Applied Economics
Final Test Solutions
Course Introduction
Applied Economics focuses on the practical application of economic theories and principles to real-world problems and policy issues. Students will learn how to use economic modeling and data analysis to address topics such as labor markets, healthcare, education, public policy, business strategy, and international trade. The course emphasizes empirical techniques, including econometrics, to evaluate economic outcomes and inform decision-making processes. By integrating theory with case studies and current economic events, students gain the analytical skills necessary to interpret data and develop evidence-based solutions for contemporary economic challenges.
Recommended Textbook
Economics for Managers 3rd Edition by Paul
G. Farnham
16 Chapters 1464 Verified Questions 1464 Flashcards
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Page 2
Chapter 1: Managers and Economics
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68 Verified Questions
68 Flashcards
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Sample Questions
Q1) Which of the following is not a characteristic of a perfectly competitive market?
A)Large number of firms in the industry.
B)Outputs of the firms are perfect substitutes for one another.
C)Limited information is available to all market participants.
D)Ease of entry into the market.
Answer: C
Q2) The type of policy that involves changes in taxes or spending by the federal government is known as:
A)fiscal policy.
B)monetary policy.
C)strategic financial policy.
D)federal policy.
Answer: A
Q3) Which of the following statements about the circular flow model is false?
A)Consumers earn income by selling resources they own to businesses.
B)Businesses supply goods and services to the household sector.
C)Households supply resources to the business sector.
D)Business firms buy goods and services from the household sector.
Answer: D
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Chapter 2: Demand, Supply, and Equilibrium Prices
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Sample Questions
Q1) An increase in the number of buyers in the market for LED TVs would cause the market demand curve for LED TVs to:
A)shift right.
B)shift left.
C)stay the same because market demand doesn't depend on the number of buyers.
D)shift left or right depending on whether the new buyers purchase more or less than existing customers at each price.
Answer: A
Q2) Assume a national brewing company loses market share to a lower-priced competitor.Assume also that the company's workers go on strike and are able to negotiate a hefty wage increase.As such, we can conclude, with certainty, that the combination of these two changes would cause the equilibrium price and quantity of the company's product to decrease.
A)True
B)False
Answer: False
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Chapter 3: Demand Elasticities
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Sample Questions
Q1) As the number of available substitutes for a good increases, the price elasticity of demand for the good will increase as well.
A)True
B)False
Answer: True
Q2) Assuming demand is inelastic, if a firm wants to increase its total revenue, it should raise price.
A)True
B)False
Answer: True
Q3) An increase in price will result in an increase in total revenue if demand is:
A)perfectly elastic.
B)relatively elastic.
C)inelastic.
D)unit elastic.
Answer: C
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Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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Sample Questions
Q1) The statistical significance of the slope coefficient can only be tested using the F test.
A)True
B)False
Q2) The F-statistic is an alternative measure of goodness-of-fit of an estimated regression equation and defined as the:
A)variation not explained by the regression equation relative to the variation explained.
B)variation explained by the regression equation to the variation not explained.
C)variation explained.
D)variation not explained.
Q3) Which of the following approaches to understanding and predicting consumer behavior does not actually solicit any information from any potential customers?
A)Test marketing.
B)Conjoint analysis.
C)Analysis of historical data.
D)Expert opinion.
Q4) Refer to Scenario 2.What is the estimated regression equation for determining the market value of houses?
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Chapter 5: Production and Cost Analysis in the Short Run
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) In the mathematical formulation of the short-run production function:
A)the quantity of output is usually assumed to be fixed.
B)the quantity of capital employed is usually assumed to be fixed.
C)the quantity of both labor and capital employed are usually assumed to be fixed.
D)the quantity of both labor and capital must be allowed to vary so that output can vary in the short run.
Q2) In the context of a production function, the remote order takers in the fast food industry would be classified as:
A)a fixed input.
B)a marginal input.
C)a variable input.
D)an inframarginal input.
Q3) Because it is a machine, a personal computer should be treated as a fixed input in the typical firm's short-run production function.
A)True
B)False
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Chapter 6: Production and Cost Analysis in the Long Run
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Sample Questions
Q1) In the long-run average cost function, only the amount of capital is allowed to vary.
