ECON 312 Midterm Exam Answers

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

Question 2 (TCO 1) The idea in economics that there is no free lunch means that

Question 3 (TCO 1) Which situation would most likely cause a nations production possibilities
curve to shift inward?

Question 4 (TCO 1) Which expression is another way of saying marginal cost?

Question 5 (TCO 1) Which is not a factor of production?

Question 6 (TCO 1) Another term for capitalism is

Question 7 (TCO 1) The simple circular-flow model shows that workers, entrepreneurs, and the
owners of land and capital offer their services through

Question 8 (TCO 1) Laissez-faire capitalism is characterized by

Question 9 (TCO 1) Consumer sovereignty and dollar votes guide the market system in
dealing with which fundamental question?

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

Question 11 (TCO 2) The quantity demanded of a product increases as its price declines because
the

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

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

Question 14 (TCO 2) A headline reads Lumber Prices Up Sharply In a competitive market, this
situation would lead to a(n)

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

Question 16 (TCO 2) If the price-elasticity coefficient for a good is 75, the demand for that good
is described as

Question 17 (TCO 2) Demand is said to be inelastic when

Question 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

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

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

Question 21 (TCO 3) Which would be an implicit cost for a firm? The cost

Question 22 (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

Question 23 (TCO 3) The long run is a period of time, or a time frame, in which

Question 24 (TCO 3) Variable costs are

Question 25 (TCO 3) The phrase dont cry over spilt milk could be rephrased in economic
terms by saying

Question 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:

Question1 (TCO 3) Mutual interdependence would tend to limit control over price in which
market model?

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

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

Question 4 (TCO 3) In pure competition, the demand for the product of a single firm is perfectly

Question 5 (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 $250 and the
average variable cost is $220 Based on these data, the firm should

Question 6 (TCO 3) If a purely competitive firm is producing at an output where marginal

revenue exceeds marginal cost, the firm will increase its profit by

Question 7 (TCO 3) In pure competition, each extra unit of output that a firm sells will yield a
marginal revenue that is

Question 8 (TCO 3) Which phrase would be most characteristic of pure monopoly?

Question 9 (TCO 3) Natural monopolies result from

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

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

Question 12 (TCO 3) In which industry is monopolistic competition most likely to be found?

Question 13 (TCO 3) If monopolistically competitive firms in an industry are making an

economic profit, then new firms will enter the industry and the product demand facing existing
firms will

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

Question 15 (TCO 3) You are told that the four-firm concentration ratio in an industry is 20
Based on this information you can conclude that

Question 16 (TCO 3) A cartel is

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

Question 18 (TCO 1) Refer to the diagram which is based on the Circular Flow Model in
Chapter 2 Arrows (3) and (4) represent

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

Question 20 (TCO 2) Refer to the information and assume the stadium capacity is 5,000 The
supply of seats for the game
Price per Ticket Quantity Demanded
$13 1,000
11 2,000
9 3,000

7 4,000
5 5,000
3 6,000

Question 21 (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?

Question 22 (TCO 3) The following cost data are for a firm in the short run:
Output Total Cost
0 $400
1 500
2 550
3 600
4 650
5 700
What is the firms average variable cost at an output of 5 units?

Question 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

Question 24 (TCO 3) Any activity designed to transfer income or wealth to a particular

individual or firm at societys expense is called

Question 25 (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 $275, and average total costs are
$295 The marginal revenue is $275 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 (TCO 2) Evaluate how the following situations will affect the demand curve for
iPods

(a) Income statistics show that income of 1825-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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