Business Economics
Exam Solutions
Course Introduction
Business Economics explores the application of economic theories and principles to real-world business decision-making. The course covers essential topics such as demand and supply analysis, production and cost functions, market structures, pricing strategies, and the impact of government policies on business operations. By integrating economic reasoning with practical business problems, students learn to analyze market environments, forecast economic trends, and make informed strategic choices within enterprises. The course also examines issues such as competition, resource allocation, and optimization, providing students with a solid foundation for understanding the economic forces that shape business activity in both domestic and global contexts.
Recommended Textbook
ECON Micro 2 2nd Edition by William A.
McEachern
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21 Chapters
3947 Verified Questions
3947 Flashcards
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Page 2
Chapter 1: The Art and Science of Economic Analysis
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) Consumers need information to make good choices.Which of the following is correct regarding this information?
A) Advertising is always harmful to consumers.
B) Information is scarce and therefore valuable.
C) Brand names offer no informational content.
D) Acquiring more information is always rational.
E) Marginal analysis does not apply to the acquisition of information.
Answer: B
Q2) Ceteris paribus means "other things constant."
A)True
B)False
Answer: True
Q3) In macroeconomics,we analyze
A) all of the following
B) the overall performance of the economy as a whole
C) arrangements through which specific products are exchanged
D) influences on the decision making of particular households
E) the factors that affect the decisions of individual firms
Answer: B
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Page 3
Chapter 2: Economic Tools and Economics Systems
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185 Verified Questions
185 Flashcards
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Sample Questions
Q1) Each point along a nation's production possibilities frontier represents efficient use of all resources.
A)True
B)False
Answer: True
Q2) An improvement in technology would
A) enable the economy to produce outside its original production possibilities frontier
B) enable the economy to move along its original production possibilities frontier
C) eliminate scarcity;therefore,the production possibilities frontier would no longer exist
D) have no effect on the production possibilities frontier
E) change the production possibilities frontier to a line with a positive slope
Answer: A
Q3) Comparative advantage is based on opportunity costs.
A)True
B)False
Answer: True
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Chapter 3: Economic Decision Makers
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196 Verified Questions
196 Flashcards
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Sample Questions
Q1) A public good is available to all regardless of who pays for it and who does not.
A)True
B)False Answer: True
Q2) The personal income tax is based on the benefits-received principle of taxation.
A)True
B)False Answer: False
Q3) In terms of total sales,the dominant form of business firm in the U.S.economy is the
A) corporation
B) sole proprietorship
C) partnership
D) nonprofit organization
E) limited partnership corporation
Answer: A
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Page 5
Chapter 4: Demand, supply, and Markets
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222 Verified Questions
222 Flashcards
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Sample Questions
Q1) As the price of ballpoint pens increases,the demand for felt-tip pens can be expected to decrease.
A)True
B)False
Q2) The market supply curve of a particular product indicates the total quantities
A) that are actually sold during a given time period
B) that buyers are willing to purchase at alternative prices
C) that sellers are willing and able to offer at alternative prices
D) that sellers are willing to offer for sale
E) of complements offered for sale
Q3) A shortage of textbooks will cause
A) a decrease in the supply of textbooks
B) a decrease in the demand for textbooks
C) both an increase in the supply of textbooks and a decrease in the demand for textbooks
D) an increase in the price of textbooks,caused by a shift of either the supply curve or the demand curve
E) an increase in the price of textbooks
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6
Chapter 5: Elasticity of Demand and Supply
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238 Verified Questions
238 Flashcards
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Sample Questions
Q1) Total revenue is the same for every price-quantity combination along a unit elastic demand curve.
A)True
B)False
Q2) An increase in the price of T-shirts from $20 to $25 causes an increase in the quantity supplied of T-shirts from 12,000 to 14,000.The price elasticity of supply is:
A) 5/2
B) 2/5
C) -2/5
D) 9/13
E) 13/9
Q3) Use the information in Exhibit 5-3 to calculate the value of price elasticity of demand for restaurant meals.
A) -1/2
B) -5/3
C) -3/5
D) -3/7
E) -7/3
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Chapter 6: Consumer Choice and Demand
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164 Verified Questions
164 Flashcards
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Sample Questions
Q1) Suppose you have $18 to spend on apples and cookies.The price of one apple is $2 and the price of one cookie is $4.Using the information in Exhibit 6-17,determine the utility-maximizing combination of apples and cookies.