A)True
B)False
Q2) The "minimum efficient scale" of operation in an industry is defined as:
A)the smallest plant size that can be operated by firms in the industry.
B)the scale of operation at which economies of scale are exhausted.
C)the smallest number of firms that could effectively meet demand for an industry's output.
D)the scale of operation by firms in an industry that is least efficient.
Q3) Which of the following statements about the beer industry is correct?
A)Over the last 30 years, technological change has resulted in substantial diseconomies of scale in the industry.
B)In 2000, the minimum efficient scale in the industry was approximately 18 million barrels per year.
C)As a result of an increase in the number of microbreweries, the five largest firms in the industry control less than 50 percent of the market.
D)The market share of microbreweries was estimated to be 20 percent in 1990.
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Page 8
Chapter 7: Market Structure: Perfect Competition
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106 Verified Questions
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Sample Questions
Q1) If the level of output produced by the firms in a perfectly competitive market has no effect on the prices of the inputs used by the firms, the market supply curve will be flatter than the supply curve for an individual firm in the market.
A)True
B)False
Q2) Explain why a firm maximizes its profits by producing the level of output at which marginal revenue equals marginal costs.
Q3) In the case of the perfectly competitive firm:
A)marginal revenue equals the market price.
B)marginal revenue is greater than the market price.
C)marginal revenue is less than the market price.
D)marginal revenue is equal to, less than, or greater than market price depending on the level of output.
Q4) Assume a firm is currently producing 800 units of output, P = $10, MC = $10, ATC = $8, and AVC = $6.In this case, the firm is maximizing its profit, which equals $1,600.
A)True
B)False
Q5) Summarize the characteristics of a perfectly competitive market.
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Chapter 8: Market Structure: Monopoly and Monopolistic Competition
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107 Verified Questions
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Sample Questions
Q1) Assume that when price is $20, quantity demanded is 9 units, and when price is $19, quantity demanded is 10 units.Based on this information, what is the marginal revenue resulting from an increase in output from 9 units to 10 units?
A)$20
B)$19
C)$10
D)$1
Q2) The monopolistically competitive seller's demand curve will tend to become more elastic the:
A)smaller the number of sellers.
B)greater the degree of product differentiation.
C)larger the number of close competitors.
D)more significant the barriers to entering an industry.
Q3) Licensing requirements for doctors, which are intended primarily to maintain the quality of persons who work in the profession, have no the effect on the profits of those individuals because the number of competitors is so large.
A)True
B)False
Q4) Explain how network externalities act as a barrier to entry.
Page 10
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Chapter 9: Market Structure: Oligopoly
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Sample Questions
Q1) A predatory pricing strategy will have the greatest chance of success when the predatory price is set below the cost of the firm's competitors, new rivals are unlikely to enter after the strategy ends, and profits can be recouped in a relatively short period of time.
A)True
B)False
Q2) In which of the following situations would each of the members be responsible for producing an equal share of the total amount of output sold by the cartel engaged in joint profit maximization?
A)When the amount of revenue generated by each member of the cartel is the same.
B)When there are no economies of scale in production.
C)When each member of the cartel is using the same scale of production.
D)When marginal costs of production are the same for each of the members of the cartel.
Q3) The soft drink industry can best be described as:
A)an oligopoly.
B)a monopoly.
C)perfectly competitive.
D)monopolistically competitive.
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Page 11
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) Is the profit-maximizing price-taking firm able to mark up price above the marginal costs of production at the profit-maximizing level of output? Why or why not?
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Chapter 11: Measuring Macroeconomic Activity
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102 Verified Questions
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Sample Questions
Q1) A French citizen lives in Detroit, but works in Windsor, Canada; his income is counted in U.S.GDP.
A)True
B)False
Q2) An increase in nominal GDP implies that the country is producing a greater quantity of goods and services.
A)True
B)False
Q3) A trade balance where exports exceed imports is called:
A)trade surplus.
B)trade deficit.
C)budget deficit.
D)none of the above.
Q4) The falling phase of a business cycle measured by a decrease in real GDP is called: A)hyperinflation.
