DeVry Chicago ECON 312 Midterm

Page: 1 2 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) The opportunity cost of constructing a new public highway is the Student Answer: 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. 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 cost”? Student Answer: Scarce resources Additional cost Opportunity cost Unrecognized cost 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 product price will cause: Student Answer: quantity demanded to decrease. quantity supplied to decrease. quantity demanded to increase. the supply curve to shift to the left. 12. Question : (TCO 2) At the point where the demand and supply curves intersect Student Answer: 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. 13. Question : (TCO 2) Which of the following is a consequence of rent controls established to keep housing affordable for the poor? Student Answer: Less rental housing is available as prospective landlords find it unprofitable to rent at restricted prices. The quality of rental housing declines as landlords lack the funds and incentive to maintain properties. Apartment buildings are torn down in favor of office buildings, shopping malls, and other buildings where rents are not controlled. All of the above are consequences of rent controls. 14. Question : (TCO 2) An increase in demand for oil along with a simultaneous increase in supply of oil will Student Answer: 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. 15. Question : (TCO 2) If Product Y is an inferior good, a decrease in consumer incomes will Student Answer: make buyers want to buy less of Product Y. not affect the sales of Product Y. shift the demand curve for Product Y to the left. shift the demand curve for Product Y to the right. 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 Student Answer: elastic. inelastic. cross-elastic. unitary elastic. 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. 0.5. zero. 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. elastic. inelastic. 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) 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 Student Answer: $40. $55. $110. $165. 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 main difference between the short run and the long run is that Student Answer: firms earn zero profits in the long run. the long run always refers to a time period of one year or longer. in the short run, some inputs are fixed. in the long run, all inputs are 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) Marginal cost can be defined as the Student Answer: change in total fixed cost resulting from one more unit of production. change in total variable cost resulting from one more unit of production. change in average total cost resulting from one more unit of production. change in average variable cost resulting from one more unit of production. 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