Business Economics
Practice Questions
Course Introduction
Business Economics explores the application of economic theory and methodologies to business decision-making and strategy. The course covers fundamental concepts such as demand and supply, production and cost analysis, market structures, pricing strategies, and the role of government in business. Students will learn how economic principles influence managerial decisions, resource allocation, and competitive advantage in both domestic and global contexts. Emphasis is placed on interpreting economic data, forecasting market trends, and understanding the economic environment in which firms operate to optimize business performance.
Recommended Textbook
ECON MICRO 5th Edition by William A. McEachern
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21 Chapters
3187 Verified Questions
3187 Flashcards
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Page 2
Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) A rational individual gives more to charity when such contributions receive favorable tax treatment.
A)True
B)False
Answer: True
Q2) As resources are scarce, _____.
A)opportunity costs are zero.
B)people must make choices among alternatives.
C)all human wants and desires can be satisfied.
D)resource prices are fixed.
E)commodities are free.
Answer: B
Q3) Natural resources are:
A)not considered scarce because no one pays for them.
B)only desired for use in producing other goods.
C)included in the category of resources called gifts of nature.
D)available in unlimited quantities.
E)not considered scarce because they are not produced by society.
Answer: C
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Page 3
Chapter 2: Economic Tools and Economic Systems
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Sample Questions
Q1) Barter is:
A)illegal in the United States.
B)an efficient system of exchange.
C)most useful when there is much specialization and international trade.
D)only possible if money is used as a medium of exchange.
E)the direct exchange of goods without the use of money.
Answer: E
Q2) The division of labor:
A)allows more people to be employed.
B)allows tasks to be performed more efficiently.
C)makes people happier on the job.
D)means that less management is required.
E)means that less equipment will be used.
Answer: B
Q3) The economic question of "what to produce" is often referred to as the distribution question.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Economic Decision Makers
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Sample Questions
Q1) Which of the following is a reason why government is a participant in a market-oriented economy?
A)To enforce contracts and protect private property
B)To promote collusion
C)To promote the growth of natural monopolies
D)To provide more inequality in the distribution of income
E)To promote externalities
Answer: A
Q2) A positive externality is one in which there is an external benefit bestowed on a third party.
A)True
B)False
Answer: True
Q3) Import restrictions usually benefit domestic producers at the expense of domestic consumers.
A)True
B)False
Answer: True
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Chapter 4: Demand, Supply, and Markets
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Sample Questions
Q1) A decrease in the price of peanuts will cause a leftward shift in the supply curve of peanut butter.
A)True
B)False
Q2) Which of the following is the best example of substitute goods?
A)Coffee and cream
B)Videotapes and VCRs
C)Money and biscuits
D)Tortillas and salsa
E)Powdered and liquid laundry detergent
Q3) For a downward-sloping demand curve, a rightward shift of a supply curve:
A)has no impact on the equilibrium price and quantity.
B)decreases both price and equilibrium quantity.
C)increases both price and equilibrium quantity.
D)decreases equilibrium price and increases equilibrium quantity.
E)increases equilibrium price and decreases equilibrium quantity.
Q4) The slope of the demand curve for a normal good must be positive.
A)True
B)False
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Chapter 5: Elasticity of Demand and Supply
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Sample Questions
Q1) If the demand curve shifts, but the supply curve does not, and the price remains the same, supply must be perfectly inelastic.
A)True
B)False
Q2) If city officials expect that an increase in bus fares will raise mass transit revenues, they must think that the demand for bus travel is _____.
A)elastic
B)unit elastic
C)inelastic
D)upward-sloping
E)perfectly elastic
Q3) When agricultural production increases, the total amount paid for agricultural products tends to:
A)increase because demand is perfectly elastic.
B)decrease because demand is price elastic.
C)increase because demand is price inelastic.
D)decrease because demand is price inelastic.
E)remain constant because demand is price inelastic.
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7
Chapter 6: Consumer Choice and Demand
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Sample Questions
Q1) Suppose the marginal utility of a unit of good x = MU<sub>x</sub>, the marginal utility of a unit of good y = MU<sub>y</sub>, P<sub>x</sub>= price of a unit of good x, and P<sub>y</sub>= price of a unit of a good y. If MU<sub>x</sub>/P<sub>x</sub> > MU<sub>y</sub>/P<sub>y</sub>, the consumer can increase utility by buying more of good x.
