Business Economics
Exam Solutions
Course Introduction
Business Economics explores the application of economic theory and quantitative methods to analyze business enterprises and the factors affecting their growth and profitability. The course covers fundamental concepts such as demand and supply, production and cost analysis, market structures, pricing strategies, and the influence of government policies on business decisions. Emphasis is placed on decision-making processes within firms, resource allocation, and the impact of economic environments on business strategy. By examining real-world case studies, students gain practical insights into how economic tools can be utilized to solve business problems and enhance competitiveness in dynamic markets.
Recommended Textbook
Economics for Managers Global Edition 3rd Edition by Paul G. Farnham
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Page 2
Chapter 1: Managers and Economics
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68 Verified Questions
68 Flashcards
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Sample Questions
Q1) Which of the following market structures is most similar to perfect competition?
A)Monopsony.
B)Monopolistic competition.
C)Oligopoly.
D)Monopoly.
Answer: B
Q2) Explain the basic distinction between microeconomic analysis and macroeconomic analysis.Describe the types of issues that each branch of analysis focuses on.
Answer: Microeconomic analysis focuses on the behavior of individuals,e.g.,consumers and firms.It is concerned with such issues as how a firm can produce output most cheaply,how much revenue it can expect to receive from the sale of a good,and how much of a good consumers will purchase at each price.Macroeconomic analysis focuses on the overall level of economic activity.It is concerned with such issues as what factors will cause the rates of inflation and unemployment to change and what types of policies can be used to influence the overall level of economic activity.
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3
Chapter 2: Demand, supply, and Equilibrium Prices
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94 Flashcards
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Sample Questions
Q1) If movies on DVD for home rental and movies seen at a theater are substitutes,and the price of movies seen at a theater increases,the demand for movies on DVD will:
A)increase.
B)stay the same.
C)decrease.
D)cannot be determined.
Answer: A
Q2) Assume the demand function for good X can be written as Qd = 80 - 3Px + 2Py + 10I,where Px = the price of X,Py = the price of good Y,and I = Consumer income.According to this equation:
A)a rise in the price of Y would cause the demand for X to decrease.
B)X and Y are complements
C)X is an inferior good.
D)X and Y are substitutes.
Answer: D
Q3) When price is greater than the market equilibrium price,a shortage is created.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Demand Elasticities
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Sample Questions
Q1) If a 10 percent increase in the price of a luxury hotel room causes the quantity demanded to decrease by 41.5 percent.,we can conclude that the price elasticity of demand for luxury hotel rooms is approximately -0.24.
A)True
B)False
Answer: False
Q2) Summarize the relationship between elasticity,price changes,and changes in total revenue.
Answer: When demand is inelastic,total revenue moves in the same direction as price,and in the opposite direction of quantity demanded.When demand is elastic,total revenue moves in the opposite direction of price,and the same direction as quantity demanded.When demand is unit elastic,a price change has no effect on total revenue.
Q3) Studies strongly suggest that advertising strategies are generally much more effective than pricing strategies as a means to increase market share.
A)True
B)False
Answer: False
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5
Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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67 Verified Questions
67 Flashcards
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Sample Questions
Q1) Regressional analysis that analyzes the relationship between one dependent variable and one independent variable is called:
A)simple regression analysis.
B)correlation analysis
C)multiple regression analysis.
D)cluster analysis.
Q2) Why are estimated models of demand and consumer behavior useful to managers?
Q3) The overall predictive power of the estimated regression equation is measured by the F-statistic.
A)True
B)False
Q4) Refer to Scenario 1.What is the t-statistic for the slope coefficient?
A)3.04
B)0.94
C)0.30
D)4.46
Q5) The intercept of the equation: Y = .09 + 1.5X is 1.5.
A)True B)False
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Chapter 5: Production and Cost Analysis in the Short Run
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) All else constant,if the use of historic costs understates the opportunity costs associated with using a particular piece of capital,economic profit will be overstated.
A)True
B)False
Q2) Which of the following statements is true of the relationship among the average cost functions?
A)ATC = AFC - AVC
B)AVC = AFC + ATC
C)AFC = ATC + AVC
D)AFC = ATC - AVC
Q3) Which of the following statements is false?
A)Economic costs include the opportunity costs of the resources owned by the firm.
