Business Economics
Final Test Solutions
Course Introduction
Business Economics is a foundational course that explores the application of economic principles and methodologies to the decision-making processes within businesses and organizations. The course examines key concepts such as supply and demand analysis, market structures, pricing strategies, production and cost functions, and the impact of government policies on business activities. Through case studies and practical examples, students learn how economic theory is used to solve real-world business problems, evaluate market opportunities, and formulate strategies for achieving competitive advantage in diverse economic environments.
Recommended Textbook
Microeconomics Principles Applications and Tools 9th Edition by Arthur OSullivan
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18 Chapters
2638 Verified Questions
2638 Flashcards
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Page 2
Chapter 1: Introduction: What Is Economics
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163 Verified Questions
163 Flashcards
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Sample Questions
Q1) If variable A falls as variable B falls,then a line generated by putting variable A on the x-axis and variable B on the y-axis should be upward sloping.
A)True
B)False
Answer: True
Q2) An example of analysis that involves variables and how they affect one another would include the relationship of the price of smart phones to the quantity of smart phones purchased.
A)True
B)False
Answer: True
Q3) What did Adam Smith mean when he wrote that individuals rationally act in their own self-interest?
Answer: Adam Smith meant that when individuals make decisions,their decisions are based more on self-interest than kindness or altruism.The statement was not meant to imply that people are motivated exclusively by self-interest.
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Page 3
Chapter 2: The Key Principles of Economics
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199 Verified Questions
199 Flashcards
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Sample Questions
Q1) Suppose that your tuition to attend college is $5,000 per year and you spend $5,000 per year on room and board.If you were working full time,you could earn $22,000 per year.What is your opportunity cost of attending college?
A) $13,000
B) $27,000
C) $30,000
D) $35,000
Answer: B
Q2) What is the nominal value of money?
A) what can be purchased with the money
B) discounts taken by multiple purchases
C) savings by shopping on specific days of the week
D) its actual face value
Answer: D
Q3) The opportunity cost of going to a particular college is not the same for everyone.
A)True
B)False
Answer: True
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Chapter 3: Exchange and Markets
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133 Verified Questions
133 Flashcards
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Sample Questions
Q1) Absolute advantage is when one producer has greater productivity compared to another producing the same product.
A)True
B)False
Answer: True
Q2) If a person has a comparative advantage in some activity,she must have an absolute advantage in that activity as well.
A)True
B)False
Answer: False
Q3) ________ is another term for "offshoring."
A) Outsourcing
B) Importing
C) Exporting
D) Insourcing
Answer: A
Q4) What are some of the sources of market failure?
Answer: people not bearing the full costs of their decisions,public goods,imperfect information,imperfect competition
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Chapter 4: Demand,supply,and Market Equilibrium
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279 Verified Questions
279 Flashcards
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Sample Questions
Q1) Suppose that the price of apples decreases and the quantity of apples in the market decreases.Suggest two reasons why this might have happened.
Q2) In Figure 4.2,which of the panels depicts a market in which there is an excess supply of a product?
A) Panel A
B) Panel B
C) Panel C
D) None of the panels depicts a market in which there is an excess supply of a product.
Q3) When a consumer's income decreases,the consumer
A) has less to spend.
B) buys a smaller quantity of normal goods.
C) buys more inferior goods.
D) all of the above
Q4) On the "demand side" of a market,consumers indicate to producers what they are willing to buy,in what quantity,and at what price.
A)True
B)False
Q5) In economics,a change in preferences for the product causes a(n)________.
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Chapter 5: Elasticity: a Measure of Responsiveness
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170 Verified Questions
170 Flashcards
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Sample Questions
Q1) If the price elasticity of supply is equal to zero,then supply is perfectly inelastic.
A)True
B)False
Q2) The price elasticity of demand is measured by dividing the percentage change in quantity demanded by the percentage change in price.
A)True
B)False
Q3) The price elasticity of demand for gasoline is 0.5 and the price elasticity of supply for gasoline is 1.5.If the demand for gasoline falls by 10%,what will happen to the price of gasoline?
Q4) The price elasticity of supply measures the responsiveness of the quantity supplied to changes in demand.
A)True
B)False
Q5) Would you expect the cross-price elasticity of demand between ham and turkey to be positive or negative? Why?
Q6) What does the cross-price elasticity of demand measure? How is it calculated?
Q7) What does the income elasticity of demand measure? How is it calculated?
Page 7
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Chapter 6: Market Efficiency and Government Intervention
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Which of the following would result from a quota imposed on the quantity of cars that can be imported into the United States?
A) an increase in the total surplus
B) an increase in producer surplus
C) an increase in prices paid by consumers
D) an increase in consumer surplus
Q2) Refer to Figure 6.1.If the price of a donut is $ 0.25,consumer surplus is
A) $3.50.
B) $3.00.
C) $1.50.
D) $0.
Q3) A tax on a good or service ________ the price that buyers pay and ________ the price that sellers receive.
A) raises; lowers
B) raises; raises
C) lowers; lowers
D) lowers; raises
Q4) A burden of a tax on a good will not always be borne entirely by the seller.
