ECN201 Exam 1 Fall 2013 V2 1. It has been noted that workers tend to earn slightly higher wages in industries where layoffs are more frequent. This would be an example of earnings differentials due to ____. a. skills b. compensating differentials c. abilities d. discrimination This is an example of compensating differentials. 2. In which of the articles is the following quote? “in the 2006 Program for International Student Assessment that measured the applied learning and problem-solving skills of 15-year-olds in 30 industrialized countries, the U.S. ranked 25th out of the 30 in math and 24th in science.” a. Step Away b. Consumption factor c. Black market in body parts? d. Swimming without a suit e. Would You Slap Your Father? If So, You’re a Liberal It was Thomas Friedman that warned us about the poor test results of American students. 3. The Bush administration, following the theory of the neocons, embarked on a crusade to "convert" other parts of the world to capitalism and democracy - even if it meant a war to 'jump-start" the conversion. The idea was simple - let capitalism do for the Middle East what it did for Europe. What was it that capitalism did for Europe? It marked the beginning of _____. a. economic stability b. economic growth c. economic harmony d. economic equality The only thing Smith promised was economic growth. 4. A knowledge of history can be helpful in giving us insight into the future, and in class I suggested we could learn a good deal about the future "flat world" described by Friedman from the graph above that plots the incomes in two regions relative to the US average of 100. Which of the following would be the best explanation for the convergence of average incomes in the US over this period - and a possible preview of a convergence of incomes in Friedman's flat world? a. The movement of factories to the high wage region b. The rise of income in the high wage region c. The movement of people to the high wage region d. The movement of people from the high wage region The gap closes as workers move to high wage regions or factories move to low wage regions. 5. One of the features of the labor market in the US in recent years is increasing inequity. Which of the following has NOT been cited as a factor contributing to the increasing inequality? a. decline of unionization b. declining levels of immigration c. skill-biased technological change d. tax policies e. growth in international trade One of the factors often cited as a cause of the growing inequality is the growth in immigration to the US. 6. The languages department is developing their schedule for next year and they are assessing the possibilities. The department can teach either French courses or Portuguese courses. For reasons that remain unknown, the French classes have an average enrollment of 80 and the Portuguese have an average enrollment of 50, and that the Language Department will only teach 10 sections a semester. Which of the above graphs would represent the student possibility curve for the department? P represents the number of students in Portuguese classes and F represents the number of students in French classes? a. A b. B c. C d. D The best way to answer this is by establishing the two end points on the possibility curve. If all of the students are French students then there can be 10*80 = 800 French students. If all of the students are Portuguese students then there can be 10*50 = 500 Portuguese students. 7. Let’s look more closely at that student possibility curve for the language department. The university administration has sent out a memo to the department indicating that it must increase the number of seats available to students. Which of the following would be represented by a parallel outward shift in the student possibility curve? a. An increase in the average class size for Portuguese classes b. An increase in the number of sections taught c. An increase in the average class size for French classes d. Closing a French class and opening a Portuguese class The only change that would shift create a parallel outward shift in the curve would be an increase in the number of sections taught. GDP Levels China India Western Europe million 1990 dollars (Real) 1 1000 1500 1913 2000 26,820 26,550 61,800 241,344 4,183,666 33,750 33,750 60,500 204,242 1,899,526 14,433 10,925 44,183 902,210 7,539,382 US 272 West Asia / Middle East 10,120 World 105,402 520 800 517,383 8,019,378 12,415 10,495 40,588 1,347,284 120,264 248,345 2,733,279 36,568,190 Above is a table of GDP data for various parts of the world at five points in time since the year 1. Based on this table you are to answer the following questions. 