DeVry University July Session, 2014
ECON 545
Phila. Campus
Midterm Examination
1. Which of the following will not result in an outward shift in the Production Possibilities Curve?
a.the improvement of a society’s technological knowledge
b.an increase in the quantity of a society’s labor force
c.the reduction of unemployment
d.an upgrading of the quality of a nation’s human resource
2.Which of the following would be most likely to shift the Production Possibilities Curve
to the right?
a.shifting resources from consumer (butter) to capital (gun) production
b.a decline in the size of the population and labor force (i.e., Japan, Europe, Russia)
c.an improvement in the literacy level and general level of education
d.a sudden and substantial expansion in consumer wants
3. The concept of opportunity cost:
a.suggests that insatiable wants can be fulfilled
b.is irrelevant if the Production Possibilities Curve is shifting to the right
c.suggests that the use of resources in any particular line of production means that alternative outputs must be forgone
d.is irrelevant in socialistic economies because of central planning
4. The term _laissez-faire_______________suggests that government should not interfere with the operations of the economy.
5. Which of the following statements is incorrect?
a.If supply declines and demand remains constant, equilibrium price will rise.
b.If demand decreases and supply increases, equilibrium price will rise.
c.If supply increases and demand decreases, equilibrium price will fall.
d.If demand increases and supply decreases, equilibrium price will rise.
6. Which of the following will not cause the demand for product K to change?
a.a change in consumer tastes
b.a change in the price of K
c.a change in consumer incomes
d.a change in the price of close-substitute product J
7. If the demand curve for product B shifts to the right as the price of product A
declines, it can be concluded that:
a.A and B are substitute goods
b.A and B are complimentary goods
c.A is an inferior good and B is a superior good
d. A is a superior good and B is an inferior good
e. A and B are inferior goods
8. “Because of unseasonably cold weather, the supply of oranges has substantially decreased.”
a.the price of oranges will fall.
b.the amount of oranges that will be available at various price levels has declined.
c.the equilibrium quantity of oranges will rise.
d.the demand for oranges will necessarily rise.
e.consumers will be willing and able to buy fewer oranges at each possible price.
9. Which of the following will cause the demand curve for product A to shift to the left?
a.an increase in the price of substitute product B.
b.an increase in money income if A is an inferior good.
c.a decrease in the price of complimentary product C.
d.an increase in money income in A is a normal good.
e.population growth which causes an expansion in the number of persons consuming A.
10. The amount where producers desire to sell is equal to the amount of goods
which buyers wish to buy is referred to as _equilibrium price______________________.
11. Ceteris paribus, which of the following might shift the demand curve for gasoline to
the left?
a.a large decline in the price of automobiles.
b.an increase in the price of air and train transportation.
c.the development of a low-cost electric automobile.
d.the discovery of vast new oil reserves in Montana.
12. If products A and B are complements and the price of B decreases:
a.the demand for A will decline and the demand for B decreases.
b.the demand for A will increase and the amount of B demanded will increase.
c.the amount of B purchased will increase, but the demand curve for A will not shift.
d.the demand curves for both A and B will shift to the left.
13. The price of Product X is reduced from $100 to $90 and, as a result, the
quantity demanded increases from 50 to 60 units. From this we can
conclude that the demand for X:
a. is elastic. b. is inelastic. c. is of unitary elasticity. d. has declined.
14. Suppose the elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29
for demand schedules D1, D2, D3, and D4 respectively. A 1% decrease in
price will result in an increase in total receipts in the case(s) of:
a. D4 and D1 b. D2 and D4 c. D3 and D4 d. D1 and D3
15. Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y
demanded increases from 110 to 118. It can be concluded that the elasticity
of demand is:
a. 0.79 b. 3.94 c. 1.37 d. 2.09 e. 4.00
16. SEPTA once sought approval to increase its commuter rates by 20%. SEPTA
argued that declining revenues made this rate increase essential. Opponents
of the rate increase contended that SEPTA’s revenues would fall because of
the rate hike. It can be concluded that:
a.SEPTA felt that the demand for passenger service was elastic and the opponents of the rate increase felt is was inelastic.
b.SEPTA felt that the demand for passenger service was inelastic and the opponents of the rate increase felt it was elastic.
c.both groups felt that the demand was inelastic, but for different reasons.
d.both groups felt that the demand was elastic, but for different reasons.
