DEVRY ECO312 MIDTERM EXAM 100 % CORRECT ANSWER FALL 2014

1. Question
: (TCO 1) What is the economic
meaning of the expression that “There is no such thing as a free
lunch?”

It refers to “free-riders,” who do
not pay for the cost of a product but who receive the benefit from it.
It means that economic freedom is limited by
the amount of income available to the consumer.
It means that there is an opportunity cost
when resources are used to provide “free” products.
It indicates that products only have value
because people are willing to pay for them.
Chapter
1

:

Question 2. Question
: (TCO 1) Henry wants to buy a
book. The economic perspective suggests
that Henry will buy the book if

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.

Chapter
1

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of 3

Question 3. Question
: (TCO 1) Which situation would
most likely cause a nation’s production possibilities curve to shift inward?

The construction of more capital goods

An increase in discrimination based on race

An increase in the number of skilled immigrant
workers

The destruction from bombing and warfare in a
losing military conflict
Chapter
1

:

Question 4. Question
: (TCO 1) Which expression is
another way of saying “marginal benefit”?

Benefits given up

Unintended gain

Employment benefits

Extra benefit

Chapter
1

:

Question 5. Question
: (TCO 1) Which would not be
considered as a capital resource of a business by an economist?

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

Chapter
1

:

Question 6. Question
: (TCO 1) Another term for
capitalism is

the command system.

the socialist economy.

the market system.

the system of inputs and outputs.

Chapter
2

:

Question 7. Question
: (TCO 1) Markets in which firms
sell their output of goods and services are called

resource markets.

product markets.

command markets.

mixed markets.

Chapter
2

:

Question 8. Question
: (TCO 1) By free enterprise, we
mean that

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.
Chapter
2

:

Question 9. Question
: (TCO 1) Which is not one of
the five fundamental questions that an economy must deal with?

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?

Chapter
2

:

Question 10. Question
: (TCO 1) A characteristic of
centrally planned economies is that

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.

Chapter
2

:

Question 11. Question
: (TCO 2) An increase in demand
means that

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.

Chapter
3

:

Question 12. Question
: (TCO 2) At the point where the
demand and supply curves intersect

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.

Chapter
3

:

Question 13. Question
: (TCO 2) If an effective price
ceiling is placed on hamburgers then

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.

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of 3

Question 14. Question
: (TCO 2) An increase in demand
for oil along with a simultaneous increase in supply of oil will

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.
Chapter
3

:

Question 15. Question
: (TCO 2) For most products,
purchases tend to fall with decreases in buyers’ incomes. Such products are known as

inferior goods.

direct goods.

average goods.

normal goods.

Chapter
3

:

Question 16. Question
: (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

elastic.

inelastic.

cross-elastic.

unitary elastic.

Chapter
4

:

Question 17. Question
: (TCO 2) Total revenue falls as
the price of a good is raised, if the demand for the good is

elastic.

inelastic.

unitary elastic.

perfectly elastic.

Chapter
4

:

Question 18. Question
: (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:

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.

Chapter
4

:

Question 19. Question
: (TCO 2) If the demand for a
product is elastic, then

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.

Chapter
4

:

Question 20. Question
: (TCO 2) Airlines charge
business travelers more than leisure travelers because there is a more

elastic supply of business travel.

inelastic supply of business travel.

elastic demand for business travel.

inelastic demand for business travel.

Chapter
4

:

Question 21. Question
: (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

$40.

$55.

$110.

$165.

Chapter
7

:

Question 22. Question
: (TCO 3) Economic profits are
equal to

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.

Chapter
7

:

Question 23. Question
: (TCO 3) In the short run

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.
Chapter
7

:

Question 24. Question
: (TCO 3) Variable costs are

sunk costs.

costs that change every day.

costs that change with the level of
production.

the change in total cost due to the production
of an additional unit of output.
Chapter
7

:

Question 25. Question
: (TCO 3) At an output of 20,000
units per year, a firm’s variable costs are $80,000 and its average fixed costs
are $3. The total costs per year for the
firm are:

$80,000.

$100,000.

$140,000.

$240,000.

Chapter
7

:

Question 26. Question
: (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:

$200.

$250.

$800.

$3200.

