Business Economics
Pre-Test Questions
Course Introduction
Business Economics explores the application of economic principles and methodologies to real-world business scenarios, focusing on how firms make decisions regarding production, pricing, investment, and resource allocation. This course examines both microeconomic and macroeconomic factors influencing business environments, including market structures, competition, governmental policies, and global economic trends. Students will gain analytical tools to understand cost structures, optimize profitability, anticipate market shifts, and formulate strategic decisions within a constantly evolving economic landscape.
Recommended Textbook
Microeconomics 7th Edition by R. Glenn Hubbard
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4654 Verified Questions
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) If a graph has a line that shows the amount of outsourcing in the last ten years, it is known as
A)a pie chart.
B)a time-series graph.
C)a demand curve for outsourcing.
D)a supply curve of outsourcing.
Answer: B
Q2) The term "market" refers to trading arrangements by which buyers and sellers come together.
A)True
B)False
Answer: True
Q3) Optimal decisions are made at the point where marginal cost equals zero.
A)True
B)False
Answer: False
Q4) Refer to Table 1-4.The table above shows the sales of LED light bulbs in North America.Present the information using a bar graph.
Answer: 11ea4843_7137_c369_8763_0dda3b625309_TB4193_00
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) When you purchase a new pair of jeans you do so in the A)factor market.
B)input market.
C)product market.
D)resource market.
Answer: C
Q2) In the circular flow model, households supply resources such as labor services in the factor market.
A)True
B)False
Answer: True
Q3) Consider a country that produces only two goods: kayaks and coconuts.Suppose it is possible for this country to increase its production of kayaks without producing fewer coconuts.In this case, its current output combination is efficient.
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) A decrease in the price of GPS systems will result in
A)a smaller quantity of GPS systems supplied.
B)a larger quantity of GPS systems supplied.
C)a decrease in the demand for GPS systems.
D)an increase in the supply of GPS systems.
Answer: A
Q2) In January, buyers of gold expect that the price of gold will rise in February.What happens in the gold market in January, holding all else constant?
A)The supply curve shifts to the right.
B)The demand curve shifts to the left.
C)The demand curve shifts to the right.
D)The quantity demanded increases.
Answer: C
Q3) Which of the following would shift the supply curve for MP3 players to the left?
A)an increase in the price of an input used to produce MP3 players
B)a decrease in consumer tastes for MP3 players
C)an increase in the number of firms that produce MP3 players
D)an increase in the productivity of the workers who produce MP3 players
Answer: A
Page 5
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Sample Questions
Q1) Refer to Table 4-4.If a minimum wage of $12.50 an hour is mandated, what is the quantity of labor demanded?
A)80,000
B)550,000
C)630,000
D)1,180,000
Q2) If the quantity of fishing poles demanded is represented by the demand equation Q = 60 - P, then to solve for the price of fishing poles, the equation would be rewritten as A)P = 0.6Q + 10.
B)P = 60 - Q .
C)P = -60 + Q .
D)P = Q + 60.
Q3) Shortage means the same thing as scarcity.
A)True
B)False
Q4) If the market price is at equilibrium, the deadweight loss is maximized.
A)True
B)False
Page 6
Q5) What is "tax incidence"? What determines tax incidence in a competitive market?
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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Sample Questions
Q1) Refer to Figure 5-11.S represents the supply curve that reflects the marginal private cost of production and S represents the supply curve that reflects the marginal social cost of production.One way to internalize the external cost generated by utilities is to impose a Pigovian tax on the production of electricity.What is the size of the Pigovian tax that will internalize the cost of the externality?
A)P
B)P -P
C)P -P
D)P -P
Q2) The marginal private cost of a good or service is the cost borne by the producer.
A)True
B)False
Q3) The efficient output level of a public good occurs where the A)greatest number of free riders occurs.
B)marginal social cost of producing the last unit is equal to the marginal social benefit realized by consumers.
C)total cost of production is affordable.
D)marginal cost of production is minimized.
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) The market demand for The Federalist Papers is likely to be more elastic than the market demand for a best-selling mystery novel.
A)True
B)False
Q2) Suppose the demand curve for a product is represented by a typical downward-sloping curve.Now suppose the demand for this product increases.Which of the following statements accurately predicts the resulting increase in price?
A)The more elastic the supply curve, the greater the price increase.
B)The more elastic the supply curve, the smaller the price increase.
C)The increase in price is not affected by the elasticity of the supply curve.
D)There will be no increase in price if the supply curve is perfectly inelastic.
Q3) Of the following, which is the best example of good with a perfectly inelastic demand?