A) One apple and one cookie
B) Two apples and two cookies
C) Three apples and three cookies
D) Five apples and two cookies
E) Four apples and three cookies
Q2) When price decreases,consumer surplus
A) increases
B) remains constant
C) decreases
D) becomes negative
E) may increase or decrease
Q3) Which of the following economic explanations describes "cabin fever"?
A) The marginal utility of winter is greater than zero.
B) Each additional cold day brings more disutility.
C) The law of increasing marginal utility as applied to cabins.
D) Spending winter in a cabin is a normal good.
E) Each additional cold day brings more utility.
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Chapter 7: Production and Cost in the Firm
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202 Verified Questions
202 Flashcards
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Sample Questions
Q1) Which of the following is a fixed cost for Wendy's Hamburgers?
A) the cost of beef
B) electricity to light up the Wendy's sign
C) gasoline for the trucks that deliver supplies to the various franchises
D) interest on funds borrowed to build new facilities
E) expenditures on paper and plastic for packaging
Q2) Which of the following best explains why marginal cost eventually increases as output increases?
A) economies of scale occur
B) average cost increases
C) total cost increases
D) marginal product decreases
E) fixed cost is constant
Q3) The length of time that represents the long run
A) is greater than one year
B) is greater than six months
C) is longer in service industries than in manufacturing
D) is the same for all industries
E) varies from industry to industry
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Page 9
Chapter 8: Perfect Competition
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250 Verified Questions
250 Flashcards
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Sample Questions
Q1) The motivating force behind an increase in supply in a long-run adjustment to equilibrium is
A) lower prices
B) economic profits that are present in the short run
C) higher profit expectations among owners of firms in the industry,triggered by increased prices
D) normal profits witnessed by individuals outside the industry that trigger entry
E) the decreases in average cost that can be obtained through economies of scale
Q2) Individual firms in a perfectly competitive market can
A) purchase all they want at the market price
B) sell all they produce at the market price
C) earn more profit if they charge a price above the market price
D) earn more profit if they charge a price below the market price
E) earn no profit in the short run
Q3) Because it is small relative to the market,a perfectly competitive firm faces an inelastic demand curve for its output.
A)True
B)False
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10
Chapter 9: Amonopoly
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257 Verified Questions
257 Flashcards
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Sample Questions
Q1) The demand curve facing a single-price monopolist
A) is the same as its average revenue curve
B) is the same as its marginal revenue curve
C) is the same as the perfect competitor's demand curve
D) lies above its average revenue curve
E) lies below its marginal revenue curve
Q2) When a monopolist practices perfect price discrimination,
A) consumers receive no consumer surplus
B) there is allocative inefficiency
C) there is a deadweight loss
D) profit is lower than for the nondiscriminating monopolist
E) total revenue is less than for the nondiscriminating monopolist
Q3) What is the profit-maximizing or loss-minimizing output for the monopolist represented in Exhibit 9-4,assuming it does not price discriminate?
A) 0 units
B) 2 units
C) 3 units
D) 4 units
E) 5 units
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Page 11
Chapter 10: Monopolistic Competition and Oligopoly
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219 Verified Questions
219 Flashcards
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Sample Questions
Q1) The term monopolistic competition
A) is an alternate expression for monopoly
B) is used to describe perfect competition with strong entry barriers
C) denotes an industry with one seller of many differentiated products
D) denotes an industry with many sellers of homogeneous products
E) denotes an industry with many sellers of differentiated products
Q2) What do monopolistic competition,pure monopoly,and perfect competition have in common?
A) free entry
B) long-run economic profits
C) differentiated product
D) price taking
E) the rule of profit maximization
Q3) If a firm must produce a significant share of market output before low average costs can be achieved,the structure of this industry will tend to be
A) monopolistic competition
B) perfect competition
C) oligopoly
D) either monopolistic competition or oligopoly
E) either perfect competition or monopolistic competition
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Chapter 11: Resource Markets
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210 Verified Questions
210 Flashcards
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Sample Questions
Q1) In Exhibit 11-8,if the wage rate is $44 and does not vary,how many workers will be hired?
