Business Economics
Review Questions
Course Introduction
Business Economics explores the application of economic theory and methodologies to real-world business problems and decision-making. The course covers fundamental economic concepts such as supply and demand, market structures, production and cost analysis, pricing strategies, and the impact of macroeconomic factors on business environments. Students will learn how economic principles inform business strategies, resource allocation, and policy-making, equipping them with the analytical tools necessary to assess market dynamics, anticipate changes, and make informed decisions in competitive and globalized markets.
Recommended Textbook Microeconomics 3rd Edition by R. Glenn Hubbard
Available Study Resources on Quizplus
16 Chapters
3331 Verified Questions
3331 Flashcards
Source URL: https://quizplus.com/study-set/3440
Page 2
Chapter 1: Economics Foundations and Models
Available Study Resources on Quizplus for this Chatper
160 Verified Questions
160 Flashcards
Source URL: https://quizplus.com/quiz/68317
Sample Questions
Q1) Explain the economic idea that 'people respond to incentives.'
Answer: Human beings act from a variety of motives, including religious belief, envy, and compassion. 'People respond to incentives' means that people will act if they feel it is in their best economic interest to do so.
Q2) Economic models do all of the following except A) answer economic questions.
B) portray reality in all its minute details.
C) make economic ideas explicit and concrete for use by decision makers.
D) simplify some aspect of economic life.
Answer: B
Q3) Suppose that to increase sales of hybrid vehicles, auto manufacturers are offering large cash incentives. This is an example of a macroeconomics topic.
A)True
B)False
Answer: False
Q4) When voluntary exchange takes place, neither party gains from the exchange. A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Choices and Trade - Offs in the Market
Available Study Resources on Quizplus for this Chatper
192 Verified Questions
192 Flashcards
Source URL: https://quizplus.com/quiz/68318
Sample Questions
Q1) Suppose there is no unemployment in the economy and society decides that it wants more of one good. Which of the following statements is true?
A) It can only achieve this with an advance in technology.
B) It can increase output without giving up another good.
C) It can only achieve this with an increase in resource supplies.
D) It will have to give up production and consumption of some other good.
Answer: D
Q2) If a country is producing efficiently and is on the production possibility frontier, the only way to produce more of one good is to produce less of the other.
A)True
B)False
Answer: True
Q3) Which of the following would shift a nation's production possibility frontier outward?
A) discovering a cheap way to convert sunshine into electricity
B) an increase in demand for the nation's products
C) a decrease in the unemployment rate
D) a law requiring workers to retire at age 50
Answer: A
To view all questions and flashcards with answers, click on the resource link above.
4
Chapter 3: Where Prices Come Frome : The Interaction of
Demand and Supply
Available Study Resources on Quizplus for this Chatper
202 Verified Questions
202 Flashcards
Source URL: https://quizplus.com/quiz/68319
Sample Questions
Q1) Let D = demand, S = supply, P = equilibrium price, Q = equilibrium quantity. What happens in the market for electric vehicles if the government offers incentives to manufacturers to produce more electric vehicles?
A) D increases, S no change, P and Q increase
B) S increases, D no change, P decreases, Q increases
C) D and S increase, P and Q decrease
D) D no change, S increases, P decreases, Q decreases
Answer: B
Q2) The income effect of a price change refers to the change in the quantity demanded of a good that results from a change in purchasing power as a result of the price change.
A)True
B)False
Answer: True
Q3) Refer to Figure 3-5. At a price of $10, the quantity sold
A) is 2 units.
B) is 4 units.
C) is 6 units.
D) is 8 units.
Answer: B
Page 5
To view all questions and flashcards with answers, click on the resource link above.
Chapter 4: Elasticity: The Responsiveness of Demand and Supply
Available Study Resources on Quizplus for this Chatper
226 Verified Questions
226 Flashcards
Source URL: https://quizplus.com/quiz/68320
Sample Questions
Q1) If a 35 per cent increase in the price of golf balls led to a 42 per cent decrease in quantity demanded, then the demand for golf balls is A) unit-elastic.
B) perfectly elastic.
C) relatively inelastic.
D) relatively elastic.
Q2) The cross-price elasticity of demand measures the
A) absolute change in the quantity demanded of one good divided by the absolute change in the price of another good.
