Business Economics
Mock Exam
Course Introduction
Business Economics examines how economic theories and methodologies apply to real-world business decision-making. The course explores concepts such as demand and supply analysis, production and cost structures, market competition, pricing strategies, and the influence of government policies on business operations. Students will learn how to analyze microeconomic and macroeconomic factors affecting businesses, interpret economic data, and develop strategies for optimizing organizational performance in dynamic market environments.
Recommended Textbook Principles of Microeconomics 7th Canadian Edition by McKenzie Mankiw
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Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) Suppose your management professor has been offered a corporate job with a 30 percent pay increase.Why has he decided to take the job
A)The marginal cost of leaving was greater than the marginal benefit.
B)The marginal benefit of leaving was greater than the marginal cost.
C)The marginal benefit of teaching was greater than the marginal cost.
D)The marginal cost of teaching was greater than the marginal benefit.
Answer: B
Q2) What term refers to the amount of goods and services produced from each hour of a worker's time
A)total output
B)productivity
C)marginal product
D)quantity
Answer: B
Q3) Over the past century,how much has the average income in Canada risen by
A)twofold
B)fivefold
C)eightfold
D)tenfold
Answer: C
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Refer to Table 2-1.What is the opportunity cost to Toyland of increasing the production of fire trucks from 0 to 200
A)50 dolls
B)100 dolls
C)150 dolls
D)200 dolls
Answer: B
Q2) A production possibilities frontier is a graph that shows the various combinations of outputs the economy can possibly produce given its factors of production and technology.
A)True
B)False
Answer: True
Q3) The tradeoff between the production of different goods can change because of technological improvement over time.
A)True
B)False
Answer: True
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Suppose that a worker in Boatland can produce either 5 units of wheat or 20 units of fish per year,and a worker in Farmland can produce either 20 units of wheat or 5 units of fish per year.There are 10 workers in each country.Political pressure from the fish lobby in Farmland and the wheat lobby in Boatland has prevented trade between the two countries on the grounds that cheap imports would kill the fish industry in Farmland and the wheat industry in Boatland.As a result,Boatland produces and consumes 25 units of wheat and 100 units of fish per year while Farmland produces and consumes 100 units of wheat and 25 units of fish per year.If the political pressure was overcome and trade was to occur,each country would completely specialize in the product for which it has a comparative advantage.If trade were to occur,by how much would the combined output of the two countries increase
A)25 wheat and 25 fish
B)50 wheat and 50 fish
C)75 wheat and 75 fish
D)100 wheat and 100 fish
Answer: D
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Which of the following is NOT one of the steps in analyzing how an event affects a market
A)Determine the number of market participants.
B)Decide whether the curve shifts to the right or to the left.
C)Determine whether the event shifts the supply, the demand, or both curves.
D)Use a supply-demand diagram to examine how the shift(s) affect the equilibrium.
Q2) Market demand is given as Q<sub>D </sub>= 40 - 2P.Market supply is given as Q<sub>S </sub>= 2P.If price increases from $15 to $16,what is the price elasticity of demand
A)0.3
B)1.0
C)1.1
D)3.4
Q3) Refer to the Figure 4-5.Which of the following is shown in Graph C
A)a decrease in demand
B)a decrease in the number of sellers
C)an increase in supply
D)an increase in input prices
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Chapter 5: Elasticity and Its Application
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Sample Questions
Q1) Where will total revenue be highest on a linear demand curve
A)the top of the curve where prices are higher
B)the centre of the curve
C)the lower end of the curve where quantity is higher
D)any point on the curve; total revenue will be the same since increases in price are offset by decreases in quantity
Q2) When the price of kittens was $20 each,the pet shop sold 20 per month.When they raised the price to $30 each,they sold 14 per month.What is the elasticity of demand for kittens
A)0.66
B)0.94
C)1.36
D)1.66
Q3) Which of the following categories of goods would have the most elastic demand
A)beverages
B)soda pop
C)colas
D)Pepsi
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Chapter 6: Supply, demand, and Government Policies
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Sample Questions
Q1) Who pays the majority of a tax levied on a product depends on whether the tax is placed on the buyer or the seller.
A)True
B)False
Q2) What results when the minimum wage is above the equilibrium wage
A)The quantity demanded of labour will be greater than the quantity supplied.
B)The quantity demanded of labour will equal to the quantity supplied.
C)The quantity demanded of labour will be less than the quantity supplied.