A)True
B)False
Q2) If marginal utility is positive, then total utility is:
A)constant
B)negative
C)increasing
D)decreasing
E)zero
Q3) Consumer tastes and preferences:
A)are determined solely by advertising.
B)are relatively stable over time.
C)do not vary from one consumer to another.
D)are irrelevant to utility analysis.
E)can be measured in terms of units of utility.
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Page 8
Chapter 7: Production and Cost in the Firm
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Sample Questions
Q1) Which of the following is true of the MC curve?
A)It intersects the ATC curve at its minimum, but it does not intersect the AVC curve at its minimum.
B)It intersects the AVC curve at its minimum, but it does not intersect the ATC curve at its minimum.
C)It intersects both the ATC and the AVC curves at their minimums.
D)It intersects both the ATC and the AFC curves at their minimums.
E)It intersects both the AVC and the AFC curves at their minimums.
Q2) If a pizza joint earns only a normal profit this year, its:
A)economic profit is equal to its accounting profit.
B)economic profit is zero.
C)economic profit is equal to the average accounting profit in other industries.
D)accounting profit is zero.
E)accounting profit is less than its economic profit.
Q3) Economic profit is defined as _____.
A)total fixed cost plus total variable cost
B)total revenue minus marginal costs
C)average revenue minus average variable cost
D)total revenue minus total costs
E)marginal revenue minus opportunity costs
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Chapter 8: Perfect Competition
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Sample Questions
Q1) Which of the following best approximates a perfectly competitive market structure?
A)Automobile manufacturing
B)The insurance market
C)Foreign exchange markets
D)The airlines industry
E)Manufacture of stereo equipment
Q2) The term productive efficiency refers to:
A)the short-run equilibrium for a competitive firm.
B)the production of all goods and services that consumers want.
C)the production of a good at the lowest long-run average cost.
D)the equality between average total and average variable cost.
E)satisfying the condition of equality between marginal cost and marginal revenue.
Q3) If a market is allocatively efficient, _____.
A)firms produce at the minimum point of their marginal cost curve
B)firms produce at the minimum point of their total cost curve
C)consumers minimize their expenditures
D)total utility cannot be increased through a reallocation of resources
E)total output cannot be decreased through a reallocation of resources
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Chapter 9: Monopoly
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Sample Questions
Q1) A non-price discriminating monopolist's demand curve:
A)is horizontal at the market price.
B)lies to the right of its marginal revenue curve.
C)is the same as its marginal cost curve.
D)indicates that the firm must raise price to sell additional units.
E)lies above the marginal cost curve at all levels of output.
Q2) Which of the following is true for a monopolist that engages in perfect price discrimination?
A)Perfect price discrimination restricts the total output produced by the monopolist.
B)Perfect price discrimination allows the monopolist to just break even and transfers the gain to consumers.
C)Perfect price discrimination results in the maximization of consumer surplus.
D)Perfect price discrimination creates a deadweight loss.
E)Perfect price discrimination allows the monopolist to reap the entire gains from production.
Q3) A natural monopoly emerges from legal restrictions imposed by a government.
A)True
B)False
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Chapter 10: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Economic analysis of product differentiation leads to all of the following conclusions except one. Which is the exception?
A)Product differentiation makes it harder for firms to collude.
B)Product differentiation makes price leadership harder to maintain.
C)Product differentiation sometimes contributes to wasteful allocation of resources.
D)Product differentiation must be based on real, substantive differences among products.
E)Product differentiation makes it easier for firms to liquidate assets.
Q2) Suppose firms in a monopolistically competitive industry are currently earning short-run economic profit. In the long run, the demand curve facing each individual firm is likely to:
A)shift to the left and become flatter.
B)shift to the left and become steeper.
C)shift to the right and become flatter.
D)shift to the right and become steeper.
E)remain unchanged.
Q3) Oligopolists often sacrifice economies of scale as they expand product variety.
A)True
B)False
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Page 12
Chapter 11: Resource Markets
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Sample Questions
Q1) As the price of a resource increases, _____.
