Applied Economics
Exam Answer Key
Course Introduction
Applied Economics focuses on the practical application of economic theories and quantitative methods to real-world issues and policy problems. The course examines how economic concepts such as supply and demand, market structures, pricing, and resource allocation can be used to analyze sectors like labor, health, education, and the environment. Students learn to utilize statistical tools and empirical data to inform decision-making, evaluate economic policies, and solve complex business and societal challenges. This course bridges the gap between theoretical frameworks and practical solutions, preparing students for careers in government, industry, finance, and research.
Recommended Textbook Economics for Managers 3rd Edition by
Paul G. Farnham
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16 Chapters
1464 Verified Questions
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Chapter 1: Managers and Economics
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68 Verified Questions
68 Flashcards
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Sample Questions
Q1) All else constant, an increase in the amount of borrowing by the federal government would reduce the amount of money available for businesses to borrow to finance investment spending.
A)True
B)False
Answer: True
Q2) All else constant, the choice of whether to use a labor-intensive production process or a capital-intensive one is depends on:
A)the absolute prices of capital and labor.
B)the relative prices of capital labor.
C)the type of market in which the firm operates.
D)whether the economy is growing or shrinking.
Answer: B
Q3) Because most gas stations are small relative to the market in which they operate and gasoline is fairly homogeneous, the market for gasoline is considered to be perfectly competitive.
A)True
B)False
Answer: False
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Chapter 2: Demand, Supply, and Equilibrium Prices
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Sample Questions
Q1) Federal subsidies to farmers can have the effect of creating a surplus in the market for certain crops.
A)True
B)False
Answer: True
Q2) When market price is higher than the equilibrium price, a surplus is created.This will put downward pressure on price, causing quantity demanded to increase and quantity supplied to decrease until equilibrium is reestablished.
A)True
B)False
Answer: True
Q3) As the price of milk increases, what would reasonably be expected to happen to the equilibrium price and equilibrium quantity of cereal? (Milk and cereal are complements.)
A)Equilibrium price would increase and equilibrium quantity would decrease.
B)Equilibrium price and quantity would both decrease.
C)Equilibrium price would decrease and equilibrium quantity would increase.
D)Equilibrium price and quantity would both increase.
Answer: B
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4
Chapter 3: Demand Elasticities
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Sample Questions
Q1) Which of the following statements is true when the consumer is in utility-maximizing equilibrium?
A)The number of units of each good purchased is equal.
B)The prices of the goods in question must be equal.
C)The total benefits the consumer receives from every good consumed must be the same for all goods.
D)The rate at which the consumer is willing to trade one good for another is equal to the ratio of their market prices.
Answer: D
Q2) According to the text, the price elasticity of demand for oranges has been estimated to be -0.62.This implies that a doubling of the price of oranges would cause the quantity demanded of oranges to:
A)increase by 6.2 percent.
B)decrease by 6.2 percent.
C)increase by 62 percent.
D)decrease by 62 percent.
Answer: D
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Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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Sample Questions
Q1) Log-linear demand function is also called a constant-elasticity demand function.
A)True
B)False
Q2) Briefly explain why empirical consumer demand studies such as Patrick McCarthy's study of automobile demand are relevant to managers.
Q3) The ratio of the regression coefficient to its standard error is called:
A)t-statistic.
B)F-statistic.
C)partial F-statistic.
D)coefficient of determination.
Q4) Refer to Scenario 1.What is the total sum of squares?
A)3860.8
B)3718.9
C)141.9
D)None of the above.
Q5) The least squares regression is based on:
A)maximizing the absolute sum of squares errors.
B)minimizing the absolute sum of squares errors.
C)maximizing the sum of squared errors.
D)minimizing the sum of squared errors.
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Chapter 5: Production and Cost Analysis in the Short Run
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Sample Questions
Q1) In the short run, a firm can minimize its total costs of production by operating at the minimum of its average total cost curve.
A)True
B)False
Q2) All else constant, if the use of historic costs understates the opportunity costs associated with using a particular piece of capital, economic profit will be overstated.
A)True
B)False
Q3) The payment of wages by a firm is an example of:
A)an explicit cost of production.
B)an implicit cost of production.
C)an irreversible cost of production.
D)a long-run cost of production.
