Practice Test 4
EC 102
Fall 1997 Bernasek

Multiple Choice

1. The economic rational for controlling pollution is
a.  That pollution is a negative externality.
b.  That the market will produce too much pollution.
c.  That there are benefits as well as costs associated with pollution control.
d. All of the above.

2.  A tax that makes the distribution of income more unequal is called
a. Progressive.
b. Proportional.
c. Regressive.
d. Neutral.

3.  The federal government's main source of tax revenue is
a. Personal income taxes.
b. Corporate income taxes.
c. Payroll taxes.
d. Sales and excise taxes.

4.  An increase in a country's export prices, all other things equal, will
a. Improve the country's terms of trade.
b. Worsen the country's terms of trade.
c. May improve or worsen the terms of trade.
d. Will not change the country's terms of trade.

Use the following information to answer questions 5 - 8.

                    Amounts that can be produced with one unit of resources
                              Wheat               Wool
                              (Bushels)      (Pounds)

          Australia           4              9
          New Zealand    8              6

5.  The opportunity cost of wheat is
a. Lower in Australia than in New Zealand.
b. Lower in New Zealand than in Australia.
c. The same in Australia and New Zealand.
d. Indeterminate.

6.  The opportunity cost of wool is
a. Lower in Australia than in New Zealand.
b. Lower in New Zealand than in Australia.
c. The same in Australia and New Zealand.
d. Indeterminate.

7.  On the basis of the information on opportunity costs we know
a. Australia has a comparative advantage in wheat and New Zealand in wool.
b. New Zealand has a comparative advantage in wheat and Australia in wool.
c. There is no comparative advantage.
d. Australia has an absolute advantage in both wheat and wool.

8.  If one unit of resources was reallocated in each country on the basis of comparative advantage
a. More of both goods can be produced.
b. More wheat can be produced but not more wool.
c. More wool can be produced but not more wheat.
d. No more of either good can be produced.

9.  Which of the following is the best example of a direct pollution control?
a. A tax on effluent that is discharged into a river.
b. An emissions device that is attached to automobiles.
c. A permit to pollute that can be bought and sold.
d. A charge per unit of pollution emissions.

10.  Sales and excise taxes are considered
a. Progressive taxes.
b. Proportional taxes.
c. Regressive taxes.
d. Flat taxes.

True or False.
1. If the MB of pollution control is less than the MC of pollution control, society should increase
the amount of pollution control.
2. An increase in solid waste taxes will tend to hurt the poor more than the wealthy.
3. There will never be gains from trade when one country has an absolute advantage in all goods
over another country.
4. There are no valid economic arguments in favor of protectionism.
5. The imposition of a tariff will make consumers worse off and domestic producers better off.

Definitions
1.  The name of a tax that makes the distribution of income more equal.
_____________________________________
2.  A tax on the amount of pollution created, levied at its source.
_____________________________________

3.  Trade that occurs without any restrictions.
_____________________________________
4.  When one country is better at producing all goods, with the same resources, than another
country.
_____________________________________
5.  Export price index divided by the import price index, multiplied by 100.
_____________________________________

Answers:
Multiple choice:
1.D 2.C 3.A 4.A 5.B 6.A 7.B 8.A 9. B 10.C

True or False:
1.F 2.T 3.F 4.F 5.T 

Definitions:
1. PROGRESSIVE
2. EMISSIONS TAX
3. FREE TRADE
4. ABSOLUTE ADVANTAGE
5. TERMS OF TRADE

Good luck on the test.