A)the supply of that resource increases in the resource market
B)the supply of that resource decreases in the resource market
C)resources shift from lower-paid uses to higher-paid uses
D)resources shift from higher-paid uses to lower-paid uses
E)the demand for the final product decreases
Q2) For a firm in a perfectly competitive product market, the marginal resource cost curve is likely to be horizontal if the resource market is also competitive.
A)True
B)False
Q3) A temporary price differential in resource markets is:
A)caused by inherent differences in nonmonetary aspects of a job.
B)caused by a failure of firms to maximize profits.
C)eliminated by resources moving from lower-valued to higher-valued uses.
D)caused by governments increasing the minimum wages of workers.
E)eliminated when resources earn an excess of their opportunity costs.
Q4) An increase in the demand for shoemakers will increase the demand for shoes.
A)True
B)False
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Chapter 12: Labor Markets and Labor Unions
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Sample Questions
Q1) The market labor supply curve is usually _____ over the relevant range of market wage rates.
A)positively sloped
B)negatively sloped
C)backward bending
D)vertical
E)horizontal
Q2) Because of discrimination, which of the following has systematically earned less than others of equal ability?
A)Only African Americans
B)Only Hispanics
C)Only African Americans and Hispanics
D)African Americans, Hispanics, and women
E)Only Hispanics and women
Q3) Unions can affect the demand for, but not the supply of, labor.
A)True
B)False
Q4) An increase in the wage rate will decrease the demand for labor.
A)True
B)False
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Chapter 13: Capital, Interest, Entrepreneurship, and Corporate Finance
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Sample Questions
Q1) The Whitmans decided to offer their beach house in Miami for rent. If they expect a monthly rent of $5,000 and the cost of building the house is $1 million, their expected rate of return is:
A)0.005 percent annually.
B)0.5 percent annually.
C)5 percent annually.
D)15 percent annually.
E)10 percent annually.
Q2) The interest earned on loans to local and state governments is taxed by the federal government.
A)True
B)False
Q3) Interest rates on credit card balances are usually very low as credit cards are held by people with good credit ratings.
A)True
B)False
Q4) The retained earnings of a firm are a source of corporate finance.
A)True
B)False
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Chapter 14: Transaction Costs, Asymmetric Information, and Behavioral Economics
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Sample Questions
Q1) Which of the following is an example of the fact that people are prone to inertia?
A)An individual deciding to continue with an insurance policy even after its premium rate increases and alternative policies are available in the market
B)An individual deciding to decrease the consumption of a commodity when the utility derived from it falls
C)An individual deciding to opt for additional savings schemes apart from those set as default by employers
D)An individual replacing high-power electrical lights and appliances with low-power ones to reduce electricity consumption per month
E)An individual visiting a new grocery store for her monthly grocery shopping
Q2) Production through the firm is often more efficient than market exchange when:
A)it involves multiple transactions among many resource owners.
B)it involves the exchange of one good or service for other goods or services.
C)the cost of transacting business through market relations is less than the cost of undertaking the same activity within the firm.
D)inputs are easily identified, measured, priced, and hired.
E)the costs of determining inputs and negotiating contracts are low.
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Page 16
Chapter 15: Economic Regulation and Antitrust Policy
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Sample Questions
Q1) If the value of the Herfindahl index is 10,000, there must be exactly one firm in the industry.
A)True
B)False
Q2) Industry A has four firms, each with a 25% market share, while Industry B has four firms, one firm with a 70% market share and the other three firms with a 10% market share each. According to the Herfindahl-Hirschman Index, Industry A is highly concentrated.
A)True
B)False
Q3) The Clayton Act prohibits all horizontal mergers, regardless of their economic consequences.
A)True
B)False
Q4) Technological change has played a major role in increasing competition in recent years.
A)True
B)False
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Chapter 16: Public Goods and Public Choice
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Sample Questions
Q1) Connor uses means that are legal to arrange his finances so as to pay the least tax possible. He is engaging in:
A)tax evasion.
B)logrolling.
C)tax avoidance.
D)rent seeking.
E)pork-barrel spending.
Q2) JPC Motors benefits from tariffs on imported automobiles. Companies that use imported automobile parts want to get them cheaply. In this case, the issue of tariff legislation involves:
A)a simple majority because it promises concentrated costs and benefits.
B)competing interests because it promises concentrated costs and benefits.
