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Devry ECO312 midterm exam




Question;Eco312;Page 1;Question 1.1. (TCO 1) What is the economic meaning of the;expression that "There is no such thing as a free lunch?" (Points;3);It refers to;free-riders," who do not pay for the cost of a product but who;receive the benefit from it.;It means that;economic freedom is limited by the amount of income available to the consumer.;It means that;there is an opportunity cost when resources are used to provide;free" products.;It indicates;that products only have value because people are willing to pay for them.;Question 2.2. (TCO 1) Henry wants to buy a book. The economic perspective suggests that Henry;will buy the book if (Points: 3);the book will;give him utility.;his income is;high.;the marginal;cost of the book is greater than its marginal benefit.;the marginal;benefit of the book is greater than its marginal cost.;Question 3.3. (TCO 1) Which situation would most likely;cause a nation's production possibilities curve to shift inward? (Points: 3);The;construction of more capital goods;An increase in;discrimination based on race;An increase in;the number of skilled immigrant workers;The destruction;from bombing and warfare in a losing military conflict;Question 4.4. (TCO 1) Which expression is another way of;saying "marginal benefit"? (Points: 3);Benefits given;up;Unintended gain;Employment;benefits;Extra benefit;Question 5.5. (TCO 1) Which would not be considered as a;capital resource of a business by an economist? (Points: 3);A van used by a;mother to transport the family around;An office;computer used by an accountant;A crane used by;a building contractor;A razor used by;a barber;Question 6.6. (TCO 1) Another term for capitalism is (Points;3);the command;system.;the socialist;economy.;the market;system.;the system of;inputs and outputs.;Question 7.7. (TCO 1) Markets in which firms sell their;output of goods and services are called (Points: 3);resource;markets.;product;markets.;command;markets.;mixed markets.;Question 8.8. (TCO 1) By free enterprise, we mean that;(Points: 3);products are;provided free to those who can't afford to buy them.;individuals may;obtain resources, organize production, and sell the resulting output in any;legal way they choose.;individual;producers are free to produce whatever the government decides is needed by the;society.;individuals are free to buy whatever;products will satisfy their needs the most.;Question 9.9. (TCO 1) Which is not one of the five;fundamental questions that an economy must deal with? (Points: 3);How will the;goods and services be produced?;Why should the;goods and services be produced?;Who is to;receive the goods and services produced in the economy?;In what ways;will progress be promoted?;Question 10.10. (TCO 1) A characteristic of centrally;planned economies is that (Points: 3);the price is;relatively unimportant in allocating resources.;output reflects;the pattern of consumer spending.;income is;fairly distributed among individuals.;there are many;incentives for innovation and hard work.;Question 11.11. (TCO 2) An increase in demand means that;(Points: 3);given supply;the price of the product will decline.;the demand;curve has shifted to the right.;price has;declined and consumers therefore want to purchase more of the product.;the demand;curve has shifted to the left.;Question 12.12. (TCO 2) At the point where the demand and;supply curves intersect (Points: 3);the buying and;selling decisions of consumers and producers are inconsistent with one another.;the market is;in disequilibrium.;there is;neither a surplus nor a shortage of the product.;quantity;demanded exceeds quantity supplied.;Question 13.13. (TCO 2) If an effective price ceiling is;placed on hamburgers then (Points: 3);the quantity;demanded will exceed the quantity supplied.;a black market;for hamburger may evolve.;consumers may;want government to ration hamburger.;all of these are likely outcomes.;Question 14.14. (TCO 2) An increase in demand for oil along;with a simultaneous increase in supply of oil will (Points: 3);decrease price;and increase quantity.;increase price;and decrease quantity.;increase;quantity, but whether it increases price depends on how much each curve shifts.;increase price;but whether it increases quantity depends on how much each curve shifts.;Question 15.15. (TCO 2) For most products, purchases tend to;fall with decreases in buyers' incomes.;Such products are known as (Points: 3);inferior goods.;direct goods.;average goods.;normal goods.;Question 16.16. (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 (Points: 3);elastic.;inelastic.;cross-elastic.;unitary;elastic.;Question 17.17. (TCO 2) Total revenue falls as the price of;a good is raised, if the demand for the good is (Points: 3);elastic.;inelastic.;unitary;elastic.;perfectly;elastic.;Question 