17. On Oct. 16, 2013 General Motors announced an 8.5% increase in the price of the Chevy Silverado. The move comes after GM's pickup sales fell 8 percent in September while its two biggest competitors saw increases. Based on your knowledge of demand elasticity, GM believes the elasticity coefficient for the Silverado to be __9.41___________
18. The incidence of a sales tax is:
a.upon the seller of a product.
b.upon the consumer of a product.
c.distributed between the consumer and seller in a manner determined by the elasticities of supply and demand.
d.such that the tax is progressive in its effect.
19. If a given price reduction reduces the firm’s total revenue, it can be concluded
that:
a.this price decline will increase the firm’s profits.
b.in this price range the elasticity coefficient of demand >1.
c.the product is an inferior good.
d.the demand for this product in inelastic in this price range.
20. Which of the following generalizations is correct?
a.the more inelastic the demand for a product, the larger portion of the excise tax which is borne by sellers.
b.the more inelastic the supply of a product, the larger the portion of the excise tax which is borne by buyers.
c.the more elastic the demand for a product, the larger the portion of an excise tax which is borne by buyers.
d.the more elastic the supply for a product, the larger the portion of an excise tax which is borne by buyers.
21. Supply curves tend to be:
a.less elastic in the long run because there is time for firms to enter or leave an industry.
b.perfectly inelastic in the long run because the law of scarcity imposes absolutes limits upon production.
c. more elastic in the long run because there is time for firms to enter or leave the industry.
d.perfectly elastic in the long run because consumer demand will have sufficient time to adjust fully to changes in supply.
22. An effective minimum wage law can be expected to:
a.cause unemployment for some workers.
b.increase employment for some workers.
c.increase the number of firms in those industries wherein the law is effective.
d.Clear the market for blue-collar workers.
23. If the demand for a product is elastic, the total revenue will change in the
(same/opposite)
24. Adam Smith’s analysis of a pin factory depicts which two economic characteristics?
25. If the sign of the cross elasticity of two goods is zero, the goods in question are
26. If an increase in the price of vodka induces consumers to purchase more tequila,
then the goods in question are substitutes_______________________.
27. If an increase in air fares between Alaska and Cancun reduces the demand
What is the sign of the cross elasticity coefficient?
28. Which of the following statements is correct?
a.Price and quantity supplied are inversely related
b.Price and quantity supplied are directly related
c.Price and quantity demanded are directly related
d.Quantity demanded and quantity supplied are independent of price
Answer Questions 29-33 on the basis of the following cost data:
Output T.C.
29. The TVC of producing 5 units:
30. The ATC of producing 3 units: _
31. The AFC of producing 3 units:
32. The MC of producing the sixth unit of output:
33. The profit maximization solution (PMS) for this firm is:
34. Minimum AVC corresponds to the output range where
35. The efficiency of an input is best measured by its
amount of output obtained per unit of input. An input marginal producy_______ is the measure of the efficiency
of one additional unit of variable input.
36.What is the relationship, if any, between marginal costs and fixed costs? Explain.
37. Which of the following, if any, is not an outlay or explicit cost?
a. Wages b. Executive salaries c. Raw materials expense d. Rent
e. None of the above
38. Those costs which accountants do not record in a company’s books are:
a. Fixed b. Variable c. Explicit d. Opportunity e. Direct
39. If the hiring of more workers results in an increase in AP, the corresponding MP IS:
40. An industry comprised of 40 firms, none of which has more than 3% of the total market for a differentiated product is an example of:
a.Monopolistic competition b. Oligopoly c. Monopoly d. Competition
41. The MR = MC rule can be restated for a perfectly competitive seller as P = MC
Because:
a.Each additional unit of output adds exactly its price to total revenue
b.The firm’s average revenue curve is downward sloping
c.The market’s demand curve is downward sloping
d.The firm’s marginal revenue and total revenue curves will coincide
42. Suppose you find that the price of your product is less than minimum AVC, ceteris
paribus, you should:
a.Minimize your losses by producing where P = MC
b.Maximize your profits by producing where P = MC
c.Close down because, by producing, your losses will exceedyour TFC
d.Close down because total revenue exceeds total revenue cost
43. Economies and diseconomies of scale account for the shape of what curve? _____
44. “Excess capacity” refers to the:
a. Amount by which actual production falls short of the minimum ATC output
b. Fact that entry barriers artificially reduce the number of firms in an industry
c. Differential between price and marginal costs which characterizes monopolistically competitive firms
d. Fact that most monopolistically competitive firms encounter diseconomies of scale
45. What economic equation represents the firm’s efficient use of resources?
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