Q4) The amount of money a firm pays to lease a building it uses for office space is called:
A)the full opportunity cost of production.
B)an explicit cost.
C)a real cost of production.
D)an implicit cost.
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Chapter 6: Production and Cost Analysis in the Long Run
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Sample Questions
Q1) Much of the research on the minimum efficient scale suggests that for many firms the LRAC curve is:
A)downward sloping over the relevant range of output.
B)upward sloping over the relevant range of output.
C)U-shaped.
D)flat over a relatively large range of output levels.
Q2) An increase in the number of people in the United States with health insurance could cause the cost of providing health care services to increase as the incentive for health care providers to minimize costs decreases.
A)True
B)False
Q3) An isoquant identifies all of the combinations of two inputs that result in the same total costs of production.
A)True
B)False
Q4) One of the primary sources of diseconomies of scale is the inefficiencies associated with managing large scale operations.
A)True
B)False
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Chapter 7: Market Structure: Perfect Competition
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Sample Questions
Q1) Assume the firms in a perfectly competitive industry are initially in long-run equilibrium and the cost of labor increases.How will the market adjust over time?
A)Firms will enter the market, causing price to rise until losses are eliminated.
B)Firms will enter the market, causing price to fall until positive profits are eliminated.
C)Firms will exit the market, causing price to rise until losses are eliminated.
D)Firms will exit the market, causing price to fall until positive profits are eliminated.
Q2) Industry X, which is perfectly competitive, is in long-run equilibrium.Assume a new law is passed that requires employers in industry X to provide health insurance to previously uninsured employees.As a result of this new requirement we would expect to observe:
A)a decrease in price and an increase in total output in industry X.
B)a decrease in price and total output in industry X.
C)an increase in price and a decrease in total output in industry X.
D)an increase in price and total output in industry X.
Q3) Summarize the characteristics of a perfectly competitive market.
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Chapter 8: Market Structure: Monopoly and Monopolistic Competition
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Sample Questions
Q1) For a monopolist to earn a positive economic profit, price has to exceed average total cost at the level of output at which marginal revenue equals marginal cost.
A)True
B)False
Q2) In order to use lock-in as a competitive strategy, firm managers should be prepared to do all of the following except:
A)invest in a given base of customers by giving concessions initially.
B)avoid selling complementary products and access to the customer base.
C)be the first to bring a new type of product to market.
D)use loyalty programs as part of an entrenchment strategy.
Q3) A price-setting firm prefers to operate in the inelastic portion of its demand curve because total revenue increases when price is increased.
A)True
B)False
Q4) Assume the market shares of the six largest firms in an industry are 12 percent each.Calculate the six-firm concentration ratio and Herfindahl-Hirschman index for this industry.What does each of these measures have to say about the degree of concentration in the industry? Explain.
Page 10
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Chapter 9: Market Structure: Oligopoly
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Sample Questions
Q1) What is the significance of the mutual interdependence among the firms in an oligopolistic market?
Q2) Which of the following is an example of strategic entry deterrence?
A)Marginal cost pricing.
B)Limit pricing.
C)Price leadership.
D)Mark-up pricing.
Q3) Price coordination among firms will be more difficult when there are substantial differences among the cost structures of the competing firms and the technologies they employ.
A)True
B)False
Q4) Assume a cartel that consists of two firms has determined its profit-maximizing level of output and must now decide how to allocate total output between the two firms.Assuming firm A's marginal costs are less than firm B's marginal costs, firm A should produce a smaller share of total output than firm B.
A)True
B)False
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Chapter 10: Pricing Strategies for the Firm
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Sample Questions
Q1) Which of the following statements is not correct?
A)First-degree and third-degree price discrimination work to increase a firm's profits by converting consumer surplus into revenue for the firm.
B)First-degree and third-degree price discrimination work to increase a firm's profits by more accurately matching willingness to pay to the marginal costs of production.
C)First-degree price discrimination works to increase a firm's profits by converting consumer surplus into revenue for the firm, while third-degree price discrimination increases a firm's profits by more accurately assessing the willingness to pay of different groups of consumers.
D)Because it focuses on more accurately assessing the willingness to pay of different groups of consumers, third-degree price discrimination will increase a firm's profits more than will first-degree price discrimination.
