Business Economics
Final Exam
Course Introduction
Business Economics explores the application of economic theories and principles to real-world business decision-making. The course examines topics such as demand and supply analysis, market structures, production and cost functions, pricing strategies, and the influence of government policy on business operations. Students learn how economic concepts underpin strategic planning, resource allocation, and competitive positioning within various market environments, enabling them to make informed choices in both domestic and global business contexts.
Recommended Textbook
Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson
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558 Verified Questions
558 Flashcards
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Chapter 1: Economic Models
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Sample Questions
Q1) Given \(Y = f ( X , Z )\) which of the following are necessarily true?
A)Y is a linear function.
B)X,Z are dependent variables.
C)A contour line of this function would keep Y constant.
D)An increase in X would increase Y.
Answer: C
Q2) The problem of scarcity
A)arises only in poor countries.
B)exists because the price of goods is too high.
C)exists because of limited resources.
D)will eventually be solved by better planning.
Answer: C
Q3) For the equation \(Y = \sqrt { X \cdot Z }\) the point \(X = 20\) , \(z = 5\) .
A) \(Y = 10\) yields a value of .
B)lies below the contour line that includes the point \(X = 15\) , \(z = 7\) .
C)lies on the same contour line as the point \(X = 12\) , .
D)Both a and b
Answer: D
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3
Chapter 2: Utility and Choice
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Sample Questions
Q1) "If an individual is to maximize the utility received from consumption,he or she should spend all available income...." This statement assumes.
A) that saving is impossible.
B) that the individual is not satiated in all goods.
C) that no goods are "inferior."
D)Both a and b.
Answer: D
Q2) The X-intercept of the budget constraint represents
A)how much of good Y can be purchased if no good X is purchased and all income is spent.
B)how much of good X can be purchased if no good Y is purchased and all income is spent.
C)total income divided by the price of X.
D)b and c.
Answer: D
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Chapter 3: Demand Curves
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Sample Questions
Q1) Which of the following functional forms for utility suggests the greatest substitution effect when starting at the point where \(\mathrm { P } _ { \mathrm { X } } = \mathrm { P } _ { \mathrm { Y } }\)
A) \(\mathrm { U } = \min ( \mathrm { X } , \mathrm { Y } )\)
B) \(U=X + X\)
C) \(\mathrm { U } = \mathrm { X } ^ { 1 / 2 } \mathrm { Y } ^ { 1 / 2 }\)
D)\(\mathrm { U } = \mathrm { X } ^ { 1 / 4 } \mathrm { Y } ^ { 3 / 4 }\)
Answer: B
Q2) In Sameslopia (all N people)have a different price at which they will start buying apples,but their reaction to a price change is the same so for each person i,individual demand is \(\mathrm { P } = \mathrm { A } _ { \mathrm { i } } - \mathrm { Bq }\) At a price where they are all buying a positive amount,the slope of the market demand curve (with P as a function of Q)will be A)-B
B) \(\frac { - B } { N }\)
C)-BN
D)-N
Answer: B
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Chapter 4: Uncertainty
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Sample Questions
Q1) Suppose a family has saved enough for a 10 day vacation (the only one they will be able to take for 10 years)and has a utility function U = V<sup>1/2 </sup>(where V is the number of healthy vacation days they experience).Suppose they are not a particularly healthy family and the probability that someone will have a vacation-ruining illness (V = 0)is 20%.What is the expected value of V?
A)10
B)8
C)2
D)0
Q2) Continuing with the family from the preceding question,what is their expected utility?
A) \(.8 \sqrt { 10 } + .2 \times \sqrt { 2 }\)
B) \(.8 \times \sqrt { 10 }\)
C) \(\sqrt { 8 }\)
D) \(\sqrt { 2 }\)
Q3) Risk averse individuals will diversify their investments because this will
A)increase their expected returns.
B)provide them with some much-needed variety.
C)reduce the variability of their returns.
D)reduce their transactions costs.
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Page 6
Chapter 5: Game Theory
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Sample Questions
Q1) Two games that differ only in the timing of moves-one simultaneous,the other sequential move-can sometimes have completely different subgame-perfect equilibria. Why?
A)The second mover to choose non-credible threats.
B)The first mover can choose an action that it would deviate from if its action were secret.
C)Subgame-perfect equilibrium cannot be applied to simultaneous games.
D)All of the above.
Q2) The Prisoners' Dilemma is so named because
A)the Nash equilibrium is one of the worst outcomes for the players.
B)the game has no Nash equilibrium.
C)the game is zero-sum.
D)players end up earning a lighter sentence than the prosecutor would like.
Q3) In what way or ways can strategies more complicated than simple actions?
A)They can be conditioned on a first mover's action.
B)They can involve random choices.
C)Both a and b.
D)Neither a or b.
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Chapter 6: Production
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Sample
Questions
Q1) Graphically,the average productivity of labor would be illustrated by the slope of the marginal productivity curve at the relevant point.
