and equilibrium quantity will be __________. (1)

somewhere between $8.15 and $15.70; somewhere between 3,470 units and 7,955 units.

Consider the five countries of Brazil, Finland, Singapore, Sweden, and Yemen. According to the collective results of the “Economic Freedom of the World” study, the “International Property Rights Index,” and the “Ease of Doing Business” study, the country of these that is “closest to Pure Capitalism” is ______________ and the country of these that is “furthest from Pure Capitalism” is ______________.

Singapore; Yemen.

Which two terms best fill in the blanks in the following sentence: ____________ likely works best as an economic incentive if individuals behave according to the assumption of New Soviet Man, but ____________ would probably work best if individuals behave according to the assumption of Economic Man.

Moral Suasion; Material Rewards.

If 48% of the population has access to the good, then Deadweight Loss would be equal to _________.

area iii

Suppose that under current institutions and government policies, 73% of the population has access to “Good Z.” Jon is running for re-election to the U.S. Senate. A central theme of his campaign is that we need “universal access to Good Z” (i.e., we should strive for 100% of the population being able to consume the good). He justifies this position by correctly noting that Marginal Benefits are always positive as more people have access to the good. Jon’s position provides an illustration of ________________.

the Open-Ended Fallacy

Suppose your friend Rand strongly believes in a pure Capitalist economy. What does he likely believe is Government’s most important role in the economy?

Defining and enforcing property rights.

If the equilibrium price of pizza is $15 in a free market, then which of the following should be true?

More than one (which covers the case of “all”) of the above answers is correct. [A, B, and C are all correct]

Consider a good for which the unique efficient level of production/consumption is 12,500 units. If 14,800 units were produced/consumed, then

there would be a positive Deadweight Loss from too much production/consumption.

Per Capita GDP in the European Union as a whole is approximately $44,100. In comparison, the value of Per Capita GDP in the United States is approximately

$63,700 (roughly 44.4% larger than the E.U. value).

Which of the following best illustrates a market failure?

A monopoly seller charging a price above marginal costs in order to maximize profit.

The value of the Unemployment Rate in the U.S. in February 2020 (right before the start of the COVID-19 Recession) was

3.5%, the 24th consecutive month with a rate of 4.0% or lower.

In which of these five years was the Misery Index greatest in value?

2010

Per capita GDP is Country X is $5,000 in 2025. Suppose this value grows at a constant rate over time. In order for per capita GDP to be $20,000 in 2065, the annual growth rate would need to be approximately

3.6%.

The “Catch-up effect” suggests that, all other factors fixed

growth rates of less developed countries typically exceed growth rates of developed countries, implying that the gap in GDP between less developed and developed countries will decrease over time.

In 2022 there were approximately ________ deaths from malaria world-wide, with _____ of these occurring in Africa.

608,000; over 95%.

The socially best (i.e., efficient) level of production/consumption of this good is

1,820 units (the level where MSB=MSC).

An article in a recent (June 7, 2025) issue of The Economist noted that in every year between 1990 and 2023 Germany had a level of “military spending as a percentage of GDP” which was below the 2% target agreed upon by members of NATO. Also noted in this article, while a majority of Germans agree that “Germany should be made ready for war,” only 29% of Germans polled answered “yes” to the question “Are you personally prepared to defend Germany with weapons?” Both of these observations appear to illustrate

the Free Rider Problem.

The incidence of a tax refers to

who bears the burden of the tax in terms of decreased welfare.

Which of the following observations directly supports a claim that there has been an increase in income inequality in Country X between 2010 and 2025? “In country X between 2010 and 2025 the value of…

the Gini Coefficient increased from .36 to .45.”

__________ is defined as the flow of money earned by an individual during a period of time, whereas __________ is defined as current stock of money (and other valuable assets) that an individual owns at a point in time.

Income; wealth.

If each proposal is voted on individually, each one will be rejected (i.e., no proposal by itself can garner majority support). With this in mind, it is suggested that all four proposals be voted on as a single collective package, named the “Substantial Stunning Scheme.” This “Substantial Stunning Scheme” will be

approved, resulting in total social surplus being larger than if none of the proposals were approved.

“Country Z” has a progressive income tax. The “pre-tax” value of the Gini Coefficient in “Country Z” is .40, and the “post-tax” value of the Gini Coefficient in “Country Z” is .32. It follows that the value of the Pechman-Okner Coefficient in “Country Z” is ________.

