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ECON 312N Week 4 Midterm Exam
Question 1. 1. (TCO 1) As a consequence of the condition of scarcity (Points : 3)
there is never enough of anything. production has to be centrally planned. things which are plentiful have relatively high prices. individuals and communities have to make choices from among alternatives.
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) A nation can increase its production possibilities by (Points : 3)
shifting resources from investment good production to consumer good production. shifting resources from private goods to public goods. improving labor productivity. eliminating discrimination.
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 is not a factor of production? (Points : 3)
Money
Land Labor Capital
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) 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) Laissez-faire capitalism is characterized by (Points : 3)
very limited government role in the economy. active government intervention in the economy. individuals and firms abiding by a government economic plan. a very fair distribution of income and wealth.
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?
A decrease in the taxes paid by producers of A An increase in the price of A
Question 15. 15. (TCO 2) If Product Y is an inferior good, a decrease in consumer incomes
will (Points : 3)
make buyers want to buy less of Product Y. not affect the sales of Product Y. shift the demand curve for Product Y to the left. shift the demand curve for Product Y to the right.
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) When the price of movie tickets in a certain town was reduced, the movie-
theaters' revenues did not change. This suggests that the demand for movie tickets in that town has a
price-elasticity coefficient of (Points : 3)
greater than 1. 0.5. zero.
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) 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(Points : 3)
unity. elastic. inelastic. perfectly elastic.
Question 20. 20. (TCO 2) Movie theaters charge lower prices to see a movie in the afternoon than in
the evening because there is an (Points : 3)
inelastic supply of movies in the evening. elastic demand to see movies in the evening. elastic demand to see movies in the afternoon. inelastic demand to see movies in the afternoon.
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)
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.
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 :
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, 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) The classic example of a private, unregulated monopoly is (Points : 3)
Xerox. De Beers. General Motors. General Electric.
Question 9. 9. (TCO 3) Which of the following is a barrier to entry? (Points : 3)
Patents Revenue maximization Profit maximization
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) You are told that the four-firm concentration ratio in an industry is
20. Based on this information you can conclude that (Points : 3)
each of the top four firms has 20 percent of industry sales. the four largest firms account for a combined 80 percent of the industry sales. the four largest firms account for 20 percent of industry sales. each of the four largest firms accounts for five percent of industry sales.
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) The four factors of production are (Points : 3)
land, labor, capital, and money. land, labor, capital, and entrepreneurial ability. labor, capital, technology, and entrepreneurial ability. labor, capital, entrepreneurial ability, and money.
Question 18. 18. (TCO 1) Refer to the diagram which refers to the Circular Flow Model in Chapter
- Arrows (1) and (3) are associated with
Graph Description
(Points : 3)
the money market. the resource market. the product market. international trade.
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 charges $7 per ticket
Price per Ticket Quantity Demanded
(Points : 3)
some fans who want to see the game will find that tickets are not available. there will be 2,000 empty seats. there will be 1,000 empty seats.
Question 24. 24. (TCO 3) Any activity designed to transfer income or wealth to a particular individual
or firm at society's expense is called (Points : 3)
patent protection. X-inefficiency. price discrimination. rent-seeking.
Question 25. 25. (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? (Points : 25)
a) I would disagree with this statement as the pure monopolist is going to have a
downward sloping demand curve and if they were to charge the highest price,
they would only sell one, or even no, units of the product. They are concerned
with maximizing profits, not with trying to charge the highest possible price. A
lower price is going to produce more revenue for the monopolist relative to the
overall cost and will produce where MR=MC.
b) In a purely competitive market, if they were to raise prices by reducing output,
they would be losing profits as consumers would then be purchasing products
from their competitors (which are substitutes) at a lower price. This would really
lower the profit of the company. In the same way, they cannot lower their prices
to increase sales volume as their competitors will have to follow suit which is
going to result in too many products being placed in the market so it will become
saturated. With other companies having to also lower their own prices, sales
volume, overall, is not going to increase but would decrease in the competitive
market.
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)
In (a), it would cause there to be a decrease in the demand for music players. This
is assuming that there are other devices that are substitutes for the music players.
In (b) it would cause there to be an increase in the demand due to there being more
buyers and they have more money (income) to spend. This will be assuming that the
music players are both a normal good and also would be bought with those higher
incomes.
In (C) it would increase the overall demand since the increased amount and quality of
the variety of the music programs would make owning a music player more desirable.
In (d) there should be in increase in overall demand due to the expectations of the
consumer in regards to the future being changed and this could prompt them to go
about and buy now the beat what they perceive to be a future higher price.
