Business Economics
Final Exam Questions
Course Introduction
Business Economics explores the application of economic principles and methodologies to real-world business problems and decision-making processes. The course covers key concepts such as supply and demand, market structures, pricing strategies, production and cost analysis, and the impact of government policies on business activities. Students will also examine how businesses respond to changes in the economic environment, analyze risk and uncertainty, and utilize economic tools to inform strategic planning. Through case studies and practical examples, the course aims to develop analytical skills essential for effective managerial decision-making and a deeper understanding of the economic forces shaping the business landscape.
Recommended Textbook Microeconomics 1st Canadian Edition by R. Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Refer to Scenario 1.1.Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 3,000 cell phones?
A)marginal cost
B)operating cost
C)explicit cost
D)Any of the above terms are correct.
Answer: A
Q2) Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.
A)equitably
B)rationally
C)emotionally
D)selfishly
Answer: B
Q3) Scarcity is a problem that will eventually disappear as technology advances.
A)True
B)False
Answer: False
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) ________ opportunity cost implies that as more resources are applied to producing one good, that production increases by smaller and smaller amounts.
A)Increasing
B)Decreasing
C)Constant
D)Negative
Answer: A
Q2) Refer to Table 2.1.Assume Tomaso's Trattoria only produces pizzas and calzones.A combination of 24 pizzas and 30 calzones would appear
A)along Tomaso's production possibilities frontier.
B)inside Tomaso's production possibilities frontier.
C)outside Tomaso's production possibilities frontier.
D)at the horizontal intercept of Tomaso's production possibilities frontier.
Answer: A
Q3) Entrepreneurs bring together the factors of production to produce goods and services.
A)True
B)False
Answer: True
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Hurricane Juan hit Halifax in 2003.The storm did over $300 million in damage.In the effort to repair the damage done by the storm, the prices of basic building materials and contractors increased dramatically.Many residents complained of profiteering and price gouging by contractors and home improvement stores.Which of the following offers the best explanation of the price increases people were seeing?
A)The hurricane reduced the number of suppliers of building materials.
B)The hurricane created an artificial shortage of building materials.
C)The hurricane caused an increase in the demand for building materials.
D)There was a reduction in supply as firms shipped plywood and other materials to locations not affected by the storm.
Answer: C
Q2) If the demand for a product increases and the supply of the same product increases, the equilibrium price will increase.
A)True
B)False
Answer: False
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5
Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Sample Questions
Q1) Refer to Table 4.2.The table above lists the marginal cost of cowboy hats by The Lethbridge Kid, a firm that specializes in producing western wear.If the market price of The Lethbridge Kid's cowboy hats is $40
A)The Lethbridge Kid will produce four hats.
B)producer surplus will be equal to $16.
C)producer surplus will equal $28.
D)there will be a surplus; as a result, the price will fall to $24.
Q2) Which of the following statements is true?
A)Consumer surplus measures the total benefit from participating in a market.
B)When a market is in equilibrium consumer surplus equals producer surplus.
C)Consumer surplus measures the net benefit from participating in a market.
D)Producer surplus measures the total benefit received by producers from participating in a market.
Q3) Rent control is an example of
A)a subsidy for low-skilled workers.
B)a price floor.
C)a price ceiling.
D)a black market.
Q4) What is "tax incidence"? What determines tax incidence in a competitive market?
Q5) What is producer surplus? What does producer surplus measure?
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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Sample Questions
Q1) What is the rationale behind a marketable emission allowance scheme?
A)to create of a market for externalities: the scheme brings together buyers and sellers of marketable permits
B)to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowance
C)to raise revenue for the government through the sale of emission permits and at the same time set an emissions target
D)to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance
Q2) State the Coase theorem.
Q3) How does a negative externality in production reduce economic efficiency?
Q4) An advantage of imposing a tax on the producer that generates pollution is that
A)it forces the polluting producer to internalize the external cost of the pollution.
B)the government can keep tabs on exactly what is produced in an industry.
C)it will eliminate pollution.
D)a producer can pass the cost of the pollution to consumers.
Q5) Should the level of pollution be reduced to zero and if not, then to what level?
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) Apple introduced the iPhone to the market in June 2007.Within two months, it had become clear that the price elasticity of demand for iPhones was
A)significantly higher than had been expected.
B)very close to original estimates.
C)significantly lower than had been expected.
D)essentially unit elastic.
Q2) Seth is a competitive body builder.He says he has to have his 12-oz package of protein powder to "feed his muscles" every day.On the basis of this information, what can you conclude about his price elasticity of demand for protein powder?
A)It is elastic.
B)It is perfectly elastic.
C)It is perfectly inelastic.
D)The price elasticity coefficient is 0.
