Posted: December 20th, 2021

Devry ECO312 midterm exam

Eco312
Page 1

Question 1.1. (TCO 1) What is the economic meaning of the
expression that “There is no such thing as a free lunch?” (Points :
3)
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.

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

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 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

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) Markets in which firms sell their
output of goods and services are called (Points : 3)
resource
markets.
product
markets.
command
markets.
mixed markets.

Question 8.8. (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.

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?

Question 10.10. (TCO 1) A characteristic of centrally
planned economies is that (Points : 3)
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.

Question 11.11. (TCO 2) An increase in demand means that
(Points : 3)
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.

Question 12.12. (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.

Question 14.14. (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.

Question 15.15. (TCO 2) For most products, purchases tend to
fall with decreases in buyers’ incomes.
Such products are known as (Points : 3)
inferior goods.
direct goods.
average goods.
normal goods.

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) Total revenue falls as the price of
a good is raised, if the demand for the good is (Points : 3)
elastic.
inelastic.
unitary
elastic.
perfectly
elastic.

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) 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.

Question 20.20. (TCO 2) Airlines charge business travelers
more than leisure travelers because there is a more (Points : 3)
elastic supply
of business travel.
inelastic
supply of business travel.
elastic demand
for business travel.
inelastic
demand for business travel.

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)
$40.
$55.
$110.
$165.

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.

Question 23.23. (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.

Question 24.24. (TCO 3) Variable costs are (Points : 3)
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.

Question 25.25. (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: (Points : 3)
$80,000.
$100,000.
$140,000.
$240,000.

Question 26.26. (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)
$200.
$250.
$800.
$3200.

Page 2

Question 1.1. (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
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 : 3)
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, price is
determined where the industry (Points : 3)
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.

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) 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.

Question 10.10. (TCO 3) The demand curve confronting a
nondiscriminating, pure monopolist is (Points : 3)
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.

Question 11.11. (TCO 3) Which is the best example of price
discrimination? (Points : 3)
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.

Question 12.12. (TCO 3) Monopolistic competition is
characterized by firms (Points : 3)
producing
differentiated products.
making economic
profits in the long run.
producing at
optimal productive efficiency.
producing where
price equals marginal cost.

Question 13.13. (TCO 3) Assume that in a monopolistically
competitive industry, firms are earning economic profit. This situation will (Points : 3)
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.

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) A low concentration ratio means that
(Points : 3)
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.

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) Money is not an economic resource
because (Points : 3)
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.

Question 18.18. (TCO 1) Refer to the diagram below which is
based on the Circular Flow Model in Chapter 2.
Arrows (1) and (2) represent

diagram1
Graph Description

(Points : 3)
goods and
resources, respectively.
money incomes
and output, respectively.
output and
money incomes, respectively.
resources and
goods, respectively.

Question 19.19. (TCO 2) Refer to the diagram. A decrease in demand is depicted by a
diagram2
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 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

(Points : 3)
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.

Question 21.21. (TCO 2) Which type of goods is most
adversely affected by recessions? (Points : 3)
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.

Question 22.22. (TCO 3) In the figure, Curves 1, 2, 3, and 4
represent the
curves figure 1
Graph Description

(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.

Question 23.23. (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
points diagram1
Graph Description
(Points : 3)
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.

Question 24.24. (TCO 3) What type of barrier to entry was
used by De Beers throughout much of its history to maintain its monopoly
position? (Points : 3)
Patent
protection
Government
regulation
Economies of
scale
Ownership of an
essential resource

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.

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