B) percentage change in the quantity demanded of one good divided by the percentage change in the price of another good.
C) percentage change in the price of one good divided by the percentage change in the quantity demanded of another good.
D) percentage change in the quantity demanded of one good in one location divided by the price of the same good in another location.
Q3) List the five key determinants of price elasticity of demand and explain how each determinant indicates if demand tends to be elastic or inelastic.
To view all questions and flashcards with answers, click on the resource link above.
Page 6
Chapter 5: Economic Efficiency , Government Price Setting and Taxes
Available Study Resources on Quizplus for this Chatper
187 Verified Questions
187 Flashcards
Source URL: https://quizplus.com/quiz/68321
Sample Questions
Q1) Willingness to pay measures
A) the maximum price a buyer is willing to pay for a product minus the amount the buyer actually pays for it.
B) the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept for the good.
C) the maximum price that a buyer is willing to pay for a good.
D) the maximum price a buyer is willing to pay minus the minimum price a seller is willing to accept.
Q2) If the quantity of donuts supplied is represented by the equation Q<sub>S</sub> = -15 + 5P, then the corresponding price of donuts is represented by the equation
A) P = 0.2Q<sub>S</sub> + 3.
B) P = 5Q<sub>S</sub> + 75.
C) P = Q<sub>S</sub> - 7.5.
D) P = 15 - 0.5Q<sub>S.</sub>
Q3) Black markets only exist in developing nations.
A)True
B)False
Q4) What is producer surplus? What does producer surplus measure?
Page 7
To view all questions and flashcards with answers, click on the resource link above.
Chapter 6: Concumer Choice and Behavioural Economics
Available Study Resources on Quizplus for this Chatper
254 Verified Questions
254 Flashcards
Source URL: https://quizplus.com/quiz/68322
Sample Questions
Q1) A budget constraint
A) represents the bundles of consumption that make a consumer equally happy.
B) refers to the limited amount of income available to consumers to spend on goods and services.
C) reflects the desire by consumers to increase their income.
D) shows the prices that a consumer chooses to pay for products he consumes.
Q2) A sunk cost is
A) another term that means opportunity cost.
B) a term used to describe the cost of capital that the owners of a firm sink into their business.
C) the highest valued alternative that must be given up to engage in an activity.
D) a cost that has already been paid and cannot be recovered.
Q3) A new area of economics studies situations in which people appear to be making choices that do not seem to be economically rational. This area is called
A) behavioural economics.
B) irrational economics.
C) social economics.
D) new wave economics.
To view all questions and flashcards with answers, click on the resource link above.
8
Chapter 7: Technology , Production and Costs
Available Study Resources on Quizplus for this Chatper
300 Verified Questions
300 Flashcards
Source URL: https://quizplus.com/quiz/68323
Sample Questions
Q1) Which of the following is a factor of production that generally is fixed in the short run?
A) raw materials
B) labour
C) a factory building
D) water
Q2) If production displays diseconomies of scale, the long-run average cost curve is
A) above the short-run average total cost curve.
B) above the long-run marginal cost curve.
C) upward sloping.
D) downward sloping.
Q3) Implicit costs can be defined as
A) accounting profit minus explicit cost.
B) the nonmonetary opportunity cost of using the firm's own resources.
C) the deferred cost of production.
D) total cost minus fixed costs.
Q4) If, after hiring the 6th worker, a firm's output falls, then the marginal product of the 6th worker is negative.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Firms in Perfectly Compitive Markets
Available Study Resources on Quizplus for this Chatper
270 Verified Questions
270 Flashcards
Source URL: https://quizplus.com/quiz/68324
Sample Questions
Q1) A constant cost, perfectly competitive market is in long-run equilibrium. At present, there are 1000 firms each producing 400 units of output. The price of the good is $60. Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $64. In the new long-run equilibrium, how will the average total cost of producing the good compare to what it was before the price of the good rose?
A) The average total cost will be higher than it was before the price increase since the increase in demand will drive up input prices.
B) The average total cost will be lower than it was before the price increase because of economies of scale.
C) The average total cost will be higher than it was before the price increase because of diseconomies of scale arising from the increased demand.
D) The average total cost will be the same as it was before the price increase.
Q2) For a perfectly competitive firm, at profit maximisation
A) market price exceeds marginal cost.
B) total revenue is maximised.