Q3) Suppose a 4 percent increase in income results in a 2 percent decrease in the quantity demanded of a good.Calculate the income elasticity of demand for the good and determine what type of good it is.
Q4) What does price elasticity of demand measure? When is demand elastic? Inelastic? Unit elastic?
Page 8
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Chapter 7: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) In 1930, the U.S.government attempted to help domestic firms that were harmed by the Great Depression by
A)establishing the General Agreement on Tariffs and Trade (GATT).
B)passing the Smoot-Hawley Act.
C)establishing the World Trade Organization (WTO).
D)passing the North American Free Trade Agreement (NAFTA).
Q2) Examples of ________ show how trade between two countries can make each better off.
A)absolute advantage
B)comparative advantage
C)autarky
D)trade barriers
Q3) Many people assume that if child workers in developing countries weren't working in factories, they would be in school.In fact, children in developing countries
A)split their time evenly between work and school.
B)usually have few good alternatives to work.
C)are only allowed to work if they have attended school up to age 15.
D)who work are relatively rare, as most do attend school full time.
Q4) Distinguish between a voluntary export restraint and a quota.
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Chapter 8: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) The demand curve for an inferior good can never be downward-sloping.
A)True
B)False
Q2) In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change
A)income and hold everything else constant.
B)tastes and preferences and hold everything else constant.
C)the price of the product and hold everything else constant.
D)the price of a close substitute and hold everything else constant.
Q3) A common mistake made by consumers is the failure to take into account the sunk costs of their actions.
A)True
B)False
Q4) If total utility increases at a decreasing rate as a consumer consumes more coffee, then marginal utility must
A)remains constant.
B)increase also.
C)decrease.
D)be negative.
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Chapter 9: Technology, Production, and Costs
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Sample Questions
Q1) Golda Rush quit her job as a manager for Rona to start her own hair dressing salon, Goldilocks.She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest)and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year.In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material.Based on this information, what is the amount of her explicit costs?
A)$45,000
B)$45,500
C)$47,000
D)$87,000
Q2) If the long-run average total cost curve is downward-sloping, then the firm is experiencing decreasing returns to scale.
A)True
B)False
Q3) Average total cost is equal to average variable cost minus average fixed cost.
A)True
B)False
Q4) What is an isoquant? What is the slope of an isoquant?
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Chapter 10: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Which of the following statements is correct?
A)Economic profit takes into account all costs involved in producing a product.
B)Accounting profit is not relevant in preparing the firm's financial statement.
C)Economic profit always exceeds accounting profit.
D)Accounting profit is the same as economic profit.
Q2) Assume that after a banner year in Canadian farm exports in 2014, farmers are expected to break even in 2015.This means that at the quantity being produced in 2015,
A)MC =AVC.
B)MR =MC.
C)MR =ATC.
D)AVC =ATC.
Q3) Refer to Figure 10.7.Suppose the prevailing price is $20 and the firm is currently producing 1,350 units.In the long-run equilibrium, the firm represented in the diagram
A)will continue to produce the same quantity.
B)will reduce its output to 1,100 units.
C)will reduce its output to 750 units.
D)will cease to exist.
Q4) What is meant by the term "long-run competitive equilibrium?
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Page 12
Chapter 11: Monopolistic Competition
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Sample Questions
Q1) Refer to Table 11.2.What is the marginal profit from producing and selling the 5th case?
A)$275
B)$145
C)$35
D)$20
Q2) In theory, in the long run, monopolistically competitive firms earns zero profits.However, in reality there are some ways by which a firm can avoid losing profits.Which of the following is one such way?
A)gradually increase the mark up on the goods produced
B)lower the price of its products to expand its market share
C)identify new markets and develop products precisely for those markets
D)find a market niche and keep it as narrow as possible so as to prevent other producers from entering this market segment
Q3) Arturo runs a Robin's Donuts franchise.He is selling 250 iced cappuccinos per week at a price of $2.75.If he lowers the price to $2.70, he will sell 251 iced cappuccinos.What is the marginal revenue of the 251st iced cappuccino? If selling the extra iced cappuccino adds $0.20 to Arturo's costs, what will be the effect on his profit from selling 251 iced cappuccinos instead of 250?
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Page 13
Chapter 12: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) In the 1930s and 1940s, the Technicolor company was able to leverage its bargaining power over the movie industry because Technicolor was the sole producer of cameras and films needed to produce color films.
A)True
B)False
Q2) In an oligopoly market
A)the pricing decisions of all other firms have no effect on an individual firm.
B)individual firms pay no attention to the behavior of other firms.
C)advertising of one firm has no effect on all other firms.
D)one firm's pricing decision affects all the other firms.
