Business Economics
Exam Preparation Guide
Course Introduction
Business Economics explores the application of economic theories and principles to real-world business decision-making. The course examines how businesses operate within various market structures, how they respond to changes in the economic environment, and how they make strategic choices regarding pricing, production, and resource allocation. Topics include demand and supply analysis, cost and revenue concepts, market competition, government regulation, and the impact of macroeconomic factors such as inflation and interest rates. By integrating theoretical frameworks with practical business scenarios, students develop the analytical skills necessary to address complex challenges faced by modern enterprises.
Recommended Textbook Microeconomics Student Value 4th Edition by
R. Glenn Hubbard
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18 Chapters
2548 Verified Questions
2548 Flashcards
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Chapter 1: Economics: Foundations and Models
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146 Verified Questions
146 Flashcards
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Sample Questions
Q1) The branch of economics which studies the behavior of entire economies and policies that affect the economy as a whole is called
A)public economics.
B)microeconomics.
C)macroeconomics.
D)normative economics.
Answer: C
Q2) An office supply store sells a ream of printer paper at a fixed price of $4.50.Which of the following is a term used by economists to describe the money received from the sale of an additional ream of paper?
A)marginal revenue
B)gross earnings
C)pure profit
D)marginal costs
E)net benefit
Answer: A
Q3) Refer to Table 1-2.The table above shows the sales of flat-panel television sets in Central America.Present the information using a bar graph.
Answer: 11ea87b0_4b1a_c1d2_b530_b72d16149859_TB4186_00
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Page 3
Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) Specializing in the production of a good or service in which one has a comparative advantage enables a country to do which of the following?
A)never have to engage in trade with other nations
B)increase the variety of products that it can produce with a decrease in resources
C)consume a combination of goods that lies outside its own production possibilities frontier
D)produce a combination of goods that lies outside its own production possibilities frontier
Answer: C
Q2) Refer to Table 2-3.What is George's opportunity cost of cultivating a garden?
A)half a garden cultivated
B)two lawns mowed
C)two-thirds of a garden cultivated
D)one and a half lawns mowed
Answer: B
Q3) List the four broad categories of factors of production.
Answer: labor,capital,natural resources,and entrepreneurship
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Page 4
Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Last month,the Tecumseh Corporation supplied 400 units of three-ring binders at $6 per unit.This month,the company supplied the same quantity of binders at $4 per unit.Based on this evidence,Tecumseh has experienced
A)a decrease in supply.
B)an increase in supply.
C)an increase in the quantity supplied.
D)a decrease in the quantity supplied.
Answer: B
Q2) If consumers view tablet computers as good replacements for ________ demand will most likely be greater than if consumers view tablet computers as good replacements for ________.
A)e-readers; laptop computers
B)e-readers; desktop computers
C)desktop computers; computers in general
D)laptop computers; e-readers
Answer: D
Q3) What are the five most important variables that shift the market supply curve?
Answer: Prices of inputs; Technological change; Prices of substitutes in production; The number of firms in the market; Expected future prices
Page 5
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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138 Verified Questions
138 Flashcards
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Sample Questions
Q1) If the price of garlic is represented by equation P = 25 - QD,then the corresponding quantity of garlic demanded is represented by the equation
A)QD = P - 25.
B)QD = P + 25.
C)QD = 25 - P.
D)QD = -25 + P.
Q2) Refer to Table 4-1.The table above lists the highest prices three consumers,Curly,Moe,and Larry,are willing to pay for a bottle of champagne.If the price of the champagne falls from $24 to $14
A)consumer surplus increases from $32 to $53.
B)Curly will buy four bottles; Moe will buy two bottles,and Larry will buy one bottle.
C)consumer surplus will increase from $80 to $95.
D)Larry and Moe will receive more consumer surplus than Curly.
Q3) There is a shortage of every good that is scarce.
A)True
B)False
Q4) What is consumer surplus? Why would policy makers be interested in consumer surplus?
