ECON 312 Week 4 Midterm Exam Answers

ECON 312 Week 4 Midterm Exam Answers

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ECON 312 Week 4 Midterm Exam Answers

• (TCO 1) As a consequence of the condition of scarcity
• (TCO 1) The opportunity cost of constructing a new public highway is the
• (TCO 1) A nation can increase its production possibilities by
• (TCO 1) Which expression is another way of saying “marginal benefit”?
• (TCO 1) The individual who brings together economic resources and assumes the risk of business ventures in a capitalist economy is called the
• (TCO 1) The Soviet Union economy of the 1980s would best be classified as
• (TCO 1) The simple circular-flow model shows that workers, entrepreneurs, and the owners of land and capital offer their services through
• (TCO 1) Consumers express self-interest when they
• (TCO 1) Which is not one of the five fundamental questions that an economy must deal with?
• (TCO 1) The major “success indicator” for business managers in command economies like the Soviet Union and China in the past was
• (TCO 2) An increase in demand means that
• (TCO 2) At the point where the demand and supply curves intersect
• (TCO 2) Black markets are associated with
• (TCO 2) An increase in demand for oil along with a simultaneous increase in supply of oil will
• (TCO 2) If Product Y is an inferior good, a decrease in consumer incomes will
• (TCO 2) If the price elasticity of demand for a product is equal to 0.5, then a 10 percent decrease in price will increase quantity demanded by
• (TCO 2) Total revenue falls as the price of a good is raised, if the demand for the good is
• (TCO 2) You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1.  To increase total revenues, you should:
• (TCO 2) A state government wants to increase the taxes on cigarettes to increase tax revenue.  This tax would only be effective in raising new tax revenues if the price elasticity of demand is
• (TCO 2) When universities announce a large tuition increase and follow it with an announcement that more financial aid will be available, they are assuming that students who pay full tuition
• (TCO 3) Suppose that you could prepare your own tax return in 15 hours, or you could hire a tax specialist to prepare it for you in two hours.  You value your time at $11 an hour.  The tax specialist will charge you $55 an hour.  The opportunity cost of preparing your own tax return is
• (TCO 3) Economic profits are equal to
• (TCO 3) The main difference between the short run and the long run is that
• (TCO 3) The law of diminishing returns only applies in cases where
• (TCO 3) Marginal cost can be defined as the
• (TCO 3) If the price of a fixed factor of production increases by 50 percent, what effect would this have on the marginal-cost schedule facing a firm?

• (TCO 3) Mutual interdependence would tend to limit control over price in which market model?
• (TCO 3) Under which market model are the conditions of entry into the market easiest?
• (TCO 3) The production of agricultural products such as wheat or corn would best be described by which market model?
• (TCO 3) The demand curve faced by a purely competitive firm
• (TCO 3) A profit-maximizing firm in the short run will expand output
• (TCO 3) A firm should increase the quantity of output as long as its
• (TCO 3) The short-run supply curve for a competitive firm is the
• (TCO 3) The classic example of a private, unregulated monopoly is
• (TCO 3) Barriers to entry
• (TCO 3) The demand curve confronting a nondiscriminating, pure monopolist is
• (TCO 3) Which is the best example of price discrimination?
• (TCO 3) In which industry is monopolistic competition most likely to be found?
• (TCO 3) Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will
• (TCO 3) A unique feature of an oligopolistic industry is
• (TCO 3) A low concentration ratio means that
• (TCO 3) In which set of market models are there the most significant barriers to entry?
• (TCO 1) The four factors of production are
• (TCO 1) Refer to the diagram below which is based on the Circular Flow Model in Chapter 2. Arrows (1) and (2) represent
• (TCO 2) Refer to the diagram. An increase in quantity demanded is depicted by a
• (TCO 2) Refer to the information and assume the stadium capacity is 5,000. The supply of seats for the game
• (TCO 2) Which type of goods is most adversely affected by recessions?
• (TCO 3) The following cost data are for a firm in the short run:
• (TCO 1) Refer to the diagram. Points A, B, C, D, and E show
• (TCO 3) Assume that the owners of the only gambling casino in Wisconsin spend large sums of money lobbying state government officials to protect their gambling monopoly. Economists refer to these expenditures as
• (TCO 3) a.) A pure monopolist determines that at the current level of output the marginal cost of production is $2, average variable costs are $2.75, and average total costs are $2.95. The marginal revenue is $2.75. What would you recommend that the monopolist do to maximize profits? b.) Why might a business owner keep their business open but let it deteriorate, rather than shut it down? Will this profitability last?
• (TCO 2) Evaluate how the following situations will affect the demand curve for iPods.

