Business Economics
Mock Exam
Course Introduction
Business Economics explores the application of economic theory and quantitative methods to business decision-making. The course covers essential topics such as demand and supply analysis, production and cost functions, market structures, pricing strategies, and the impacts of government policies on businesses. By integrating real-world case studies and current economic events, students gain insight into how businesses can optimize resources, assess market opportunities, and navigate economic risks. The focus is on developing analytical skills and economic reasoning to support effective business strategies and managerial decisions.
Recommended Textbook Microeconomics 6th Edition by R. Glenn Hubbard
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18 Chapters
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Page 2
Chapter 1: Economics: Foundations and Models
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234 Flashcards
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Sample Questions
Q1) DeShawn's Detailing is a service that details cars at the customers' homes or places of work.DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service.For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package.What is DeShawn's marginal benefit if he sells a basic detailing package?
A)$35
B)$75
C)He makes a marginal loss of $15, not a marginal benefit.
D)The marginal benefit cannot be determined.
Answer: B
Q2) "An increase in the price of gasoline will increase the demand for hybrid vehicles." This statement is an example of a positive economic statement.
A)True
B)False
Answer: True
Q3) One example of physical capital is the amount of savings that you have. A)True
B)False
Answer: False
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Page 3
Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Table 2-9.What is Guatemala's opportunity cost of producing one canoe?
A)1/6 of a sailboat
B)2/3 of a sailboat
C)6 sailboats
D)7.5 sailboats
Answer: A
Q2) The payment received by suppliers of entrepreneurial skills is called interest.
A)True
B)False
Answer: False
Q3) The natural resources used in production are made available in the A)goods and services market.
B)product market.
C)government market.
D)factor market.
Answer: D
Q4) The payment received by suppliers of entrepreneurial skills is called wages. A)True
B)False
Answer: False
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Refer to Figure 3-1.A decrease in the price of a complementary good would be represented by a movement from
A)A to B.
B)B to A.
C)D to D .
D)D to D .
Answer: C
Q2) Holding everything else constant, an increase in the price of MP3 players will result in
A)a decrease in the quantity of MP3 players supplied.
B)a decrease in the demand for MP3 players.
C)an increase in the supply of MP3 players.
D)a decrease in the quantity of MP3 players demanded.
Answer: D
Q3) Draw a supply and demand graph showing an equilibrium price of $50 and an equilibrium quantity of 200 units.Explain what would happen if the selling price was $75, and illustrate this on the graph.Explain what would happen if the selling price was $25, and illustrate this on the graph.Be sure to label each axis and curve on the graph.
Answer: 11ea4cb1_e571_bd0d_ad47_3f7ca78db568_TB4192_00
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Sample Questions
Q1) A minimum wage law dictates
A)the minimum quantity of labor that a firm must employ.
B)the lowest wage that firms may pay for labor.
C)the highest wage that firms must pay for labor.
D)the minimum qualifications for labor.
Q2) Congress passed the ________ in 1996, the purpose of which was to phase out price floors and return to a free market in agriculture
A)Rice and Beans Act
B)Smoot-Hawley Act
C)Agribusiness Act
D)Freedom to Farm Act
Q3) Consumer surplus is the difference between the highest price someone is willing to pay for a product and the price he actually pays for the product.
A)True
B)False
Q4) The division of the burden of a tax between buyers and sellers in a market is called tax allocation.
A)True
B)False
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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263 Verified Questions
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Sample Questions
Q1) Refer to Figure 5-4.What does S represent?
A)the market supply curve that reflects social cost
B)the market supply curve that reflect private cost
C)the market supply curve that reflects external cost
D)the market supply curve that reflects social benefit
Q2) Private solutions to the problem of externalities are most likely when A)government actively encourages these solutions.
B)transactions costs are low and the number of bargaining parties is small.
C)transactions costs are low and the number of bargaining parties is large.
D)transactions costs are low and the monetary damages to third parties are high.
Q3) Which of the following describes a positive externality?
A)John Henry paints the outside of his house in order to increase its market value just before he puts the house up for sale.
B)People who do not attend college still benefit from others who receive a college education.
C)The government imposes a tax on cigarettes in order to discourage smoking among teenagers.
D)Mary volunteers to drive her neighbor's children to soccer practice.
Q4) How does a negative externality in production reduce economic efficiency?
Q5) State the Coase theorem.
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09.This means that
A)an increase in the price of beer will increase the quantity demanded of beer and beer is a normal good.
B)an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.
C)a decrease in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good.
D)an increase in the price of beer will lead to a decrease in the quantity demanded of beer and beer is a luxury.
Q2) Holding everything else constant, the absolute value of the price elasticity of demand for Saucony tennis shoes is ________ the price elasticity of demand for tennis shoes in general.
