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ECON 312 Midterm Exam
ECON 312 Midterm Exam
ECON 312 Midterm Exam
1. Question : (TCO 1) As a student of economics, when you speak of scarcity, you are referring to the
ability of society to
Student Answer: employ all of its resources.
consume all that is produced.
satisfy economic wants given limited resources.
continually make technological breakthroughs and increase production.
2. Question : (TCO 1) Henry wants to buy a book. The economic perspective suggests that Henry will buy
the book if
Student Answer: 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.
3. Question : (TCO 1) A nation can increase its production possibilities by
Student Answer: shifting resources from investment good production to consumer good production.
shifting resources from private goods to public goods.
improving labor productivity.
eliminating discrimination.
4. Question : (TCO 1) Which expression is another way of saying marginal benefit?
Student Answer: Benefits given up
Unintended gain
Employment benefits
Extra benefit
5. Question : (TCO 1) Which is not a factor of production?
Student Answer: Money
Land
Labor
Capital
6. Question : (TCO 1) The Soviet Union economy of the 1980s would best be classified as
Student Answer: a market system.
pure capitalism.
laissez-faire capitalism.
a command system.
7. Question : (TCO 1) Markets in which firms sell their output of goods and services are called
Student Answer: resource markets.
product markets.
command markets.
mixed markets.
8. Question : (TCO 1) Consumers express self-interest when they
Student Answer: seek the lowest price for a product.
reduce business losses.
collect economic profits.
search for jobs with the highest wages.
9. Question : (TCO 1) Which is not one of the five fundamental questions that an economy must deal
with?
Student Answer: 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?
10. Question : (TCO 1) The major success indicator for business managers in command economies like
the Soviet Union and China in the past was
Student Answer: the quantity of output.
product quality.
the amount of profits.
worker morale.
11. Question : (TCO 2) An increase in demand means that
Student Answer: 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.
12. Question : (TCO 2) A surplus of a product will arise when price is
Student Answer: above equilibrium with the result that quantity demanded exceeds quantity supplied.
above equilibrium with the result that quantity supplied exceeds quantity demanded.
below equilibrium with the result that quantity demanded exceeds quantity supplied.
below equilibrium with the result that quantity supplied exceeds quantity demanded.
13. Question : (TCO 2) If an effective price ceiling is placed on hamburgers then
Student Answer: 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.
14. Question : (TCO 2) Which would cause an increase in quantity supplied of Product A?
Student Answer: An improvement in technology affecting the production of A
21. Question : (TCO 3) Which would be an implicit cost for a firm? The cost
Student Answer: of worker wages and salaries for the firm.
paid for leasing a building for the firm.
paid for production supplies for the firm.
of wages foregone by the owner of the firm.
22. Question : (TCO 3) Suppose that a firm produces 200,000 units a year and sells them all for $10 each.
The explicit costs of production are $1,500,000 and the implicit costs of production are $300,000. The
firm earns an accounting profit of
Student Answer: $500,000 and an economic profit of $200,000.
$400,000 and an economic profit of $200,000.
$300,000 and an economic profit of $400,000.
$200,000 and an economic profit of $500,000.
23. Question : (TCO 3) The long run is a period of time, or a time frame, in which
Student Answer: all resources are fixed.
the level of output is fixed.
the amount of all resources can be varied.
the capacity of the production plant is fixed.
24. Question : (TCO 3) The law of diminishing returns only applies in cases where
Student Answer: there is increasing scarcity of factors of production.
the price of extra units of a factor is increasing.
there is at least one fixed factor of production.
capital is a variable input.
25. Question : (TCO 3) The phrase dont cry over spilt milk could be rephrased in economic terms by
saying
Student Answer: 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.
26. Question : (TCO 3) A fast-food company spends millions of dollars to develop and promote a new
hamburger on its menu only to find that consumers wont buy it because they dont like the taste. From
an economic perspective, the company should
Student Answer: keep the hamburger on the menu because theyve spent so much money and time
developing and promoting the product.
spend more money to develop a more efficient way to cook the hamburger so it cooks in a shorter time.
pull the hamburger off the menu and treat the development and promotion expenditures as a sunk cost.
keep trying to sell the hamburger so that people who developed and promote it have a job with the
company.
1. Question : (TCO 3) Mutual interdependence would tend to limit control over price in which market
model?
Student Answer: Monopolistic competition
Pure competition
Pure monopoly
Oligopoly
2. Question : (TCO 3) Local electric or gas utility companies mostly operate in which market model?
Student Answer: Monopolistic competition
Pure competition
Pure monopoly
Oligopoly
3. Question : (TCO 3) The steel and automobile industries would be examples of which market model?
Student Answer: Monopolistic competition
Pure competition
Pure monopoly
Oligopoly
4. Question : (TCO 3) In pure competition, the demand for the product of a single firm is perfectly
Student Answer: 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.
5. Question : (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 t
he average variable cost is $2.20. Based on these data, the firm should
Student Answer: shut down in the short run.
decrease output to 2,500 units.
ontinue to produce 3,000 units.
increase output to 3,500 units.
6. Question : (TCO 3) A firm should always continue to operate at a loss in the short run if
Student Answer: 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.
7. Question : (TCO 3) The short-run supply curve for a competitive firm is the
Student Answer: 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.
8. Question : (TCO 3) The classic example of a private, unregulated monopoly is
Student Answer: Xerox.
De Beers.
General Motors.
General Electric.
9. Question : (TCO 3) Barriers to entry
Student Answer: usually result in pure competition.
Graph Description
Student Answer: 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.
24. Question : (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
Student Answer: rent-seeking.
price discrimination.
X-efficiency.
network effects.
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?
26. Question : (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.
(a) an increase in the number of cars
(b) the economy moves into a recession
(c) an increase in the price of car insurance, taxes, maintenance
(d) consumer expectations of substantial price increases in gasoline