Business Economics
Exam Answer Key
Course Introduction
Business Economics explores the application of economic theories and analytical tools to business decision-making and strategy. The course covers fundamental concepts such as demand and supply analysis, market structures, pricing strategies, production costs, and profit maximization. Students learn how businesses respond to economic variables like inflation, interest rates, and government policies, and how they operate within competitive and non-competitive environments. Emphasis is placed on practical case studies and current economic issues to help students understand how economic principles inform managerial decisions and shape business success in a dynamic marketplace.
Recommended Textbook Microeconomics 1st Canadian Edition by R.
Glenn Hubbard
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17 Chapters
2441 Verified Questions
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Page 2
Chapter 1: Economics: Foundations and Models
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) As the minimum wage rises
A)the price of takeout coffee will rise.
B)the price of takeout coffee will fall.
C)there will be a shortage of coffee.
D)there will be a surplus of coffee.
Answer: A
Q2) "An increase in the price of gasoline will increase the demand for hybrid vehicles."
This statement is an example of a positive economic statement.
A)True
B)False
Answer: True
Q3) By definition, economics is the study of
A)how to make money in the stock market.
B)how to make money in a market economy.
C)the choices people make to attain their goals, given their scarce resources.
D)supply and demand.
Answer: C
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3
Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) The natural resources used in production are made available in the A)goods and services market.
B)product market.
C)government market.
D)factor market.
Answer: D
Q2) In a free market there are virtually no restrictions, or at best few restrictions on how factors of production can be employed.
A)True
B)False
Answer: True
Q3) A decrease in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point outside the frontier.
A)True
B)False
Answer: False
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) An increase in the quantity of a product supplied is caused by an increase in the price of the product.
A)True
B)False
Answer: True
Q2) What are the two effects that explain the Law of Demand? Briefly explain each effect.
Answer: The two effects that explain the Law of Demand are the income effect and the substitution effect.The income effect is the change in quantity demanded of a good that results from a change in purchasing power due to a change in the good's price.The substitution effect is the change in quantity demanded of a good that results from the effect of a change in the good's price making the good more or less expensive relative to other goods that are substitutes.
Q3) From a supply perspective, what impact would an increase in the price of motorcycles have on the market for motorcycles?
Answer: An increase in the price of motorcycles would generate an increase in the quantity of motorcycles supplied in the market.
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Sample Questions
Q1) Which of the following is not a consequence of minimum wage laws?
A)Low skilled workers are hurt because minimum wage reduces the number of jobs providing low skilled workers with training.
B)Employers will be reluctant to offer low-skill workers jobs with training.
C)Producers have an incentive to offer workers non-wage benefits such as extra health and dental care benefits and convenient working hours rather than a higher wage.
D)Some workers benefit when the minimum wage is increased.
Q2) Refer to Table 4.3.If a minimum wage of $9.50 an hour is mandated, what is the quantity of labour supplied?
A)40,000
B)570,000
C)610,000
D)1,180,000
Q3) In a competitive market equilibrium
A)total consumer surplus equals total producer surplus.
B)marginal benefit and marginal cost are maximized.
C)consumers and producers benefit equally.
D)the marginal benefit equals the marginal cost of the last unit sold.
Q4) What is producer surplus? What does producer surplus measure?
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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141 Verified Questions
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Sample Questions
Q1) A quasi-public good differs from a public good in that unlike a public good, it is possible to keep out those who do not pay for the quasi-public good from enjoying the benefits of the good.
A)True
B)False
Q2) What is the rationale behind a marketable emission allowance scheme?
A)to create of a market for externalities: the scheme brings together buyers and sellers of marketable permits
B)to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowance
C)to raise revenue for the government through the sale of emission permits and at the same time set an emissions target
D)to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance
Q3) An externality refers to economic events outside a market.
A)True
B)False
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Page 7
Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) The value of the price elasticity of supply depends primarily on how quickly firms can acquire inputs to increase quantity supplied when price increases.
A)True
B)False
Q2) Refer to Figure 6.7.What is the value of the price elasticity of supply between g and h?
A)20 percent
B)0.5
C)2
D)0.02
Q3) Seth is a competitive body builder.He says he has to have his 12-oz package of protein powder to "feed his muscles" every day.On the basis of this information, what can you conclude about his price elasticity of demand for protein powder?
A)It is elastic.
B)It is perfectly elastic.
C)It is perfectly inelastic.
D)The price elasticity coefficient is 0.
Q4) Explain the relationship between price elasticity of demand and total revenue.
8
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Chapter 7: Comparative Advantage and the Gains From International Trade
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) Trade between countries that is without restrictions is called A)unobstructed commerce.
B)unabated trade.
C)free trade.
D)unencumbered trade.
