Business Economics
Exam Materials
Course Introduction
Business Economics explores the fundamental principles and analytical tools of economics as they apply to the decision-making processes within firms and organizations. The course covers topics such as demand and supply analysis, market structures, production and cost theory, pricing strategies, and the impact of government policies on business operations. Students will develop an understanding of how economic theories are applied in real-world business scenarios, enabling them to analyze market behavior, forecast trends, and evaluate the implications of economic changes on both short-term and long-term business strategies.
Recommended Textbook
Principles of Microeconomics 7th Canadian Edition by McKenzie Mankiw
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22 Chapters
4636 Verified Questions
4636 Flashcards
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) Which statement best describes the relationship between inflation and unemployment
A)In the short run, reducing inflation is associated with falling unemployment.
B)In the short run, reducing inflation is associated with rising unemployment.
C)In the long run, reducing inflation is associated with falling unemployment.
D)In the long run, reducing inflation is associated with rising unemployment.
Answer: B
Q2) Which statement is consistent with the tenth principle of economics
A)If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will temporarily fall.
B)If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will temporarily rise.
C)If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will permanently fall.
D)If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will permanently rise.
Answer: A
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Refer to Figure 2-6.What was the most likely cause of the movement from point C to point D
A)unemployment
B)a decrease in society's preference for bananas
C)a decrease in society's preference for playing baseball
D)a shift to a longer working day
Answer: A
Q2) What are economists who try to improve the world considered
A)mathematicians
B)policy advisors
C)scientists
D)politicians
Answer: B
Q3) Refer to Figure 2-4.What is the opportunity cost in terms of toothbrushes of getting 10 additional toasters by moving from point B to point A
A)0 toothbrushes
B)5 toothbrushes
C)10 toothbrushes
D)15 toothbrushes
Answer: A
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Rusty can edit two pages in one minute,and can type 80 words in one minute.Emily can edit one page in one minute,and can type 100 words in one minute.Rusty has an absolute and comparative advantage in editing,and Emily has an absolute and comparative advantage in typing.
A)True
B)False
Answer: True
Q2) Refer to Figure 3-4.What does each of the two producers have an absolute advantage in
A)Ben has an absolute advantage in wine, and Jerry has an absolute advantage in neither good.
B)Ben has an absolute advantage in beer, and Jerry has an absolute advantage in wine.
C)Ben has an absolute advantage in wine, and Jerry has an absolute advantage in beer.
D)Ben has an absolute advantage in neither good, and Jerry has an absolute advantage in both goods.
Answer: C
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5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) What will happen to the equilibrium price and quantity of gasoline powered lawnmowers if the prices of battery powered lawnmowers goes down and,at the same time,firms switch from producing gasoline powered lawnmowers to producing battery powered lawnmowers
A)price will fall and the effect on quantity is ambiguous
B)price will rise and the effect on quantity is ambiguous
C)quantity will fall and the effect on price is ambiguous
D)quantity will rise and the effect on price is ambiguous
Q2) What would an early frost in the vineyards of the Okanagan Valley cause
A)an increase in the demand for wine, increasing price
B)an increase in the supply of wine, decreasing price
C)a decrease in the demand for wine, decreasing price
D)a decrease in the supply of wine, increasing price
Q3) Which of the following would cause both the equilibrium price and equilibrium quantity of day-old bread (an inferior good) to increase
A)an increase in consumer income
B)a decrease in consumer income
C)greater government restrictions on agricultural chemicals
D)fewer government restrictions on agricultural chemicals
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Page 6
Chapter 5: Elasticity and Its Application
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Sample Questions
Q1) Suppose there is a 3 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded.What is the price elasticity of demand for X
A)0
B)2
C)6
D)infinite
Q2) Generally,over which time period will a firm be able to respond most to a change in price
A)in one month
B)in six months
C)in one year
D)in five years
Q3) Babar's Bakery made $200 last month selling 100 loaves of bread.This month it made $350 selling 70 loaves of bread.What is the price elasticity of demand for Babar's bread
A)0.266
B)0.583
C)0.776
D)1.110
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Chapter 6: Supply, demand, and Government Policies
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Sample Questions
Q1) Which principle is illustrated by the long-run effects of rent controls
A)Society faces a short-run tradeoff between unemployment and inflation.
B)The cost of something is what you give up to get it.
C)People respond to incentives.
D)Government can sometimes improve on market outcomes.
