1 ECON 312 Final Exam - Summer A 1. (TCO 1) Opportunity cost is best defined as (Points : 4) marginal cost minus marginal benefit. the time spent on an economic activity. the value of the best forgone alternative. the money cost of an economic decision. 2. (TCO1) Which is not a factor of production? (Points : 4) Money Land Labor Capital 3. (TCO1) A point outside the production possibilities curve is (Points : 4) attainable, but there is not full employment attainable, but there is not optimal allocation unattainable because the economy is inefficient unattainable because of limited resources 4. (TCO1) A basic characteristic of a command system is that (Points : 4) wages paid to labor are higher government owns most economic resources free markets are never permitted in a command economy government planners play a limited role in deciding what goods will be produced 5. (TCO 2) Which is consistent with the law of demand? (Points : 4) A decrease in the price of tacos causes no change in the quantity of tacos demanded An increase in the price of pizza causes an increase in the quantity of pizza demanded An increase in the price of hamburgers causes a decrease in the quantity of hamburgers demanded A decrease in the price of turkey sandwiches causes a decrease in the quantity of turkey sandwiches demanded 6. (TCO 2) A decrease in supply and a decrease in demand will (Points : 4) increase price and affect the equilibrium quantity in an indeterminate way decrease the equilibrium quantity and decrease price increase the equilibrium quantity and affect price in an indeterminate way decrease the equilibrium quantity and affect price in an indeterminate way 7. (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 one. To increase total revenues, you should (Points : 4) 2 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 8. (TCO 2) The price elasticity of demand increases with the length of the period considered because (Points : 4) consumers' incomes will increase over time the demand curve will shift outward as time passes all prices will increase over time consumers will be better able to find substitutes. 9. (TCO 2) A profit - maximizing firm in the short run will expand output (Points : 4) until marginal cost begins to rise until total revenue equals total cost until marginal cost equals average variable cost as long as marginal revenue is greater than marginal cost 10. (TCO 2) Which case below best represents a case of price discrimination? (Points : 4) An insurance company offers discounts to safe drivers. A major airline sells tickets to senior citizens at lower prices than to other passengers. A professional baseball team pays two players with identical batting averages different salaries. A utility company charges less for electricity used during "off - peak" hours, when it does not have to operate its less - efficient generating plants. 11. (TCO 3) A major reason that firms form a cartel is to (Points : 4) reduce the elasticity of demand for the product enlarge the market share for each producer minimize the costs of production maximize joint profits 12. (TCO 3) The main difference between the short run and the long run is that (Points : 4) 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 13. (TCO 4) A recession is a decline in (Points : 4) the inflation rate that lasts six months or longer the unemployment rate that lasts six months or longer real GDP that lasts six months or longer potential GDP that lasts six months or longer 3 14. (TCO 4) The unemployed are those people who (Points : 4 do not have jobs. are not employed but are seeking work are not working are not working 15. (TCO 4) GDP is the market value of (Points : 4) resources (land, labor, capita, and entrepreneurship) in an economy in a given year all final goods and services produced in an economy in a given year consumption and investment spending in an economy in a given year all output produced and accumulated over the years 16. (TCO 4) Nominal GDP differs from real GDP because (Points : 4) nominal GDP is based on constant prices real GDP is based on current prices real GDP is adjusted for changes in the price level nominal GDP is adjusted for changes in the price level 17. (TCO 6) When the federal government uses taxation and spending actions to stimulate the economy it is conducting (Points : 4) fiscal policy incomes policy monetary policy employment policy 18. (TCO 6) Refer to the graph. What combination would most likely cause a shift from AD1 to AD3? Increases in taxes and government spending Decrease in taxes and increase in government spending Increase in taxes and decrease in government spending