Business Economics
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Course Introduction
Business Economics explores the application of economic theories and principles to real-world business decision-making. This course examines fundamental concepts such as supply and demand, market structures, pricing strategies, and the allocation of resources within firms and industries. Students will analyze how economic forces influence business strategies, assess the impact of government policy on the business environment, and consider global economic trends affecting organizational performance. Through case studies and real-world examples, the course equips students with the analytical tools necessary to make informed managerial decisions in a dynamic economic landscape.
Recommended Textbook Principles of Microeconomics 7th Canadian Edition by McKenzie Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) What will pollution regulations do
A)increase profit to firms
B)impose a tradeoff on society
C)allow firms to raise workers' wages
D)lower prices for consumers
Answer: B
Q2) Which policy target will NOT affect the combination of inflation and unemployment the economy experiences
A)taxes
B)government spending
C)the money supply
D)market prices
Answer: D
Q3) Trade allows each person to specialize in the activities he or she does best,thus increasing each individual's productivity.
A)True
B)False
Answer: True
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Refer to Figure 2-9.What is the correct designation of point A
A)(6, 0)
B)(0, 24)
C)(6, 24)
D)(24, 6)
Answer: D
Q2) What does macroeconomics study
A)individual decision makers
B)economic history
C)economy-wide phenomena
D)how firms maximize profit
Answer: C
Q3) Why is the use of theory and observation more difficult in economics than in sciences,such as physics
A)It is difficult to evaluate an economic experiment.
B)It is difficult to devise an economic experiment.
C)It is difficult to actually perform an experiment in an economic system.
D)It is difficult to find participants for an economics experiment.
Answer: C
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Page 4
Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Refer to Figure 3-3.What does each of the two producers have a comparative or absolute advantage in
A)Ben has an absolute advantage in cones, and Jerry has a comparative advantage in ice cream.
B)Ben has an absolute advantage in both goods, and Jerry has a comparative advantage in cones.
C)Ben has an absolute advantage in ice cream, and Jerry has a comparative advantage in cones.
D)Ben has an absolute advantage in neither good, and Jerry has a comparative advantage in ice cream.
Answer: A
Q2) Jonathan can make a birdhouse in three hours.He can make a bird feeder in three hours.The opportunity cost to Jonathan of making a birdhouse is 1/3 bird feeder. A)True
B)False
Answer: False
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) What happens if there is a shortage of a good at the current price
A)Sellers are producing more than buyers wish to buy.
B)The market must be in equilibrium.
C)The price is below the equilibrium price.
D)Quantity demanded equals quantity supplied.
Q2) What is the amount of the good buyers are willing and able to purchase
A)demand
B)quantity supplied
C)quantity demanded
D)supply
Q3) What will happen to the equilibrium price of new textbooks if more students attend university,paper becomes cheaper,textbook authors accept lower royalties,and fewer used textbooks are sold
A)price will rise
B)price will fall
C)price will stay exactly the same
D)price change will be ambiguous
Q4) In a perfectly competitive market,buyers and sellers are price setters.
A)True
B)False
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Chapter 5: Elasticity and Its Application
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Sample Questions
Q1) In general terms,what does elasticity measure
A)how price is determined between buyers and sellers in a market
B)how much government intervention is prevalent in a market
C)how competitive a market is
D)how much buyers and sellers respond to changes in market conditions
Q2) In January,the price of widgets was $2.00 and Wendy's Widgets produced 100 widgets.In February,the price of widgets was $2.50 and Wendy's Widgets produced 150 widgets.In March,the price of widgets was $3.00 and Wendy's Widgets produced 200 widgets.What is the price elasticity of supply of Wendy's Widgets
A)0.56 when the price increased from $2.00 to $2.50 and 0.64 when the price increased from $2.50 to $3.00
B)1.66 when the price increased from $2.00 to $2.50 and 1.50 when the price increased from $2.50 to $3.00
C)1.80 when the price increased from $2.00 to $2.50 and 1.57 when the price increased from $2.50 to $3.00
D)2.00 when the price increased from $2.00 to $2.50 and 1.66 when the price increased from $2.50 to $3.00
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Page 7
Chapter 6: Supply, demand, and Government Policies
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Sample Questions
Q1) Market demand is given as Q<sub>D </sub>= 100 - P.Market supply is given as Q<sub>S </sub>= 4P.Which legally imposed price would constitute a binding price ceiling
A)$16
B)$26
C)$66
D)$96
Q2) Suppose that the demand for digital picture frames is price elastic and the supply of digital picture frames is price inelastic.By what amount will a tax of $1.00 per frame levied on buyers of picture frames increase the equilibrium price paid by buyers of picture frames
A)by less than $0.50
B)by more than $0.50 but less than $1.00
C)by $1.00
D)by more than $1.00
Q3) Refer to Figure 6-9.What is the price sellers receive after the tax is imposed
A)$8.00
B)$12.00
C)$14.00
D)$18.00
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) What is the likely effect of the equilibrium of supply and demand in a market
A)It maximizes the prices at which producers are willing to sell.