A)True
B)False
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Chapter 7: Consumer Choice: Utility Theory and Insights
From Neuroscience
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) Suppose that MU /P < MU /P .This implies that
A) spending a dollar less on Y and spending a dollar more on X increases utility.
B) spending a dollar less on X, and spending a dollar more on Y increases utility.
C) X is more expensive than Y.
D) Y is more expensive than X.
Q2) The dopamine rewards for near misses are problematic in truly random environments like gambling.
A)True
B)False
Q3) An increase in price would generate substitution and income effects that decrease the quantity demanded of a particular good.
A)True
B)False
Q4) Consumers should allocate their scarce income so that
A) the marginal utility for all goods consumed is zero.
B) the marginal utility for all goods consumed is equal.
C) the marginal utility divided by price is equal for all goods consumed.
D) the marginal utility divided by price is maximized for all goods consumed.
Page 9
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Chapter 8: Production Technology and Cost
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163 Verified Questions
163 Flashcards
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Sample Questions
Q1) Accounting costs include all monetary payments and all the opportunity cost of inputs that do not require an explicit monetary payment.
A)True
B)False
Q2) When El Guapo's Mexican Restaurant hires one waiter,5 tables can be served in an hour.When El Guapo's Mexican Restaurant hires two waiters,12 tables can be served in an hour.The marginal product of labor of the second waiter is ________ tables served per hour.
A) 5
B) 7
C) 12
D) 17
Q3) Refer to Figure 8.3.The vertical distance AB represents
A) total fixed costs.
B) marginal costs.
C) average fixed costs.
D) average total costs.
Q4) Decreasing marginal product implies decreasing marginal costs.
A)True
B)False
Page 10
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Chapter 9: Perfect Competition
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167 Verified Questions
167 Flashcards
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Sample Questions
Q1) Recall the Application.If the quantity of blueberries demanded decreases,prices ________ in the short run and ________ as supply drops to meet demand.
A) rise; stabilize
B) fall; stabilize
C) rise; fall
D) fall; rise
Q2) Monopolistic competition is characterized by barriers to entry.
A)True
B)False
Q3) ABC company will choose to shut down rather than operate as long as A) it earns the same amount as its expenses.
B) average fixed cost is less than average variable cost.
C) total revenue is less than or equal to fixed cost.
D) total revenue is less than or equal to variable cost.
Q4) Why would a firm be willing to operate at a loss?
Q5) Monopolistic industries are characterized by a homogeneous product.
A)True
B)False
Q6) If a firm shuts down in the short run,will the firm have zero costs? Why or why not?
Page 11
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Chapter 10: Monopoly and Price Discrimination
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) Refer to Figure 10.1.The marginal revenue of the sixth pound of cheese is
A) -$4.
B) -$1.
C) $1.
D) $4.
Q2) Strawberry,Inc.has a monopoly on the sale of a specialized smartphone.If it sells 9 of these smartphones its total revenue is $1,800,and if it sells 10 smartphones its total revenue is $1,950.The marginal revenue of the tenth smartphone sold is
A) $75.
B) $150.
C) $1,800.
D) $1,950.
Q3) A monopolist can
A) sell as much as he wants at the chosen price since he is the only seller.
B) increase price only if he is willing to reduce output sold.
C) increase the price of his output and still sell the same quantity.
D) increase the price of his output and the quantity sold at the same time.
Q4) Explain why a firm may choose to price discriminate.
Q5) How does rent-seeking behavior result in additional deadweight loss?
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Chapter 11: Market Entry and Monopolistic Competition
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) The big advantage to consumers of product differentiation is that it
A) allows for a large number of firms.
B) provides variety.
C) prevents monopoly.
D) improves technology.
Q2) If producers differentiate themselves by location,consumers can reduce their travel costs.
A)True
B)False
Q3) What is meant by product differentiation? Why is it employed by firms?
Q4) When a profit-maximizing firm in monopolistic competition is producing its long-run equilibrium quantity,
A) it will be earning economic profit.
B) its marginal revenue will exceed its marginal cost.
C) its price will equal its marginal cost.
D) its price will be equal to its average total cost.
Q5) As new firms enter a monopolistically competitive market,there is more product variety and lower prices.
A)True
B)False
13
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Chapter 12: Oligopoly and Strategic Behavior
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116 Flashcards
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Sample Questions
Q1) The advertisers' dilemma suggests that firms would be worse off if they did not advertise,even though advertising only raises total output in an industry by only a small amount.
A)True
B)False
Q2) Refer to Table 12.1.The four-firm concentration ratio of the cigarette industry is equal to
A) 48%.
B) 54%.
C) 71%.
D) 81%.
Q3) Figure 12.2 shows the decision tree for setting price for the only two firms in a market.If both firms follow their dominant strategies
A) both firms will set price high.
B) both firms will set price low.
C) only one firm will set price low.
D) The firms' dominant strategies cannot be determined without more information.
Q4) Do firms in a perfectly contestable market earn positive economic profit in the long run? Explain.