Q2) Bay Street, in Toronto, is the heart of the Canadian financial system, where banks, brokerage houses, other financial firms, and the Toronto Stock Exchange are all located.What is the reason for Toronto's comparative advantage in the financial market?
A)the development of superior information technology
B)an abundant supply of skilled labour
C)Toronto has a central location in the country
D)external economies
Q3) In Canada, imports and exports combined make up more than half of GDP.
A)True
B)False
Q4) One reason a country does not specialize completely in production is that not all goods and services are traded internationally.
A)True
B)False
9
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Chapter 8: Consumer Choice and Behavioral Economics
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154 Flashcards
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Sample Questions
Q1) The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.
A)True
B)False
Q2) Refer to Figure 8.5.Which diagram demonstrates a decrease in total utility following an increase in the price of candy?
A)the movement from e to d in Panel A
B)the movement from g to f in Panel B
C)the movement from k to h in Panel C
D)none of the above
Q3) Most film processing companies have a policy of printing every picture on a roll of film and allowing customers to request a refund for pictures that were not clearly developed.The companies do this knowing that most customers do not ask for refunds.This is an example of consumers
A)failing to ignore sunk costs.
B)being overly optimistic about their future behavior.
C)not taking nonmonetary opportunity costs into account.
D)not making themselves aware of the policy regarding refunds.
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Page 10
Chapter 9: Technology, Production, and Costs
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169 Verified Questions
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Sample Questions
Q1) Refer to Figure 9.4.Identify the curves in the diagram.
A)E = average fixed cost curve; F = variable cost curve; G = total cost curve, H = marginal cost curve
B)E = marginal cost curve; F = total cost curve; G = variable cost curve, H = average fixed cost curve
C)E = average fixed cost curve; F = average total cost curve; G = average variable cost curve, H = marginal cost curve
D)E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H = average fixed cost curve
Q2) As a firm hires more labour in the short run, the
A)level of total product stays constant.
B)output per worker rises.
C)extra output of another worker may rise at first, but eventually must fall.
D)costs of production are increasing at a fixed rate per unit of output.
Q3) Refer to Figure 9.2.The curve labeled "E" is
A)the total product curve.
B)the average product curve.
C)the marginal product curve.
D)the output supply curve.
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Page 11
Chapter 10: Firms in Perfectly Competitive Markets
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) Refer to Figure 10.6.Identify the firm's short-run supply curve.
A)the marginal cost curve
B)the marginal cost curve from a and above
C)the marginal cost curve from b and above
D)the marginal cost curve from d and above
Q2) Perfect competition is characterized by all of the following except
A)heavy advertising by individual sellers.
B)homogeneous products.
C)sellers are price takers.
D)a horizontal demand curve for individual sellers.
Q3) What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?
Q4) Refer to Figure 10.4.If the market price is $30 and if the firm is producing output, what is the amount of its total variable cost?
A)$7,200
B)$6,480
C)$5,400
D)$3,960
Q5) Under what conditions should a competitive firm shut down in the short run?
Page 12
Q6) What is meant by the term "long-run competitive equilibrium?
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Chapter 11: Monopolistic Competition
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Sample Questions
Q1) Which of the following characteristics is common to monopolistic competition and perfect competition?
A)Firms produce identical products.
B)Entry barriers into the industry are low.
C)Each firm faces a downward-sloping demand curve.
D)Firms take market prices as given.
Q2) Although advertising raises the price of a monopolistic competitor's product, it does confer a benefit to consumers.Which of the following is a benefit to consumers?
A)Advertising acts as a barrier to entry.
B)Advertising engenders brand loyalty.
C)Advertising could provide consumers with useful information about new products and enable them to comparison shop.
D)Advertised products tend to be of higher quality so consumers feel special when they consume advertised products.
Q3) What is the difference between zero accounting profit and zero economic profit?
Q4) How would a marketing campaign directed at single women improve the chances of success at a place like a cigar bar?
Q5) What is the difference between the terms "marketing" and "advertising"?
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Chapter 12: Oligopoly: Firms in Less Competitive Markets
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) According to Porter's Five Competitive Forces Model, which kinds of products are most likely to limit the ability of firms in an industry to raise prices?
A)differentiated products that target a small subsegment of the industry
B)substitutable products produced by firms in different industries
C)similar products produced by similar industries in low-cost countries
D)complementary products produced by different firms in the same industry
Q2) Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally
A)prevent rival airlines from competing in that market.
B)increase marginal revenue more than marginal cost.
C)maximize marginal revenue.
D)discourage rivals from matching price cuts.
Q3) A reason why there is more competition among restaurants than among large discount department stores is that restaurants
A)have to cater to a variety of consumer tastes while department stores do not.
