ECO 550 Midterm Exam

1. A change in the level of an economic activity is desirable and should be undertaken as long as the marginal benefits exceed the ____.

2. The level of an economic activity should be increased to the point where the ____ is zero.

3. The ____ is the ratio of ____ to the ____.

4. The standard deviation is appropriate to compare the risk between two investments only if

5. The approximate probability of a value occurring that is greater than one standard deviation from the mean is approximately (assuming a normal distribution)

6. An closest example of a risk-free security is

7. In the shareholder wealth maximization model, the value of a firm's stock is equal to the present value of all expected future ____ discounted at the stockholders' required rate of return.

8. The form of economics most relevant to managerial decision-making within the firm is:

9. Shirking of one’s duties is often encountered in team production settings because

10. A Real Option Value is

11. Economic profit is defined as the difference between revenue and ____.

12. The Saturn Corporation (once a division of GM) was permanently closed in 2009.  What went wrong with Saturn?

13. An income elasticity (Ey) of 2.0 indicates that for a ____ increase in income, ____ will increase by ____.

14. An increase in each of the following factors would normally provide a subsequent increase in quantity demanded, except

15. Which of the following would tend to make demand INELASTIC

16. When demand elasticity is ____ in absolute value (or ____), an increase in price will result in a(n) ____ in total revenues.

17. Songwriters and composers press music companies to lower the price for music downloads because.

18. A price elasticity (E_D) of −1.50 indicates that for a ____ increase in price, quantity demanded will ____ by ____.

19. If demand were inelastic, then we should immediately:

20. The standard deviation of the error terms in an estimated regression equation is known as:

21. In testing whether each individual independent variables (Xs) in a multiple regression equation is statistically significant in explaining the dependent variable (Y), one uses the:

22. When two or more "independent" variables are highly correlated, then we have:

23. One commonly used test in checking for the presence of autocorrelation when working with time series data is the ____.

24. Even though insignificant explanatory variables can raise the adjusted R2 of a demand function, one    should not interpret their effects on the regression when

25. All of the following are reasons why an association relationship may not imply a causal relationship except: