Applied Economics for Managers
Textbook Exam Questions
Course Introduction
Applied Economics for Managers introduces students to fundamental economic concepts and analytical tools essential for effective decision-making in business and management contexts. The course covers key microeconomic and macroeconomic principles, including supply and demand analysis, market structures, pricing strategies, risk assessment, and government policy impacts on markets. Through real-world case studies and quantitative methods, students learn how to apply economic reasoning to solve managerial problems, interpret economic data, forecast trends, and develop strategies that enhance organizational efficiency and competitiveness. The emphasis is on practical application, equipping future managers with the tools necessary to make informed economic decisions in a rapidly changing global environment.
Recommended Textbook
Economics for Managers 3rd Edition by Paul G. Farnham
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Page 2
Chapter 1: Managers and Economics
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Sample Questions
Q1) The U.S.Treasury is responsible for controlling the money supply and interest rates in the economy.
A)True
B)False
Answer: False
Q2) 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
Q3) Macroeconomics is concerned with the behavior of all of the firms in a particular industry, while microeconomics focuses on a single firm in the same industry.
A)True
B)False
Answer: False
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Chapter 2: Demand, Supply, and Equilibrium Prices
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Q1) Distinguish between "a change in demand" and "a change in quantity demanded." What are the causes of each type of change and how do we illustrate them graphically?
Answer: A "change in demand" refers to a shift of the entire demand curve.It is caused by a change in a determinant of demand other than the price of the good in question.A change in quantity demanded refers to a movement along the demand curve for a good.It is caused by a change in the price of the good in question.
Q2) Assume that in the market for plasma TVs there is an increase in supply.The result will be:
A)an increase in equilibrium price and quantity.
B)a decrease in equilibrium price and quantity.
C)an increase in equilibrium quantity and uncertain effect on equilibrium price.
D)a decrease in equilibrium price and increase in equilibrium quantity.
Answer: D
Q3) An increase in the availability of health insurance could be expected to cause the average price of health care to increase.
A)True
B)False
Answer: True
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4
Chapter 3: Demand Elasticities
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Q1) Based on empirical evidence, the "farm problem" that has confronted U.S.policymakers for many years is attributable, in large part, to the relatively inelastic demand for many agricultural products.
A)True
B)False
Answer: True
Q2) 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
Q3) When calculating the price elasticity of demand, it is assumed that all of the other determinants of demand are to be held constant.
A)True
B)False
Answer: True
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Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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Sample Questions
Q1) 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.
Q2) Refer to Scenario 2.Based on the 95 percent confidence intervals for each of the partial regression coefficients, which independent variable is statistically different from zero and why?
Q3) Data collected on a sample of individuals with different characteristics at a specific point in time are called:
A)cross-section data.
B)time series data.
C)panel data.
D)none of the above.
Q4) Elaborate on the statement "Every multiple regression analysis is influenced by the sample of the data used."
Q5) Why are estimated models of demand and consumer behavior useful to managers?
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Chapter 5: Production and Cost Analysis in the Short Run
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Q1) If a firm experiences constant returns to the variable input in the short run:
A)marginal cost will be greater than average variable cost, but the two will become more equal as output increases.
B)marginal cost will be less than average variable cost, but the two will become more equal as output increases.
C)marginal cost will be greater than average variable cost, and the difference between the two will become larger as output increases.
D)marginal cost and average variable cost will be equal over the range of output in question.
Q2) Which of the following is true of the typical relationship between marginal product (MP)and average product (AP)?
A)If MP is greater than AP, then AP is falling.
B)The AP curve intersects the MP curve at minimum MP.
C)The MP curve intersects the AP curve at maximum AP.
D)If MP is less than AP, then AP is increasing.
Q3) Explain the difference between the short run and the long run as it relates to the firm's production function.Why is this distinction important to a firm's manager?
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Chapter 6: Production and Cost Analysis in the Long Run
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Sample Questions
Q1) Assume that firms A and B have the same minimum efficient scale of operation and, at current production levels, both firms are incurring the same average costs of production.However, firm A's output is 5 times larger than firm B's output.How is this possible?
