Montana Tech of the University of Montana

ECNS 203 Principals of Micro and Macro Economics

Summer 2015 Quiz 3
Name:________________________________________________________________________
1. The migration of unskilled workers from Mexico to the United States tends to
a. increase the number of jobs for unskilled American workers
b. decrease the wage rates for unskilled American workers
c. increase the wage rates for skilled American workers
d. decrease the number of jobs for skilled American workers
2. The Wisconsin Teachers Union would be most successful in increasing wages and employment
for its members if it could
a. enact measures to reduce the supply of teachers
b. impose an above-equilibrium floor on wages
c. increase the demand for teachers
d. collect union dues from teachers not belonging to the union
3. If the federal government imposes a minimum wage that exceeds the market equilibrium wage,
there will necessarily occur a(n)
a. shortage of labor
b. surplus of labor
c. decrease in the total wages paid to workers
d. increase in the total wages paid to workers
4. Given a competitive market for computer workers, an increase in the demand for computers will
result in
a. lower employment and a lower wage for computer workers
b. lower employment and a higher wage for computer workers
c. higher employment and a lower wage for computer workers
d. higher employment and a higher wage for computer workers
5. The demand curve for labor is
a. upward sloping at high wages and downward sloping at low wages
b. downward sloping at high wages and upward sloping at low wages
c. derived from the good or service that labor helps produce
d. identical to the marginal product of labor
6. A firm will maximize profits by hiring workers up to the point where the value of the marginal
product of labor
a. is at a maximum
b. is at a minimum
c. exceeds the wage rate by the greatest amount
d. equals the wage rate

7. If the wages of a U.S. worker are double the wages of a Korean worker, the U.S. worker will be
less costly to employ if its marginal productivity is ______ that of the Korean worker.
a. double
b. more than double
c. less than double
d. exactly equal to
8. Craft unions, such as bricklayers and electricians, have sometimes adopted high initiation fees and
long apprenticeship programs in order to
a. increase the demand for their members labor
b. decrease the demand for their members labor
c. increase the supply of their members labor
d. decrease the supply of their members labor
9. Skilled union workers may support increases in the federal minimum wage in order to
a. increase the cost of hiring less-skilled workers and thus increase the demand for skilled
union workers
b. increase the cost of hiring less-skilled workers and thus decrease the demand for skilled
union workers
c. decrease the cost of hiring skilled union workers and thus reduce the demand for less-skilled
workers
d. decrease the cost of hiring skilled union workers and thus increase the demand for lessskilled workers
10. Collective bargaining agreements usually pertain to all of the following except
a. working conditions
b. hours of employment
c. wages
d. prices of goods produced
11. Labor migration from Canada to the U.S. tends to
a. decrease output and decrease wages in Canada; and increase output and increase wages in
the U.S.
b. decrease output and increase wages in Canada; and increase output and decrease wages in
the U.S.
c. increase output and increase wages in Canada; and decrease output and increase wages in the
U.S.
d. increase output and decrease wages in Canada; and increase output and decrease wages in
the U.S.
12. When unions are successful in raising the wages of its members, the employers usually
a. seek substitutes such as robots for union labor
b. acquire less capital
c. lower the prices of the goods it sells
d. overcome the disadvantages of higher costs