Q2) Unlike markup pricing, the strategy of price discrimination is totally independent of the price elasticity of demand for the good in question.
A)True
B)False
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Chapter 11: Measuring Macroeconomic Activity
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Sample Questions
Q1) Many financial analysts use GDP as a measure of the economy's performance.However, GDP has several shortcomings in terms of measuring economic well-being.State at least three such shortcomings and explain how each affects the validity of GDP as a measure of economic well-being.
Q2) Monetary policy is controlled by the U.S.Congress.
A)True
B)False
Q3) Which of the following statistics is the best single measure of overall economic activity?
A)The labor force participation rate.
B)The inflation rate.
C)GDP.
D)The trade surplus.
Q4) Proprietor's income is not considered part of national income.
A)True
B)False
Q5) A problem with the CPI is the presence of a substitution bias on the behalf of consumers.
A)True
B)False
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Chapter 12: Spending
by Individuals, Firms, and Governments on Real Goods and Services
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Sample Questions
Q1) The real interest rate, business taxes, expected profits and business confidence, and capacity utilization are embedded in the slope of the investment function.
A)True
B)False
Q2) The capacity utilization rate is the ratio of ________ to ________.
A)production; capacity
B)capacity; production
C)capacity; potential GDP
D)none of the above
Q3) Capacity utilization increases.What is the impact on aggregate expenditures and income?
A)Both increase.
B)Both decrease.
C)Aggregate expenditure increases and income decreases.
D)Aggregate expenditure decreases and income increases.
Q4) The multiple changes in income and output that results from a change in autonomous expenditure is called the multiplier.
A)True
B)False
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Chapter 13: The Role of Money in the Macro Economy
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Sample Questions
Q1) Financial innovations such as ATMs and electronic banking have caused an increase in the demand for money.
A)True
B)False
Q2) Open market sale of government securities by the Fed decreases the federal funds rate.
A)True B)False
Q3) In the context of the money market, graphically illustrate and explain the impact of an expansionary monetary policy on interest rates.
Q4) Contractionary monetary policy is achieved by:
A)decreasing the amount of bank reserves and lowering the federal funds rate.
B)decreasing the amount of bank reserves and raising the federal funds rate.
C)increasing the amount of bank reserves and lowering the federal funds rate.
D)increasing the amount of bank reserves and raising the federal funds rate.
Q5) The simple deposit multiplier is larger than the money multiplier.
A)True
B)False
Q6) Why is the money multiplier smaller than the simple deposit multiplier?
Page 15
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Chapter 14: The Aggregate Model of the Macro Economy
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Sample Questions
Q1) An appreciation of the U.S.dollar would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.
Q2) A decrease in government expenditure would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.
Q3) Average weekly hours in manufacturing is an example of a:
A)leading indicator.
B)coincident indicator.
C)lagging indicator.
D)none of the above.
Q4) An increase in taxes would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.
16
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Chapter 15: International and Balance of Payments Issues in the Macro Economy
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Sample Questions
Q1) Capital inflows occur if foreign interest rates are greater than domestic interest rates.
A)True
B)False
Q2) The international financial organization created at the Bretton Woods conference in 1944 that helps developing countries obtain low-interest loans is called the:
A)World Bank.
B)International Monetary Fund.
C)U)S. Treasury.
D)U)S. Agency for International Development.
Q3) When a country's import spending exceeds export spending, the country is experiencing a:
A)trade deficit.
B)trade surplus.
C)budget deficit.
D)none of the above.
Q4) Currency appreciation will decrease net exports.
A)True
B)False
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Chapter 16: Combining Micro and Macro Analysis for Managerial Decision Making
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Sample Questions
Q1) In 2002 - 2003, some McDonalds' franchise owners reported that profits were declining from selling the discounted items from the Dollar Menu.This suggests that:
A)those items are price elastic.
B)those items are price inelastic.
C)those items are price unitary elastic.
D)none of the above.
Q2) In terms of location decisions, firms evaluate the extent to which the labor force is unionized.
A)True
B)False
Q3) How did McDonalds address the obesity issue in China?
Q4) In 2002, this company was estimated to hold the largest share of the U.S.burger market:
A)McDonald's.
B)Burger King.
C)Wendy's.
D)none of the above.
Q5) How did McDonald's attempt to address the cultural differences around the world in selling its product?
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