B)It minimizes the prices that consumers are willing to pay.
C)It maximizes market benefits from government intervention.
D)It maximizes total surplus in a competitive market.
Q2) On a graph,which area is consumer surplus
A)the area below the demand curve to the left of the equilibrium price
B)the area below the demand curve to the right of the equilibrium price
C)the area below the price and above the supply curve
D)the area below the demand curve and above the price
Q3) What does the French expression "laissez-faire" literally mean
A)to make do
B)to get involved
C)buyer beware
D)allow them to do
Q4) 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
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Chapter 8: Application: the Costs of Taxation
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Sample Questions
Q1) What did both Ronald Reagan and Arthur Laffer agree would result from reducing income tax rates
A)increased national debt
B)decreased government tax collections
C)increased government tax collections
D)no change in the amount of revenue the government collected
Q2) How are the size of the tax and the deadweight loss of a tax related
A)positively related
B)negatively related
C)independent of each other
D)equal to each other
Q3) What is the relationship between the deadweight economic loss and tax rates
A)It does not depend on tax rates.
B)It is higher when tax rates are higher than when tax rates are lower.
C)It is lower when tax rates are higher than when tax rates are lower.
D)It does not depend on the slope of the demand curve.
Q4) The deadweight loss of a tax rises even more rapidly than the size of the tax.
A)True
B)False
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Chapter 9: Application: International Trade
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Sample Questions
Q1) A multilateral approach to free trade has more potential to increase the gains from trade than a unilateral approach because the multilateral approach can reduce trade restrictions abroad as well as at home.
A)True
B)False
Q2) If a country allows trade and the domestic price of a good is different from the world price,will the country become an exporter
A)yes, if the domestic price is lower, it will export
B)no, if the domestic price is lower, it will import
C)no, it will only export if the domestic price is the same as the world price
D)no, it will only export if the domestic price is higher than the world price
Q3) Which of the following is NOT a benefit of trade
A)an increased variety of goods
B)lower costs through economies of scale
C)increased competition
D)an ability to control domestic and world prices
Q4) How is an import quota similar to,and different than,an equivalent tariff
Q5) Define the two approaches a nation can take to achieve free trade.Does one approach have an advantage over the other
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Chapter 10: Externalities
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Sample Questions
Q1) What can be said when the government reverts to a command-and-control policy to solve an externality
A)It is usually the most effective policy option available.
B)It creates policies that directly regulate behaviour.
C)It usually involves taxing consumption of a commodity.
D)It typically refers to the Coase theorem to structure the policy.
Q2) Why do private markets fail to account for externalities
A)The effect of externalities are difficult to measure in private markets.
B)Sellers include costs associated with externalities in the price of their products.
C)Decision makers in the market fail to take into account the external effects of their behaviour.
D)The government can easily correct any adverse effect on the market that externalities may cause.
Q3) What is an externality
A)the impact of society's decisions on the well-being of society
B)the impact of a person's actions on that person's well-being
C)the impact of a person's actions on the well-being of a bystander
D)the impact of society's decisions on the well-being of an individual in that society
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Which statement best describes the cause of "overrun and over-trampled" national parks
A)Park administrators do not use the best science available to manage park resources.
B)National parks are treated as free goods by their visitors.
C)National parks annually adjust park visitation fees to the rate of inflation.
D)The price of entrance to national parks has kept pace with other forms of recreation.
Q2) "The role of government in the economy should be restricted to the assignment and enforcement of property rights." Use this statement to explain why African elephants are on the verge of becoming extinct.What are the governments' possible solutions to this problem
Q3) Why does a tax on gasoline often reduce road congestion
A)Gasoline and driving are complementary goods.
B)Gasoline and driving are substitute goods.
C)Gasoline and driving are normal goods.
D)Gasoline is considered an inferior good.
Q4) Tolls could not be used to alter people's incentives to drive during rush hour.