D)Anyone who wants a job at the minimum wage can find one.
Q3) With a binding price floor,what will the market price be
A)lower than the price floor
B)higher than the price floor
C)equal to the difference between price floor and price ceiling
D)equal to the difference between price floor and the market equilibrium.
Q4) Binding price ceilings benefit consumers because they allow consumers to buy all the goods they demand at a lower price.
A)True
B)False
Q5) How does elasticity affect the burden of a tax
Justify your answer using supply and demand diagrams.
Page 8
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) What is welfare economics
A)the study of the well-being of less fortunate people
B)the study of welfare programs in Canada
C)the study of the effect of income redistribution on work effort
D)the study of how the allocation of resources affects economic well-being
Q2) What does cost refer to
A)a seller's producer surplus
B)a seller's opportunity cost
C)a seller's consumer surplus
D)a seller's willingness to buy
Q3) What name is given to the study of how the allocation of resources affects economic well-being
A)consumer economics
B)managerial economics
C)welfare economics
D)supply-side economics
Q4) Consider the following two equations:
1) Total surplus = Consumer surplus + Producer surplus
2) Total surplus = Value to buyers - Cost to sellers
Show how equation (1) can be used to derive equation (2).
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Chapter 8: Application: the Costs of Taxation
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Sample Questions
Q1) If a country's tax rates are high,where is that country most likely to be on the Laffer curve
A)on the top of the Laffer curve
B)on the positively sloped part of the Laffer curve
C)above the Laffer curve
D)on the negatively sloped part of the Laffer curve
Q2) Although tax revenue eventually begins to fall as tax rates increase,the revenue will always be greater than zero,no matter how large the tax is.
A)True
B)False
Q3) Refer to Figure 8-6.What would the reduction in producer surplus caused by the tax be
A)$60
B)$70
C)$80
D)$100
Q4) The EI tax,and to a large extent the federal income tax,are labour taxes.
A)True
B)False
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Chapter 9: Application: International Trade
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Sample Questions
Q1) Since World War II,what reduction in the average tariff has GATT achieved among member countries
A)from about 20 percent to about 10 percent
B)from about 40 percent to about 5 percent
C)from about 40 percent to about 20 percent
D)from about 80 percent to about 20 percent
Q2) Most economists support the infant-industry argument because it is so easy to implement in practice.
A)True
B)False
Q3) Refer to Figure 9-11.When a tariff is imposed in the market,how much do producers gain or lose
A)lose $100
B)gain $100
C)lose $200
D)gain $300
Q4) Trade decisions are based on the concept of absolute advantage.
A)True
B)False
Q5) How is an import quota similar to,and different than,an equivalent tariff
Page 11
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Chapter 10: Externalities
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Sample Questions
Q1) In a market economy,what guides economic activity
A)the government
B)businesses
C)central planners
D)prices
Q2) What do externalities cause markets to do
A)fail to allocate resources efficiently
B)cause price to be different than the equilibrium price
C)benefit producers at the expense of consumers
D)cause markets to operate more equitably
Q3) What does the height of the demand curve show
A)how much each seller in the market is ultimately willing to supply
B)the willingness of the marginal buyer to pay
C)the maximum price all buyers will pay for a product
D)the lowest price buyers will pay for a product
Q4) Refer to Figure 10-6.Which curve best represents a corrective tax
A)A
B)B
C)neither
D)both could represent a corrective tax depending on the industry being taxed
Page 12
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) A fireworks display is not excludable because it is virtually impossible to prevent someone from seeing the show.
A)True
B)False
Q2) The free-rider problem arises when the number of beneficiaries is large and exclusion of any of them is impossible.
A)True
B)False
Q3) When the government decides to build a new highway,the first step is to conduct a study to determine the value of the project.What is the study called
A)fiscal analysis
B)net value analysis
C)welfare analysis
D)cost-benefit analysis
Q4) Which claim do advocates of antipoverty programs make
A)They are most successfully done by charities.
B)They are a public good.
C)They can be done efficiently by the market system.
D)They should not be done with tax dollars.
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) List the three most important expenditure programs of the federal government.How do these differ from the three most important expenditure programs of provincial and local governments
Explain why it makes more sense for the federal government to purchase "national defence" rather than provincial governments.