A) two
B) three
C) five
D) seven
E) nine
Q2) If 15 workers produce 100 license plates,16 workers produce 120 license plates,and 17 workers produce 130 license plates,then
A) diminishing marginal returns have not set in because the marginal product is positive
B) the marginal product of the seventeenth worker is 130
C) diminishing marginal returns must begin with the sixteenth worker
D) the marginal product of the sixteenth worker is greater than the marginal product of the seventeenth worker
E) the marginal product of the fifteenth worker must be 20
Q3) An increase in the demand for shoemakers will increase the demand for shoes.
A)True
B)False
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Chapter 12: Labor Markets and Labor Unions
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211 Verified Questions
211 Flashcards
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Sample Questions
Q1) A person who wins a large sum of money in the state lottery is likely to
A) increase the amount of market work offered at each wage rate
B) not change the amount of work offered at each wage rate
C) decrease the amount of work offered at each wage rate
D) substitute market work for leisure time due to the substitution effect
E) substitute market work for leisure time due to the income effect
Q2) An industrial union can obtain a wage higher than the competitive level
A) without any change in total employment
B) at the cost of a reduction in total employment
C) and achieve higher total employment as well
D) and achieve the same or higher total employment
E) thus increasing the quantity of labor demanded
Q3) A newly acquired microwave oven and a food processor will increase Chuck's productivity in the kitchen.Accordingly,he will
A) cook more and eat out less
B) cook less and eat out more
C) buy more ready-to-eat foods
D) be more likely to hire a cook
E) increase the quality of what he cooks but may or may not cook more
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Page 14
Chapter 13: Capital, interest, and Corporate Finance
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183 Verified Questions
183 Flashcards
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Sample Questions
Q1) The reward for forgoing present consumption is
A) rent
B) profit
C) roundabout production
D) transfer payment
E) interest
Q2) Which of the following is an example of roundabout production?
A) Paul pays Ringo to wash his car.
B) A church has a bake sale to raise money for a new narthex.
C) Jane saves her money to buy a stereo.
D) Robinson Crusoe makes a fish net to help him catch more fish per day.
E) Business owners in Minneapolis buy blocks of Minnesota Twins baseball tickets to help guarantee that the team will stay in town.
Q3) Which of the following would cause a fall in the market interest rate?
A) an increase in the risk cost of investment
B) an increase in the inflation rate
C) an increase in the marginal rate of return on investment
D) a decrease in the marginal product of capital
E) none of the above
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Page 15
Chapter 14: Transaction Costs, imperfect Information, and Market Behavior
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178 Verified Questions
178 Flashcards
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Sample Questions
Q1) Which of the following will not reduce the likelihood of a principal-agent problem when getting your car repaired?
A) asking to see the replaced parts
B) staying to watch the repair being done
C) gathering information on car repair
D) not paying until after the repair job is finished
E) persuading the mechanic you know a lot about cars
Q2) Managers experience bounded rationality when they focus narrowly on maximizing their firm's profits and ignore the broader perspective of society's preferences.
A)True
B)False
Q3) Suppose Sally buys a Volvo because they are safe and,as a result,drives faster and pays less attention to other cars on the road.This is an example of
A) the winner's curse
B) a positive externality
C) irrational behavior
D) moral hazard
E) adverse selection
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Chapter 15: Economic Regulation and Antitrust Policy
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170 Verified Questions
170 Flashcards
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Sample Questions
Q1) Airlines are __________ than they were before deregulation.
A) more dangerous
B) more concentrated
C) higher priced
D) flying fewer miles
E) much more profitable
Q2) Natural monopolies are firms that
A) have a downward-sloping long-run average cost curve over the entire range of market demand
B) have an upward-sloping long-run average cost curve over the entire range of market demand
C) are protected against the entry of new firms by patents,licenses,or other legal restrictions
D) control a nonreproducible resource that is critical to production
E) have been created over time by the mergers of many smaller firms
Q3) Public policy can help achieve more efficient use of an economy's resources by eliminating all monopolies.
A)True
B)False
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Page 17
Chapter 16: Public Goods and Public Choice
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) Legislation that benefits many individuals at the expense of a few is a natural outcome of representative democracy.
A)True
B)False
Q2) Rent-seeking behavior imposes no costs on society because it is elected officials who actually make public sector decisions.
A)True
B)False
Q3) During a visit in Central Park,Alan values his first hour of walking at $10 and the second one at $7,Cooper values his first hour of walking at $6 and the second one at $1,and Emma values her first hour of walking at $20 and the second one at $15.Assuming that Alan,Cooper,and Emma are the only visitors in Central Park,what is true regarding the market demand for walks in Central Park?