Q2) Where does a binding price floor in a market set price,and with what effect
A)above equilibrium price, causing a shortage
B)above equilibrium price, causing a surplus
C)below equilibrium price, causing a surplus
D)below equilibrium price, causing a shortage
Q3) Refer to Figure 6-8.What is the price buyers will pay after the tax is imposed
A)$5.00
B)$6.00
C)$7.00
D)$8.00
Q4) Most economists are in favour of price controls as a way of allocating resources in the economy.
A)True
B)False
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) What do many economists believe that restrictions against ticket scalping will NOT cause
A)smaller audiences for cultural and sporting events
B)less tax revenue for the province
C)an increase in ticket prices
D)fewer cultural and sporting events planned
Q2) Refer to Figure 7-6.At the equilibrium price,what would consumer surplus be
A)$480
B)$640
C)$1120
D)$1280
Q3) Refer to Figure 7-6.At the equilibrium price,what would total surplus be
A)$480
B)$640
C)$1120
D)$1280
Q4) When markets fail,public policy can potentially remedy the problem and increase economic efficiency.
A)True
B)False
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Chapter 8: Application: the Costs of Taxation
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Sample Questions
Q1) Refer to Figure 8-2.What is the per-unit burden of the tax on the sellers
A)(P - P )/(Q - Q )
B)P - P
C)(P - P )/(Q - Q )
D)P - P
Q2) How is the benefit received by sellers in a market measured
A)by the supply curve
B)by producer surplus
C)by the amount sellers receive for their product
D)by the sellers' costs
Q3) On which factor does the amount of deadweight loss from taxes depend
A)the price elasticity of demand and supply
B)how much of the tax revenue the government plans to spend
C)the product the government is planning to tax
D)market price before the tax was levied
Q4) Who bears the burden of a tax imposed on lawn fertilizer
A)Buyers bear the entire burden of the tax.
B)Sellers bear the entire burden of the tax.
C)Buyers and sellers share the burden of the tax.
D)The government bears the entire burden of the tax.
Page 10
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Chapter 9: Application: International Trade
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Sample Questions
Q1) Refer to Figure 9-12.What would producer surplus be after the tariff
A)A + B + G
B)A + C + G
C)C + G
D)G
Q2) If Belgium exports chocolate to the rest of the world,Belgian chocolate sellers benefit from higher producer surplus,Belgian chocolate buyers are worse off because of lower consumer surplus,but total surplus in Belgium increases because of trade.
A)True
B)False
Q3) Suppose the Ivory Coast,a small country,imports wheat at the world price of $4 per bushel.If the Ivory Coast imposes a tariff of $1 per bushel on imported wheat,the price of wheat in Ivory Coast will increase,but by less than $1,all else equal.
A)True
B)False
Q4) Import tariffs cause the quantity of imports to fall.
A)True
B)False
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Chapter 10: Externalities
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210 Flashcards
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Sample Questions
Q1) When the government chooses an externality policy that aligns private incentives with social efficiency to solve an externality,what does it do
A)It provides incentives for private decision makers to solve the externality problem on their own.
B)It typically uses command-and-control techniques.
C)It follows a rule that the use of taxes is strictly forbidden.
D)It follows a rule that subsidies are always the best policy.
Q2) When a beekeeper places his hives of bees in an orchard so that the bees can gather nectar to produce honey,the bees pollinate the orchard,which increases the yield of fruit.What is the economic explanation of this activity
A)It creates a positive externality because orchard owners can charge the beekeeper a fee for the use of his orchard.
B)It creates a negative externality because the bees are a hazard to the orchard owner.
C)It creates a positive externality because both parties can benefit from this activity.
D)It creates a negative externality because one party may benefit from it but the other party may suffer a loss.
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Private markets usually provide lighthouses because ship captains have the incentive to navigate using the lighthouse and therefore will pay for the service.
A)True
B)False
Q2) Clean air and clean water are both public goods.
A)True
B)False
Q3) Ten friends who love to ski decide to pool their financial resources and equally share the cost of a one-week time-share condominium in Banff,Alberta.If lift lines at the ski resort become more congested when these ten additional people start to ski,then which of the following is most likely the case
A)Use of the ski resort by all of these 10 new skiers will yield a positive externality.
B)The ski resort cannot do anything to reduce the congestion externality
C)An increase in lift ticket prices could be viewed as a Pigovian tax on the externality of congestion.