18.18. (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: (Points: 3);increase the;price of the software.;decrease the;price of the software.;hold the price;of the software constant.;increase the;supply of the software.;Question 19.19. (TCO 2) If the demand for a product is;elastic, then (Points: 3);a higher tax on;the product will generate more tax revenue.;a higher tax on;the product will generate less tax revenue.;total revenue;will decrease as price decreases.;total revenue;will remain constant as price increases.;Question 20.20. (TCO 2) Airlines charge business travelers;more than leisure travelers because there is a more (Points: 3);elastic supply;of business travel.;inelastic;supply of business travel.;elastic demand;for business travel.;inelastic;demand for business travel.;Question 21.21. (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 (Points: 3);$40.;$55.;$110.;$165.;Question 22.22. (TCO 3) Economic profits are equal to;(Points: 3);total revenues;minus fixed costs.;total revenues;minus the costs of raw materials.;total revenues;minus the opportunity costs of all inputs.;gross profit;minus selling and operating expenses.;Question 23.23. (TCO 3) In the short run (Points: 3);a firm cannot vary;its output level.;all factors of;production can be varied.;a firm can;change its fixed inputs.;output is;raised or reduced by changing the levels of variable inputs.;Question 24.24. (TCO 3) Variable costs are (Points: 3);sunk costs.;costs that;change every day.;costs that;change with the level of production.;the change in;total cost due to the production of an additional unit of output.;Question 25.25. (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: (Points: 3);$80,000.;$100,000.;$140,000.;$240,000.;Question 26.26. (TCO 3) If you know that total fixed cost is;$200, total variable cost is $600, and total product is four units, then;average total cost must be: (Points: 3);$200.;$250.;$800.;$3200.;Page 2;Question 1.1. (TCO 3) In which market model would there be a;unique product for which there are no close substitutes? (Points: 3);Monopolistic;competition;Pure;competition;Pure monopoly;Oligopoly;Question 2.2. (TCO 3) Local electric or gas utility;companies mostly operate in which market model? (Points: 3);Monopolistic;competition;Pure;competition;Pure monopoly;Oligopoly;Question 3.3. (TCO 3) The production of agricultural;products such as wheat or corn would best be described by which market model?;(Points: 3);Monopolistic;competition;Pure competition;Pure monopoly;Oligopoly;Question 4.4. (TCO 3) The demand curve faced by a purely;competitive firm (Points: 3);has unitary;elasticity.;yields constant;total revenues even when price changes.;is identical to;the market demand curve.;is the same as its marginal;revenue curve.;Question 5.5. (TCO 3) Let us suppose Harry's, a local;supplier of chili and pizza, has the following revenue-and-cost structure;Total Revenue $3,000 Per Week;Total Variable Cost $2,000 Per Week;Total Fixed Costs $2,000 Per Week;(Points: 3);Harry's should;stay open in the long run.;Harry's should;shut down in the short run.;Harry's should stay open in the;short run.;Harry's should;shut down in the short run but reopen in the long run.;Question 6.6. (TCO 3) A firm should always continue to;operate at a loss in the short run if (Points: 3);the firm will;show a profit.;the owner;enjoys helping her customers.;it can cover its variable costs;and some of its fixed costs.;the firm cannot;produce any other products more profitably.;Question 7.7. (TCO 3) In pure competition, price is;determined where the industry (Points: 3);demand and supply curves;intersect.;total cost is;greater than total revenue.;demand;intersects the individual firm's marginal cost curve.;average total;cost equals total variable costs.;Question 8.8. (TCO 3) The classic example of a private;unregulated monopoly is (Points: 3);Xerox.;De Beers.;General Motors.;General;Electric.;Question 9.9. (TCO 3) Barriers to entry (Points: 3);usually result;in pure competition.;can result from government;regulation.;exist in;economic theory but not in the real world.;are typically;the result of wrongdoing on the part of a firm.;Question 10.10. (TCO 3) The demand curve confronting a;nondiscriminating, pure monopolist is (Points: 3);horizontal.;the same as the;industry's demand curve.;more elastic;than the demand curve confronting a competitive firm.;derived by vertically;summing the individual demand curves for the buyers.;Question 11.11. (TCO 3) Which is the best example of price;discrimination? (Points: 3);An airline;company charging lower fares per pound for air freight than for passengers.;A telephone;company charging lower rates to weekend users than weekday users.;A supermarket;charging lower prices in its inner city store than its out-of-town store.;A private;doctor charging higher fees to patients receiving special services than;patients receiving regular services.;Question 12.12. (TCO 3) Monopolistic competition is;characterized by firms (Points: 3);producing;differentiated products.;making economic;profits in the long run.;producing at;optimal productive efficiency.;producing where;price equals marginal cost.;Question 13.13. (TCO 3) Assume that in a monopolistically;competitive industry, firms are earning economic profit. This situation will (Points: 3);reduce the excess capacity in the industry;as firms expand production.;attract other;firms to enter the industry, causing the firm's profits to shrink.;cause firms to;standardize their product to limit the degree of competition.;make the;industry allocatively efficient as each firm seeks to maintain its profits.;Question 14.14. (TCO 3) A unique feature of an oligopolistic;industry is (Points: 3);low barriers to;entry.;standardized;products.;diminishing;marginal returns.;mutual;interdependence.;Question 15.15. (TCO 3) A low concentration ratio means that;(Points: 3);there is a low;probability of entering the industry.;there is a low;probability of success in the industry.;each firm;accounts for a small market share of the industry.;each firm;accounts for a large market share of the industry.;Question 16.16. (TCO 3) In which set of market models are;there the most significant barriers to entry? (Points: 3);Monopolistic;competition and pure competition;Monopolistic;competition and pure monopoly;Oligopoly and;monopolistic competition;Oligopoly and;pure monopoly;Question 17.17. (TCO 1) Money is not an economic resource;because (Points: 3);money, as such;does not produce anything.;idle money;balances do not earn interest income.;it is not;scarce.;money is not a;free gift of nature.;Question 18.18. (TCO 1) Refer to the diagram below which is;based on the Circular Flow Model in Chapter 2.;Arrows (1) and (2) represent;diagram1;Graph Description;(Points: 3);goods and;resources, respectively.;money incomes;and output, respectively.;output and;money incomes, respectively.;resources and;goods, respectively.;Question 19.19. (TCO 2) Refer to the diagram. A decrease in demand is depicted by a;diagram2;Graph Description;(Points: 3);move from Point;x to Point y.;shift from D1;to D2.;shift from D2;to D1.;move from Point;y to Point x.;Question 20.20. (TCO 2) Refer to the information and assume;the stadium capacity is 5,000. If the;Mudhens' management wanted a full house for the game, it would;Price per Ticket;Quantity Demanded;$13;1,000;11;2,000;9;3,000;7;4,000;5;5,000;3;6,000;(Points: 3);set price so as;to maximize its total revenue.;encourage;scalpers to sell their tickets for more than $7.;set ticket;prices at $5.;set ticket;prices at $9.;Question 21.21. (TCO 2) Which type of goods is most;adversely affected by recessions? (Points: 3);Goods for which;the income-elasticity coefficient is relatively low or negative.;Goods for which;the income-elasticity coefficient is relatively high and positive.;Goods for which;the cross-elasticity coefficient is positive.;Goods for which;the cross-elasticity coefficient is negative.;Question 22.22. (TCO 3) In the figure, Curves 1, 2, 3, and 4;represent the;curves figure 1;Graph Description;(Points: 3);ATC, MC, AFC;and AVC curves, respectively.;MC, AFC, AVC;and ATC curves, respectively.;MC, ATC, AVC;and AFC curves, respectively.;ATC, AVC, AFC;and MC curves, respectively.;Question 23.23. (TCO 1) Refer to the diagram. If society is producing nine units of;bicycles and four units of computers and it now decides to increase computer;output to six, the cost;points diagram1;Graph Description;(Points: 3);will be four;units of bicycles.;will be two;units of bicycles.;will be zero;because unemployed resources are available.;of doing so;cannot be determined from the information given.;Question 24.24. (TCO 3) What type of barrier to entry was;used by De Beers throughout much of its history to maintain its monopoly;position? (Points: 3);Patent;protection;Government;regulation;Economies of;scale;Ownership of an;essential resource;Question 25. Question;(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?Question 26. Question;(TCO 2) Evaluate how the following situations will affect;the demand curve for iPods.;(a) Income statistics show that income of 18?25-year-olds;have increased by 10 percent over the last year.;(b) Efforts of music artists wanting greater protection of;their music result in more stringent enforcement of copyrights and the shutdown;of numerous illegal downloading sites.;(c) Believing that it has significant control of the market;for portable digital music players, Apple decides to raise the price of iPods;with the goal of increasing profits.;(d) The price of milk decreases.


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