B)expansion.
C)recession.
D)peak.
Q5) What are some of the issues associated with the consumer price index?
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Chapter 12: Spending by
Individuals, Firms, and
Governments on Real Goods and Services
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103 Verified Questions
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Sample Questions
Q1) Autonomous aggregate expenditures increases by $100 million, the marginal propensity to consume is 0.60, marginal propensity to invest is 0.20, and the marginal propensity to import is 0.10.Calculate the change in income.
Q2) The vital link between the real and monetary sectors of the economy is the:
A)price level.
B)interest rate.
C)balance of payments.
D)budget deficit.
Q3) Distinguish between the short-run and long-run factors that affect residential investment.
Q4) The marginal propensity to consume plus the marginal propensity to invest equal one.
A)True B)False
Q5) In a open economy, aggregate expenditures are the sum of personal consumption, investment, government, and net export expenditures.
A)True
B)False
Q6) Briefly explain how capacity utilization rates are used by forecasters.
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Chapter 13: The Role of Money in the Macro Economy
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90 Verified Questions
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Sample Questions
Q1) The Resolution Trust Corporation insures bank deposits.
A)True
B)False
Q2) The monetary base is smaller than the money supply.
A)True
B)False
Q3) A decrease in the real money supply can result from:
A)increase in the nominal money supply or an increase in the price level.
B)increase in the nominal money supply or a decrease in the price level.
C)decrease in the nominal money supply or an increase in the price level.
D)decrease in the nominal money supply or a decrease in the price level.
Q4) The interest rate that commercial banks charge each other for loans of reserves to meet their minimum reserve requirements is called:
A)treasury bill rate.
B)federal funds rate.
C)prime interest rate.
D)none of the above.
Q5) The most liquid form of money is M3.
A)True
B)False
Page 15
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Chapter 14: The Aggregate Model of the Macro Economy
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Sample Questions
Q1) Using the aggregate demand-aggregate supply diagram, graphically illustrate and explain the impact of an expansionary monetary policy on the price level and real income in the long run.
Q2) Discretionary expenditures are federal government expenditures for programs whose funds are authorized and appropriated by Congress and signed by the President, where explicit decisions are made on the size of the programs.
A)True
B)False
Q3) Increases in autonomous spending cause leftward shifts of the aggregate demand and supply curves.
A)True
B)False
Q4) A depreciation 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.
Q5) Briefly explain the difference between leading, coincident, and lagging indicators.
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Chapter 15: International and Balance of Payments Issues in the Macro Economy
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Sample Questions
Q1) In an open mixed economy, injections are saving, taxation, and import spending. A)True
B)False
Q2) What is the difference between a sterilized and non-sterilized central bank intervention in the foreign exchange market?
Q3) The U.S.imports Japanese cars with a domestic price of 5,000,000 yen and the yen/dollar exchange rate is 120 on January 1, 2003.On January 1, 2004 the yen/dollar exchange rate is 125.What is the dollar price of the cars on January 1, 2003? What is the dollar price of the cars on January 1, 2004?
Q4) As a currency appreciates:
A)exports increase and imports decrease.
B)exports decrease and imports increase.
C)exports increase and imports increase.
D)exports decrease and imports decrease.
Q5) What will a U.S.corporation do if it believes that the dollar will continue to appreciate when it changes foreign earnings back into dollars?
Q6) Multinational companies are concerned about exchange rate risk. 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) McDonald's and its major competitors compete based:
A)only on the price.
B)only on the basis of product characteristics.
C)on both the price and product characteristics.
D)none of the above because the fast-food industry is perfectly competitive.
Q2) A joint venture allows a foreign firm to easier adjust to a new market and often meet various institutional requirements.
A)True
B)False
Q3) Changing consumer taste and preferences, lawsuits, and competitive pressures adversely affect McDonald's sales.
A)True
B)False
Q4) The study quoted in the text demonstrated that calorie posting did not cause any significant changes in Starbucks revenue over all.
A)True
B)False
Q5) How did McDonalds address the obesity issue in China?
Q6) How did McDonalds address the drive-through innovation in China?
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