A)the slope of the total product curve at the relevant point.
B)the slope of the marginal productivity curve at the relevant point.
C)the negative of the slope of the marginal productivity curve at the relevant point.
D)the slope of the chord connecting the origin with the relevant point on the total output curve.
Q2) A production function measures how an individual maximizes utility.
A)a firm transforms output into input.
B)a firm transforms inputs into output.
C)a firm minimizes cost.
Q3) A firm is defined as
A)a president,some vice presidents,and some employees.
B)any organization that wants to make a profit.
C)any accumulation of productive assets.
D)any organization that turns inputs into outputs.
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8
Chapter 7: Costs
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Sample Questions
Q1) The firm's expansion path records
A)profit-maximizing output choices for every possible price.
B)cost-minimizing input choices for all possible output levels for when input prices expand along with production.
C)cost-minimizing input choices for all possible output levels for a fixed set of input prices.
D)cost-minimizing input choices for profit-maximizing output levels.
Q2) For a constant-returns-to-scale production function,
A)marginal costs are constant but the average cost curve has a U-shape.
B)both average and marginal costs are constant.
C)marginal cost has a U-shape; average costs are constant.
D)both average and marginal cost curves are U-shaped.
Q3) In the short run,
A)all inputs are fixed.
B)all inputs are variable.
C)some inputs are fixed.
D)no production occurs.
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Chapter 8: Profit Maximization and Supply
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Sample Questions
Q1) If a firm's marginal revenue is below its marginal cost,an increase in production will usually
A)increase profits.
B)leave profits unchanged.
C)decrease profits.
D)increase marginal revenue.
Q2) Suppose a farmer is a price taker for soybean sales with cost functions given by ?
TC = .1q<sup>2</sup> + 2q + 100
MC = .2q + 2
The firm's supply curve is given by
A)q = 5P - 10
B)q = .2P +2
C)q = 10P - 2
D)q = 2P - 5
Q3) If the demand faced by a firm is inelastic,selling one more unit of output will
A)increase revenues.
B)decrease revenues.
C)keep revenues constant.
D)increase profits.
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Page 10
Chapter 9: Perfect Competition in a Single Market
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Sample Questions
Q1) The excess burden of a tax is
A)the amount by which the price of a good increases.
B)the loss of consumer and producer surplus that is not transferred elsewhere.
C)The amount by which a person's after-tax income decreases as a result of the new tax.
D)the welfare costs to firms forced to leave the market due to an inward shift of the demand curve.
Q2) Suppose demand for a good is Q<sub>D</sub> = 100 - P and supply is Q<sub>S</sub> = -20 + P.Suppose that a nationwide quota (of 20)is enforced so that more can be used in a war effort.What is the consumer surplus?
A)200
B)400
C)600
D)800
Q3) A demand curve will shift out for any of the following reasons except A)preference for a good increases.
B)price of a substitute falls.
C)income rises.
D)price of a complement falls.
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Page 11
Chapter 10: General Equilibrium and Welfare
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Sample Questions
Q1) Suppose goods X and Y are produced along a production possibilities frontier 4X<sup>2</sup> + Y<sup>2</sup> = 500 and they are perfect substitutes such that U = X + Y.The slope of the production possibilities frontier is \(\frac { - 4 X } { \sqrt { 500 - 4 X ^ { 2 } } }\) .How much Y should be produced?
A)0
B)5
C)10
D)20
Q2) The reason externalities distort the allocation of resources is that
A)too few goods are usually produced.
B)firms often go out of business because of the externality.
C)a firm's private costs do not reflect the social cost of production.
D)regulating externalities uses scarce resources.
Q3) Markets can fail to achieve efficiency when
A)there are prices consumers do not think are fair.
B)there are wages workers do not think are fair.
C)trade puts people out of work.
D)there are markets with imperfect competition.
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Chapter 11: Monopoly
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Sample Questions
Q1) A price-discriminating monopolist having identical costs in two markets should charge a higher price in that market
A)which has a higher demand.
B)which has a more elastic demand.
C)which has a less elastic demand.
D)which has a higher marginal revenue.
Q2) Which might be a possible reason a cable television operator want to bundle channels together in packages ("tiers")?
A)delivering many channels to the consumer is not much more costly than delivering a few.
B)simplifies the consumer's choice and perhaps lowers administrative costs.
C)allows the firm to extract revenue from a consumer even if it does not know exactly which channels the consumer likes the most..
D)all of the above.
Q3) A monopoly's economic profits are represented by
A)[price minus marginal cost] times number of units sold.
B)[price minus average cost] times number of units sold.
C)[marginal revenue minus price] times number of units sold.
D)[marginal cost minus price] times number of units sold.
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Page 13
Chapter 12: Imperfect Competition
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Sample Questions
Q1) In the Cournot model,each firm assumes that its rival will ____ its output when the firm adjusts its own output.Which word best completes the sentence?