1. (TCO 1) As a student of economics, when you speak of scarcity, you are referring to the ability of society to
2. (TCO 1) The idea in economics that “there is no free lunch” means that
3. (TCO 1) (TCO 1) The law of increasing opportunity costs indicates that
4. (TCO 1) A tradeoff exists between two economic goals, X and Y.  This tradeoff means that
5. (TCO 1) Which would not be considered as a capital resource of a business by an economist?
6. (TCO 1) The economy of Germany would best be classified as:
7. (TCO 1) Markets in which firms sell their output of goods and services are called
8. (TCO 1) Laissez-faire capitalism is characterized by
9. (TCO 1) Which is not one of the five fundamental questions that an economy must deal with?
10. (TCO 1) The major “success indicator” for business managers in command economies like the Soviet Union and China in the past was
11. (TCO 2) An increase in demand means that
12. (TCO 2) At the point where the demand and supply curves intersect
13. (TCO 2) Black markets are associated with
14. (TCO 2) A headline reads “Lumber Prices Up Sharply.”  In a competitive market, this situation would lead to a(n)
15. (TCO 2) For most products, purchases tend to fall with decreases in buyers’ incomes.  Such products are known as
16. (TCO 2) When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent.  In this range of prices, demand for this product is
17. (TCO 2) Total revenue falls as the price of a good is raised, if the demand for the good is
18. (TCO 2) The demand for Cheerios cereal is more price-elastic than the demand for cereals as a whole. This is best explained by the fact that
19. (TCO 2) To economists the main differences between “the short run” and “the long run” are that
20. (TCO 2) Airlines charge business travelers more than leisure travelers because there is a more
21. (TCO 3) Suppose that you could prepare your own tax return in 15 hours, or you could hire a tax specialist to prepare it for you in two hours.  You value your time at $11 an hour.  The tax specialist will charge you $55 an hour.  The opportunity cost of preparing your own tax return is
22. (TCO 3) Economic profits are equal to
23. (TCO 3) The main difference between the short run and the long run is that
24. (TCO 3) Fixed costs are those costs which are
25. (TCO 3) At an output of 20,000 units per year, a firm’s variable costs are $80,000 and its average fixed costs are $3.  The total costs per year for the firm are:
26. (TCO 3) If the price of a fixed factor of production increases by 50 percent, what effect would this have on the marginal-cost schedule facing a firm?
27. (TCO 3) Which market model assumes the least number of firms in an industry?
28. (TCO 3) Local electric or gas utility companies mostly operate in which market model?
29. (TCO 3) The fast-food restaurants would be an example of which market model?
30. (TCO 3) Sam owns a firm that produces tomatoes in a purely competitive market.  The firm’s demand curve is
31. (TCO 3) T-Shirt Enterprises is selling in a purely competitive market.  It is producing 3,000 units, selling them for $2 each.  At this level of output, the average total cost is $2.50 and the average variable cost is $2.20.  Based on these data, the firm should
32. (TCO 3) A firm should always continue to operate at a loss in the short run if
33. (TCO 3) The short-run supply curve for a competitive firm is the
34. (TCO 3) One feature of pure monopoly is that the monopolist is
35. (TCO 3) Barriers to entry
36. (TCO 3) The demand curve confronting a nondiscriminating, pure monopolist is
37. (TCO 3) Which is the best example of price discrimination?
38. (TCO 3) Monopolistic competition is characterized by firms
39. (TCO 3) Assume that in a monopolistically competitive industry, firms are earning economic profit.  This situation will
40. (TCO 3) A unique feature of an oligopolistic industry is
41. (TCO 3) You are told that the four-firm concentration ratio in an industry is 20.  Based on this information you can conclude that
42. (TCO 3) A major reason that firms form a cartel is to
43. (TCO 1) Money is not an economic resource because
44. (TCO 1) Refer to the diagram which is based on the Circular Flow Model in Chapter 2.  Arrows (3) and (4) represent
45. (TCO 2) Refer to the diagram.  A decrease in demand is depicted by a
46. (TCO 2) Refer to the information and assume the stadium capacity is 5,000.  If the Mudhens’ management charges $7 per ticket
47. (TCO 2) Which type of goods is most adversely affected by recessions?
48. (TCO 3) The following cost data are for a firm in the short run:…..What is the …..?
49. (TCO 1) Refer to the diagram.  Points A, B, C, D, and E show
50. (TCO 3) Any activity designed to transfer income or wealth to a particular individual or firm at society’s expense is called
51. (TCO 3) a.) Do you agree or disagree with the statement that: “A monopolist always charges the highest possible price.”?  Explain.  b.) Why can’t an individual firm raise its price by reducing output or lower its price to increase sales volume in a purely competitive market?
52. (TCO 2) What effect should each of the following have on the demand for gasoline in a competitive market?  State what happens to demand.  Explain your reasoning in each case and relate it to a demand determinant.