Page 6
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Chapter 5: Externalities, environmental Policy, and Public Goods
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133 Verified Questions
133 Flashcards
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Sample Questions
Q1) In order to determine what quantity of a public good should be supplied governments sometimes use
A)quantitative analysis.
B)economic forecasting.
C)econometrics.
D)cost-benefit analysis.
Q2) Refer to Figure 5-8.How much is Bree willing to pay to have 4 street lights installed?
A)$1,500
B)$1,800
C)$2,700
D)$7,200
Q3) Pollution is an example of a A)public good.
B)positive externality.
C)private cost.
D)negative externality
Q4) A public good that is a good that is both rival and excludable.
A)True
B)False
7
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) If demand for a product is perfectly inelastic a change in price will not change total revenue.
A)True
B)False
Q2) The cross-price elasticity of demand measures the
A)absolute change in the quantity demanded of one good divided by the absolute change in the price of another good.
B)percentage change in the quantity demanded of one good divided by the percentage change in the price of another good.
C)percentage change in the price of one good divided by the percentage change in the quantity demanded of another good.
D)percentage change in the quantity demanded of one good in one location divided by the price of the same good in another location.
Q3) To calculate the price elasticity of demand we divide
A)the percentage change in quantity demanded by the percentage change in price.
B)the percentage change in price by the percentage change in quantity demanded.
C)rise by the run.
D)the average price by the average quantity demanded.
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Chapter 7: The Economics of Health Care
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) ________ account(s)for between 1 and 4 percent of health care costs in the United States.
A)The aging population
B)Uninsured patients receiving treatments at hospital emergency rooms that could have been provided less expensively at doctor's offices
C)The payments to settle malpractice lawsuits and the premiums doctors pay for malpractice insurance
D)Advances in medical technology
Q2) ________ occurs when actions taken by one party to a transaction are different from what the other party expected at the time of the transaction.
A)Adverse selection
B)Risk Aversion
C)Fraud
D)Moral hazard
Q3) Under the Patient Protection and Affordable Care Act (PPACA),individuals who do not have health insurance will be subject to a fine.
A)True
B)False
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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141 Verified Questions
141 Flashcards
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Sample Questions
Q1) In which types of business do owners have unlimited personal liability and in which do owners have limited personal liability?
Q2) Securities dealers that trade stocks and bonds outside exchanges comprise the A)foreign exchange market.
B)over-the-counter market.
C)NASDAQ market.
D)outlet market.
Q3) The Sarbanes-Oxley Act of 2002 was passed in response to what event?
A)a series of accounting scandals
B)unexpected increases in dividend payments to stockholders at various corporations
C)volatility in NASDAQ indexes
D)historically low bond prices
Q4) When a business is set up as a sole proprietorship,the owner of the business faces unlimited liability.
A)True
B)False
Q5) If you own a bond with a 3 percent coupon rate and new bonds are paying 8 percent,what will happen to your bond's market price?
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Chapter 9: Comparative Advantage and the Gains From International Trade
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) Protectionism is the use of ________ to protect domestic firms from foreign competition.
A)military force
B)trade barriers
C)cheap labor
D)dumping
Q2) Which of the following describes the national security argument for protectionism?
A)Nearly all industries can make some claim to strategic importance so such trade restrictions can get out of hand.
B)Increases in economic surplus outweigh the decreases in consumer surplus that result from protectionism.
C)Some goods should be insulated from foreign competition to ensure an adequate supply of these goods in the event of an international conflict.
D)Private companies (for example,Coca-Cola)should not be forced to reveal their trade secrets to foreign companies.
Q3) What are three primary reasons for the growth of international trade over the past 50 years?
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Page 11
Chapter 10: Consumer Choice and Behavioral Economics
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154 Verified Questions
154 Flashcards
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Sample Questions
Q1) The demand for a Giffen good slopes upward.