A)the demand for tickets in New York City when the Mets or Yankees are in the World Series
B)the demand for gasoline
C)a diabetic's demand for insulin
D)the demand for a college education by a student who has a full scholarship to an Ivy League school
Page 8
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) Vaccinations tend to result in a positive externality.Draw a graph showing the market for vaccinations, including both the marginal private benefit curve and the marginal social benefit curve.Identify the market equilibrium price and quantity, the efficient equilibrium price and quantity, and the deadweight loss.
Q2) Regarding the Patient Protection and Affordable Care Act (ACA),
A)most economists and policymakers agree that the ACA should be repealed and replaced with market-based reforms.
B)most economists and policymakers agree that the ACA should be repealed and replaced with a single-payer health care system.
C)most economists favor replacing the ACA with market-based reforms and most policymakers favor replacing the ACA with a single-payer health care system.
D)there is still considerable debate among economists and policymakers with respect to amending or repealing the ACA.
Q3) What has happened to health care's share of gross domestic product in the United States since 1965? How does this compare to what has happened to out-of-pocket spending on health care as a percentage of all spending on health care?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) Assume that you set up a sole proprietorship and your lawyer tells you that as the owner, you could stand to lose your personal wealth if the business goes bankrupt.This means that a sole proprietorship
A)faces limited liability.
B)faces unlimited liability.
C)has little chance of succeeding.
D)is not a good type of business to set up.
Q2) What happens in the primary market?
A)Primary inputs like electricity are sold.
B)A corporate financial manager will resell previously issued shares of stock.
C)Newly issued claims are sold by the borrowing firm to the initial buyer.
D)Already issued claims are sold from one investor to another.
Q3) Firms disclose financial statements in ________ and in ________.
A)periodic filings to the federal government; annual reports to shareholders
B)daily filings to the federal government; daily reports to shareholders
C)monthly reports to shareholders; 5-year balance statements to the board of directors
D)weekly filings with the SEC; monthly reports to the Fed
Q4) How do firms raise external funds through indirect finance?
Q5) What is corporate governance?
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) The ratio at which a country can trade its exports for imports from other countries is called
A)a trade barrier.
B)the terms of trade.
C)autarky.
D)a free trade agreement.
Q2) Imposing trade barriers does all of the following except
A)reduces economic efficiency.
B)lowers incomes.
C)lowers domestic prices.
D)invites retaliation from foreign governments.
Q3) Refer to Figure 9-1.Suppose the government allows imports of leather footwear into the United States.What will be the quantity demanded?
A)5 units
B)10 units
C)15 units
D)20 units
Q4) A tariff is a numerical limit on the quantity of a good that can be imported.
A)True
B)False
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) What is an indifference curve?
A)It is a curve that shows the total utility and the marginal utility derived from consuming a bundle of goods.
B)It is a curve that shows the combinations of consumption bundles that give the consumer the same utility.
C)It is a curve that ranks a consumer's preference for various consumption bundles.
D)It is a curve that shows the tradeoff a consumer faces among different combinations of consumption bundles.
Q2) 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.
Q3) What is an indifference curve? Why can indifference curves never cross?
Q4) The demand curve for an inferior good can never be downward sloping.
A)True
B)False
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Chapter 11: Technology, Production, and Costs
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Sample Questions
Q1) State the law of diminishing marginal returns.
Q2) Describe the relationship between marginal cost and average total cost.
Q3) Refer to Figure 11-11.If the firm chooses to produce and sell 25,000 frames per month by operating in the short run with a scale operation represented by ATCc ,
A)the firm will not be operating efficiently.
B)the firm will be operating efficiently.
C)the firm would lower its average costs by reducing its scale of operation.
D)the firm will not be able to earn a profit.
Q4) To improve delivery, Joe's Pizza Emporium made a change that involved taking better account of traffic to avoid delays in delivering pizzas.This is an example of A)positive technological change.
B)increasing marginal returns.
C)a reduction in fixed costs.
D)diseconomies of scale.
Q5) If marginal cost is above the average variable cost, then average variable cost is decreasing.
A)True
B)False
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?
A)The market demand curve is a horizontal line; the firm's demand curve is downward sloping.
B)The market demand curve is downward sloping; the firm's demand curve is a vertical line.
C)The market demand curve cannot have a constant slope; the firm's demand curve has a slope equal to zero.
D)The market demand curve is downward sloping; the firm's demand curve is a horizontal line.
Q2) A wheat farmer and a firm in a perfectly competitive market are similar in that A)both face vertical demand curves.
B)both have to lower their prices if a rival firm lowers its price.
C)both face horizontal demand curves.
D)both will earn an economic profit if their total revenue equals their total cost.
Q3) In an increasing-cost industry the long-run supply curve is upward sloping.