Q2) MaKenna earns income of $80,000 per year.Her average tax rate is 50 percent.MaKenna paid $7000 in taxes on the first $30,000 she earned.What was the marginal tax rate on the first $30,000 she earned,and what was the marginal tax rate on the remaining $50,000
A)16.25 percent and 50.00 percent
B)18.00 percent and 60.00 percent
C)20.00 percent and 20.00 percent
D)23.33 percent and 66 percent
Q3) In practice,Canadian income tax is filled with special provisions that alter a family's tax based on its specific circumstances.
A)True
B)False
Q4) Evaluate the statement: Tax loopholes increase the efficiency of tax systems.
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Page 14
Chapter 13: The Costs of Production
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Sample Questions
Q1) Refer to Scenario 13-5.In producing the 5000 staplers,what was the firm's average total cost
A)$6
B)$7
C)$8
D)$9
Q2) What does marginal cost tell us
A)the value of all resources used in a production process
B)the additional profit earned when output is increased by one unit
C)the amount by which total cost rises when output is increased by one unit
D)the amount by which output rises when labour is increased by one unit
Q3) Although economists and accountants treat many costs differently,they both treat the cost of capital the same.
A)True
B)False
Q4) For a firm,what does the production function represent
A)the relationship between implicit costs and explicit costs
B)the relationship between quantity of inputs and total cost
C)the relationship between quantity of inputs and quantity of output
D)the relationship between quantity of output and total cost
Page 15
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) Refer to Scenario 14-1.To maximize its profit,what should the firm do
A)It should shut down.
B)It should decrease its output, but continue to produce.
C)It should continue to produce 1000 units.
D)It should increase its output.
Q2) Market demand is given as Q<sub>D </sub>= 140 - 4P.Market supply is given as Q<sub>S </sub>= 3P.Each identical firm has MC = 5Q and ATC = 2Q.What is a firm's profit
A)$4
B)$32
C)$48
D)$80
Q3) When a competitive firm triples the amount of output it sells,what is the result
A)Its total revenue triples.
B)Its average revenue triples.
C)Its marginal revenue triples.
D)Its selling price triples.
Q4) Explain how a firm in a competitive market identifies the profit-maximizing level of production.When should the firm raise production,and when should the firm lower production?
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Chapter 15: Monopoly
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Sample Questions
Q1) The proper level of government intervention when dealing with a monopoly is ambiguous.
A)True
B)False
Q2) University financial aid can be viewed as a type of price discrimination.
A)True
B)False
Q3) Why do additional firms often NOT try to compete with a natural monopoly
A)They fear retaliation in the form of pricing wars from the natural monopolist.
B)They are unsure of the size of the market in general.
C)They know they cannot achieve the same low costs that the monopolist enjoys.
D)They see that the natural monopoly doesn't make a huge profit.
Q4) When a firm operates under conditions of monopoly,what do we know about its pricing
A)Its pricing is not constrained.
B)Its pricing is constrained by marginal cost.
C)Its pricing is constrained by demand.
D)Its pricing is constrained only by its social agenda.
Q5) Why might economists prefer private ownership of monopolies over public ownership of monopolies?
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Chapter 16: Monopolistic Competition
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Sample Questions
Q1) A profit-maximizing firm in a monopolistically competitive market generally prices its product at some markup over marginal cost.
A)True
B)False
Q2) When advertising enhances the ability of markets to allocate resources,what is it most likely to be doing
A)conveying information about price, the existence of new products, or locations of retail outlets
B)addressing psychological rather than informational characteristics of the good C)manipulating people's tastes
D)increasing elasticity of supply
Q3) Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals inferior product quality.
A)True
B)False
Q4) Brand names are rarely used to convey information about product quality.
A)True
B)False
Q5) List five goods that are sold in a monopolistically competitive market.
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Chapter 17: Oligopoly
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Sample Questions
Q1) Refer to Scenario 17-2.If Big Petro Inc.were to drill a second well,what would its profit be if Gargantuan Gas did not drill a second well
A)$14 million
B)$15 million
C)$16 million
D)$17 million
Q2) As the number of firms change in an oligopoly market,what will it become
A)As the number of firms decreases, the market approaches a cartel equilibrium.
B)As the number of firms decreases, the market approaches a socially optimal equilibrium.
C)As the number of firms increases, the market approaches a competitive market equilibrium.
D)As the number of firms increases, the market approaches a monopoly market equilibrium.
Q3) Total profit for all firms in an oligopolistic market is greater than that of a monopolist,assuming no price-fixing occurs in the market.