B)Accounting costs typically include only explicit costs.
C)Economic profit will always be less than accounting profit if resources owned and used by the firm have any opportunity costs.
D)Accounting profit is equal to total revenue minus implicit costs.
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Chapter 6: Production and Cost Analysis in the Long Run
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100 Verified Questions
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Sample Questions
Q1) Explain how labor resistance and political and legislative influences reduce the ability of firms to minimize their costs of production.What do the two have in common in this regard?
Q2) Assume the LRAC curve for a particular industry hits its minimum point at a relatively low level of output and then increases,and the demand for industry output is quite large.In this case,consideration of the minimum efficient scale of operation suggest that the market should be served by:
A)a large number of small firms to minimize production costs.
B)a small number of large firms to minimize production costs
C)a large number of large firms to minimize production costs.
D)an indeterminate number of firms of indeterminate size to minimize production costs.
Q3) The marginal rate of technical substitution (MRTS)along an isoquant:
A)is equal to the price ratio at all points along an isoquant.
B)is equal to the ratio of the marginal utilities of the two goods.
C)is equal to the ratio of the marginal products of the two inputs.
D)remains constant as we alter the combinations of the two inputs.
Q4) Explain how "learning by doing" and transportation costs each affect the long-run average cost curve.
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Chapter 7: Market Structure: Perfect Competition
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) The market structure that is most different from the model of perfect competition is:
A)monopolistic competition.
B)monopsony
C)oligopoly.
D)monopoly.
Q2) As described in the text,which of the following statements best describes the strategy of many potato growers since 2005?
A)Growers have worked together to reduce supply and stabilize demand. As a result, equilibrium price has been propped up and allowed farmers to earn what they consider a decent profit.
B)Growers have continued to compete vigorously with each other, causing prices and profits to decrease.
C)Growers have restricted supply so much that there is now a severe shortage of potatoes in the United States.
D)because efforts by potato growers to restrict supply are illegal in the United States, they have focused exclusively on increasing demand to increase their profits.
Q3) Summarize the characteristics of a perfectly competitive market.
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Chapter 8: Market Structure: Monopoly and Monopolistic Competition
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107 Verified Questions
107 Flashcards
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Sample Questions
Q1) All else constant,so long as it is negative,as the cross price elasticity of demand between a firm's product and those of its competitors increases,so does the market power possessed by the firm.
A)True
B)False
Q2) The Sherman Act and the Clayton Act were passed into law more than 100 years ago.What characteristic of each of these laws enables them to remain applicable in today's modern economy?
Q3) Although monopoly and perfect competition result in different market outcomes,the fact that firms in both market structures work to maximize their profits ensures that resources are allocated efficiently in both situations.
A)True
B)False
Q4) Patents have become less important than such factors as secrecy,lead time,and increased sales and service efforts as a means to maintain a competitive advantage in the pharmaceutical industry.
A)True
B)False
Page 10
Q5) Explain how network externalities act as a barrier to entry.
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Chapter 9: Market Structure: Oligopoly
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96 Verified Questions
96 Flashcards
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Sample Questions
Q1) The ability to make a credible commitment is necessary for the first mover to gain an advantage in a sequential game.
A)True
B)False
Q2) 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.
Q3) In comparing an oligopolistic firm to a perfectly competitive firm it is generally assumed that the price charged by the competitive firm will be higher than the price charged by the oligopolistic firm.
A)True
B)False
Q4) Summarize the three conditions cited in the text under which a cartel is most likely to succeed.Of these three,which do you think is most important? Why?
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Page 11
Chapter 10: Pricing Strategies for the Firm
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67 Verified Questions
67 Flashcards
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Sample Questions
Q1) Assume the economy is headed into a recession.Considering this,and recognizing that firms are slow to change the prices they charge for their products,are firms more or less likely to be able to pursue an effective markup pricing strategy in their pursuit of positive economic profit? Why?
Q2) It is frequently observed that when a city is located next to a major highway,gas stations located close to the highway charge higher prices than gas stations located farther away.This is an example of:
A)first-degree price discrimination.
B)second-degree price discrimination.
C)third-degree price discrimination.
D)illegal price discrimination.
Q3) Assuming the demand curve is downward sloping,as price increases,the price elasticity of demand for a good (in absolute value)and marginal revenue: A)increase.