A)True
B)False
Q2) If Lisa spends her income on veggie burgers and pints of soy milk and the price of veggie burgers is three times the price of a pint of soy milk,then when Lisa maximizes her utility she will buy
A)both goods until the marginal utility of veggie burgers is three times the marginal utility of soy milk.
B)three times as many veggie burgers as pints of soy milk.
C)three times as many pints of soy milk as veggie burgers.
D)both goods until the marginal utility of a pint of soy milk is three times the marginal utility of veggie burgers.
Q3) The income effect due to a price decrease will result in an increase in the quantity demanded for
A)a Giffen good.
B)an inferior good.
C)a public good.
D)a normal good.
Q4) Explain the endowment effect.
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Chapter 11: Technology, production, and Costs
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165 Verified Questions
165 Flashcards
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Sample Questions
Q1) Technological change is a key reason why Wal-Mart has become one of the largest firms in the world.Which of the following is a change in technology implemented by Wal-Mart?
A)Wal-Mart developed a supply chain that allows it to manage inventories efficiently.
B)Instead of buying goods it sells from other companies,Wal-Mart makes many of these goods in its own factories.
C)Wal-Mart employs hundreds of scientists and engineers who develop new cost-saving techniques.
D)Wal-Mart hires managers from many of the top business schools in the United States.
Q2) Average fixed cost can be calculated using any of the formulas below except A)TFC/Q.
B)(TC - VC)/Q.
C) (TC - VC)/ Q.
D)(TC/Q)- AVC.
Q3) If marginal product is equal to average product,then total product is at a maximum.
A)True B)False
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Chapter 12: Firms in Perfectly Competitive Markets
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151 Verified Questions
151 Flashcards
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Sample Questions
Q1) Refer to Figure 12-2.Jason is currently producing 20 thousand pounds of apples.To maximize his profit Jason should
A)keep production at 20 thousand pounds.
B)increase production to the output rate indicated by point d.
C)increase production to the output rate indicated by point e.
D)decrease production to the output rate indicated by point a.
Q2) Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?
A)Allocative efficiency is achieved only in the long run.Productive efficiency is achieved only in the short run.
B)Allocative efficiency is achieved only in the long run.Productive efficiency is achieved in the short run and the long run.
C)Allocative efficiency is achieved only in the short run.Productive efficiency is achieved only in the long run.
D)Allocative efficiency is achieved in the short run and the long run.Productive efficiency is achieved only in the long run.
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) Suppose that if a local McDonald's restaurant reduces the price of a Big Mac from $4.00 to $3.25,the number of Big Macs it sells per day will increase from 4 to 5.Explain the output effect and the price effect resulting from this change.Using a graph,illustrate both the loss in revenue from selling each of the first 4 Big Macs for $0.75 less and the additional revenue from selling 1 more Big Mac.What is the total change in revenue received which results from this price decrease?
Q2) Explain the similarities and differences between the long-run equilibrium for a perfectly competitive firm and a monopolistically competitive firm.Illustrate your answer with a graph demonstrating the long run equilibrium for the two types of firms.
Q3) What is meant by "excess capacity"? How does it relate to consumer utility?
Q4) Refer to Figure 13-5.Which of the graphs in the figure depicts a monopolistically competitive firm that is minimizing its losses?
A)Panel A
B)Panel B
C)Panel C
D)Panel A and Panel C
Q5) Discuss the role of product differentiation and advertising in monopolistic competition.
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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135 Verified Questions
135 Flashcards
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Sample Questions
Q1) Economists use game theory to analyze oligopolies because
A)real markets are too complicated to analyze without using games.
B)it is more enjoyable for economists and students to learn by playing games.
C)game theory helps us to understand why interactions among firms are crucial in determining profitable business strategies.
D)game theory is useful in understanding the actions of firms that are price takers.
Q2) Sequential games are often used to analyze which two types of business strategies?
