Format and Instructions for Final Exam for Econ 360: Wednesday May 5th 2004

a)The final starts at 10 a.m. on Wednesday May 5th. Please make sure that you are in your seat by 9.55 a.m. so that we can start promptly. You will have 120 minutes to complete the test, which will consist of three sections.

b)The first section is Multiple Choice, comprising 40 questions, and is worth 40 points.

c)The second section is True/False, comprising 10 questions, and is worth 10 points.

d)The third section is Short Answer/Essay, worth 50 points. There will be 3 questions to choose from, where you are required to answer 2 questions only.

Review Questions for Final: I have included two sample essay questions, and various sample multiple choice questions and true/false questions below.

Sample Essay Questions

Question 1: Product Liability

Part A: Explain the concept of social cost minimization with respect to the regulation of risk (12 points).

Part B: How might risk be measured? (5 points)

Part C: You have just purchased a highly acclaimed toy tricycle for your four year old daughter. You read the instructions prior to giving it to her, and explain that she must always be careful how she plays with any of her toys. Suddenly, you hear screaming and find that your daughter has badly injured herself wit her new toy tricycle. Apparently, the bike fell apart when she went over a small bump in the driveway.What are the product liability issues you would be dealing with, and what actions might you take? (8 points)

Question 2: Political Economy/Corporate Social Responsibility

Part A: State and explain some of the basic characteristics of the Japanese economic and political system. Make some brief comparisons with the US (13 points).

Part B: Briefly explain the concepts underlying the efficiency perspective and the social responsibility perspective. Using the case of Enron, discuss the extent to which the ethical and social environment may impact a firm. (12 points)

Sample Multiple Choice Questions

  1. In addressing a product safety problem, a firm makes all of the following ex ante decisions except:
  2. product conception
  3. research and development
  4. marketing
  5. employee standards
  6. manufacturing

1=d

  1. The most comprehensive legal source of guidance regarding product safety and liability is:
  2. law of torts
  3. legislative branch
  4. FTC
  5. regulatory agencies
  6. Department of Justice

2=a

  1. The Coase theorem advocates that the government should control air pollution caused by cars. Which of the following is not one of the reasons for the government intervention:
  2. very high transaction costs that would result from bargaining
  3. tens of millions of drivers generate pollution
  4. the cost of all these people reaching an agreement is prohibitive
  5. impediments to bargaining are likely to be significant
  6. the free market mechanism does not allow drivers to pollute

3=e

  1. A tradable permit system specifies:
  2. the total amount of emissions of a particular pollutant
  3. the total amount of pollutants in general
  4. the number of plants that can pollute
  5. the number of firms that can pollute
  6. the total amount of carbon monoxide in the environment

4=a

  1. At the end of the 1990s, the principal systemic level issues in Japan’s political economy center on all of the following except:
  2. deregulation of the economy
  3. stimulating growth
  4. decentralizing the education system
  5. political reform
  6. massive financial crisis

5=c

  1. Through the Maastricht Treaty, the EU has agreed to:
  2. establish the principle that each country in the EU would keep its currency
  3. establish the principle that each country in the EU would keep its central bank
  4. establish a common currency and an independent central bank
  5. allow each country to decide on the convertibility of its currency into euros
  6. leave each country the freedom to determine its own exchange rate

6=c

  1. From the efficiency perspective, Adam Smith concluded that:
  2. the surest way to achieve well being is to place resources in the hands of the government
  3. markets are the best means of directing scarce resources to society’s needs
  4. it is better to reply on the good will of individuals
  5. the corporate form is not important to achieve economic efficiency
  6. it is public ownership that is crucial to achieving efficiency

7=b

Sample True/False Questions

  1. From the viewpoint of social efficiency, decisions by both the producers and the consumers should take into account the social cost of potential injuries to persons and property.

True

  1. Under a system of absolute or total liability, a producer would be held liable for any injury associated with the product.

True

  1. There is widespread agreement about protecting the environment, how much protection is appropriate and about whom should pay for the cost of protection.

False

  1. Social efficiency requires that either the polluter or those affected by the pollution take into account the damage from pollution and the cost of preventing that damage.

False

  1. Interactions with the Japanese government take place through peak organizations such as the Keiretsu.

True

  1. Norway is the newest member of the EU.

False

  1. The economic principle stating that the efficient use of scarce resource is essential to human well-being constitutes the classical view of the role of business in society in the US.

True