A)True
B)False
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Chapter 13: Monopolistic Competition: the Competitive
Model in a
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Sample Questions
Q1) Every firm that has the ability to affect the price of the good or service it sells will
A)have a perfectly elastic demand curve.
B)have a marginal revenue curve that lies below its demand curve.
C)earn a short-run profit but break even in the long run.
D)shut down in the short run.
Q2) A monopolistically competitive firm that earns economic profits in the short run will face a more elastic demand curve in the long run.
A)True
B)False
Q3) A monopolistic competitor does not earn profits in the long run unless it can successfully differentiate its product in the minds of its consumers.
A)True
B)False
Q4) Refer to Figure 13-8.Based on the diagram, one can conclude that A)some existing firms will exit the market.
B)new firms will enter the market.
C)the industry is in long-run equilibrium.
D)firms achieve productive efficiency.
Page 15
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) An oligopolistic industry is characterized by a few large firms acting independently.
A)True
B)False
Q2) In Michael Porter's five competitive forces model, what do the competitive forces determine?
Q3) In many business situations one firm will act first, and then other firms will respond.To help analyze these types of situations economists use
A)retaliation games.
B)follow-the-leader-games.
C)sequential games.
D)bargaining games.
Q4) Refer to Table 14-8.If the two firms collude, is there an incentive for either to cheat on the collusion agreement?
A)No, neither firm can gain by cheating.
B)Yes, but only Zuma is in a position to gain by cheating.
C)Yes, but only Wide Awake is in a position to gain by cheating.
D)Yes, either firm can gain if it, alone, cheats.
Q5) List the competitive forces in the five competitive forces model.
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) In the United States, barriers to entry in professional team sports (for example, football and baseball)result from
A)the draft of college players, which grants teams exclusive signing rights to individual players.
B)long-term leases teams sign for stadiums and ballparks in major cities.
C)television contracts, which give networks the exclusive rights to broadcast games.
D)the reserve clause, which is a provision in contracts of professional athletes that require them to play for specific teams over the length of their contracts.
Q2) The only firms that do not have market power are
A)firms in industries with low barriers to entry.
B)firms that do not advertise their products.
C)firms in perfectly competitive markets.
D)firms that sell identical products.
Q3) Refer to Table 15-4.What is Shakti's profit-maximizing output?
A)4 units
B)5 units
C)6 units
D)7 units
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Economists believe that cost-plus pricing may be the best way for a firm to determine its optimal product price when the firm's marginal cost and average cost are about the same and when it is difficult to estimate the product's demand curve.
A)True
B)False
Q2) Which of the following pricing strategies allows a firm to earn economic profit?
A)price discrimination
B)charging a price equal to marginal cost
C)charging a price equal to the average total cost of production
D)charging a price equal to the average variable cost of production
Q3) Refer to Figure 16-5.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the competitive price.(This is also called an optimal two-part tariff.)What is the quantity it should produce?
A)240 units
B)320 units
C)480 units
D)560 units
Q4) Are restaurant coupons a form of price discrimination? Why or why not?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) A number of economists have estimated the impact of unionization on workers' wages.Which of the following is one conclusion reached by these studies?
A)Union workers earn less than they would if they were not unionized. This is because of the impact of workers' strikes, during which union members do not receive wages.
B)Holding constant the impact of other factors that affect wages, being in a union has no impact on a worker's wages.
C)Being in a union increases a worker's wages by about 10 percent, holding constant other factors that influence wages.
D)The share of national income received by workers has increased significantly over time; unions have been responsible for about one-half of the increase in workers' share of national income from the end of World War II to 2000.
Q2) The application of economic analysis to human resources issues is called personnel economics.
A)True
B)False
Q3) What is a compensating differential?
Q4) Why are there superstar baseball players but no superstar chiropractors?
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Chapter 18: Public Choice, Taxes, and the Distribution of Income
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Sample Questions
Q1) Refer to Figure 18-8 to answer the following questions.
a.Did the distribution of income become more equal in 2016 than it was in 2015, or did it become less equal? Explain.
b.If area A = 1,900, area B = 450, and area C = 2,650, calculate the Gini coefficient for 2015 and the Gini coefficient for 2016.
Q2) How would the elimination of a sales tax affect the market for a product that had been subject to the tax?
A)The demand for the product would rise and the equilibrium price would fall by the amount of the tax.
B)The equilibrium price for the product would fall by less than the amount of the tax.
C)The reduction in government revenue from the tax would be made up by an increase in property taxes.
D)The supply of the product would become more elastic.
Q3) If you pay $3,000 in taxes on an income of $28,000, and $4,450 in taxes on an income of $38,000, what is your marginal tax rate? Show your work.
Q4) What is the difference between the voting paradox and the Arrow impossibility theorem?
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