Practice Test Questions EC 102 Test 3 Multiple Choice: 1. The economic rationale for government intervention in a monopoly market a. is that the monopolist will produce too much output from the perspective of what is optimal for society. b. is that the monopolist will produce too little output from the perspective of what is optimal for society. c. is that the monopolist will not produce any output at all without the government's assistance. d. has nothing to do with the amount of output the monopolist will produce. 2. From the following, the best example of a negative externality is a. the benefits to society of an individual's education. b. the benefits to people in Fort Collins of open space areas. c. the cost of a permit to hike in Horsetooth Mountain Park. d. the loss of fishing opportunities in Poudre River resulting from pollution discharged into the water. 3. The primary reason the government provides citizens with police protection rather than relying on the market to provide those services is a. The free market would never provide those services. b. The free market would not be as efficient as the government at providing those services. c. Society does not believe that people should receive police protection only if they can afford to pay for it. d. The free market would provide too much police protection. 4. The Grameen Bank in Bangladesh operates a bank that lends to poor women on the principle that a. The poor are lazy. b. The poor are engaged in productive activities but can't get ahead because they lack access to capital. c. The poor do not have any skills and need to be trained. d. The poor do not want to help themselves. 5. An important factor in the Grameen Bank's 98% recovery rate on loans is a. Borrowers have to provide collateral to obtain loans. b. Borrowers have to form groups and the group takes responsibility for repaying all members' loans. c. Borrowers have to be wealthy to obtain loans. d. Borrowers have to pay bribes to obtain loans 6. In terms of reducing poverty among the "working poor", which of the following would be the most effective anti-poverty program? a. An increase in welfare benefits. b. A decrease in welfare benefits. c. An earned income tax credit. d. Job creation. 7. The poverty line in the U.S. (For non-farm families) is calculated as a. The cost to a family of four of the basic necessities of life; food, clothing, shelter, medical care. b. Three times the cost of a cheap minimally nutritionally sound food budget for a family of four. c. The cost of maintaining the standard of living of the average family in the U.S. d. The median income in the U.S. of a family of four. 8. The largest component of government spending on means tested programs in 1991 was? a. AFDC (Aid to Families with Dependent Children). b. SSI (Supplementary Security Income) c. Food Stamps. d. Medicaid. 9. If a union enters a competitive labor market and bargains for a wage above the equilibrium wage then we know that a. The wage will increase, the level of employment will decrease and there will be unemployment created. b. The wage will increase and the level of employment will increase. c. The wage will increase and the level of employment will decrease, but no unemployment will be created. d. The wage will increase and there will be no change in the level of employment. 10. One of the advantages of a corporation over a single proprietorship is a. Shareholders are only taxed once but proprietors are taxed twice. b. The shareholders have more control over the firm than a proprietor. c. The shareholders face limited liability for the debts of the firm whereas the proprietor faces unlimited liability. d. None of the above. True of False: 1. A person's likelihood of being below the poverty line in the US is higher if they grow up in a family headed by a single female. 2. Social security is an example of a means tested government program. 3. In a market where a positive externality is present, too much output of the good/service will be produced compared with what would be optimal. 4. Public goods like national defense will be provided optimally by the free market. 5. The present value of a resource that pays the firm an income in the future will be higher, the higher the interest rate. Definitions: 1. A good/service that can be consumed without the consumer paying for the specific benefits they receive from the good/service. ________________________________ 2. The education, experience, and training that workers invest in to increase their productivity. ________________________________ 3. Treating people in the labor market differently on the basis of some characteristic that has nothing to do with their ability to do a job. ________________________________ 4. An association of workers with leaders authorized to represent members in negotiations with management. ________________________________ 5. A resource that is in fixed supply and cannot be replaced. _________________________________ Answers: MC: 1.b 2.d 3.c 4.b 5.b 6.c 7.b 8.d 9.a 10.c T/F: 1.T 2.F 3.F 4.F 5. F Definitions: 1.PUBLIC GOOD 2. HUMAN CAPITAL 3. DISCRIMINATION 4. UNIONS 5. NON-RENEWABLE