ECON 312 Midterm Exam

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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




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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

An increase in the price of Product B, an input in the production of A
A decrease in the taxes paid by producers of A

An increase in the price of A


15. Question : (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)

Student Answer: decrease in demand.

increase in demand.

decrease in supply.

increase in supply.


16. Question : (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

Student Answer: 20 percent.

0.5 percent.

5 percent.

0.05 percent.


17. Question : (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

Student Answer: 1.0.

greater than 1.




18. Question : (TCO 2) The demand for Cheerios cereal is more price-elastic than the demand for cereals as a whole. This is best explained by the fact that

Student Answer: Cheerios are a luxury.

cereals are a necessity.

there are more substitutes for Cheerios than for cereals as a whole.

consumption of cereals as a whole is greater than consumption of Cheerios.


19. Question : (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

Student Answer: unity.



perfectly elastic.


20. Question : (TCO 2) Movie theaters charge lower prices to see a movie in the afternoon than in the evening because there is an

Student Answer: 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.


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 “don’t 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 won’t buy it because they don’t like the taste. From an economic perspective, the company should

Student Answer: keep the hamburger on the menu because they’ve 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



2. Question : (TCO 3) Local electric or gas utility companies mostly operate in which market model?

Student Answer: Monopolistic competition

Pure competition

Pure monopoly



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

Student Answer: Monopolistic competition

Pure competition

Pure monopoly



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.

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.


10. Question : (TCO 3) One feature of pure monopoly is that the demand curve

Student Answer: is vertical.

is horizontal.

slopes upward.

slopes downward.


11. Question : (TCO 3) Which would definitely not be an example of price discrimination?

Student Answer: A theater charges children less than adults for a movie.

Universities charge higher tuition for out-of-state residents.

A doctor charges for services according to the income of patients.

An electric power company charges less for electricity used during off-peak hours when production costs are lower.


12. Question : (TCO 3) Which of the following is a characteristic of monopolistic competition?

Student Answer: Standardized product

Relatively small number of firms

Absence of nonprice competition

Relatively easy entry


13. Question : (TCO 3) Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will

Student Answer: 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.


14. Question : (TCO 3) In an oligopolistic market there are

Student Answer: many buyers.

few buyers.

few sellers.

many sellers.


15. Question : (TCO 3) A high concentration ratio indicates that

Student Answer: 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.


16. Question : (TCO 3) In which set of market models are there the most significant barriers to entry?

Student Answer: Monopolistic competition and pure competition

Monopolistic competition and pure monopoly

Oligopoly and monopolistic competition

Oligopoly and pure monopoly


17. Question : (TCO 1) The four factors of production are

Student Answer: land, labor, capital, and money.

land, labor, capital, and entrepreneurial ability.

labor, capital, technology, and entrepreneurial ability.

labor, capital, entrepreneurial ability, and money.


18. Question : (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

Student Answer: goods and resources, respectively.

money incomes and output, respectively.

output and money incomes, respectively.

resources and goods, respectively.


19. Question : (TCO 2) Refer to the diagram. A decrease in quantity demanded is depicted by a

Graph Description

Student Answer: move from Point x to Point y.

shift from D1 to D2.

shift from D2 to D1.

move from Point y to Point x.


20. Question : (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

Student Answer: some fans who want to see the game will find that tickets are not available.


21. Question : (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?

Student Answer: 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)


22. Question : (TCO 3) In the figure, Curves 1, 2, 3, and 4 represent the

Graph Description

Student Answer: 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.


23. Question : (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

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.


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


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