ECON 312 Week 4 Midterm Solutions (Version 3

ECON 312 Principles of Economics

1. (TCO 1) As a student of economics, when you speak of scarcity, you are referring to the
ability of society to
2. (TCO 1) The idea in economics that "there is no free lunch" means that
3. (TCO 1) (TCO 1) The law of increasing opportunity costs indicates that
4. (TCO 1) A tradeoff exists between two economic goals, X and Y. This tradeoff means
5. (TCO 1) Which would not be considered as a capital resource of a business by an
6. (TCO 1) The economy of Germany would best be classified as:
7. (TCO 1) Markets in which firms sell their output of goods and services are called
8. (TCO 1) Laissez-faire capitalism is characterized by
9. (TCO 1) Which is not one of the five fundamental questions that an economy must deal
10. (TCO 1) The major "success indicator" for business managers in command economies
like the Soviet Union and China in the past was
11. (TCO 2) An increase in demand means that
12. (TCO 2) At the point where the demand and supply curves intersect
13. (TCO 2) Black markets are associated with
14. (TCO 2) A headline reads "Lumber Prices Up Sharply." In a competitive market, this
situation would lead to a(n)
15. (TCO 2) For most products, purchases tend to fall with decreases in buyers' incomes.
Such products are known as
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
17. (TCO 2) Total revenue falls as the price of a good is raised, if the demand for the good is
18. (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
19. (TCO 2) To economists the main differences between "the short run" and "the long run"
are that
20. (TCO 2) Airlines charge business travelers more than leisure travelers because there is a
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
22. (TCO 3) Economic profits are equal to
23. (TCO 3) The main difference between the short run and the long run is that
24. (TCO 3) Fixed costs are those costs which are
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:

26. (TCO 3) If the price of a fixed factor of production increases by 50 percent, what effect
would this have on the marginal-cost schedule facing a firm?
27. (TCO 3) Which market model assumes the least number of firms in an industry?
28. (TCO 3) Local electric or gas utility companies mostly operate in which market model?
29. (TCO 3) The fast-food restaurants would be an example of which market model?
30. (TCO 3) Sam owns a firm that produces tomatoes in a purely competitive market. The
firm's demand curve is
31. (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 the average variable cost is $2.20. Based on these data, the firm should
32. (TCO 3) A firm should always continue to operate at a loss in the short run if
33. (TCO 3) The short-run supply curve for a competitive firm is the
34. (TCO 3) One feature of pure monopoly is that the monopolist is
35. (TCO 3) Barriers to entry
36. (TCO 3) The demand curve confronting a nondiscriminating, pure monopolist is
37. (TCO 3) Which is the best example of price discrimination?
38. (TCO 3) Monopolistic competition is characterized by firms
39. (TCO 3) Assume that in a monopolistically competitive industry, firms are earning
economic profit. This situation will
40. (TCO 3) A unique feature of an oligopolistic industry is
41. (TCO 3) You are told that the four-firm concentration ratio in an industry is 20. Based
on this information you can conclude that
42. (TCO 3) A major reason that firms form a cartel is to
43. (TCO 1) Money is not an economic resource because
44. (TCO 1) Refer to the diagram which is based on the Circular Flow Model in Chapter 2.
Arrows (3) and (4) represent
45. (TCO 2) Refer to the diagram. A decrease in demand is depicted by a
46. (TCO 2) Refer to the information and assume the stadium capacity is 5,000. If the
Mudhens' management charges $7 per ticket
47. (TCO 2) Which type of goods is most adversely affected by recessions?
48. (TCO 3) The following cost data are for a firm in the short run:.....What is the .....?
49. (TCO 1) Refer to the diagram. Points A, B, C, D, and E show
50. (TCO 3) Any activity designed to transfer income or wealth to a particular individual or
firm at society's expense is called
51. (TCO 3) a.) Do you agree or disagree with the statement that: "A monopolist always
charges the highest possible price."? Explain. b.) Why can't an individual firm raise its
price by reducing output or lower its price to increase sales volume in a purely
competitive market?
52. (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.