A)increase
B)not change
C)decrease
D)adjust
Q2) All of the following are problems associated with maintaining a cartel except A)cartels are illegal.
B)a large amount of information is needed to coordinate a cartel.
C)profits are not maximized by a cartel so it will evolve into a monopoly.
D)each member of the cartel has an incentive to "chisel" by expanding output.
Q3) Consider the market for nonalcoholic beers from the previous question.Which of the following is the best-response function for Boors from the Bertrand game?
A)PB = -2.5 + .05PC
B)PB = 2.5 + .05PC
C)PC = 2.5 - .05PB
D)PB = 2.5 - .15PC
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Chapter 13: Pricing in Input Markets
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Sample Questions
Q1) Suppose the market for labor is perfectly competitive and the demand for labor is \(L = 100 - 10 w\) and market supply is \(L = - 20 + 10 w\) .The equilibrium wage will be A)5
B)6
C)7
D)8
Q2) The output effect of a change in the wage rate on a firm's demand for labor input will be greater
A)the larger the share of labor costs in total costs and the greater the price elasticity of demand for output.
B)the larger the share of labor costs in total costs and the smaller the price elasticity of demand for output.
C)the larger the share of labor costs in total costs and the higher the quantity demanded.
D)the smaller the possibilities of substituting capital for labor.
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Chapter 14: Capital and Time
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Sample Questions
Q1) An increase in the corporate profits tax will most likely lead to
A)a decrease in the rental rate of capital in the corporate sector.
B)no change in the rental rate of capital in the corporate sector.
C)no change in the rental rate of capital in the non-corporate sector.
D)an increase in the rental rate of capital in the corporate sector.
Q2) Draw a two period budget line where the borrow/lending rate of interest,r,allows consumers to choose consumption in each of the two periods.C<sub>1</sub> and C<sub>2</sub> given their anticipated income on two periods,Y<sub>1 </sub>and Y<sub>2</sub>.The slope is
A)r
B)-r
C)1 + r
D)-(1 + r)
Q3) A fall in the real interest rate leads to
A)an increase in the rental rate on a machine.
B)a decrease in the rental rate on a machine.
C)no change in the rental rate on a machine.
D)a fall in the marginal productivity of capital.
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Page 16
Chapter 15: Asymmetric Information
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Sample Questions
Q1) Return to the situation with the executive from the previous question. Now assume that shareholders cannot observe effort,so cannot specify how hard the executive works in the contract but must induce it through the incentive scheme. Which of the following wage contracts would work out best for shareholders in equilibrium?
A)A flat wage w = 2,500 with no profit share.
B)A share of 35% of the gross profits.
C)A share of 55% of the gross profits.
D)A share of 70% of the gross profits.
Q2) One way the "lemons problem" in the used-car market can be mitigated is by
A)raising the price of used cars.
B)hiring auto experts to sell used cars.
C)requiring sellers to guarantee trouble-free cars.
D)allowing owners to trade in their own cars when they purchase a used car.
Q3) Which of the following is an application of the moral-hazard problem?
A)a person buying insurance after a cancer diagnosis.
B)an salesperson who is not paid on commission being rude to customers.
C)coffee hounds buying the menu item meant for lower-demand consumers.
D)only inexperienced workers applying for a managerial job advertised with a relatively low salary.
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Page 17
Chapter 16: Externalities and Public Goods
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Sample Questions
Q1) Suppose the market for oranges is perfectly competitive and unregulated.Suppose also that the chemicals used to keep the oranges insect-free damage the environment by an estimated $1 per bushel of oranges.Suppose Q<sub>D</sub> = 1000 - 100P and Q<sub>S</sub> = -100 + 100P.If regulators limited production to 200 bushels,the deadweight loss relative to the option of setting the optimal tax would be would be
A)$0
B)$200
C)$500
D)$1000
Q2) Bargaining costs are generally high in cases involving environmental externalities because
A)there are strong incentives to be a free rider.
B)many individuals may be affected by the externalities.
C)it is difficult to measure the costs of the externalities.
D)all of the above.
Q3) Left to their own,private markets tend to
A)under-allocate resources to public goods.
B)allocate the economically efficient amount of resources to public goods.
C)over-allocate resources to public goods.
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Page 18
Chapter 17: Behavioral Economics
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Sample Questions
Q1) Jan is a hyperbolic discounter. She puts weight 1 on utility earned in the current period but only weight .5 on utility earned in future periods. In period 1 she comes up with a plan,which involves taking some action that leads to a loss of C utils in period 2 but provides a benefit of B utils in period 3. What values of B and C will lead her to behave inconsistently and not follow through on her plans?
A)C < B < 2C.
B)B < C.
C)B > 2C.
D)B < C < 2B.
Q2) Return to the case of Jan,the hyperbolic discounter from the previous question. What values of B and C will lead her to be consistent with a plan not to undertake the action?
A)C < B < 2C.
B)B < C.
C)B > 2C.
D)B < C < 2B.
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