13. What prevents many U.S. jobs from being outsourced abroad?
a. Workers in other countries earn about the same as U.S. workers for the same work.
b. The U.S. labor markets are highly unionized.
c. The U.S. labor markets are moving toward manufacturing rather than services.
d. U.S. workers are more productive than workers in other countries.
14. A minimum wage that is set above a market's equilibrium wage will result in
a. an excess demand for labor, that increases unemployment.
b. an excess demand for labor, that creates a shortage of workers.
c. an excess supply of labor, that increases unemployment.
d. an excess supply of labor, that creates a shortage of workers.
15. Most economists do not believe an increase in the minimum wage would significantly reduce the
poverty rate. Which of the following best explains why?
a. An increase in the minimum wage might encourage high school students to drop out of
school.
b. Most minimum-wage employees would simply work fewer hours if their wages were
increased.
c. Most minimum-wage workers are teenagers or spouses in households with incomes already
above the poverty level.
d. Most studies indicate the demand for unskilled labor is highly inelastic.
16. A politician was recently quoted as saying, Our country can only reach full employment by
raising the minimum wage, which would cause the demand for products to increase . . . and
eventually cause production to expand. His analysis overlooks the fact that
a. minimum wage legislation increases costs of production (and thus product prices) and creates
an excess supply (unemployment) of unskilled labor.
b. automation is the prime cause of unemployment.
c. full employment can only be reached by increasing the minimum wage substantially.
d. minimum wage legislation may increase the employment of low-skilled workers, but this will
be offset by an equal reduction in the employment of skilled workers.
17. Does economic efficiency indicate that all pollution should be eliminated?
a.
Yes, pollution is bad; it harms both people and the environment, and therefore, it should be
eliminated.
b.
No, at some point, the benefits of still lower levels of pollution will not be worth the
additional cost.
c.
No, pollution does not harm most people, and therefore, we should not worry about it.
d.
Partially, pollution caused by business firms should be eliminated, but people should still be
allowed to pollute if they want.
18. Which of these activities will most likely result in an external benefit?
a. A college student buys a deck of cards to play solitaire in her dorm room.
b. An elderly woman plants a flower garden on the vacant lot next to her house.
c. An executive purchases a book to read on a business trip.
d. A ten-year-old uses his allowance to buy new Nike shoes.

19. Many economists believe a general sales tax (particularly on items such as food) takes a larger
proportion of income from low-income households than from high-income households. If this is
true, a general sales tax is a
a. regressive tax.
b. proportional tax.
c. neutral tax.
d. progressive tax.
20. A progressive tax is defined as a tax for which the
a. average tax rate rises as income increases.
b. average tax rate falls as income increases.
c. average tax rate remains constant at all levels of income.
d. dollar tax liability of those with higher income is more than the dollar tax liability of those
with lower income.
21. Driving your automobile in Los Angeles during the rush hour causes externalities because
a. it adds congestion and pollution from auto exhaust, reducing the welfare of others.
b. gasoline is scarce and you must pay for it.
c. gasoline is a public good.
d. your actions will benefit others even though you will be unable to charge them for the
service.
22. Which of the following correctly describes a positive externality resulting from an individuals
purchase of a winter flu shot?
a. The flu shot is cheaper than the cost of treatment when you get the flu.
b. The income of doctors increases when you get the flu shot.
c. The flu shot reduces the likelihood of others catching the flu.
d. The flu shot reduces the likelihood you will miss work as the result of sickness; therefore,
you will earn more income.
23. Which of the following best explains why making air travel completely safe is not efficient?
a. After some level of safety is reached, making airplanes even safer is not worth the
opportunity cost that would be incurred.
b. Because one cant put a price on human life, airplane safety generally doesnt matter
economically.
c. The benefit from additional airplane safety will generally rise as airplanes are made safer,
more than offsetting the opportunity cost involved.
d. The question is misleading - making airplanes safer is always efficient.
24. If the construction of a new elementary school would create $5 million worth of benefits for
citizens and cost $7 million to construct, then using the criterion of economic efficiency, the
school
a. should be built.
b. should not be built.
c. results in a substantial improvement to the welfare of society.
d. should be built if it passes by a majority vote.

25. A college has found that during every home football game, a group of students sits on a hillside
next to the stadium and watches the game without purchasing tickets. In economics, the problem
that this college is facing is referred to as a
a. common good problem.
b. free rider problem.
c. onlooker problem.
d. deadweight loss problem.
26. A free-rider problem exists when a good that has the following characteristic?
a. Rivalry in consumption.
b. Elastic demand.
c. Inelastic demand.
d. Nonexcludable.
27. Markets fail when externalities are present
a. because all of the costs and benefits of producing a good are reflected in the market price.
b. because some of the costs and benefits of producing a good are not reflected in the market
price.
c. only if they are negative; positive externalities are not market failures.
d. because profits are not maximized.
28. Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air.
How will the price and output of paper in a competitive market compare with their values under
conditions of ideal economic efficiency?
a. The price will be too high, and the output will be too large.
b. The price will be too low, and the output will be too large.
c. The price will be too low, and the output will be too small.
d. The price will be too high, and the output will be too small.
29. If a group of sellers that can restrict entry into a market, they will often be able to enlarge their
total profit by
a. raising price and reducing output.
b. raising price and expanding output.
c. lowering price and expanding output.
d. raising price and leaving output unchanged.
30. The purpose of the deregulation movement of the 1970s and 1980s was to
a. increase competition and provide incentives for firms to introduce new products
b. prevent destructive competition from driving inefficient firms out of industries
c. provide stable markets so firms could realize of economies of scale
d. provide an orderly transition as industries evolve from infancy to maturity
31. U.S. public policy toward public utilities, such as gas and electric companies, has generally
allowed them to operate as
a. private monopolies without government regulation of price and output
b. private monopolies subject to government regulation of price and output
c. firms owned and operated by the federal government
d. firms owned and operated by state governments