.2

“Crowding Out” refers to

decreases in private spending that occur following increases in government spending (thereby reducing the stimulative effectiveness of fiscal policy).

Suppose that in “Country Y” during 2024, the aggregate level of output was Q=(9.3 billion units), the overall price level was P=(£2.1), and the money supply was M=(£3.4 billion). It follows that the velocity of money in “Country Y” during 2019 was V=______.

approximately 5.74

During the economic expansion phase of the business cycle, Keynesian logic would call for ____________ and Monetarist logic would call for ____________.

Contractionary fiscal policy; contractionary monetary policy.

For these voter preferences there

is a Condorcet Paradox, since in a series of head-to-head pairwise elections, J.D. defeats Glenn, Alexandria defeats J.D., and Glenn defeats Alexandria.

The Great Misery refers to the period of time in the U.S. between

November 1973 and June 1983 when the value of the Misery Index was 12.5 or higher for 116 straight months.

Observing “life expectancy at birth” globally (i.e., for the world as a whole), between 1770 and 1950 this measure ________________ and then between 1950 and 2021 this measure ________________.

increased from 28.5 years to 46.5 years; increased further from 46.5 years to 71.0 years.

Ilan Moschidae – a well-connected, unscrupulous businessman – owns Nikola Motors, a company that produces electric cars. He has exploited his political connections in order to get legislators in his state to give Nikola Motors an interest free loan to build a new factory. This appears to be an example of

Crony Capitalism

Qihong was born in China. Throughout his entire life he has excelled academically. After earning a Master’s degree from the China University of Mining and Technology in Beijing, he came to the United States to pursue a PhD. Upon completion of his PhD he was hired by a prestigious research university in Oklahoma, where he works to this day. This story provides an illustration of

the Brain Drain

Net Exports for this country are equal to ________.

€ – 878 million (i.e., negative 878 million Euros)

For this country, Per Capita Gross Domestic Product is approximately equal to ________.

€ 22,832.16

Consider a country in which there are 132.9 million people with jobs, 10.4 million people without jobs who are looking for one, and 62.7 million people without jobs who are not looking for one. The unemployment rate of this country is roughly ______.

7.3%

In the Expanded Circular Flow Diagram, government collects taxes from

domestic households and domestic firms (but no foreign entities).

Between 1923 and 2023 the value of Real GDP Per Capita in the U.S.

increased from $8,772 to $66,755 (i.e., became roughly 7.6 times larger)

In 2022 there were approximately _________ deaths from malaria worldwide, with _________ occurring in Africa.

608,000; over 95%.

Capital Flight refers to

the tendency for wealthy people in poor countries to invest their financial resources abroad instead of at home

Based upon these figures, of these four countries the value of the Misery Index was largest in

France

If these values remained constant indefinitely, the GDP of __________ would double in approximately 30 years

Mexico

____________ is illustrated by an outward shift of the Production Possibilities Frontier over time.

Economic Growth

During our discussion in lecture of government failure resulting from costs of complying with government bureaucracy it was noted that in recent decades people in ____________ have been burdened with “a complex, irrational, almost incomprehensible system of controls and licenses” under which “everything needed (government) approval and a stamp,” known as the “Permit Raj.”

India

Based upon “Actual Marginal Costs of Production,” the efficient quantity is ____________, but an unregulated profit-maximizing monopolist would produce ____________.

5,400 units; 3,030 units.

Suppose that the government regulates the monopolist by setting the price it is allowed to charge and requiring that it serve all customers who want to purchase the good at this set/regulated price. When the government sets what it believes to be the ideal price to get the efficient quantity traded based upon “Government’s Estimated Marginal Costs of Production,” the resulting Deadweight Loss will be equal to ________

area iii.

Which of the following is NOT part of the “Coasian Solution” to the problem of externalities?

Prevent individuals from compensating others if they infringe upon the property rights of others.

Which of the following is a good example of a “Club Good”?

A Sirius/XM Satellite Radio broadcast.

“Decision makers having inaccurate information” can

possibly lead to either Market Failure or Government Failure.

The “Incidence of a Tax” refers to

who bears the burden of the tax in terms of decreased welfare.