C) marginal revenue equals marginal cost.
D) production must occur where average cost is minimised.
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Monopoly Markets
Available Study Resources on Quizplus for this Chatper
281 Verified Questions
281 Flashcards
Source URL: https://quizplus.com/quiz/68325
Sample Questions
Q1) Suppose a monopoly is producing its profit-maximising output level. Now suppose the government imposes a lump-sum tax on the monopoly, independent of its output. As a result, the monopolist will increase the price of its product to cover its higher cost.
A)True
B)False
Q2) Compared to perfect competition, the consumer surplus in a monopoly
A) is unchanged because price and output are the same. B) is lower because price is higher and output is lower. C) is higher because price is higher and output is the same. D) is eliminated.
Q3) A price-discriminating firm charges the highest price to A) the group with the largest demand.
B) the group with the most elastic demand. C) the group with the least elastic demand. D) the group with demand that is unit-elastic.
Q4) Are restaurant coupons a form of price discrimination? Why or why not?
Q5) What is a public franchise? Are all public franchises natural monopolies?
Q6) Identify four reasons for high entry barriers. Briefly explain each reason.
Q7) Explain why the monopolist has no supply curve?
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Monopolistic Competition : The Competitive
Model in More Realistic Setting
Available Study Resources on Quizplus for this Chatper
255 Verified Questions
255 Flashcards
Source URL: https://quizplus.com/quiz/68326
Sample Questions
Q1) Firms use two marketing tools to differentiate their products. What are these two tools?
A) lobbying and word of mouth
B) market research and demand estimation
C) brand management and advertising
D) consumer surveys and market experiments
Q2) Which of the following characteristics is not common to monopolistic competition and perfect competition?
A) Firms act to maximise profit.
B) Entry barriers into the industry are low.
C) The market demand curve is downward sloping.
D) Firms take market prices as given.
Q3) What is the profit-maximising rule for a monopolistically competitive firm?
A) to produce a quantity that maximises market share
B) to produce a quantity that maximises total revenue
C) to produce a quantity such that marginal revenue equals marginal cost
D) to produce a quantity such that price equals marginal cost
Q4) One of the assumptions of monopolistic competition is that firms produce differentiated products. What does this assumption imply about the demand curve facing a representative firm?
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Oligopoly : Firms in Less Competitve Markets
Available Study Resources on Quizplus for this Chatper
186 Verified Questions
186 Flashcards
Source URL: https://quizplus.com/quiz/68327
Sample Questions
Q1) A Nash equilibrium is
A) reached when an oligopoly's market demand and supply intersect.
B) reached when each player chooses the best strategy for himself and for the group.
C) reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.
D) an equilibrium comprising non-dominant strategies only.
Q2) An entry barrier exists when firms in an industry charge the lowest price possible for their products.
A)True
B)False
Q3) The profit-maximising level of output and the profit-maximising price for an oligopolist cannot be calculated when we don't know
A) what the concentration ratio for the oligopolist's industry is.
B) what the minimum efficient scale in the oligopolist's industry is.
C) the demand curve and the marginal revenue curve of the oligopolist.
D) the type of barrier to entry that exists in the oligopolist's industry.
Q4) Discuss how traditional models of oligopoly may be able to be explained using game theory.
To view all questions and flashcards with answers, click on the resource link above.
Page 13
Chapter 12: The Market for Labour and Other Factors of Production
Available Study Resources on Quizplus for this Chatper
253 Verified Questions
253 Flashcards
Source URL: https://quizplus.com/quiz/68328
Sample Questions
Q1) Paying a person a lower wage or excluding a person from an occupation on the basis of an irrelevant characteristic such as race or gender
A) is economic discrimination.
B) violates federal comparable worth laws.
C) can be explained by negative feedback loops.
D) creates differences in wages that economists call 'compensating differentials.'
Q2) Refer to Figure 12-1. If the wage rate is $40, how many workers should Dale hire?
A) 6 labour units
B) 5 labour units
C) 4 labour units
D) 3 labour units
Q3) A commission system of compensation reduces the risk to workers during seasonal periods when business is sluggish.
A)True
B)False
Q4) What is a monopsony?
Q5) What is a compensating differential?