C)a simple majority because it promises widespread benefits and costs.
D)competing interests because it promises concentrated benefits and widespread costs
E)competing interests because it promises concentrated costs and widespread benefits.
Q3) In special-interest legislation, there are both widespread costs and benefits.
A)True
B)False
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18
Chapter 17: Externalities and the Environment
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Sample Questions
Q1) In order to increase a society's total welfare, a production process that produces a negative externality should be _____.
A)taxed
B)encouraged to produce goods in excess of the socially optimum level
C)prohibited
D)subsidized if the good is produced for foreign markets
E)subsidized if the good is produced for the domestic market
Q2) Which of the following is not used by the U.S. government to limit overfishing in U.S. waters?
A)Laws to limit the total catch
B)Laws to limit the size of fish caught
C)Laws to impose the minimum price of fish
D)Limits to the length of the fishing season
E)Limits to the types of fishing equipment used
Q3) An individual who listens to loud music late in the night is creating:
A)a positive externality.
B)a common-pool problem.
C)a negative externality.
D)a free-rider problem.
E)asymmetric information.
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Chapter 18: Poverty and Redistribution
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Sample Questions
Q1) In the United States, the dramatic increase in government social spending since the mid-1960s has:
A)made the distribution of income more unequal in the economy.
B)brought about equality in the distribution of income in the economy.
C)not greatly increased the money income share of the poorest fraction of the population.
D)greatly increased the money income share of the richest fraction of the population.
E)decreased the percentage of families in the lowest fifth.
Q2) As welfare rolls declined during the late 1990s and early 2000s, _____.
A)states with stringent work requirements found that their federal grants also declined
B)states with stringent work requirements were rewarded with larger federal grants
C)few welfare recipients were able to find jobs
D)welfare spending per recipient increased significantly
E)states cut back on their provision of services such as job placement and child care
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Chapter 19: International Trade
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Sample Questions
Q1) If there are no trade restrictions, a country will import a particular good if:
A)domestic quantity supplied equals domestic quantity demanded at the world price.
B)there is excess domestic quantity demanded at the world price.
C)the quantity of the good demanded by the domestic consumers decreases.
D)the quantity of the good supplied by the domestic producers increases.
E)the world price of the good is higher than its domestic price.
Q2) Economists argue that U.S. government can earn federal revenue:
A)from quotas by auctioning off quotas to foreign producers.
B)by increasing the profitability of getting quota rights.
C)by encouraging foreign governments to retaliate with quotas and tariffs of their own.
D)from quotas, as quotas redistribute wealth from domestic consumers to domestic producers.
E)by distributing quota rights to domestic exporters.
Q3) In 2012, exports amounted to about 14 percent of U.S. GDP.
A)True
B)False
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21
Chapter 20: International Finance
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Sample Questions
Q1) One difference between arbitrageurs and speculators is that:
A)arbitrageurs buy and sell foreign exchange; speculators do not.
B)speculators only buy foreign exchange but do not sell it.
C)arbitrageurs take more risks than do speculators.
D)speculators take more risks than do arbitrageurs.
E)arbitrageurs buy foreign exchange in the hope that its value will increase.
Q2) A country's investment earnings from foreign assets minus foreigners' earnings from their assets in the country is called _____.
A)the merchandise trade balance
B)net unilateral transfers abroad
C)the balance on good and services
D)net investment income from abroad
E)the financial account balance
Q3) The balance of payments can be thought of as the balance of economic transactions.
A)True
B)False
Q4) The current international financial system is a managed float system.
A)True
B)False
Page 22
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Chapter 21: Economic Development
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Sample Questions
Q1) Improvement in the quality of human capital is not an important requirement for technology adoption.
A)True
B)False
Q2) If developed economies want to grow faster, they can do so with their existing technologies.
A)True
B)False
Q3) Which of the following creates an obstacle to pursuing freer international trade?
A)Consumers do not recognize their potential gains.
B)Losses are widespread.
C)Domestic producers do not recognize their potential losses.
D)Government has plenty of political will and support to remove trade barriers.
E)Consumers can easily organize to demand free trade.
Q4) Consumers easily organize themselves to support government policies on free trade as soon as they become aware of the gains from free trade.
A)True
B)False
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Page 23