Course Introduction
Business Economics
Exam Preparation Guide
Business Economics explores the application of economic theories and methodologies to real-world business problems and decision-making. The course provides an understanding of how market structures, consumer behavior, production costs, and government policies impact business operations and strategy. Students learn to analyze demand and supply, pricing strategies, and competitive dynamics, applying microeconomic principles to optimize business performance. Emphasis is placed on practical tools for forecasting, risk assessment, and evaluating market opportunities, equipping learners with skills to make informed, data-driven business decisions in a constantly changing economic environment.
Recommended Textbook Essentials of Economics 3rd Edition by Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Mr.Peabody chooses to invest in companies that produce goods and services at the lowest possible cost.Mr.Peabody is investing in companies that are
A) allocatively efficient.
B) productively efficient.
C) guaranteed to make a profit.
D) all of the above.
Answer: B
Q2) The term ________ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade.
A) collective
B) cooperative
C) market
D) trade-off
Answer: C
Q3) When voluntary exchange takes place,both parties gain from the exchange.
A)True
B)False
Answer: True
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Chapter
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Sample Questions
Q1) Refer to Figure 2-2.Steve Vignetto raises cattle and llamas on his land.His land is equally suitable for raising either animal.Which of the graphs in Figure 2-2 represents his production possibility frontier?
A) Graph A
B) Graph B
C) Graph C
D) Either Graph B or Graph C
Answer: A
Q2) Economic decline (negative growth)is represented on a production possibility frontier model by the production possibility frontier
A) shifting outward.
B) shifting inward.
C) becoming steeper.
D) becoming flatter.
Answer: B
Q3) The payment received by suppliers of entrepreneurial skills is called wages.
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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Sample Questions
Q1) A positive technological change will cause the supply of a good to increase.
A)True
B)False
Answer: True
Q2) A change in all of the following variables will change the market demand for a product except
A) the price of the product.
B) population and demographics.
C) income.
D) tastes.
Answer: A
Q3) Suppose that when the price of strawberries decreases,Simone increases her purchases of whipped cream.To Simone
A) strawberries and whipped cream are complements.
B) strawberries and whipped cream and substitutes.
C) strawberries and whipped cream are normal goods.
D) strawberries are a normal good and whipped cream is an inferior good.
Answer: A
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Chapter 4: Market Efficiency and Market Failure
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Sample Questions
Q1) The price elasticity of supply is equal to
A) the value of the slope of the supply curve.
B) the change in quantity supplied divided by the change in price.
C) the percentage change in price divided by the percentage change in quantity supplied.
D) the percentage change in quantity supplied divided by the percentage change in price.
Q2) To calculate the price elasticity of supply we divide
A) the percentage change in price by the percentage change in quantity supplied.
B) the percentage change in quantity supplied by the percentage change in price.
C) the rise by the run.
D) the average price by the average quantity supplied.
Q3) We should never assume that an inelastic demand curve is a perfectly inelastic demand curve because
A) there has never been evidence of a perfectly inelastic demand curve.
B) an inelastic demand curve may be perfectly inelastic at some times but not others.
C) perfectly inelastic demand curves are rare.
D) an inelastic demand curve may be elastic at high prices.
Q4) Explain the relationship between price elasticity of demand and total revenue.
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Chapter 5: The Economics of Healthcare
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Sample Questions
Q1) Frieda is at her local florist to buy a dozen roses.She is willing to pay $75 for the roses,and buys them for $75.Frieda's consumer surplus from the purchase is
A) $150.
B) $75.
C) $37.50.
D) $0.
Q2) The total amount of producer surplus in a market is equal to the area below the supply curve.
A)True
B)False
Q3) Refer to Figure 5-1.If the market price is $1.50,what is the consumer surplus on the second burrito?
A) $0.50
B) $1.00
C) $1.50
D) $3.50
Q4) Rent control is an example of a price ceiling.
A)True
B)False
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Chapter 6: Firms,the Stock Market,and Corporate Governance
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Sample Questions
Q1) Refer to Figure 6-2.The curve labelled 'E' is
A) the total product curve.
B) the average product curve.
C) the marginal product curve.
D) the output supply curve.
Q2) Which of the following costs will not change as output changes?
A) Marginal cost
B) Total variable cost
C) Average variable cost
D) Total fixed cost
Q3) In the world oil market,oil is supplied up to the point where
A) the marginal cost of the last barrel is just equal to the price buyers are willing to pay for that last barrel.
B) the marginal cost of the last barrel is zero.
C) the marginal cost of the last barrel is the greatest distance from the price buyers are willing to pay for that last barrel.
D) the marginal cost of the last barrel is at a maximum.
Q4) In economics,what is the difference between the short run and the long run?
Q5) What is the difference between total costs,variable costs and fixed costs?
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) Refer to Figure 7-7.At price P<sub>4</sub>,the firm would produce
A) Q<sub>3</sub> units.
B) Q<sub>4</sub> units.
C) Q<sub>5</sub> units.
D) Q<sub>6</sub> units.