Chapter
7

:

Question 1. Question
: (TCO 3) In which market model
would there be a unique product for which there are no close substitutes?

Monopolistic competition

Pure competition

Pure monopoly

Oligopoly

Chapter
8

:

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

Monopolistic competition

Pure competition

Pure monopoly

Oligopoly

Chapter
8

:

Question 3. Question
: (TCO 3) The production of
agricultural products such as wheat or corn would best be described by which
market model?

Monopolistic competition

Pure competition

Pure monopoly

Oligopoly

Chapter
8

:

Question 4. Question
: (TCO 3) The demand curve faced
by a purely competitive firm

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.

Chapter
8

:

Question 5. Question
: (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

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.
Chapter
8

:

Question 6. Question
: (TCO 3) A firm should always
continue to operate at a loss in the short run if

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.

Chapter
8

:

Question 7. Question
: (TCO 3) In pure competition,
price is determined where the industry

demand and supply curves intersect.

total cost is greater than total revenue.

demand intersects the individual firm’s marginal
cost curve.

average total cost equals total variable
costs.

Chapter
8

:

Question 8. Question
: (TCO 3) The classic example of
a private, unregulated monopoly is

Xerox.

De Beers.

General Motors.

General Electric.

Chapter
10

:

Question 9. Question
: (TCO 3) Barriers to entry

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.

Chapter
10

:

Question 10. Question
: (TCO 3) The demand curve
confronting a nondiscriminating, pure monopolist is

horizontal.

the same as the industry’s demand curve.

more elastic than the demand curve confronting
a competitive firm.
derived by vertically summing the individual
demand curves for the buyers.
Chapter
10

:

Question 11. Question
: (TCO 3) Which is the best
example of price discrimination?

An airline company charging lower fares per
pound for air freight than for passengers.
A telephone company charging lower rates to
weekend users than weekday users.
A supermarket charging lower prices in its
inner city store than its out-of-town store.
A private doctor charging higher fees to
patients receiving special services than patients receiving regular services.
Chapter
10

:

Question 12. Question
: (TCO 3) Monopolistic
competition is characterized by firms

producing differentiated products.

making economic profits in the long run.

producing at optimal productive efficiency.

producing where price equals marginal cost.

Chapter
11

:

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

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.
Chapter
11

:

Question 14. Question
: (TCO 3) A unique feature of an
oligopolistic industry is

low barriers to entry.

standardized products.

diminishing marginal returns.

mutual interdependence.

Chapter
11

:

Question 15. Question
: (TCO 3) A low concentration
ratio means that

there is a low probability of entering the
industry.

there is a low probability of success in the
industry.

each firm accounts for a small market share of
the industry.

each firm accounts for a large market share of
the industry.

Chapter
11

:

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

Monopolistic competition and pure competition

Monopolistic competition and pure monopoly

Oligopoly and monopolistic competition

Oligopoly and pure monopoly

Chapter
11

:

Question 17. Question
: (TCO 1) Money is not an
economic resource because

money, as such, does not produce anything.

idle money balances do not earn interest
income.

it is not scarce.

money is not a free gift of nature.

Chapter
1

:

Question 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

goods and resources, respectively.

money incomes and output, respectively.

output and money incomes, respectively.

resources and goods, respectively.

Chapter
2

:

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

Graph Description

move from Point x to Point y.

shift from D1 to D2.

shift from D2 to D1.

move from Point y to Point x.

Chapter
3

:

Question 20. Question
: (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

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.

Chapter
4

:

Question 21. Question
: (TCO 2) Which type of goods is
most adversely affected by recessions?

Goods for which the income-elasticity
coefficient is relatively low or negative.
Goods for which the income-elasticity
coefficient is relatively high and positive.
Goods for which the cross-elasticity
coefficient is positive.

Goods for which the cross-elasticity
coefficient is negative.

Chapter
4

:

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

Graph Description

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.

Chapter
7

:

Question 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

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.

Chapter
1

:

Question 24. Question
: (TCO 3) What type of barrier
to entry was used by De Beers throughout much of its history to maintain its
monopoly position?

Patent protection

Government regulation

Economies of scale

Ownership of an essential resource

Chapter
10

:

Question 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?

Question 26. Question
: (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.

(