ECO 211 MIDTERM EXAM COMPLETE ACTUAL EXAM QUESTIONS AND CORRECT
ANSWERS, GRADE A GUARANTEED
Question 1
According to economic theory, a consumer is willing to purchase a product up to the point
where:
A) The total benefit is equal to the total cost.
B) The marginal benefit of consuming the product is equal to its price.
C) The marginal benefit is zero.
D) The marginal cost is minimized.
E) The consumer surplus is zero.
Correct Answer: B) The marginal benefit of consuming the product is equal to its price
Rationale: Rational consumers make decisions at the margin. They will continue to
consume units of a good as long as the additional benefit (marginal benefit) derived from
the next unit is greater than or equal to the cost (price) of that unit.
Question 2
If a firm expects that the price of its product will be higher in the future than it is today, the
firm has an incentive to:
A) Increase supply now and decrease supply in the future.
B) Keep supply constant but increase the price immediately.
C) Decrease supply now and increase supply in the future.
D) Liquidate all assets immediately.
E) Decrease the price of the product immediately.
Correct Answer: C) Decrease supply now and increase supply in the future
Rationale: Sellers maximize profit by selling when prices are highest. If expectations of
future prices rise, sellers will withhold current inventory (decreasing current supply) to sell
it later when the price is higher.
Question 3
Which type of business structure is subject to the most government rules and regulations?
A) Sole Proprietorship
B) Partnership
C) Cooperative
, 2
D) Corporation
E) Limited Liability Company (LLC)
Correct Answer: D) Corporation
Rationale: Corporations are distinct legal entities separate from their owners. Because of
this legal status and their ability to issue stock to the public, they face significantly more
regulatory oversight (such as SEC rules) compared to sole proprietorships or partnerships.
Question 4
Soo Jin shares a one-bedroom apartment for $700/month. She moves into a studio for
$950/month to live alone. Assuming she is rational, what can be concluded about her
marginal benefit?
A) The additional benefit of living alone is exactly $950.
B) The additional benefit of living alone is at least $250.
C) The additional benefit of living alone is less than $250.
D) The total benefit of living alone is $700.
E) She is acting irrationally because her costs increased.
Correct Answer: B) The additional benefit of living alone is at least $250
Rationale: The marginal cost of moving from the shared apartment to the studio is $250
($950 - $700). For a rational actor to make this trade, the marginal benefit (privacy, space,
etc.) must be equal to or greater than the marginal cost.
Question 5
Suppose the CPI was 100 in 2015 and 120 in 2016. What was the inflation rate between
these two years?
A) 10%
B) 12%
C) 20%
D) 100%
E) 120%
, 3
Correct Answer: C) 20%
Rationale: The inflation rate is calculated as ((CPI Year 2 - CPI Year 1) / CPI Year 1) * 100.
Here, ((120 - 100) / 100) * 100 = 20%.
Question 6
Refer to a hypothetical table for the country of Vicuna. If the Nominal GDP in 2009 is
$4,920 and the Real GDP in 2009 (using 2011 as a base year) is $5,650, what does this imply
about prices?
A) Prices were higher in 2009 than in 2011.
B) Prices were lower in 2009 than in 2011.
C) Inflation was constant between the two years.
D) Vicuna experienced hyperinflation in 2009.
E) The output decreased between 2009 and 2011.
Correct Answer: B) Prices were lower in 2009 than in 2011
Rationale: Real GDP adjusts Nominal GDP to constant prices. Since Real GDP ($5,650) is
higher than Nominal GDP ($4,920), the prices used to calculate Real GDP (2011 base
prices) must be higher than the actual prices in 2009.
Question 7
Bob works for Mary as a proofreader. They marry, and Bob stops working for a wage to
care for their eight children. What is the effect on GDP?
A) GDP will increase because Bob is providing valuable childcare.
B) GDP will remain unchanged.
C) GDP will decrease.
D) Real GDP will increase, but Nominal GDP will decrease.
E) GDP will fluctuate unpredictably.
Correct Answer: C) GDP will decrease
Rationale: GDP measures the market value of final goods and services produced.
Household production (like childcare provided by a parent) is not exchanged in a market
and therefore is not counted in GDP. Bob's previous wage-labor was counted; his current
labor is not.
, 4
Question 8
In the United States from 1981 to 2009, deaths from diabetes increased largely due to:
A) A lack of available insulin.
B) Increasing obesity.
C) A decrease in the quality of hospitals.
D) An aging population only.
E) Genetic mutations.
Correct Answer: B) Increasing obesity
Rationale: Economic and health data link the rise in diabetes-related mortality during this
period significantly to lifestyle factors, specifically the increasing rates of obesity in the
population.
Question 9
In 1930, the U.S. government passed the Smoot-Hawley Tariff to help domestic firms
during the Great Depression. What was the result?
A) It successfully ended the Depression.
B) It increased exports significantly.
C) It triggered retaliatory tariffs and worsened the global economic downturn.
D) It had no effect on the economy.
E) It lowered prices for US consumers.
Correct Answer: C) It triggered retaliatory tariffs and worsened the global economic
downturn
Rationale: While intended to protect domestic firms, the high tariffs caused other nations
to retaliate with their own tariffs, causing international trade to collapse and deepening the
Depression.
Question 10
Consider a market with a rent control (price ceiling). If the quantity supplied is 200
apartments and the quantity demanded is higher, but landlords ignore the law and rent
strictly to the highest bidder, the price achieved would be:
A) The equilibrium price.