A)True
B)False
Q4) Evaluate economic welfare under oligopolistic competition.
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Chapter 18: The Markets for the Factors of Production
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Sample Questions
Q1) Because of diminishing returns,what role does a factor in scarce supply have
A)a low marginal product, and a low rental price
B)a low marginal product, and a high rental price
C)a high marginal product, and a low rental price
D)a high marginal product, and a high rental price
Q2) Refer to Figure 18-1.To maximize profit,what quantity of labour will a firm hire
A)0
B)equal to Q*
C)a quantity less than Q*
D)a quantity greater than Q*
Q3) The opportunity cost of leisure is impossible to measure,since we can't measure leisure time in dollars.
A)True
B)False
Q4) What is the opportunity cost of an hour of leisure
A)60 minutes of time
B)an hour of sleep
C)an hour's TV watching
D)your hourly wage
Q5) Why may the labour supply curve not be upward sloping?
Page 20
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Chapter 19: Earnings and Discrimination
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Sample Questions
Q1) In the country of Amazonia,men and women have the same level of education and choose different forms of work in the same proportions.The only real difference is that men typically stay home to raise the children.If no discrimination exists,then how would the wages of men and women compare on average
A)Men and women would earn the same wage.
B)Men would earn more than women.
C)Men would earn less than women.
D)Men would earn nothing.
Q2) Since a major-league baseball player makes more money than a private preschool teacher,what can we conclude
A)Society values the services of a major-league baseball player more than the services of a private preschool teacher.
B)A major-league baseball player generates more revenue in the economy than a private preschool teacher.
C)Labour markets are generally inefficient and inequitable.
D)Professional sport is more highly valued than preschool education.
Q3) Does it matter if the main source of discrimination is employers, co-workers, or customers?
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21
Chapter 20: Income Inequality and Poverty
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Sample Questions
Q1) What problem of inequality relates to the old saying,"From shirtsleeves to shirtsleeves in three generations"
A)in-kind transfers
B)the economic life cycle
C)transitory versus permanent income
D)economic mobility
Q2) In the parable of the leaky bucket,a fundamental problem with government redistribution programs is identified.As long as the government only has "leaky buckets" at its disposal,what can we conclude
A)Affirmative action programs are doomed to failure.
B)The government should not try to reach complete equality in income.
C)Full egalitarian policies will always dominate competing policy options.
D)Equality of economic opportunity is an unattainable goal.
Q3) Saving and borrowing behaviour is indicative of a family that best fits which description
A)a family that is likely to be poor
B)a family that has a difficult time balancing its standard of living
C)a family adjusting its standard of living to reflect transitory changes in income
D)a family that is most likely to be on the upper end of the income distribution
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Page 22
Chapter 21: The Theory of Consumer Choice
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Sample Questions
Q1) Refer to Figure 21-6.Assume that the consumer depicted in the figure has an income of $20 to spend entirely on yogurt and granola bars.The price of a tub of yogurt is $2,and the price of a pack of granola bars is $2.This consumer will choose to optimize by consuming which bundle
A)bundle A
B)bundle B
C)bundle C
D)bundle D
Q2) Refer to Scenario 21-1 in your textbook.If Fred decides to spend 78 hours a week playing volleyball on the beach,and the rest of his time writing,how much income will he have available to spend on consumption goods each week
A)$900
B)$1560
C)$2890
D)$3540
Q3) Evaluate the following statement: "Warren Buffet is the third richest person in the world.He doesn't face any constraint on his ability to purchase commodities he wants."
Q4) List and briefly explain each of the four properties of indifference curves.
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Page 23
Chapter 22: Frontiers of Microeconomics
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Sample Questions
Q1) As an alternative to pairwise majority voting,each voter could be asked to rank the possible outcomes,giving 1 point to her lowest choice,2 points to her second-lowest choice,3 points to her third-lowest choice,and so on.What is this voting method called
A)a median voter theorem
B)a pairwise minority vote
C)a Borda count
D)an Arrow count
Q2) Evidence from experiments in which real people play the ultimatum game supports the idea that people care about fairness as well as about maximization of their personal wealth.
A)True
B)False
Q3) How can employers try to overcome the moral hazard problem involving their employees
A)by paying their employees more often
B)by paying their employees minimum wage
C)by better monitoring of their employees' work efforts
D)by paying their employees in cash
Q4) Explain the Condorcet paradox.To which type of voting system does it apply?
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