Q2) Explain why X-inefficiency is likely to be more prevalent in an industry in which firms have market power.
Q3) What are the two primary factors that influence a firm manager's choice between a labor-intensive and a capital-intensive method of production? How does each factor influence the manager's choice.
Q4) The list of the major factors that create economies of scale includes all of the following except:
A)specialization and division of labor.
B)quantity discounts.
C)an increase in demand for the firm's output.
D)the use of automation devices.
Q5) 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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Q1) Which of the following statements is definitely true when price is less than average total cost for a firm producing the profit-maximizing level of output in the short run?
A)The firm is running a loss in an accounting sense, so that total revenue is less than total explicit costs.
B)The firm will minimize its losses by shutting down.
C)The firm will be earning negative total revenue.
D)The firm is incurring an economic loss.
Q2) Assume a perfectly competitive firm is in long-run equilibrium and there is a decrease in market demand for the firm's output.Which of the following will occur?
A)Existing firms will maintain the original level of output, but they will shift their cost functions down in the short run.
B)Existing firms will raise price to cover the reduction in quantity demanded and maintain total revenue in the short run.
C)Existing firms will reduce output in the short run.
D)Market price will be above its original level.
Q3) What assumptions in the perfect competition model ensure that economic profit is zero in the long run? Explain.
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Page 9
Chapter 8: Market Structure: Monopoly and Monopolistic Competition
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Sample Questions
Q1) The proposed merger between Staples and Office Depot and the FTC's opposition to it underscore the importance of how a market is defined when assessing the amount of market power possessed by an individual firm.
A)True
B)False
Q2) All of the following are characteristics of long-run equilibrium for firms in a monopolistically competitive market except:
A)price equals marginal cost.
B)price equals average total cost.
C)marginal cost equals marginal revenue.
D)price exceeds the minimum of average total cost.
Q3) Assume the managers of the two major firms in an industry agree to set the price of their output at a fixed level so as to discourage new entrants into the market.This would be considered a violation of the:
A)Sherman Act of 1890.
B)Clayton Act of 1914.
C)Federal Trade Commission Act of 1914.
D)Celler-Kefauver Act of 1950.
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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Q1) Although Coca-Cola and PepsiCo are major players in the soft drink industry, the large number of other competing firms means that the industry is most accurately characterized as monopolistically competitive.
A)True
B)False
Q2) To maximize joint profits, a cartel must determine the level of output at which:
A)joint marginal revenue equals the marginal cost of the largest member of the cartel.
B)marginal revenue equals joint marginal cost.
C)the horizontally sum of the members marginal cost curves is at a minimum.
D)joint marginal revenue equals the marginal cost of the smallest member of the cartel.
Q3) In game theory, a Nash equilibrium is defined as:
A)the dominant strategy of each player.
B)a set of strategies for which all players are choosing their best strategy, given the actions of the other players.
C)the set of strategies that result in the maximum payoff to each player.
D)the set of strategies chosen when the players in a game can cooperate with each other.
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Chapter 10: Pricing Strategies for the Firm
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Q1) BOGOs, i.e., buy-one, get-one-free offers, are an example of third-degree price discrimination.
A)True
B)False
Q2) Assume the inverse demand function for a good can be written as: P = 302Q.Assuming P = $10, the resulting consumer surplus would be equal to:
A)$50.
B)$100.
C)$200.
D)$225.
Q3) Price discrimination strategies that cause considerable consumer resentment or a negative reaction from competitors can reduce or eliminate the effectiveness of such strategies.
A)True
B)False
Q4) In the Airline Pricing Strategies case discussed in the text, a product with fewer rules and restrictions can command a higher price.
A)True
B)False
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Chapter 11: Measuring Macroeconomic Activity
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Sample Questions
Q1) The circular-flow diagram illustrates that:
A)production generates income so that income and production are the same.
B)the economy's income is less than its production.
C)the economy's income is exceeds its production.
D)none of the above are necessarily correct.
Q2) An economy with both a private and public sector is called:
A)a mixed economy.
B)a private economy.
C)a command economy.
D)none of the above.