A) The market demand is horizontal
B) Can be determined by horizontally adding up the individual demands
C) There is not enough information to determine the market demand
D) Can be determined by vertically adding up the individual demand
E) There isn't a demand for walks in Central Park
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Chapter 17: Externalities and the Environment
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187 Verified Questions
187 Flashcards
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Sample Questions
Q1) A meditation class meets on the second floor of a building;the first floor is a nightclub.The loud music from the club disturbs the classes.Which of the following best explains why the negative externality faced by the class arises?
A) The class has no property right to a quiet environment.
B) The club has a property right on the ground floor.
C) The class has a property right on the second floor.
D) The club uses an inappropriate technology (i.e. ,no soundproofing).
E) Both the club and class are profitable.
Q2) What kind of garbage tends to be recycled in the United States?
A) hazardous materials that must be transformed chemically into less dangerous substances
B) biodegradable materials
C) foodstuffs
D) aluminum,paper,and other materials that have high commercial value
E) appliances that can be salvaged from dumps and repaired
Q3) Marginal social cost includes both the marginal private cost and the marginal external cost that production imposes on society
A)True
B)False
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Page 19
Chapter 18: Income Distribution and Poverty
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) It is difficult to say whether welfare "causes" daughters from welfare families to be more likely to participate in the welfare system themselves because
A) the same factors that contribute to a mother's welfare status can also contribute to her daughter's welfare status
B) no research has been done on this topic
C) economists are unconcerned with questions about welfare status
D) if two factors occur together,then one must cause the other
E) it is possible that the daughter's welfare status "causes" the welfare programs
Q2) In 2008,federal,state,and local redistribution programs were most close to
A) $20.0 trillion
B) $200.0 billion
C) $2.0 billion
D) $200.0 trillion
E) $2.0 trillion
Q3) Differences in earnings based on age and education reflect a normal life cycle pattern of income.
A)True
B)False
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Chapter 19: International Trade
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161 Verified Questions
161 Flashcards
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Sample Questions
Q1) Predatory dumping is the practice of
A) rejecting imports
B) persistently selling a good in another country for a price lower than the world price
C) persistently selling a good in another country for a price lower than the domestic price
D) temporarily selling a good in another country for a price lower than the world price to drive out competing producers
E) temporarily selling a good in another country for a price lower than the domestic price to drive out competing producers
Q2) An import quota is a
A) tax on imports
B) legal limit on the amount of a specific good that can be imported into a particular country
C) tax on import quantities above the legal limit
D) way to increase tariff revenues
E) legal incentive for members of GATT to increase their exports of a particular good
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Chapter 20: International Finance
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224 Verified Questions
224 Flashcards
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Sample Questions
Q1) An increase in U.S.income that increases American demand for all normal goods (including imports from Britain) will shift
A) the U.S.demand curve for foreign exchange to the right,causing an increase in the dollar-per-pound exchange rate
B) the U.S.demand curve for foreign exchange to the left,causing a decrease in the dollar-per-pound exchange rate
C) the U.S.supply curve for foreign exchange to the right,causing a decrease in the dollar-per-pound exchange rate
D) the U.S.supply curve for foreign exchange to the left,causing an increase in the dollar-per-pound exchange rate
E) neither the U.S.demand curve for foreign exchange nor the U.S.supply curve for foreign exchange
Q2) Speculators profit by taking risks,while the actions of arbitrageurs involve no risk.
A)True B)False
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Chapter 21: Developing and Transitional Economies
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) A downside to foreign aid is that
A) developing countries have not necessarily increased their ability to become self-supporting at higher standards of living
B) many recipient countries are doing less of what they had done well
C) the agricultural sectors of recipient countries have suffered
D) government officials have been insulated from their own incompetence
E) All of the answers are correct
Q2) Disappointed with problems caused by being a recipient of foreign aid from donor governments,the country of Upsilon should consider
A) refusing all future offers of aid
B) privatizing of aid,such as receiving funds from private not-for-profit agencies
C) becoming a donor instead
D) seeking even more government-sponsored aid
E) All of the answers are correct
Q3) If the country of Zorg has a birth rate of greater than 2.2 births per woman,it is likely that Zorg is an industrial market country.
A)True
B)False
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