A)less than B)equal to C)twice as great as D)greater than
Q3) Explain the relationship between price elasticity of demand and total revenue.
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) Some economists and policymakers who are in favor of government-provided health care believe that providing health care will generate
A)additional moral hazard.
B)positive externalities.
C)greater asymmetric information.
D)more adverse selection.
Q2) What is the principal-agent problem?
A)It is a problem caused by a person (principal)who hires an agent to act on his behalf but is unwilling to delegate authority to the agent to carry out the task in the best possible way.
B)It is a problem caused by agents pursuing their own interests rather than the interests of the principals who hired them.
C)It is a problem of the power system of boss and subordinate where the boss (principal)exerts influence over his subordinates (agents)using punishment or threat.
D)It is a problem that exists when a person (principal)has more information about the task than the agent he hires to perform the task.
Q3) What is adverse selection?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) All of the following represent differences between stocks and bonds except A)a stock can possibly pay dividends forever, but bonds have a fixed number of payments.
B)differences of opinion about a stock's future may vary considerably but there is less difference about a bond's future.
C)the future growth of a stock is more uncertain than the payments of a bond.
D)bonds represent partial ownership in a firm but stocks do not.
Q2) Before its IPO, Facebook was an example of a private firm.As a private firm, Facebook was
A)not subject to government regulations and taxation.
B)run by stockholders and a board of directors.
C)run by its founder, Mark Zuckerberg.
D)not legally allowed to raise funds through venture capital firms.
Q3) Corporate managers and shareholders always have the same goals.
A)True
B)False
Q4) If you own a bond with a 3 percent coupon rate and new bonds are paying 8 percent, what will happen to your bond's market price?
Q5) What is the difference between explicit and implicit costs?
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Refer to Table 9-6.Prior to trade, what was the opportunity cost to produce 1 clock in Denmark?
A)1/6 of a hat
B)2/3 of a hat
C)1.5 hats
D)6 hats
Q2) Assume that Bulgaria has a comparative advantage in producing sandals and Finland imports sandals from Bulgaria.We can conclude that
A)Bulgaria also has an absolute advantage in producing sandals relative to Finland.
B)Bulgaria has a lower opportunity cost of producing sandals relative to Finland.
C)Finland has an absolute disadvantage in producing sandals relative to Bulgaria.
D)Labor costs are higher for sandal producers in Finland than in Bulgaria.
Q3) In 2014, the largest exporter in the world was
A)Japan.
B)Germany.
C)China.
D)the United States.
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Page 11
Chapter 10: Consumer Choice and Behavioral Economics
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300 Verified Questions
300 Flashcards
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Sample Questions
Q1) Grant has $200 to spend each month on restaurant meals and jazz performances at his neighborhood jazz club.The price of a typical restaurant meal is $20 and the price of a jazz performance ticket is $10.Grant is maximizing his utility by consuming 6 restaurant meals and attending 8 jazz performances.Suppose Grant still has $200 to spend, but the price of restaurant meal rises to $25, while the price of jazz performance ticket drops to $8.Is Grant better off or worse off than he was before the price change? Use a budget constraint/indifference curve graph to illustrate your answer.
Q2) Marginal utility is
A)the change in total utility divided by the price of the last unit of a good or service consumed.
B)the change in total utility a person receives from consuming an additional unit of a good or service.
C)the utility from consuming a given quantity of a good or service.
D)the decrease in total utility from consuming more and more units of a good or service.
Q3) The demand curve for a Giffen good slopes upward.
A)True
B)False
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Page 12
Chapter 11: Technology, Production, and Costs
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Sample Questions
Q1) Stan owns a software design business.He does not have time to expand his office space or redesign the layout of his office.He can increase the amount of work he does by working more hours, asking his current employees to work more hours, or hiring more employees.The relationship between Stan's inputs and the maximum output his firm can produce is called his
A)long-run production function.
B)production possibilities frontier.
C)short-run production function.
D)cost function.
Q2) Maximizing the level of output for a given total cost of production
A)is equivalent to producing the profit maximizing output level.
B)is equivalent to minimizing cost for a given level of output.
C)necessitates using only relatively low-priced inputs.
D)will maximize total revenue.
Q3) Refer to Figure 11-11.Constant returns to scale
A)occur for output rates greater than 5,000 picture frames.
B)occur between 5,000 and 20,000 picture frames per month.
C)occur between 10,000 and 20,000 pictures frames per month.
D)will shift the long-run average cost curve downward.
Q4) Is it possible for technological change to be negative? If so, give an example.
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Under what conditions should a competitive firm shut down in the short run?
Q2) If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold, what should the farm do to maximize its profit?
A)determine what the total revenue and total cost of production are
B)increase output
C)decrease output
D)lower its price to sell more
Q3) Refer to the Article Summary above.Assume that after the record decline in U.S.farm income in 2015, farmers are expected to break even in 2016.This means that at the quantity being produced in 2016
A)MC = AVC.