Q3) Economies of scale can lead to an oligopolistic market structure because
A)if larger firms have lower costs, new small entrants will not be able to produce at the low costs achieved by the big established firms.
B)if economies of scale are insignificant, only a few firms are able to produce at the low costs achieved by the big established firms.
C)a few firms can force rivals to produce at low levels of output.
D)a few firms can use high profits to keep out new entrants.
Q4) Explain why OPEC is caught in a prisoner's dilemma?
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Page 14
Chapter 13: Monopoly and Antitrust Policy
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Sample Questions
Q1) In reality, because few markets are perfectly competitive, some loss of economic efficiency occurs in the market for nearly every good or service.
A)True
B)False
Q2) The National Hockey League has long-term leases with the arenas in major cities.Control of these arenas is an entry barrier to a potential new hockey league.
A)True
B)False
Q3) The ________ is the law that covers monopolies in Canada.
A)Sherman Act
B)MacDonald Act
C)Monopoly Act
D)Competition Act
Q4) The market demand curve facing a monopolist is more elastic than the market demand curve facing a monopolistic competitor.
A)True
B)False
Q5) Provide two examples of a government barrier to entry?
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Chapter 14: The Markets for Labour and Other Factors of Production
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Sample Questions
Q1) There are 27 Canadian Interuniversity Sport football teams.As the value of a Canadian Interuniversity Sport football team increases, the equilibrium wage (salary)paid to head coaches ________ and the equilibrium quantity of head coaching positions ________.
A)increases; increases
B)increases; remains the same.
C)increases; decreases
D)remains the same; decreases
Q2) Refer to Table 14.4.Dante owns a pencil factory and faces the situation shown in the table and the cost of renting a machine is $240 per week.
a.Fill in the blanks in the table and determine the profit-maximizing number of machines for Dante to rent.Explain why renting this number of machines is profit maximizing. b.Draw Dante's demand curve for capital.
Q3) If the labour demand curve shifts to the right and the labour supply curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.
Q4) What is the marginal productivity theory of income distribution?
Q5) What is personnel economics?
Page 16
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Chapter 15: Public Choice, Taxes, and the Distribution of Income
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Sample Questions
Q1) Between 1976 and 2010, income inequality in Canada has increased in part due to rapid technological change.How does technological change contribute to income inequality?
A)Advancements in technology displace skilled and unskilled workers in certain fields, leading to higher unemployment rates.
B)Technology complements the skills of the well-educated while rendering redundant the labour services of unskilled and low-skilled workers. This causes a decline in the wages of low and unskilled workers relative to other workers.
C)The opportunity cost of investing in technology is investments in human capital. The resulting decrease in labour's marginal productivity has led to lower wages.
D)Technological change favours the owners of capital and since high income individuals tend to own capital, income inequality is further exacerbated.
Q2) Refer to Figure 15.4.The highest 20 percent of households
A)earn 24 percent of the society's total income.
B)earn 28 percent of the society's total income.
C)earn 42 percent of the society's total income.
D)earn 72 percent of the society's total income.
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Page 17
Chapter 16: Pricing Strategy
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Sample Questions
Q1) Universities offer merit awards to students who ordinarily would not qualify for other financial help.Some have criticized this on grounds that merit awards disproportionately benefit students from wealthier communities with better school systems, siphoning resources away from lower-income students with greater financial need.A university's decision to grant merit awards is motivated by economic efficiency.
A)True
B)False
Q2) In the real world,
A)all sellers charge one price equal to the marginal cost of production.
B)profitable sellers will set one price based on the average elasticity of demand of buyers.
C)many firms charge different prices based on consumers' willingness to pay.
D)all sellers charge one price set by the government.
Q3) If marginal cost is zero, with an optimal two-part tariff,
A)total revenue is maximized.
B)consumers maximize their surplus.
C)the firm does not have to charge a fixed-fee portion.
D)firms may not maximize profit.
Q4) What three conditions must hold for a firm to successfully price discriminate?
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Chapter 17: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) What is accounting profit?
A)gross revenue minus explicit costs
B)gross revenue minus implicit costs
C)gross revenue minus explicit and implicit costs
D)the same as economic profit
Q2) What is the present value of $575 in a one year if the current rate of interest is 4 percent?
A)$410.71
B)$552.88
C)$598
D)$805
Q3) In Canada, corporate profits are taxed at the corporate level and then are taxed again as personal income in the form of dividend payments when investors receive a share of profits.
A)True
B)False
Q4) Explain the relationships between a corporation's shareholders, its board of directors, and its top managers.
Page 19
Q5) What is a corporate bond and what does it specify?
Q6) How do unlimited and limited liability differ?
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Page 20