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: International Trade
Available Study Resources on Quizplus for this Chatper
111 Verified Questions
111 Flashcards
Source URL: https://quizplus.com/quiz/68329
Sample Questions
Q1) Which of the following describes the infant industry argument for protectionism?
A) An industry must be protected in its early stages of development so that firms can compete with government-subsidised foreign competition.
B) Some strategic industries must be protected to ensure adequate supplies of resources needed for national defense in emergencies.
C) Domestic producers in high-wage countries must be protected from foreign producers in low-wage countries to produce a level playing field.
D) Domestic producers require time to gain experience and lower their unit costs; this will allow these producers to compete successfully in international markets.
Q2) Workers in industries protected by tariffs and quotas are likely to support these trade restrictions because
A) they do not want to offend their employers who want them.
B) politicians lobby to convince workers the restrictions will make them better off.
C) they believe the restrictions will protect their jobs.
D) they don't understand that the restrictions will threaten their jobs.
Q3) What is autarky?
To view all questions and flashcards with answers, click on the resource link above.
15
Chapter 14: Government Intervention in the Market
Available Study Resources on Quizplus for this Chatper
122 Verified Questions
122 Flashcards
Source URL: https://quizplus.com/quiz/68330
Sample Questions
Q1) Which of the following is not an advantage of risk pooling?
A) By insuring large groups as opposed to individuals, health insurance providers reduce adverse selection.
B) It gives very sick people in the group the same access to health care at the same premiums as healthy individuals.
C) It is easier for an insurance company to estimate the average number of claims likely to be filed under a group policy than it is to predict the number of claims likely to be filed under an individual policy.
D) Individuals who are insured and therefore do not have to pay the full cost of health care services may be inclined to over-use those services.
Q2) Which of the following is an example of a common resource?
A) elephants in the wild
B) lions in a zoo
C) a university education
D) public transportation
Q3) 'When it comes to public goods, individuals do not reveal their true preferences because it is not in their self-interest to do so.' Evaluate this statement.
To view all questions and flashcards with answers, click on the resource link above.
Page 16
Chapter 15: Externalities , Environmental Policy and Public Goods
Available Study Resources on Quizplus for this Chatper
212 Verified Questions
212 Flashcards
Source URL: https://quizplus.com/quiz/68331
Sample Questions
Q1) What are property rights?
A) the title to ownership of any physical asset
B) a legal document verifying ownership of intangible assets
C) the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it
D) the right of the government to appropriate private assets for the good of society
Q2) Economist A.C. Pigou argued that to deal with a negative externality in production, the government should impose a tax equal to the cost of the externality. What did Pigou believe should be done in the case of a positive externality in consumption? How would his recommendation impact the demand and market equilibrium for the product which is generating the positive externality?
Q3) Refer to Figure 15-9. Suppose the government wants to use a Pigovian tax to bring about the efficient level of production. What should the value of the tax be?
A) (P<sub>2</sub>-<sub> </sub>P<sub>1</sub>) per ton of output
B) (P<sub>2</sub>-<sub> </sub>P<sub>0</sub>) per ton of output
C) (P<sub>1</sub>-<sub> </sub>P<sub>0</sub>) per ton of output
D) P<sub>1</sub> per ton of output
To view all questions and flashcards with answers, click on the resource link above.
Page 17
Chapter 16: The Distribution of Income and Social Policy
Available Study Resources on Quizplus for this Chatper
120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/68332
Sample Questions
Q1) Refer to Figure 16-2. If the government imposes an excise tax of $1.00 on every unit sold, the government's revenue from the tax
A) is larger if the supply curve is S<sub>0</sub>.
B) is larger if the supply curve is S<sub>1</sub>.
C) is identical under either supply curve.
D) is not maximised.
Q2) The 'ability-to-pay' principle of taxation is the normative idea that A) an equitable tax system is one in which high income individuals should bear a greater burden of taxes than low income individuals.
B) each individual should voluntarily contribute according to her ability to pay taxes.
C) progressive taxes are more equitable than regressive taxes.
D) two individuals earning the same income should have equal ability to pay, all else constant.
Q3) As the value of the Gini coefficient approaches one, A) income distribution becomes less unequal.
B) income distribution becomes more unequal.
C) the percentage of the population under the poverty line increases.
D) the percentage of the population under the poverty line decreases.
To view all questions and flashcards with answers, click on the resource link above. Page 18