B)unlike department stores, have to abide by government sanitation rules.
C)unlike department stores, do not have significant economies of scale.
D) have more elastic demand for their product compared to department stores.
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Chapter 13: Monopoly and Antitrust Policy
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146 Flashcards
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Sample Questions
Q1) A monopoly differs from monopolistic competition in that
A)a monopoly has market power while a firm in monopolistic competition does not have any market power.
B)a monopoly can never make a loss but a firm in monopolistic competition can.
C)in a monopoly there are significant entry barriers but there are low barriers to entry in a monopolistically competitive market structure.
D)a monopoly faces a perfectly inelastic demand curve while a monopolistic competitor faces an elastic demand curve.
Q2) A virtuous cycle occurs
A)when lobbyists petition Parliament a public franchise; the lobbyist then raise money for the political party that granted the franchise.
B)when monopoly profits are used to create new products for additional monopoly profits.
C)when a firm can attract enough buyers initially to increase a product's usefulness to attract even more buyers.
D)when a firm's sales volume reaches a level where the firm can take advantage of economies of scale; thereby reducing the price of the product to further boost its sales.
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Page 15
Chapter 14: The Markets for Labour and Other Factors of Production
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149 Verified Questions
149 Flashcards
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Sample Questions
Q1) The equilibrium wage and quantity of labour in the market for skilled workers is determined by
A)the strength of labour unions.
B)the monopsony power of firms.
C)the demand and supply of labour.
D)the market value created by the output of these skilled workers.
Q2) The demand for labour is described as a derived demand because
A)it is derived by workers seeking to earn income to fund the consumption of goods and services.
B)it is derived by producers seeking to make profits by starting new businesses.
C)it is derived from the demand for products that use labour in the production process.
D)it is derived from government institutions which rely on labour markets for the purpose of raising tax revenue.
Q3) Refer to Figure 14.2.Panel D is appropriate when used to represent
A)the quantity of labour demanded by an input price taker.
B)the labour supply curve facing an input price taker.
C)the quantity of labour supplied by someone working a fixed number of hours.
D)the highly-skilled labour market supply curve.
Q4) What is the signaling hypothesis of education?
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Chapter 15: Public Choice, Taxes, and the Distribution of Income
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) Describe each of the principles governments consider when deciding which taxes to use.
Q2) Suppose the equilibrium price and quantity of a 12-pack of pop are $5.00 and 10,000 12-packs, respectively, and the government decides to impose a $1.00 tax on every 12-pack of carbonated soft drinks in an effort to fight obesity.Draw two supply and demand graphs, one showing the excess burden of the tax when supply is less elastic and the other showing the excess burden of the tax when supply is more elastic.Identify the excess burden of the tax on each graph.On which graph is the excess burden the greatest?
Q3) The government of Notrealia raises revenue through a general income tax paid by all its residents to operate the city's marina.The marina is used by private boat owners.This method of raising revenue to operate the marina is
A)consistent with the benefits-received principle.
B)consistent with the ability-to-pay principle.
C)inconsistent with the benefits-received principle.
D)inconsistent with the ability-to-pay principle.
Q4) Compare the distribution of income in Canada with the distribution of income in other high-income countries.
Q5) Describe the main factors economists believe cause inequality of income.
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Why is it necessary for a firm that practices price discrimination be a price maker rather than a price taker?
Q2) Refer to Figure 16.4.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the competitive price.(This is also called an optimal two-part tariff.) What is the total revenue it can expect to collect from the fixed fee portion of the price?
A)$2,560
B)$5,760
C)$7,870
D)$10,240
Q3) Which of the following describes two-part tariff pricing?
A)A firm charges two different prices for the same good.
B)An importer has to pay a tax at the nation's borders, and a sales tax when the good is sold.
C)A buyer pays an initial price for entrance to the market and an additional fee for each unit of the product purchased.
D)A buyer must pay a down payment and monthly payments to buy big-ticket items such as a car, a plasma television or a suite of furniture.
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Chapter 17: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) How do firms raise external funds through indirect finance?
Q2) Tanesha sells homemade candles over the Internet.Her annual revenue is $64,000 per year, the explicit costs of her business are $17,000, and the opportunity costs of her business are $22,000.What are the implicit costs of her business?
A)$17,000
B)$22,000
C)$39,000
D)$47,000
Q3) What are liabilities?
A)anything of value owned by a person or a business
B)anything a person or a business owes to entities outside the business
C)the total cost of labor for a firm
D)only those unpaid expenses for which a business or person is making interest payments
Q4) What is accounting profit?
A)gross revenue minus explicit costs
B)gross revenue minus implicit costs
C)gross revenue minus explicit and implicit costs
D)the same as economic profit
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