# ECO 550 Midterm Exam 2

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**ECO 550 MIDTERM EXAM 2 **

1. Income tax payments are an example of ____.

2. The moral hazard in team production arises from

3. Which of the following will increase (V0), the shareholder wealth maximization model of the firm: V0·(shares outstanding) = Σ∞t=1 (π t ) / (1+ke)t + Real Option Value.

4. 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.

5. Recently, the American Medical Association changed its recommendations on the frequency of pap-smear exams for women. The new frequency recommendation was designed to address the family histories of the patients. The optimal frequency should be where the marginal benefit of an additional pap-test,

6. The flat-screen plasma TVs are selling extremely well. The originators of this technology are earning higher profits. What theory of profit best reflects the performance of the plasma screen makers?

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

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

9. The primary difference(s) between the standard deviation and the coefficient of variation as measures of risk are:

10. Based on risk-return tradeoffs observable in the financial marketplace, which of the following securities would you expect to offer higher expected returns than corporate bonds?

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

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

13. The factor(s) which cause(s) a movement along the demand curve include(s):

14. Iron ore is an example of a:

15. Suppose we estimate that the demand elasticity for fine leather jackets is .7 at their current prices. Then we know that:

16. Producers' goods are:

17. When demand is ____ a percentage change in ____ is exactly offset by the same percentage change in ____ demanded, the net result being a constant total consumer expenditure.

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

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

20. The method which can give some information in estimating demand of a product that hasn’t yet come to market is:

21. When using a multiplicative power function (Y = a X1b1 X2b2 X3b3) to represent an economic relationship, estimates of the parameters (a, and the b's) using linear regression analysis can be obtained by first applying a ____ transformation to convert the function to a linear relationship.

22. In regression analysis, the existence of a significant pattern in successive values of the error term constitutes:

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

24. The estimated slope coefficient (b) of the regression equation (Ln Y = a + b Ln X) measures the ____ change in Y for a one ____ change in X

25. The Identification Problem in the development of a demand function is a result of:

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