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Devry Eco312 midterm Spring 2014




Question;Page 1;Question;1.1.(TCO;1) As a student of economics, when you speak of scarcity, you are;referring to the ability of society to (Points: 3);employ all of its;resources.consume all that is;produced.satisfy economic wants;given limited resources.continually make;technological breakthroughs and increase production.;Question;2.2.(TCO;1) The opportunity cost of constructing a new public highway is the (Points: 3);money cost of hiring;contractors and construction workers for the new highway.value of other goods and;services that must be sacrificed to construct the new highway.expected cost of;constructing the new highway in a future year.value of shorter driving;times and distances when the new highway is completed.;Question;3.3.(TCO;1) The law of increasing opportunity costs indicates that (Points: 3);resources are perfectly;mobile except for transportation costs.the sum of all costs cannot;rise above the market price of a produce more of one;good, society must sacrifice larger and larger amounts of alternative;goods.if the prices of all the;resources involved in the production of goods increase, the cost of;producing those goods will increase at the same rate.;Question;4.4.(TCO;1) Which expression is another way of saying "marginal;benefit"? (Points;3);Benefits given upUnintended gainEmployment benefitsExtra benefit;Question;5.5.(TCO;1) The individual who brings together economic resources and assumes;the risk of business ventures in a capitalist economy is called the (Points: 3);manager.entrepreneur.stockbroker.banker.;Question;6.6.(TCO;1) The economy of Germany would best be classified as: (Points: 3);a command system.socialism.pure capitalism.a market system.;Question;7.7.(TCO;1) By consumer sovereignty we mean that (Points: 3);government is responsible;for protecting consumer interests.consumers determine what;goods and services are produced.businesses decide what the;consumer will buy.all goods and services are;produced by consumers.;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 product price will;cause: (Points;3);quantity demanded to;decrease.quantity supplied to;decrease.quantity demanded to;increase.the supply curve to shift;to the left.;Question;12.12.(TCO2) If there is a shortage of product X (Points: 3);fewer resources will be;allocated to the production of this good.the price of the product will;rise.the price of the product;will decline.the supply curve will shift;to the left and the demand curve to the right, eliminating the shortage.;Question;13.13.(TCO 2) Black markets are associated with (Points: 3);price floors and the;resulting product surpluses.price floors and the;resulting product shortages.price ceilings and the;resulting product shortages.price ceilings and the;resulting product surpluses.;Question;14.14.(TCO 2) A headline reads "Lumber;Prices Up Sharply." In a competitive market, this situation;would lead to a(n) (Points;3);increase in the price and;quantity of new homes.decrease in the price and;quantity of new homes.increase in the price of;new homes and decrease in quantity.decrease in the price of;new homes and increase in quantity.;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.average goods.normal goods.;Question;16.16.(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 (Points: 3);20 percent.0.5 percent.5 percent.0.05 percent.;Question;17.17.(TCO 2) Demand is said to be inelastic when (Points: 3);an increase in price;results in a reduction in total revenue.a reduction in price;results in an increase in total revenue.a reduction in price;results in a decrease in total revenue.the elasticity coefficient;exceeds one.;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 will decrease;as price revenue will remain;constant as price increases.;Question;20.20.(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(Points;3);have elastic demand and;students who use financial aid have inelastic demand.have inelastic demand and;students who use financial aid have elastic demand.view a college education as;an inferior good and students who use financial aid view it as a normal;good.view a college education as;a normal good and students who use financial aid view it as an inferior;good.;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; revenues minus the;costs of raw 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) Fixed costs are those costs which;are (Points;3);zero if the firm produces;no output in the short run.unchanging through time.independent of the rate of;output.implicit to a competitive;firm.;Question;25.25.(TCO 3) Marginal cost can be defined as the (Points: 3);change in total fixed cost;resulting from one more unit of production.change in total variable;cost resulting from one more unit of production.change in average total;cost resulting from one more unit of production.change in average variable;cost resulting from one more unit of production.;Question;26.26.(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? (Points: 3);None, because fixed costs;do not affect marginal cost.Marginal cost would;increase by 50 percent.Marginal cost would;increase by less than 50 percent.Marginal cost would;increase by more than 50 percent.;Page 2;Question;1.1.(TCO;3) Which market model assumes the least number of firms in an industry? (Points: 3);Monopolistic competitionPure competitionPure monopolyOligopoly;Question;2.2.