B)stay the same.
C)decrease.
D)cannot be determined.
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12
Chapter 11: Measuring Macroeconomic Activity
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) What is the difference between inflation and deflation?
A)Inflation is a sustained decrease in the price level whereas deflation is a sustained increase in the price level.
B)Inflation is a sustained increase in the price level whereas deflation is a sustained decrease in the price level.
C)Inflation is a measure of relative prices whereas deflation is a sustained increase in the price level.
D)None of the above.
Q2) Changes in the amount of goods produced,but not sold in a given year is called:
A)inventory investment
B)business fixed investment
C)residential fixed investment
D)consumption
Q3) Many financial analysts use GDP as a measure of the economy's performance.However,GDP has several shortcomings in terms of measuring economic well-being.State at least three such shortcomings and explain how each affects the validity of GDP as a measure of economic well-being.
Q4) What are the two policy options used to influence the economy?
Q5) What are some of the issues associated with the consumer price index?
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Chapter 12: Spending by Individuals, firms, and
Governments on Real Goods and Services
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) The slope of the aggregate expenditure function is the sum of the:
A)marginal propensity to consume and marginal propensity to save.
B)marginal propensity to consume and marginal propensity to invest.
C)marginal propensity to consume, marginal propensity to save, and marginal propensity to import.
D)marginal propensity to consume, marginal propensity to invest, and marginal propensity to import.
Q2) The sum of personal consumption expenditure,investment expenditure,government expenditure,and net export expenditure on the total amount of real output in the economy in a given period of time is called:
A)potential GDP.
B)aggregate expenditure.
C)real money balances.
D)none of the above.
Q3) A larger marginal propensity to import will make the slope of the aggregate expenditure function flatter.
A)True
B)False
Q4) Briefly explain how capacity utilization rates are used by forecasters.
Page 14
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Chapter 13: The Role of Money in the Macro Economy
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90 Verified Questions
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Sample Questions
Q1) The private financial market where banks borrow and loan reserves to meet the minimum research requirements is called:
A)federal funds market.
B)loanable funds market.
C)discount loans market.
D)repo market.
Q2) Banks with excess reserves will supply more reserves to the federal funds market as the interest rate increases.
A)True
B)False
Q3) Open market operations are an appropriate tool for day-to-day changes in monetary policy.
A)True
B)False
Q4) The liquidity-money (LM)curve shows the alternative combinations of interest rates and real income that clears the money market.
A)True
B)False
Q5) Why is the money multiplier smaller than the simple deposit multiplier?
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Chapter 14: The Aggregate Model of the Macro Economy
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98 Flashcards
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Sample Questions
Q1) An increase in government expenditure would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.
Q2) An income tax system where higher tax rates are applied to increased amounts of income is called:
A)a regressive tax system.
B)a proportional tax system.
C)a progressive tax system.
D)a flat rate tax system.
Q3) Expansionary monetary policy should be used if:
A)aggregate demand-aggregate supply equilibrium is below potential output.
B)aggregate demand-aggregate supply equilibrium is above potential output.
C)aggregate demand-aggregate supply equilibrium is equal to potential output.
D)none of the above.
Q4) What are the reasons for a decrease in the NAIRU.
Q5) Depreciation of the U.S.dollar will shift the AD curve leftward.
A)True
B)False
Page 16
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Chapter 15: International and Balance of Payments Issues in the Macro Economy
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109 Verified Questions
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Sample Questions
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,a balance of payments deficit is represented by:
A)excess supply of dollars.
B)excess demand for dollars.
C)equilibrium in the foreign exchange market.
D)none of the above.
Q3) 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.
Q4) A sterilized central bank intervention does not affect the domestic money supply.
A)True B)False
Page 17
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Chapter 16: Combining Micro and Macro Analysis for Managerial Decision Making
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44 Verified Questions
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Sample Questions
Q1) If capital inflows decrease due to higher interest rates in other countries and large amounts of import spending,there will be:
A)upward pressure on a country's exchange rate.
B)downward pressure on a country's exchange rate.
C)no pressure on a country's exchange rate.
D)none of the above.
Q2) 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.
Q3) How did McDonalds address the drive-through innovation in China?
Q4) How did McDonald's attempt to address the cultural differences around the world in selling its product?
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