The efficient level (i.e., Social Surplus maximizing level) of provision of this public good is ______________.

Low Provision

Suppose that this five-person society decides to try to choose the level of provision of the public good by “voting.” For whatever level of public good is provided, the total costs would be split equally between the five million people (e.g., if they were to choose Low Provision, then mandatory taxes of $40 would be imposed on each of the five million people). Given a choice between two different levels, suppose a person will vote for the level which gives them (individually) a larger surplus. Considering a series of pair-wise votes over the various levels, there

is a Condorcet Paradox, since “Zero” defeats “Low,” “Medium” defeats “Zero,” and “Low” defeats “Medium.”

Between 1820 and 1929 the mean value of Government Spending as a Percentage of GDP in the U.S. was 6.78%. Between 1930 and 2024, the mean value of this measure was ________.

33.00%

The __________________ argument in favor of redistribution is based upon a claim that the socially best income distribution maximizes the well-being of the worst-off member of society

Rawlsian Justice

The “Distribution Function of Government” refers to

government policies aimed at altering the final levels of consumption of goods/services across consumers/households, usually with the intention of realizing a “fairer” apportionment of consumption/income/wealth.

At the “free market outcome” there would be a Deadweight-Loss equal to

“areas c+d.”

Suppose a per unit tax of $20.00 were imposed on buyers in this market. With this tax in place

Deadweight Loss is zero due to the efficient level of trade being realized.

Consider the market for Good X. At the market equilibrium (with no tax imposed), 32,000 units are traded at a price of $15.75 per unit. Assume that this is the efficient quantity of trade. If a per unit tax of $1 is imposed on sellers, the government collects tax revenue of $29,500 and Deadweight Loss is equal to $1,225. If this $1 per unit tax were imposed on buyers instead of sellers, then

the tax revenue of the government would be exactly $29,500 and the Deadweight Loss would be exactly $1,225.

Consider the following two statements. Statement 1: “Some households with low income have a large amount of wealth while others have a small amount of wealth.” Statement 2: “No households with a high income have a small amount of wealth.”

Statement 1 is true, but Statement 2 is false.

Which of the following statements about a Lorenz Curve is NOT true?

“A Lorenz Curve must lie above the 45-degree line.”

Suppose that the nine representatives can potentially engage in logrolling by agreeing to “trade votes.” In practice, they will consider doing this by “packaging different proposals together” and having a single up-or-down vote on the package of proposals. Which of the following statements is accurate?

“If ‘Proposals I, II, & III’ are voted on as a package, they will collectively be approved. This outcome increases Total Social Surplus relative to voting on the three proposals separately.”

Economics is the

social science that studies how people make decisions in the face of scarcity and the resulting impact of such decisions on both society as a whole and on the individual members therein.

Which of the following two statements is a “Positive Statement”?

Both “A” and “B” are positive statements.(“The album Chromakopia by Tyler, The Creator was released on October 28, 2024.” B. “As of November 13, 2024, Tyler, The Creator had approximately 48.8 million monthly listeners on Spotify.”)

Reggie Dunlop (coach/player of the Charlestown Chiefs ice hockey team) offered to pay $100 to any player on his own team that could injure opposing player Tim McCracken of the Syracuse Bulldogs during an upcoming game between the two teams. By offering this money, Coach Dunlop was trying to get his teammates to play more aggressively by

offering a material reward.

If the decision maker increased Q from Q=80 to Q=90, then

Total Costs, Total Benefits, and Total Economic Surplus would all increase.

One of the Three Fundamental Economic Questions asks, “Who gets to consume the goods and services that we have chosen to produce?” This question was described as the ______________.

distributional decision

Rory owns 240 acres of land in northern Mississippi. He has decided to build a golf course on this property. When choosing to use the land in this way, Rory is exercising a ________________ in regards to his property.

right to control

Socialism is an economic system in which the means of production are owned

by the government.

Output Combination “A” is ______________; output combination “G” is ______________

attainable and inefficient; unattainable.

Of these four workers, ____________ has the Absolute Advantage in producing cigarettes and ____________ has the Absolute Advantage in producing alcohol.

Liam; Tony

Consider the five countries of China, France, the United States, Singapore, and Venezuela. According to the results of the Economic Freedom of the World Study, of these five countries Economic Freedom is

greatest in Singapore and least in Venezuela.