B)MR = MC.
C)MR = ATC.
D)AVC = ATC.
Q4) In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output.
A)True
B)False
Q5) What is meant by the term "long-run competitive equilibrium?
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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274 Verified Questions
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Sample Questions
Q1) Refer to Table 13-1.What portion of the marginal revenue of the 4th unit is due to the output effect and what portion is due to the price effect?
A)output effect = $24.00; price effect = $19.50
B)output effect = $6.50; price effect = $2.00
C)output effect = -$0.50; price effect = $5.00
D)output effect = $6.00; price effect = -$1.50
Q2) Refer to Figure 13-2.The marginal revenue from selling the additional unit Qb instead of Q equals
A)the area (G + H).
B)the area (H - E).
C)the area (E + F)- (G + H).
D)the area G.
E).
Q3) A monopolistically competitive firm faces a downward-sloping demand curve because
A)it is able to control price and quantity demanded.
B)there are few substitutes for its product.
C)of product differentiation.
D)its market decisions are affected by the decisions of its rivals.
Page 15
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Natural resource cartels such as OPEC are inherently unstable because their members operate with excess capacity and have an incentive to cheat on their output quotas.
A)True
B)False
Q2) An entry barrier exists when firms in an industry charge the lowest price possible for their products.
A)True
B)False
Q3) OPEC periodically meets to agree to restrict the cartel's oil output, and yet almost every member of OPEC produces more than its own output quota.This suggests that OPEC has
A)a cooperative equilibrium.
B)a noncooperative equilibrium.
C)new potential entrants.
D)a threat of substitute goods.
Q4) Collusion is common in oligopoly and monopolistically competitive industries.
A)True
B)False
Q5) Firms in an oligopoly are said to be interdependent.What does this mean?
Page 16
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) Economic efficiency requires that a natural monopoly's price be
A)equal to average total cost where it intersects the demand curve.
B)equal to marginal cost where it intersects the demand curve.
C)equal to average variable cost where it intersects the demand curve.
D)equal to the lowest price the firm can charge and still make a normal profit.
Q2) Refer to Figure 15-12.Assume the firm maximizes its profits.What is the amount of consumer surplus?
A)$21
B)$124
C)$186
D)$332
Q3) A monopolist's demand curve is the same as the marginal revenue curve for the product.
A)True
B)False
Q4) A monopoly is a firm that is the only seller of a good or service that does not have a close substitute.
A)True
B)False
Q5) If you own the only bookstore in a small town, do you have a monopoly?
Page 17
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) A successful strategy of price discrimination requires that a firm be a price taker.
A)True
B)False
Q2) College students and faculty members have a more elastic demand than the general public for Apple's iMac desktop computers.From this we can conclude that
A)Apple will charge college students and faculty members higher prices than it charges the general public.
B)Apple will charge college students and faculty members lower prices than it charges the general public.
C)the general public will earn arbitrage profits by buying iMac desktop computers from Apple and reselling them to college students and faculty members.
D)Apple will earn economic profits from the computers it sells to the general public but will break even on the computers it sells to college students and faculty members.
Q3) Racial discrimination and other forms of discrimination based on irrelevant factors are illegal.Can price discrimination be illegal as well?
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18
Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) Refer to Scenario 17-1.Following the passage of comparable worth legislation, Unity College responds by placing salaries for all assistant professors at $80,000.Which of the following is the result of the legislation?
A)The supply of English professors increases; the market for business professors is not affected.
B)The demand for English professors decreases; the market for business professors is not affected.
C)There will be a surplus in the market for English professors and a shortage in the market for business professors.
D)There will be a surplus in the market for English professors and the market for business professors will not be affected.
Q2) Labor demand is considered a derived demand because producers do not demand labor for itself but only because labor is used to produce output that consumers desire.
A)True
B)False
Q3) What are the three most important variables that cause the market supply curve of labor to shift?
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Page 19
Chapter 18: Public Choice, Taxes, and the Distribution of Income
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Sample Questions
Q1) According to the ability-to-pay principle of taxation
A)individuals who receive the benefit of a good or service should bear a greater share of the tax burden.
B)it is fair to expect a greater share of the tax burden to be borne by people who have a greater ability to pay.
C)people in the same economic situation should bear an equal share of the tax burden.
D)individuals who are willing to bear a greater share of the tax burden should be compensated with non-monetary benefits.
Q2) If voters lack an economic incentive to become informed about pending legislation, then their preferences become a constraint on legislators voting for rent-seeking legislation.
A)True
B)False
Q3) Compare the distribution of income in the United States with the distribution of income in other high-income countries.
Q4) What is a Lorenz curve and what is a Gini coefficient?
Q5) What is the relationship between market failure and government failure?
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