Q3) The value of currently produced final goods and services measured in current year prices is called:
A)real GDP.
B)nominal GDP.
C)imputed values.
D)inflation.
Q4) Proprietor's income is not considered part of national income.
A)True
B)False
Q5) What are some of the issues associated with the consumer price index?
Page 13
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Chapter 12: Spending by
Individuals, Firms, and
Governments on Real Goods and Services
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Q1) Long-run macroeconomic policies concentrate on:
A)minimizing fluctuations around potential GDP.
B)maximizing fluctuations around potential GDP.
C)incentives for increasing productivity and the potential output of the economy.
D)none of the above.
Q2) The open economy multiplier is calculated as follows:
A)1/[1-(marginal propensity to consume + marginal propensity to invest)]
B)1/[1-(marginal propensity to consume + marginal propensity to import)]
C)1/[1-(marginal propensity to consume + marginal propensity to invest + marginal propensity to import)]
D)1/[1-(marginal propensity to consume + marginal propensity to invest - marginal propensity to import)]
Q3) The marginal propensity to consume is 0.50, marginal propensity to invest is 0.20, and the marginal propensity to import is 0.05.What is the size of the multiplier?
A)1)00
B)2)86
C)3)00
D)0)50
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Chapter 13: The Role of Money in the Macro Economy
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Q1) The function of money that enables prices of goods and services to be quoted is called:
A)medium of exchange.
B)store of value.
C)unit of account.
D)measure of power.
Q2) The banking system in the U.S.is based on:
A)100 percent reserve banking.
B)fractional reserve banking.
C)0 percent reserve banking.
D)none of the above.
Q3) If $1000 was deposited in a bank and the reserve requirement is 0.20, how much is available for loans?
A)$900
B)$910
C)$800
D)$930
Q4) The primary monetary policy tool is reserve requirements.
A)True
B)False
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Chapter 14: The Aggregate Model of the Macro Economy
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Q1) If the government spending increases without an equal increase in taxes, the government must borrow funds in the financial markets.
A)True
B)False
Q2) If there is an autonomous decrease in spending (a leftward shift in the aggregate demand curve)and the Fed wishes to hold real income constant, then the Fed would:
A)decrease the money supply yielding a leftward shift in the aggregate demand curve.
B)increase the money supply yielding a rightward shift in the aggregate demand curve.
C)hold the money supply constant.
D)none of the above.
Q3) Unemployment compensation is an example of:
A)non-discretionary expenditures.
B)discretionary expenditures.
C)taxes.
D)none of the above.
Q4) 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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Q1) Under a gold standard, a continual balance of surplus in any country can be sustained only as long as the country's gold reserves hold out.
A)True
B)False
Q2) In the foreign exchange market, U.S.residents wishing to purchase foreign exports or foreign real and financial assets must:
A)demand U.S. dollars by supplying foreign currency.
B)demand U.S. dollars by supplying U.S. dollars.
C)supply U.S. dollars by demanding foreign currency.
D)none of the above.
Q3) What did the European Central Bank (ECB)do to bolster the value of the euro in September 2000?
Q4) A fixed exchange rate system where central banks buy and sell gold to keep exchange rates at a given level is called the:
A)fixed standard.
B)flexible standard.
C)fiat standard.
D)gold standard.
Page 17
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Chapter 16: Combining Micro and Macro Analysis for Managerial Decision Making
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Sample Questions
Q1) Increases in both labor and capital productivity will result in:
A)downward shift of the average and marginal product curves and upward shift of the average cost curves.
B)downward shift of the average and marginal product curves and downward shift of the average cost curves.
C)upward shift of the average and marginal product curves and downward shift of the average cost curves.
D)upward shift of the average and marginal product curves and upward shift of the average cost curves.
Q2) To cut costs in the face of declining demand and increased competition, many fast food restaurants have focused on reducing:
A)labor costs.
B)utility costs.
C)paper napkin costs.
D)none of the above.
Q3) McDonalds kept its U.S.-based menu when entering the Chinese market.
A)True
B)False
Q4) How did McDonalds address the obesity issue in China?
Page 18
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