32. Which of the following is an example of social regulation in the U.S.?

a. automobiles have seat belts
b. a cat does not eat chocolate
c. books have numbered pages
d. a child wears boots when it rains
33. Public goods include all of the following except a(n)
a. Big Mac hamburger
b. lighthouse
c. highway
d. air traffic control system
34. Which argument is usually used to justify the use of public funds to partially finance the
construction of sports stadiums?
a. they can be built in outlying areas so they will not affect downtown re-development efforts
b. the sports stadium will partially siphon away business from local establishments
c. there will be increased tax revenues as a result of new jobs and spending
d. the subsidy will allow the teams owner to allocate less funds to players salaries
35. All of the following are transfer payments except
a. Medicaid
b. unemployment compensation
c. personal income taxes
d. food stamps
36. Concerning the Social Security system, which of the following is false?
a. Social Security is mandatory for most wage earners.
b. Any surplus of taxes in the Social Security system is used to buy stock.
c. Social Security benefits are automatically raised annually to reflect inflation.
d. Social Security is a pay-as-you-go system financed by payroll taxes.
37. Social Security
a. is a pay-as-you-go system financed by payroll taxes
b. provides individual investment accounts for all participants
c. is financed primarily out of revenues from personal income taxes
d. provides fixed incomes to beneficiaries regardless of the rate of inflation
38. If the Social Security system were privatized, households would
a. be able to invest their Social Security taxes in the stock market
b. no longer belong to the Social Security system
c. receive cost-of-living adjustment in Social Security benefits
d. find their retirement incomes fixed at a constant level
39. The largest component of the federal governments budget is
a. national defense
b. police and fire protection
c. interest on the public debt
d. income transfer programs

40. The largest share of the federal governments tax revenue comes from
a. corporate income taxes
b. Social Security taxes
c. sales and excise taxes
d. personal income taxes
41. According to the ______ principle, people with greater income and wealth should be taxed at a
higher rate.
a. benefits-received
b. ability-to-pay
c. proportional
d. regressive
42. A tax is ______ if it takes a constant fraction of income as income rises.
a. regressive
b. proportional
c. progressive
d. aggressive
43. The federal personal income tax is a
a. flat-rate tax
b. regressive tax
c. progressive tax
d. proportional tax
44. The federal corporate income tax is essentially a
a. regressive tax
b. proportional tax
c. progressive tax
d. benefits-received tax
45. Sales and excise taxes are essentially
a. proportional taxes
b. progressive taxes
c. regressive taxes
d. government expenditures
46. Most economists agree that the U.S. system of taxation and transfer payments is more helpful to
the ______ than the U.S. taxation system by itself.
a. stock market
b. poor
c. rich
d. U.S. Treasury

47. In its purest form, a ______ system would eliminate the existing array of different tax rates on
personal income and replace them with a single tax.
a. value-added tax
b. consumption tax
c. sales tax
d. flat-rate income tax
48. A(n) ______ operates like a retail sales tax, except that it is collected at the various stages of
production of goods and services.
a. progressive income tax
b. payroll tax
c. value-added tax
d. assembly tax
49. Which tax is most consistent with the benefits-received principle?
a. a sales tax on diamond jewelry
b. a progressive tax on second homes
c. a federal income tax
d. a gasoline tax
50. If the U.S. adopted a flat-rate income tax system,
a. transition costs from the current system would be minimal
b. all exemptions, deductions, and credits would be eliminated
c. tax revenue would have to decrease from its current levels
d. people would easily avoid paying their taxes