8. What was China’s share of world GDP in the year 1500? a. 3% b. 5% c. 15% d. 25% e. 35% We need to use the formula % = 61,800/248,345 = .25 = 25% 9. What would China’s GDP be in 2030 if it continued to grow at 9% a year? a. 17,400,00 b. 21,700,000 c32,900,000 d. 55,500,000 e. 89,800,000 This is a problem where the unknown is future value so we use the formula FV = PV*(1+g)^T = 4183666*(1.09)^30 = 55,507,535 10. Based on the article, “Marines miss targets,” what was the reason they encountered a shortage in recruits? a. An increase in demand and increase in supply b. An increase in demand and decrease in supply c. A decrease in demand and decrease in supply d. A decrease in demand and increase in supply The marines had a shortage due to an increase in demand and a decrease in supply 11. Which of the following is a good example of an increase in opportunity cost? a. Falling hourly wages increases the cost of a long commute b. Falling wages for high school grads raises the cost of attending college c. Cancellation of an exam tomorrow morning raises the cost of going to the movies tonight. d. Falling unemployment rates for college grads raises the cost of a traditional MBA degree for a college grad All of these are examples of falling opportunity cost except “falling unemployment rates for college grads raises the cost of a traditional MBA degree for a college grad.” If the college grads are employed then it costs them more to give up the job to go to grad school. 12. In the graphs above market A represents the US and market B represents Mexico, India and other low wage countries. One of the concerns of American workers is the offshoring of jobs - the decision by US companies to shift operations from the US to countries such as India. How would you show the impact of the offshoring on the market for US workers? a. an outward shift in the demand for labor b. an outward shift in the supply of labor c. an inward shift in the demand for labor d. an inward shift in the supply of labor The key here is recognizing the companies as the demanders of labor - and when they move operations overseas they will reduce the demand for labor in the US. 13. Which graph best represents the corn market in the aftermath of the drought in the Midwestern US? a. a b. b c. c d. d e. e The supply of corn will be lower = d 14. There has been much written about people considering SUVs because of increased concern over the environment and the high price of gas. What would happen in the market for SUVs if the price of gas went up? a b. b c. c d. d e. e The demand for SUVs would fall = c 15. In the 1990s there was a massive investment in information technology by US companies that has increased productivity levels in American industries. Which best depicts the impact of the increased labor productivity on the market for manufactured goods in the US? a. an increase in demand b. an increase in supply c. a decrease in supply d. a decrease in demand The productivity advances would show up as an outward shift in the supply curve. 16. “The world runs on individuals pursuing their self interests. The great achievements of civilization have not come from government bureaus. Einstein didn't construct his theory under order from a bureaucrat. Henry Ford didn't revolutionize the automobile industry that way.” This is a statement most likely made by a _______. a. b. c. d. Liberal Conservative Marxist Institutionlist This is clearly a statement made by a conservative because it is not supportive of the government. 17. The computer industry has been buffeted by two "shocks" - a weak economy that has reduced businesses’ interest in new computers and sharply lower chip prices. What is the likely impact on the market for computers? a. a increase in demand and an increase in supply b. an increase in supply and decrease in demand c. a decrease in supply and an increase in demand d. a decrease in supply and a decrease in demand The secret here is to follow the cookbook approach. The market is the market for computers and the decrease in the price of chips will have at least one definite effect - it will decrease the computer makers' cost of producing these chips. The result is an increase in supply and decrease in demand. 18. The best explanation of the upward trend in the price of coffee in the late 1990s would be ___ a. increased coffee consumption in China and India b. c. d. harsh weather in Columbia end of world recession the emergence of Vietnam as a major supplier of coffee Prices are falling so it is an increase in supply or a decrease in demand. The emergence of Vietnam as a major supplier of coffee will drive down the price. 19. The article “Can mommy know best?” was about ____ discrimination. a. customer b. employee c. employer d. statistical This is a perfect example of customer discrimination as TV viewers would not trust a female anchor. 20. The scatter diagram is a good way to view data to determine if a relationship exists, and embedded in each of the following headlines is a relationship between two variables. Which of the following headlines describes a relationship that is captured in the scatter diagram? a. "Stock prices fall on news of interest rate hikes" b. "US budget deficit falls as GDP rises" c. "Dollar falls on news of stock market drop" d. "Earnings fall as unemployment rates rise" 21. Why is 1776 an important date in economic history? a. Collapse of communism b. Birth of Karl Marx who was the father of communism c. Publication of Adam Smith’s book, Wealth of Nations d. US Civil War ends and the US emerges as a single nation Smith described the outlines of the market system guided by the Invisible Hand that appeared at just about the time that economic growth appeared. This growth was centered in Europe.