D)Everyone would have been better off to stay at home.
Q4) Can we use cost and benefit analysis to evaluate human life and how
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) Deadweight losses arise because a tax causes some individuals to change their behaviour.
A)True
B)False
Q2) Refer to Table 12-8.Which tax illustrates a proportional tax
A)tax A
B)tax B
C)tax C
D)tax D
Q3) What is the second largest component of provincial spending,after health care
A)education
B)social services
C)transportation and communication
D)police and protection
Q4) The share of provincial government spending on health has risen substantially over time.What is the most likely reason
A)a rising poor population in the economy
B)the elderly population growing more rapidly than the overall population
C)immigration policy that continues to promote an influx of migrant farm workers
D)hospital overcrowding
Page 14
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Chapter 13: The Costs of Production
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Sample Questions
Q1) How does the average-fixed-cost curve behave
A)It always declines with increased levels of output.
B)It always rises with increased levels of output.
C)It declines as long as it is above marginal cost.
D)It declines as long as it is below marginal cost.
Q2) Average total cost and marginal cost are merely ways to express information that is already contained in a firm's total cost.
A)True
B)False
Q3) Refer to Table 13-2.What is the total cost associated with making 890 boxes of premium chocolates per week
A)$1250
B)$1350
C)$1400
D)$1575
Q4) When marginal cost is rising,what must happen to average variable cost
A)It must be rising.
B)It must be falling.
C)It must be constant.
D)It could be rising or falling.
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.
A)True
B)False
Q2) Explain how a firm in a competitive market identifies the profit-maximizing level of production.When should the firm raise production,and when should the firm lower production?
Q3) When buyers and sellers in a competitive market take the selling price as given,what are they said to be
A)market entrants
B)monopolists
C)free riders
D)price takers
Q4) When price is greater than marginal cost for a firm in a competitive market,what should the firm do to maximize profit
A)The firm should increase production since its marginal cost is falling.
B)The firm must be minimizing its losses since its marginal cost is rising.
C)There are opportunities to increase profit by increasing production.
D)The firm should decrease output to maximize profit.
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Chapter 15: Monopoly
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Sample Questions
Q1) When does a natural monopoly arise
A)when there are constant returns to scale over the relevant range of output
B)when there are economies of scale over the relevant range of output
C)when one firm owns a key natural resource
D)when the government gives a single firm the exclusive right to produce a particular good or service
Q2) Refer to Figure 15-3.What is a profit-maximizing monopoly's profit
A)P × Q
B)P × Q
C)(P - P ) × Q
D)(P - P ) × Q
Q3) Since natural monopolies have a declining average-cost curve,what effect would regulating natural monopolies by setting price equal to marginal cost have
A)It would cause the monopolist to operate at a loss.
B)It would result in a less than optimal total surplus.
C)It would maximize producer surplus.
D)It would encourage research in order to recoup lost profits.
Q4) Explain how a profit-maximizing monopolist chooses its level of output and the price of its goods.
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Chapter 16: Monopolistic Competition
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Sample Questions
Q1) If advertising reduces a consumer's price sensitivity between identical goods,it is likely to do which of the following
A)increase the elasticity of demand for differentiated products
B)enhance competition and encourage more product diversity
C)impede competition and reduce social well-being
D)encourage the consumption of all homogenous goods
Q2) A firm that would experience higher average total cost by increasing production is operating with excess capacity.
A)True
B)False
Q3) What is one way in which monopolistic competition differs from oligopoly
A)There are no barriers to entry in oligopolies.
B)In oligopoly markets there are only a few sellers.
C)All oligopoly firms eventually earn zero economic profits.
D)Strategic interactions between firms are rarely evident in oligopolies.
Q4) What is meant by the term "excess capacity" as it relates to monopolistically competitive firms?
Q5) Discuss how brand names may enhance the efficiency of markets in a less developed country.
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Chapter 17: Oligopoly
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Sample Questions
Q1) What is one characteristic of an oligopoly market structure
A)Firms in the industry are typically characterized by very diverse product lines.
B)Firms in the industry have some degree of market power.
C)Products typically sell at a price that reflects their marginal cost of production.
D)The actions of one seller have no impact on the profitability of other sellers.
Q2) Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists,what is the result
A)They have incentives to cheat.
B)Each firm's profit ends up being zero.
C)Society is worse off.
D)Collusion is necessary.