(TCO;3) Under which market model are the conditions of entry into the market;easiest? (Points;3);Pure competitionPure monopolyMonopolistic competitionOligopoly;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 competitionPure competitionPure monopolyOligopoly;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 identical to the market;demand the same as its marginal;revenue curve.;Question;5.5.(TCO;3) A profit-maximizing firm in the short run will expand output (Points: 3);until marginal cost begins;to rise.until total revenue equals;total cost.until marginal cost equals;average variable long as marginal revenue;is greater than marginal cost.;Question;6.6.(TCO;3) If a purely competitive firm is producing at an output where;marginal revenue exceeds marginal cost, the firm will increase its;profit by (Points;3);reducing production to the;point where variable costs are minimized.reducing production to the;point where unit costs are minimized.reducing its output and;simultaneously increasing its price.increasing its output.;Question;7.7.(TCO;3) In pure competition, each extra unit of output that a firm sells;will yield a marginal revenue that is (Points: 3);equal to the price.less than the price.greater than the price.equal to the average cost.;Question;8.8.(TCO;3) One feature of pure monopoly is that the monopolist is (Points: 3);a producer of products;with close of several producers of;a product.a price taker.a price maker.;Question;9.9.(TCO;3) Which of the following is a barrier to entry? (Points: 3);PatentsRevenue maximizationProfit maximizationElastic product demand;Question;10.10.(TCO 3) The nondiscriminating pure;monopolist must decrease price on all units of a product sold in order;to sell more units. This explains why (Points: 3);there are barriers to entry;in pure monopoly.a monopoly has a;perfectly elastic demand curve.marginal revenue is less;than average revenues are greater;than total costs at the profit-maximizing level of output.;Question;11.11.(TCO 3) Which case below best represents a;case of price discrimination? (Points: 3);An insurance company offers;discounts to safe drivers.A major airline sells;tickets to senior citizens at lower prices than to other passengers.A professional baseball;team pays two players with identical batting averages different salaries.A utility company charges;less for electricity used during "off-peak" hours, when it does;not have to operate its less-efficient generating plants.;Question;12.12.(TCO 3) Which of the following is a;characteristic of monopolistic competition? (Points: 3);Standardized productRelatively small number of;firmsAbsence of nonprice;competitionRelatively easy entry;Question;13.13.(TCO 3) If monopolistically competitive;firms in an industry are making an economic profit, then new firms will;enter the industry and the product demand facing existing firms will (Points: 3);increase.become less elastic.not be affected.decrease.;Question;14.14.(TCO 3) The characteristic most closely;associated with oligopoly is (Points: 3);easy entry into the;industry.a few large producers.product control over price.;Question;15.15.(TCO 3) A high concentration ratio;indicates that (Points;3);the industry is highly;profitable.the industry is highly;competitive.many firms produce most of;the output in an industry.few firms produce most of;the output in an industry.;Question;16.16.(TCO 3) A cartel is (Points: 3);a form of covert; in the United States.always successful in;raising profits.a formal agreement;among firms to collude.;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 is not 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;Graph Description;(Points;3);goods and resources; 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;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 of the following goods (with;their respective income-elasticity coefficients in parentheses) will;most likely suffer a decline in demand during a recession? (Points: 3);Dinner at a nice restaurant;(+1.8)Chicken purchased at the;grocery store for preparation at home (+0.25)Facial tissue (+0.6)Plasma-screen and LCD TVs;(+4.2);Question 22.22.(TCO 3) The;following cost data are for a firm in the short run;Output;Total;Cost;0;$400;1;500;2;550;3;600;4;650;5;700;What is the firm's average variable cost at an output of 5 units?;(Points;3);$30$60$120$140;Question;23.23.(TCO 1) Refer to the diagram. The;combination of computers and bicycles shown by Point G is;Graph Description;(Points;3);attainable, but too costly.unattainable;given available resources and technology.attainable, but involves;unemployment.irrelevant because it is;inconsistent with consumer preferences.;Question;24.24.(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 (Points: 3);rent-seeking.price effects.;25.(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? (Points: 25);Question;26.26.(TCO 2);What effect should each of the following have upon the demand for portable;music players in a competitive market? Explain your reasoning in each;case.;(a) the development of;improved, low-priced devices that compete with music players;(b) an increase in;population and incomes;(c) a substantial increase;in the number and quality of music for players;(d) consumer expectations;of substantial price increases in music players;(Points: 25)


Paper#57529 | Written in 18-Jul-2015

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