NOTE: multiple-choice answers were scrambled in alternative versions of this exam. Name___________________________________________
APEC 100 EXAM #2 (20%)
Definitions (answer ‘em all!):
1.
Social contract:
The people give up some freedom to a government in exchange for its protection of their personal safety, property, etc.
2.
Fascism
Totalitarian government focused on the primacy of the state and its leader rather than individual rights
3.
Communism
Theory of the overthrow of capitalism by the working class, followed by collective ownership of the means of production.
(The totalitarian government that collectivizes everything is supposed to be a transitory.)
4.
Range voting
Voters use a numeric scale to indicate their relative preferences for political candidates; the candidate with the highest overall
preference score wins. (The 1-to-5 Borda count method explained in class is form of range voting.)
5.
Gerrymandering
Manipulating legislative district boundaries to maximize the number of seats won by one party, usually by “packing” the other
party’s voters into a minimum number of districts and/or “cracking” them into multiple districts where they are in the minority.
6.
Political rent-seeking
Firms try to gain economic advantages over their competitors by political means rather than by market competition.
7.
Innumeracy
Incompetence with numbers; the mathematical equivalent of illiteracy.
8.
Discounting
Valuing future benefits and costs slightly less than current benefits and costs.
9.
Financial leverage
Using credit (e.g., borrowed money) to increase the size and risk of your investment, and your potential profit from it.
10. Moral hazard in insurance markets
When insurance reduces your incentive to behave responsibly.
11. Future contract
A contract to buy or sell a specified quantity and grade of some commodity at a specified future time and place.
12. Call option
A contract giving the option-buyer the right (but not the obligation) to buy a future contract from the option-seller at a specified
price.
13. Resource reserves
The portion of the total physical endowment of a natural resource which is currently proved (quantified) and currently
economical to extract.
14. Static reserve index
An overly simplistic forecast of resource depletion, calculated by dividing current reserves by current annual consumption to
determine “how many years till we run out!”
15. Marginal resource rent
The difference between the market price of a resource and the marginal cost of extracting and selling it.
Multiple Choice
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Who wrote: “…When neither their property nor honor is touched, the majority of men live content…. [The Prince] has only to
contend with the ambition of a few, whom he can curb with ease in many ways"
(a) Nicolo Machiavelli
(b) Thomas Hobbes
(c) John Locke
(d) Jean-Jacques Rousseau
(e) Benito Mussolini
Who declared that all human beings retain fundamental rights to "life, health, liberty, and possessions?"
(a) Thomas Hobbes
(b) John Locke
(c) Jean-Jacques Rousseau
(d) Mancur Olson
(e) Abraham Lincoln
Who described life in the original state of nature as “solitary, poor, nasty, brutish, and short?”
(a) John Locke
(b) Jean-Jacques Rousseau
(c) Mancur Olson
(d) Thomas Jefferson
(e) Thomas Hobbes
Who won the Spanish Civil War?
(a) Ernesto “Che” Guevara
(d) Francisco Franco
The only tax-free nation in the world is…
(a) China
(d) New Zealand
(b) Philip II
(e) Juan Peron
(c) Simon Bolivar
(b) North Korea
(e) Norway
(c) South Korea
The major famines of the 20th century resulted from…
(a) weather-related crop failures
(b) long-term soil erosion and nutrient loss
(c) human overpopulation
(d) World War II
(e) forced collectivization of agriculture by communist governments
Which state’s voters have the most representation in Congress (Representatives + Senators) per capita?
(a) Wyoming
(b) Rhode Island
(c) Texas
(d) California
(e) New York
In most US elections, the winner of a multi-candidate election is the candidate who…
(a) gets the most votes, even if it’s not a majority
(b) wins the runoff between the top 2 vote-getters
(c) is pair-wise preferred to every other candidate
(d) has the highest overall voter approval rating
(e) gets the majority of all votes cast
Suppose you are running for office. On some key political attitude spectrum (0 to 100) you are actually a 60, the mean voter
is a 50, the median voter is a 40, and your opponent portrays himself as a 30. How should you portray yourself to win this
election?