ANSWERS, GRADE A GUARANTEED
Question 1
According to economic theory, a consumer is willing to purchase a product up to the point
where:
A) The total benefit is equal to the total cost.
B) The marginal benefit of consuming the product is equal to its price.
C) The marginal benefit is zero.
D) The marginal cost is minimized.
E) The consumer surplus is zero.
Correct Answer: B) The marginal benefit of consuming the product is equal to its price
Rationale: Rational consumers make decisions at the margin. They will continue to
consume units of a good as long as the additional benefit (marginal benefit) derived from
the next unit is greater than or equal to the cost (price) of that unit.
Question 2
If a firm expects that the price of its product will be higher in the future than it is today, the
firm has an incentive to:
A) Increase supply now and decrease supply in the future.
B) Keep supply constant but increase the price immediately.
C) Decrease supply now and increase supply in the future.
D) Liquidate all assets immediately.
E) Decrease the price of the product immediately.
Correct Answer: C) Decrease supply now and increase supply in the future
Rationale: Sellers maximize profit by selling when prices are highest. If expectations of
future prices rise, sellers will withhold current inventory (decreasing current supply) to sell
it later when the price is higher.
Question 3
Which type of business structure is subject to the most government rules and regulations?
A) Sole Proprietorship
B) Partnership
C) Cooperative
, 2
D) Corporation
E) Limited Liability Company (LLC)
Correct Answer: D) Corporation
Rationale: Corporations are distinct legal entities separate from their owners. Because of
this legal status and their ability to issue stock to the public, they face significantly more
regulatory oversight (such as SEC rules) compared to sole proprietorships or partnerships.
Question 4
Soo Jin shares a one-bedroom apartment for $700/month. She moves into a studio for
$950/month to live alone. Assuming she is rational, what can be concluded about her
marginal benefit?
A) The additional benefit of living alone is exactly $950.
B) The additional benefit of living alone is at least $250.
C) The additional benefit of living alone is less than $250.
D) The total benefit of living alone is $700.
E) She is acting irrationally because her costs increased.
Correct Answer: B) The additional benefit of living alone is at least $250
Rationale: The marginal cost of moving from the shared apartment to the studio is $250
($950 - $700). For a rational actor to make this trade, the marginal benefit (privacy, space,
etc.) must be equal to or greater than the marginal cost.
Question 5
Suppose the CPI was 100 in 2015 and 120 in 2016. What was the inflation rate between
these two years?
A) 10%
B) 12%
C) 20%
D) 100%
E) 120%
, 3
Correct Answer: C) 20%
Rationale: The inflation rate is calculated as ((CPI Year 2 - CPI Year 1) / CPI Year 1) * 100.
Here, ((120 - 100) / 100) * 100 = 20%.
Question 6
Refer to a hypothetical table for the country of Vicuna. If the Nominal GDP in 2009 is
$4,920 and the Real GDP in 2009 (using 2011 as a base year) is $5,650, what does this imply
about prices?
A) Prices were higher in 2009 than in 2011.
B) Prices were lower in 2009 than in 2011.
C) Inflation was constant between the two years.
D) Vicuna experienced hyperinflation in 2009.
E) The output decreased between 2009 and 2011.
Correct Answer: B) Prices were lower in 2009 than in 2011
Rationale: Real GDP adjusts Nominal GDP to constant prices. Since Real GDP ($5,650) is
higher than Nominal GDP ($4,920), the prices used to calculate Real GDP (2011 base
prices) must be higher than the actual prices in 2009.
Question 7
Bob works for Mary as a proofreader. They marry, and Bob stops working for a wage to
care for their eight children. What is the effect on GDP?
A) GDP will increase because Bob is providing valuable childcare.
B) GDP will remain unchanged.
C) GDP will decrease.
D) Real GDP will increase, but Nominal GDP will decrease.
E) GDP will fluctuate unpredictably.
Correct Answer: C) GDP will decrease
Rationale: GDP measures the market value of final goods and services produced.
Household production (like childcare provided by a parent) is not exchanged in a market
and therefore is not counted in GDP. Bob's previous wage-labor was counted; his current
labor is not.
, 4
Question 8
In the United States from 1981 to 2009, deaths from diabetes increased largely due to:
A) A lack of available insulin.
B) Increasing obesity.
C) A decrease in the quality of hospitals.
D) An aging population only.
E) Genetic mutations.
Correct Answer: B) Increasing obesity
Rationale: Economic and health data link the rise in diabetes-related mortality during this
period significantly to lifestyle factors, specifically the increasing rates of obesity in the
population.
Question 9
In 1930, the U.S. government passed the Smoot-Hawley Tariff to help domestic firms
during the Great Depression. What was the result?
A) It successfully ended the Depression.
B) It increased exports significantly.
C) It triggered retaliatory tariffs and worsened the global economic downturn.
D) It had no effect on the economy.
E) It lowered prices for US consumers.
Correct Answer: C) It triggered retaliatory tariffs and worsened the global economic
downturn
Rationale: While intended to protect domestic firms, the high tariffs caused other nations
to retaliate with their own tariffs, causing international trade to collapse and deepening the
Depression.
Question 10
Consider a market with a rent control (price ceiling). If the quantity supplied is 200
apartments and the quantity demanded is higher, but landlords ignore the law and rent
strictly to the highest bidder, the price achieved would be:
A) The equilibrium price.