Q3) If there are many firms participating in a market,what could the market be
A)either an oligopoly or monopolistically competitive
B)either perfectly competitive or monopolistically competitive
C)either an oligopoly or perfectly competitive
D)either an oligopoly or monopoly
Q4) Explain the practice of tying and discuss why it is controversial.
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Chapter 18: The Markets for the Factors of Production
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Sample Questions
Q1) If a disease were to significantly decrease the population of a country,as the Black Death did,we would predict a decrease in the marginal product of land.
A)True
B)False
Q2) Because of diminishing returns,what role does a factor in abundant supply have
A)a high marginal product, and a high rental price
B)a high marginal product, and a low rental price
C)a low marginal product, and a high rental price
D)a low marginal product, and a low rental price
Q3) Oil field workers' wages are directly tied to the world price of oil.
A)True
B)False
Q4) Refer to Scenario 18-3.In what way did the Syrian civil war probably affect Greek labour markets
A)Total employment in Greece decreased.
B)Wages in Greece increased.
C)The marginal product of labour in Greece decreased.
D)Fewer Greeks were able to find work.
Q5) Why may the labour supply curve not be upward sloping?
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Chapter 19: Earnings and Discrimination
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Sample Questions
Q1) Professors are paid less than doctors and lawyers.What is likely to be a partial explanation
A)Teaching jobs are easy.
B)Professors have less education than doctors and lawyers.
C)Professors need very little money to live.
D)The job offers a high element of personal satisfaction.
Q2) When differences in human capital among workers lead to discrimination,it is typically a result of social or political processes rather than economic processes.
A)True
B)False
Q3) Which theory would suggest that attending school does not improve productivity,but that high-ability people are more likely to stay in school
A)physical-capital theory
B)human-capital theory
C)signalling theory
D)neoclassical theory
Q4) Evaluate the following statement: "The gender pay gap provides evidence of widespread,severe,ongoing discrimination by employers and fellow workers."
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21
Chapter 20: Income Inequality and Poverty
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Sample Questions
Q1) Which statement best explains the difference between annual income and lifetime income
A)The distribution of annual income accurately reflects the distribution of living standards.
B)Lifetime incomes are more equally distributed than annual incomes.
C)Transitory changes in income generally have a significant impact on a family's standard of living.
D)Annual income is more equally distributed than permanent income.
Q2) Based on data from 2011,approximately what percentage of all income in Canada did the fourth fifth of all families receive
A)24
B)43
C)51
D)78
Q3) Which argument is a libertarian likely to make
A)Outcomes always dominate processes.
B)Only individual members of society can earn income.
C)Government has no role in the economy.
D)Society is responsible for ensuring an equal distribution of income.
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Page 22
Chapter 21: The Theory of Consumer Choice
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Sample Questions
Q1) Refer to Figure 21-8.Assume that the consumer depicted has an income of $100.Which price-quantity combination would be on her demand curve for marshmallows if the price of a bag of chocolate chips is $10
A)$2.50, 4
B)$2.50, 9
C)$5.00, 4
D)$5.00, 8
Q2) Evaluate the following statement: "Giffen goods violate the law of demand,and therefore,the law of demand can't really be considered a law."
Q3) Refer to Figure 21-5.The consumer is likely to select the consumption bundle associated with which point
A)point B
B)point C
C)point D
D)point E
Q4) The marginal rate of substitution is the slope of the budget constraint.
A)True
B)False
Q5) List and briefly explain each of the four properties of indifference curves.
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Chapter 22: Frontiers of Microeconomics
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Sample Questions
Q1) Which statement best captures the meaning of transitivity of preferences
A)If A is preferred to B, then B is less preferred than A.
B)If A is preferred to B and B is preferred to C, then A is preferred to C.
C)If A is preferred to B and B is preferred to C, then the preference for A over B is stronger than the preference for B over C.
D)If A is preferred to C, then there exists B such that A is preferred to B and B is preferred to C.
Q2) When asymmetric information affects a relationship between two parties,what is always the case
A)Neither party is well informed.
B)One party is better informed than the other party.
C)Both parties are equally well informed.
D)The government is better informed than either of the two parties.
Q3) Economist Kenneth Arrow wrote a famous book in 1951 in which he took up what question
A)Is there a perfect voting system?
B)Are preferences transitive?
C)Is government an imperfect institution?
D)Should politicians face fixed terms?
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