ECON 312 Midterm Exam


ECON 312 Midterm Exam 
(TCO 1) Which would not be considered as a capital resource of a business by an economist…

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ECON 312 Midterm Exam

ECON 312 Midterm Exam


(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

(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

(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

(TCO 1) Which expression is another way of saying “marginal benefit”? (Points : 3)

Benefits given up

Unintended gain

Employment benefits

Extra benefit

(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

(TCO 1) The Soviet Union economy of the 1980s would best be classified as (Points : 3)

A market system

Pure capitalism

Laissez-faire capitalism

A command system

(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

(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

(TCO 1) Which is one of the five fundamental questions that need to be dealt with in any economic system? (Points : 3)

What makes the rate of unemployment low?

Who will be the richest group in the economy?

What goods and services will be produced?

How high should the prices of goods and services be?

(TCO 1) A major problem with state ownership of resources is that it does not (Points : 3)

Allow for the full use of central economic planning

Let state enterprises buy resources used to make products

Let state enterprises sell products produced with those resources

Give incentives for individuals to make the best use of those resources

(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

(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

(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

(TCO 2) Two months ago, the Marbury Shirt company sold 200 shirts at $30 per shirt.  Last month, the company raised its price to $35 per shirt and sold 300 shirts.  Evidently the company experienced a(n) (Points : 3)

Decrease in demand

Increase in demand

Decrease in supply

Increase in supply

(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)




unitary elastic

(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

(TCO 2) The price elasticity of demand increases with the length of the period considered because (Points : 3)

Consumers’ incomes will increase over time

The demand curve will shift outward as time passes

All prices will increase over time

Consumers will be better able to find substitutes

(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

(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

(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)




(TCO 3) If a firm’s revenues just cover all its opportunity costs, then (Points : 3)

Normal profit is zero

Economic profit is zero

Total revenues equal its explicit costs

Total revenues equal its implicit costs

(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

(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

(TCO 3) The phrase “don’t cry over spilt milk” could be rephrased in economic terms by saying (Points : 3)

“Sunk costs are irrelevant to a decision.”

“Real resources have opportunity costs.”

“There are economies and diseconomies of scale.”

“The law of diminishing returns applies to everything.”

(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)





Page 2

(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


(TCO 3) In which two market models would advertising be used most often? (Points : 3)

Pure competition and monopolistic competition

Pure competition and pure monopoly

Monopolistic competition and oligopoly

Pure monopoly and oligopoly

(TCO 3) The steel and automobile industries would be examples of which market model? (Points : 3)

Monopolistic competition

Pure competition

Pure monopoly


ECON 312 Midterm Exam

(TCO 3) In pure competition, the demand for the product of a single firm is perfectly (Points : 3)

Elastic because the firm produces a unique product

Inelastic because the firm produces a unique product

Elastic because many other firms produce the same product

Inelastic because many other firms produce the same product

(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

(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

(TCO 3) The short-run supply curve for a competitive firm is the (Points : 3)

Entire MC curve

Segment of the MC curve lying below the AVC curve

Segment of the MC curve lying above the AVC curve

Segment of the AVC curve lying to the right of the MC curve

(TCO 3) Which phrase would be most characteristic of pure monopoly? (Points : 3)
Close substitutes

Efficient advertiser

Price taker

Single seller

(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

(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 revenue

total revenues are greater than total costs at the profit-maximizing level of output

(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

(TCO 3) Which of the following is a characteristic of monopolistic competition? (Points : 3)

Standardized product

Relatively small number of firms

Absence of nonprice competition

Relatively easy entry

ECON 312 Midterm Exam

(TCO 3) Which set of characteristics below best describes the basic features of monopolistic competition? (Points : 3)

Easy entry, many firms, and standardized products

Barriers to entry, few firms, and differentiated products

Easy entry, many firms, and differentiated products

Easy entry, few firms, and standardized products

(TCO 3) A unique feature of an oligopolistic industry is (Points : 3)

low barriers to entry

standardized products

diminishing marginal returns

mutual interdependence

(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

(TCO 3) A major reason that firms form a cartel is to (Points : 3)

reduce the elasticity of demand for the product

enlarge the market share for each producer

minimize the costs of production

maximize joint profits

(TCO 1) Which of the following is a land resource? (Points : 3)

A farmer

An oil-drilling rig

A machine for detecting earthquakes

Natural gas

(TCO 1) Refer to the diagram below which is based on the Circular Flow Model in Chapter 2.  Arrows (1) and (2) represent

(Points : 3)

Goods and resources, respectively

Money incomes and output, respectively

Output and money incomes, respectively

Resources and goods, respectively

(TCO 2) Refer to the diagram.  A decrease in demand is depicted by a

(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

(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
 $13 1,000
 11 2,000
 9 3,000
 7 4,000
 5 5,000
 3 6,000

(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

The game will be sold out

ECON 312 Midterm Exam

(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)

(TCO 3) In the figure, Curves 1, 2, 3, and 4 represent the

(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

(TCO 1) Refer to the diagram.  Points A, B, C, D, and E show

(Points : 3)

That the opportunity cost of bicycles increases, while that of computers is constant

Combinations of bicycles and computers that society can produce by using its resources efficiently

That the opportunity cost of computers increases, while that of bicycles is constant

That society’s demand for computers is greater than its demand for bicycles

(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


Price discrimination


ECON 312 Midterm Exam

(TCO 3) a.) What is the relationship between economies of scale and a natural monopoly?  b.) Why is the level of output at which marginal revenue equals marginal cost the profit-maximizing output? (Points : 25)

In those extreme cases where there are extensive economies of scale across the full range of potential output for market demand, it may be…

(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.

(Points : 25)

(a) Since 18-to-25-year-olds are the main users of portable digital music players, this will increase the demand for iPods….

ECON 312 Midterm Exam