Q2) If a perfectly competitive firm's price is above its average total cost,the firm
A) is earning a profit.
B) should shut down.
C) is incurring a loss.
D) is breaking even.
Q3) Ethan Nicholas,who developed the iShoot application for the iPhone 3G,found that to maintain sales in a profitable competitive market,the price of a product A) will usually rise. B) will usually fall.
C) will usually remain stable.
D) will eventually fall to zero.
Q4) Explain two different ways to determine the profit-maximising level of output for a firm in a perfectly competitive market.
Q5) What is meant by the term 'long-run competitive equilibrium'?
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Chapter 8: Technology, production, and Costs
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Sample Questions
Q1) If a monopolist's price is $50 per unit and its marginal cost is $25,then to maximise profit
A) the firm should increase output.
B) the firm should decrease output.
C) the firm should continue to produce the output it is producing.
D) There is not enough information given to say what the firm should do to maximise profit.
Q2) Unlike a perfect competitor,a monopolist faces the market demand curve.
A)True
B)False
Q3) Which of the following statements about perfect price discrimination is false?
A) There is no consumer surplus if a firm engages in perfect price discrimination.
B) Perfect price discrimination occurs when the seller charges the highest price each consumer would be willing to pay for the product.
C) A condition for perfect price discrimination is that it must be costlier to service some customers than others.
D) For the price-discriminating firm, its marginal revenue curve coincides with its demand curve.
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Chapter 9: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.
A)True
B)False
Q2) If a firm faces a downward-sloping demand curve,
A) the demand for its product must be inelastic.
B) it can control both price and quantity sold.
C) it must reduce its price to sell more units.
D) it will always make a profit.
Q3) Which of the following characteristics is not common to monopolistic competition and perfect competition?
A) Firms act to maximise profit.
B) Entry barriers into the industry are low.
C) The market demand curve is downward sloping.
D) Firms take market prices as given.
Q4) For allocative efficiency to hold,
A) price must equal the marginal revenue of the last unit sold.
B) price must equal the marginal cost of the last unit produced.
C) average variable cost is minimised in production.
D) average total cost is minimised in production.
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Chapter 10: Monopoly and Antitrust
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Sample Questions
Q1) Which of the following would cause an increase in the equilibrium wage?
A) The supply of labour increases more than the demand for labour.
B) The supply of jobs increases more than the demand for jobs.
C) The demand for labour increases faster than the supply of labour.
D) The supply of labour increases and the demand for labour decreases.
Q2) The firm's gain in profit from hiring another worker is
A) the marginal revenue product of the extra worker.
B) the difference between marginal revenue product and the wage of the worker.
C) the extra output of the extra worker.
D) the reduction in costs from hiring another worker.
Q3) The income effect of a wage increase will cause a worker to devote
A) more time to labour and more time to leisure.
B) more time to labour and less time to leisure.
C) less time to labour and more time to leisure.
D) less time to labour and less time to leisure.
Q4) Marginal revenue product for a perfectly competitive seller is equal to
A) the output price multiplied by the total product of labour.
B) the output price multiplied by the number workers hired.
C) the change in total revenue that results from hiring another worker.
D) the marginal cost of production.
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Private costs
A) are borne by producers of a good while social costs are borne by government.
B) are borne by consumers of a good while social costs are borne by government.
C) are borne by producers of a good while social costs are borne by society at large.
D) are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good.
Q2) What is a 'social cost' of production?
A) The cost of the natural resources used up in production.
B) The total costs of producing a product, both implicit and explicit costs.
C) The sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product.
D) The cost of the environmental damage created by production.
Q3) A tragedy of the commons occurs when a resource is
A) rival and excludable.
B) rival and non-excludable.
C) non-rival and non-excludable.
D) non-rival and excludable.
Q4) What is moral hazard?
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Page 13
Chapter 12: GDP: Measuring Total Production and Income
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Sample Questions
Q1) The owner of a firm wants some advice on how to increase productivity.Suggest three ways the entrepreneur could increase labour productivity through improving technology.
Q2) Gross national income (GNI)is defined as the value of final goods and services produced
A) within Australia.
B) outside of Australia.
C) by residents of Australia even if the production takes place outside of Australia. D) within Australia, by Australian residents.
Q3) In Figure 12.1,more capital per hour worked is shown by the movement from A) B to D.
B) A to B.
C) B to E.
D) B to A.
Q4) What is 'potential GDP'?
Q5) The economic growth rate is calculated as the rate of change in nominal GDP between two time periods.
A)True
B)False
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Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) Which of the following is the smallest portion of the market basket of goods that makes up the CPI?
A) Housing
B) Clothing and footwear
C) Transportation
D) Education
Q2) The labour force participation rates of men in Australia have gradually increased since 1978.
A)True
B)False
Q3) The unemployment rate is measured as the
A) number of unemployed people divided by the number of employed people, multiplied by 100.
B) number of unemployed people divided by the labour force, multiplied by 100.
C) number of unemployed people divided by the total population, multiplied by 100.
D) labour force minus the number of unemployed, multiplied by 100.