(a) as a 25
(b) as a 35
(c) as a 45
(d) as a 55
(e) as a 65
10. Business groups may actually like government regulations that …
(a) establish minimum quality standards for their products or services
(c) make it difficult for new competitors to enter the industry
(e) protect worker safety
11. In Congress, a “pork-barrel” program is typically …
(a) targeted to some special interest
(c) not subjected to congressional hearings
(e) all of the above
(b) require truth in advertising
(d) protect the environment
(b) not competitively awarded
(d) tacked onto some other bill rather than specifically authorized
12. If the Amazing Colossal Man was 100 feet tall and normally-proportioned, about how much would he weigh?
(a) 1 ton (2,000 lbs.) (b) 5 tons
(c) 25 tons
(d) 100 tons
(e) 500 tons
13. Your hair grows approximately _____ miles per hour.
(a) 10E-5
(b) 10E-6
(c) 10E-7
(d) 10E-8
(e) 10E-9
14. Under the E10 mandate (US gasoline has to be 10% ethanol), American are using about _____ gallons of ethanol each year.
(a) 10E+6
(b) 10E+7
(c) 10E+8
(d) 10E+9
(e) 10E+10
15. A $1,000 investment earns 8% compounded annually. After 9 years how much will it be worth?
(a) $1,080
(b) $1,640
(c) $1,800
(d) $2,000
(e) $8,000
16. Suppose you buy a $200,000 house with a $40,000 down-payment and an interest-free loan from your rich uncle.
If you sell it for $240,000 next year and repay you uncle, what rate of return did you earn on your $40,000?
(a) 100%
(b) 25%
(c) 20%
(d) 10%
(e) zero
17. What is the implicit rate of return on an investment that quadruples in value in 24 years?
(a) 6%
(b) 8%
(d) 9%
(d) 10%
(e) 12%
18. Suppose you own a large chain of restaurants that specialize in wombat fritters, and use 40,000 lbs. of wombat meat each
month. There are no futures or options markets in wombats, but there are futures and options markets for lean hogs (40,000
lbs./contract), and the price of wombat meat is always about double the price of pork (+/-2%). So if you wanted to hedge
against the risk of a big increase in wombat prices in the future, your best strategy would be to …
(a) buy hog futures
(b) sell hog futures
(c) buy put options on hogs
(d) sell put options on hogs
(e) practice up for a hog-calling contest
19. In the movie Casino Royale, the evil dude tries make a jet manufacturer’s newest-model jet crash on its maiden flight because...
(a) he owns a lot of the company’s stock
(b) he has shorted the company’s stock
(c) he owns call options on the company’s stock
(d) he has sold call options on the company’s stock
(e) he’s just an evil dude.
20. A “static reserve index” is calculated by dividing current reserves by annual consumption to determine the number of years
until we suddenly run out. These crisis predictions are wrong because…
(a) reserves aren’t static; they are augmented by new discoveries.
(b) consumption is price-responsive: as the resource gets scarcer, its price rises and consumption falls.
(c) rising resource prices motivate the development of substitute resources.
(d) a higher price increase reserves by definition: marginally sub-economic resources are now economical to extract.
(e) all of the above.
21. In deciding when to hold or sell their resources, profit-maximizing resource extraction firms mainly base their decisions on
the expected growth rate of ….
(a) resource prices
(b) resource rents
(c) resource extraction costs
(d) interest rates
(e) population
22. The elasticity of demand for US corn is about -0.25. This means that a 10% increase in corn yields will result in a …
(a) 25% increase in price
(b) 2.5% increase in price
(c) 2.5% decrease in price
(d) 25% decrease in price
(d) 40% decrease in price
23. When the stationary bandit has built himself a swanky house in town and wants to dignify his business, he refers to the
protection money that he collects from the local citizens as…
(a) swag
(b) loot
(c) booty
(d) beer money
(e) taxes
24. He resolves disputes among his henchmen bureaucrats by…
(a) torture
(b) assassination
(c) bribery
(d) flipping a coin
(e) majority vote
25. He keeps his bureaucrats on their toes by…
(a) shooting the corrupt ones
(b) taking hostages
(c) entering their offices without knocking
(d) holding dance competitions
(e) periodically making them earn re-election by the people
26. What Iraqi leader did the US depose 2003?
(a) Mohammed Mossadeq
(b) Shah Reza Pahlavi
(d) Ayatollah Khomeini
(e) Mahmoud Ahmadinejad
(c) Saddam Hussein
27. What excuse did the Bush administration not give for invading Iraq in 2003?
(a) Iraq is importing uranium to build “weapons of mass destruction.” (b) Saddam “tried to kill my dad” [George H.W. Bush].
(c) Iraq was involved in planning the 9/11 attacks.
(d) Iraq is a haven for al-Qaida operatives.
(e) Iraq has enormous low-cost oil reserves that the US should control.
28. Which country does not border Iraq?
(a) Iran
(b) Turkey
(c) Israel
(d) Syria
(e) Saudi Arabia