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Chapter 13: Controlling Market Power: Antitrust and Regulation
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81 Verified Questions
81 Flashcards
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Sample Questions
Q1) Which of the following concerning predatory pricing is true?
A) Predatory pricing involves charging different prices to different customers based on their willingness-to-pay.
B) Predatory pricing involves raising prices very high so that most consumers are unable to purchase the product, though a few continue to do so, and the firm makes huge profits by having lower production costs.
C) Predatory pricing is used to drive competitors out of the market.
D) Predatory pricing permanently lowers the price in the market.
Q2) Define a natural monopoly.
Q3) One possible benefit from a merger is that the new firm could consolidate production,marketing,and a administrative operations,leading to lower the production average costs.
A)True
B)False
Q4) The Federal Trade Commission was concerned that a merger between Continental Baking and Interstate Bakeries would lower bread prices in the bread market.
A)True
B)False
Page 15
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Chapter 14: Imperfect Information: Adverse Selection and Moral Hazard
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98 Verified Questions
98 Flashcards
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Sample Questions
Q1) Consider a market in which some high-quality goods are sold,but not as many as if there was perfect information about the quality of the good.This type of market is known as a(n)
A) beneficial selection.
B) thin market.
C) symmetric market.
D) efficient market.
Q2) If insurance premiums are based on an experience rating,
A) every firm in a given area pays the same price for medical insurance.
B) insurance premiums are based on the past medical bills of a firm's employees.
C) firms have no incentive to try to lower the health care costs of their employees. D) firms will not be concerned with the health problems of job applicants.
Q3) One method of responding to the lemons effect is to invest in information.
A)True
B)False
Q4) As more high-risk consumers enter the health insurance market,the average cost of health insurance service decreases.
A)True
B)False
Page 16
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Chapter 15: Public Goods and Public Choice
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95 Verified Questions
95 Flashcards
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Sample Questions
Q1) Which of the following contains most of the characteristics of a public good?
A) education
B) trash collection
C) public transportation
D) fireworks shows
Q2) The free-rider problem is a problem intrinsic to public goods; the good or service is usually so costly that its provision generally does not depend on whether or not any single person pays.
A)True
B)False
Q3) Education produces only public benefits while costing society billions of dollars.
A)True
B)False
Q4) The model of government based on small groups of people manipulating government for their own gain is
A) conservative ideology.
B) median-voter policy.
C) special-interest politics.
D) common resource strategy.
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Chapter 16: External Costs and Environmental Policy
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) Producers X and Y dump waste into a local river.Table 16.1 shows the production costs each firm faces at different levels of waste.For Producer Y,the marginal cost of reducing waste from 500 gallons to 400 gallons is
A) $850.
B) $800.
C) $100.
D) $50.
Q2) Command-and-control policies are more effective than pollution taxes.
A)True
B)False
Q3) If,while producing goods and services,a factory is producing pollution and not incurring the cost of this pollution,then a(n)________ exists.
A) government failure
B) market failure
C) acceptable outcome
D) none of the above
Q4) How does a system of marketable pollution permits affect the total cost of pollution abatement? Explain.
Q5) What role can the government play in correcting for external costs?
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Chapter 17: The Labor Market and the Distribution of Income
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177 Flashcards
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Sample Questions
Q1) A profit-maximizing firm will hire labor as long as the marginal revenue product of labor is less than the wage.
A)True
B)False
Q2) Assuming that leisure is a normal good,if an individual's labor supply curve is backward bending,then the
A) income effect outweighs the substitution effect.
B) substitution effect outweighs the income effect.
C) income effect and the substitution effects are equal.
D) income effect is zero.
Q3) Graphically illustrate and explain the effect of an increase in the marginal product of labor on the demand curve for labor.
Q4) Frank's Burgers employs workers in a competitive market.It currently has 15 employees.The marginal revenue product of the 15th worker hired is $8.50 per hour.The market equilibrium wage is $10 per hour.Is this firm maximizing profit? Explain.
Q5) As the dollar prizes for professional golf tournaments have increased,professional golfers have entered fewer tournaments per year.Is this type of behavior consistent with utility maximization? Explain.
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Chapter 18: International Trade and Public Policy
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224 Verified Questions
224 Flashcards
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Sample Questions
Q1) Suppose the United States imposes a ban on imported steel from China because the Chinese steel was made with factories that pollute the environment.If China complains to the WTO regarding the U.S.ban,the WTO will side with
A) China, because the pollution in China does not harm the United States directly.
B) China, because the WTO is in favor of industries that generate pollution.
C) the United States, because a country can determine what goods can and cannot enter its borders.
D) the United States, because U.S. factories have to comply with U.S. environmental standards.
Q2) A voluntary export restraint is a trade policy by which a nation agrees to limit its
A) exports of a good in order to avoid more restrictive trade policies.
B) imports of a good, but only under the threat of more restrictive trade policies.
C) exports of a good in order to increase employment.
D) imports of a good.
Q3) Why would a country want to shield domestic workers from foreign competition?
Q4) What is the rationale for protecting infant industries?
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Page 20