Q4) Why is frictional unemployment unavoidable?
Q5) Why are jobs continually being created and destroyed in the economy?
Q6) Explain why discouraged workers are not measured as being unemployed.
Page 15
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Chapter 14: Economic Growth, the Financial System and Business Cycles
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Sample Questions
Q1) ________ of unemployment during ________ make it easier for workers to ________ wages.
A) High levels; a recession; accept lower
B) Low levels; an expansion; accept lower
C) Low levels; a recession; negotiate higher
D) High levels; an expansion; negotiate higher
Q2) In Figure 14.2,given the economy is at point A in year 1 and point B in year 2,what will happen to the unemployment rate in year 2?
A) It will rise.
B) It will fall.
C) It will remain constant.
D) There is not enough information to answer the question.
Q3) The dynamic aggregate demand and aggregate supply model assumes that potential GDP is constant across time.
A)True
B)False
Q4) Outline and explain the factors that shift the aggregate demand curve,and the short-run and long-run aggregate supply curves.
Q5) What does the long-run aggregate supply curve show?
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) A person's wealth
A) is a measure of how much money the person has.
B) equals the value of the person's assets minus his or her liabilities.
C) is measured independently of his or her current and expected future income.
D) All of these options are correct.
Q2) The Reserve Bank Board comprises
A) The Reserve Bank Governor, the Deputy Governor and the managers of the major banks.
B) The Reserve Bank Governor, the Deputy Governor, the Secretary to the Federal Government Treasury, and up to six other members.
C) The Reserve Bank Governor, the Deputy Governor, the Federal Government Treasurer, and members from business and academia.
D) The Reserve Bank Governor and six other members appointed by the government.
Q3) Money cannot serve as a medium of exchange unless it also serves as a store of value.Is this statement true or false? Explain.
A)True
B)False
Q4) How does the existence of financial intermediaries affect liquidity in the financial market?
Page 17
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Chapter 16: Money, banks, and the Federal Reserve System
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Sample Questions
Q1) Falling interest rates can
A) increase a firm's share price, which causes firms to issue more shares, and thus increases funds for investment.
B) raise the cost of borrowing for firms and decrease investment.
C) raise the cost of buying new homes and fewer new homes will be purchased.
D) lower the cost of buying new homes and fewer new homes will be purchased.
Q2) If you spend more of your income on consumption goods,which of the following will occur?
A) The production of investment goods will fall.
B) Economic growth will be stimulated.
C) Investments in education will rise.
D) For every dollar you spend on consumption, real GDP will fall by a dollar.
Q3) Empirical evidence shows that the impact of government budget deficits and surpluses on the equilibrium interest rate is quite large.
A)True
B)False
Q4) What is the function of exchange settlement accounts?
Q5) Briefly discuss the effect of a fall in the cash rate on consumption.
Q6) What is inflation targeting?
Page 18
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Chapter 17: Monetary Policy
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Sample Questions
Q1) If the government wanted to try to counteract the effects of a recession,it could A) increase tax rates.
B) increase taxes by a fixed amount.
C) increase government purchases.
D) decrease defence spending.
Q2) Cutting taxes will
A) lower disposable income and lower spending.
B) raise disposable income and lower spending.
C) lower disposable income and raise spending.
D) raise disposable income and raise spending.
Q3) If policy makers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to A) increase taxes.
B) increase government spending.
C) use expansionary fiscal policy.
D) increase interest rates.
Q4) What is expansionary fiscal policy and under what circumstances would it be used?
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Page 19
Chapter 18: Fiscal Policy
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Sample Questions
Q1) Refer to Table 18-2.Select the statement that accurately interprets the data in the table.
A) Sarita has a comparative advantage in baking pies.
B) Gabriel has a comparative advantage in baking cakes.
C) Sarita has a comparative advantage in baking pies and baking cakes.
D) Sarita has a comparative advantage in baking cakes.
Q2) A tariff is a numerical limit on the quantity of a good that can be imported.
A)True
B)False
Q3) Japan has developed a comparative advantage in designing and producing automobiles.The source of its comparative advantage in these products is
A) abundant supplies of natural resources.
B) a favourable climate.
C) a strong central government.
D) technology.
Q4) Imports are goods and services bought domestically
A) but produced in other countries.
B) and resold at a profit.
C) and produced domestically.
D) and not subject to tariffs.
20
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Chapter 19: Comparative Advantage, international Trade, and Exchange Rates
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Sample Questions
Q1) The current account includes records of a country's A) net exports.
B) net primary income.
C) net secondary income.
D) All of the above are included in an economy's current account.
Q2) Refer to Figure 19.2.Assume that Europe experiences an economic boom.Assuming all else remains constant,this would be represented as a movement from
A) D to A.
B) D to C.
C) C to B.
D) B to A.
Q3) A country that allows its exchange rate to be determined by the market,without government intervention,has a
A) floating currency.
B) fixed currency.
C) managed float exchange rate system.
D) gold standard.
Q4) Has the adoption of the euro by many countries in the European Union enhanced economic growth in those countries?
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