A)whether to invest in research and development and whether to offer employees an early retirement package
B)deciding to merge with another firm and deciding how much to spend on an advertising campaign
C)deciding to end production of an unprofitable product and deciding to shut down temporarily
D)deterring entry by another firm and bargaining between firms
Q3) Why do economists refer to the pricing strategies of oligopoly firms as a prisoner's dilemma game?
Q4) Firms in an oligopoly are said to be interdependent.What does this mean?
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Chapter 15: Monopoly and Antitrust Policy
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) Some economists argue that Microsoft become a monopoly in the market for computer software by developing MS-DOS,an operating system used for the first IBM personal computers.The more people who used MS-DOS-based programs,the greater the usefulness of a using a computer with an MS-DOS operating system.The explanation for Microsoft's monopoly is
A)the development of new technology that other firms could not copy.
B)control of a key resource which,in this case,is the MS-DOS operating system.
C)network externalities.
D)patents Microsoft obtained when it developed the MS-DOS operating system.
Q2) What is a public franchise? Are all public franchises natural monopolies?
Q3) Firms that face downward-sloping demand curves for their output in the product market are called
A)price takers.
B)price dictators.
C)monopolists.
D)price makers.
Q4) Identify four reasons for high entry barriers? Briefly explain each reason.
Q5) What is the difference between a monopoly's marginal revenue curve and a perfect competitor's marginal revenue curve?
Page 17
Q6) If you own the only bookstore in a small town,do you have a monopoly?
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) College students and faculty members have a more elastic demand than the general public for Apple's iMac desktop computers.From this we can conclude that
A)Apple will charge college students and faculty members higher prices than it charges the general public.
B)Apple will charge college students and faculty members lower prices than it charges the general public.
C)the general public will earn arbitrage profits by buying iMac desktop computers from Apple and reselling them to college students and faculty members.
D)Apple will earn economic profits from the computers it sells to the general public but will break even on the computers it sells to college students and faculty members.
Q2) Cost-plus pricing would be consistent with selecting the profit-maximizing price when
A)it results in a price that causes quantity sold to be where marginal revenue equals marginal cost.
B)a firm has no difficulty estimating its demand curve.
C)consumers value the product beyond its marginal cost.
D)the demand for the firm's product is unit-elastic.
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Page 18
Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) There are 345 Division 1-A college basketball programs.If the NCAA chose to increase the number of basketball programs from 345 to 400,the labor supply curve for Division 1-A head basketball coaches would
A)go from being upward sloping to being vertical.
B)go from being vertical sloping to being upward sloping.
C)remain upward sloping.
D)remain vertical.
Q2) The demand for labor is different from the demand for final goods and services because
A)the demand for labor is derived from the demand for the good or service the labor is used to produce.
B)it is a demand for people,not inanimate objects.
C)the demand for labor is more inelastic than the demand for the goods and services produced with this labor.
D)the law of demand does not apply to the demand for labor.
Q3) A decrease in the amount of human capital acquired by workers will lead to decrease in the supply of labor.
A)True
B)False
Page 19
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Chapter 18: Public Choice, taxes, and the Distribution of Income
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139 Verified Questions
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Sample Questions
Q1) The largest source of tax revenue for state and local governments in the United States in 2010 was
A)sales taxes.
B)the corporate income tax.
C)the property tax.
D)the individual income tax.
Q2) The proposition that the outcome of a majority vote is likely to represent the preferences of the voter who is in the political middle is called
A)the mean (or average)voter theorem.
B)the voting paradox.
C)the Arrow impossibility theorem.
D)the median voter theorem.
Q3) Income inequality in the United States has increased somewhat over the past 25 years.Two factors that appear to have contributed to this are
A)tax cuts on high income individuals and large increases in prices of stocks.
B)strong economic growth and low inflation.
C)rapid technological change and expanding international trade.
D)outsourcing of jobs by U.S.firms and cuts in taxes on capital gains.
Q4) What is meant by "tax incidence"?
Page 20
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