Last month, James won $25,000 betting that the NY Liberty would win the WNBA Finals. The next day he went to the Honda dealership closest to his apartment and bought a brand new Honda Civic. He was able to convert his gambling winnings into a new car because money serves as

a medium of exchange.

The essay “I, Pencil,” which was written by Leonard Read, primarily illustrates

the notion of spontaneous order in a market system.

In general, the efficient level of trade is defined as the

level of trade which maximizes Total Social Surplus

Supposing that the demand for beef was unchanged between 2022 and 2024, it follows that in 2024 equilibrium price will be __________ and equilibrium quantity will be __________.

somewhere between $3.45 and $6.70; somewhere between 7,975 units and 13,025 units.

The “Incidence of a Tax” refers to

who bears the burden of the tax in terms of decreased welfare

In 2023 Country X had: an Inflation Rate of 3.4%; an Unemployment Rate of 5.7%; and a GDP Growth Rate of 2.1%. It follows that the value of the Misery Index in Country X in 2023 was ____.

9.1

Per Capita GDP of Country Z is $7,230 in 2024. If this country experiences a constant 3.6% increase in Per Capita GDP per year indefinitely into the future, then its Per Capita GDP would be approximately __________ in 2084.

$57,840

Between 1950 and 2021 the child mortality rate (percentage of newborns who die before the age of 5) in the U.S. decreased from 3.8% to 0.6%. Looking at trends in other countries between these same two years, this measure

decreased in China (from 31.7% to 0.7%) and decreased in Kenya (from 32.0% to 3.7%).

For this country, Per Capita Gross Domestic Product is approximately

€32,485

An “excludable” good is a good for which

it is easy (or relatively costless) to prevent consumption by those who do not pay for the good

Suppose that the two proposals are voted on as a “package/bundle.” Compared to the outcome that would result if the proposals were voted on separately, the “package/bundle” of proposals is

approved and Total Social Surplus is decreased.

The profit maximizing quantity for Toliver & Toliver to sell is ________, while the efficient quantity is ________.

107 units of output; 296 units of output.

When Toliver & Toliver chooses the price and quantity which maximize profit, the resulting Consumers’ Surplus is equal to ______________.

“areas a+b+d+e”

Which of the following is NOT part of the “Coasian Solution” to the problem of externalities?

externalities.

____________________ states that the fairest distribution of income and consumption is the one realized when the government establishes and enforces a legal code which respects all voluntary economic interactions between individuals in a society.

Libertarian Justice

The efficient level (i.e., Social Surplus maximizing level) of provision of this public good is ______________.

High Provision

Suppose that this five-person society decides to try to choose the level of provision of the public good by “voting.” For whatever level of public good is provided, the total costs would be split equally between the five people (e.g., if they were to choose High Provision, then mandatory taxes of $4,000 would be imposed on each of the five people). Given a choice between two different levels, suppose a person will vote for the level which gives them (individually) a larger surplus. Considering a series of pair-wise votes over the various levels of provision, there

is not a Condorect Paradox, since “Low” defeats “Zero” and “Low” defeats “High.”

For the U.S. Federal Income Tax, in 2021 the value of the Stroup Coefficient was ________ and the value of the Pechman-Okner Coefficient was ________.

.7395; .0886.

The curve illustrated above CANNOT be a valid Lorenz Curve because

it gets flatter (i.e., its slope gets closer to zero in value) between X=.56 and X=.80

Positive Statements

can potentially be proven to be definitively ‘right’ or ‘wrong,’ once enough evidence and data is gathered and interpreted.

Consider the following two statements. Statement 1: “A ceiling on rents reduces the quantity and quality of available housing.” Statement 2: “A minimum wage increases unemployment among young and unskilled workers.” Across the five studies examining the views of economists on economic and public policies issues discussed in the textbook, an average of

95.5% agreed with Statement 1 and 78.9% agreed with Statement 2.

Which of the following is NOT one of the “Three Fundamental Economic Questions” that every society must address?

“How can we reduce the inflation rate?”

“New Soviet Man” refers to a person that

is motivated primarily by selfless benevolence.

Sam’s Marginal Benefit of consuming a 4th latte would be _______.

$7

If the price of a latte were to increase from $4.29 each to $5.49 each, then Sam would

decrease his weekly consumption from 6 units to 5 units.