A)True
B)False
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Page 13
Chapter 12: The Design of the Tax System
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Sample Questions
Q1) When do taxes create deadweight loss
A)when they distort behaviour
B)when they cause the price of the product to increase
C)when they don't raise sufficient government revenue
D)when they cannot be computed easily
Q2) If revenue from a gasoline tax is used to build and maintain public roads,on what basis may the gasoline tax be justified
A)the benefits principle
B)the ability-to-pay principle
C)vertical equity
D)horizontal equity
Q3) Lump-sum taxes are considered unfair to low-income taxpayers.
A)True
B)False
Q4) What is a payroll tax
A)a tax on the wages that a firm pays its workers
B)a tax on each additional dollar of income earned by a worker
C)a tax on specific goods like gasoline and cigarettes
D)a tax on a firm based on the number of workers it has on its payroll
Q5) Evaluate the statement: Tax loopholes increase the efficiency of tax systems.
Page 14
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Chapter 13: The Costs of Production
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Sample Questions
Q1) When a firm is able to put idle equipment to use by hiring another worker,what will result
A)Variable costs will rise.
B)Variable costs will fall.
C)Fixed costs will fall.
D)Fixed costs and variable costs will rise.
Q2) In some cases,specialization allows larger factories to produce goods at a lower average cost than smaller factories.
A)True
B)False
Q3) The example of the very big ships demonstrates that economies of scale result from specialization.
A)True
B)False
Q4) The average-total-cost curve reflects the shape of both the average-fixed-cost and average-variable-cost curves.
A)True
B)False
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) Market demand is given as Q<sub>D </sub>= 110 - 2P.Market supply is given as Q<sub>S </sub>= 3P + 10.Each identical firm has MC = 10Q and ATC = 5Q.What is a firm's average total cost
A)$5
B)$6
C)$10
D)$20
Q2) The supply curve of a firm in a competitive market is the average-variable-cost curve,above the minimum of marginal cost.
A)True
B)False
Q3) In calculating accounting profit,what do accountants typically exclude
A)long-run costs
B)sunk costs
C)explicit costs of production
D)opportunity costs that do not involve an outflow of money
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?
Q5) List and describe the characteristics of a perfectly competitive market.
Page 16
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Chapter 15: Monopoly
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Sample Questions
Q1) Consider the following: The profit-maximizing price charged for goods produced is $19.The intersection of the marginal-revenue and marginal-cost curves occurs where output is 12 units and marginal cost is $9.Average total cost for 12 units of output is $7.What is the monopolist's profit under these conditions
A)$24
B)$80
C)$108
D)$144
Q2) A monopolist faces market demand given by P = 250 - 0.5Q.For this market,MR = 250 - Q and MC = 150.What quantity of output will the monopolist produce in order to maximize profits
A)30
B)100
C)150
D)175
Q3) The proper level of government intervention when dealing with a monopoly is ambiguous.
A)True
B)False
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Page 17
Chapter 16: Monopolistic Competition
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Sample Questions
Q1) When a firm's demand (average-revenue) curve is tangent to its average-total-cost curve,which is the result regarding economic profits/losses
A)The firm's economic profit is zero.
B)The firm must be earning economic profits.
C)The firm must be incurring economic losses.
D)The firm must be operating in a monopolistically competitive market.
Q2) ABC Company knows that it produces and sells a very good mousetrap.XYZ Company knows that it produces and sells a lousy mousetrap.According to the signalling theory of advertising,the quality difference likely produces which result
A)Both ABC and XYZ have incentives to spend large amounts of money on advertising their mousetraps.
B)ABC has an incentive to spend a large amount of money on advertising its mousetrap, but XYZ does not.
C)XYZ has an incentive to spend a large amount of money on advertising its mousetrap, but ABC does not.
D)Neither ABC nor XYZ has an incentive to spend a large amount of money on advertising their mousetraps.
Q3) 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) There are some logical economic arguments in favour of resale price maintenance.
A)True
B)False
Q2) Refer to Scenario 17-3.Parliament passed a law that banned cigarette advertising on television.If cigarette companies are profit maximizers,what is most likely
A)Neither company opposed the ban on advertising.
B)Brown Inc.sued the federal government on grounds that the ban constitutes a civil rights violation.
C)Both companies sued the federal government on grounds that the ban constitutes a civil rights violation.
D)Both companies retaliated with black-market operations.
Q3) Refer to Scenario 17-4.If the bank is unable to use tying,what is the profit-maximizing price to charge for a chequing account
A)$6
B)$10
C)$12
D)$20
Q4) Evaluate economic welfare under oligopolistic competition.
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19
Chapter 18: The Markets for the Factors of Production
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Sample Questions
Q1) Refer to Figure 18-4.Assume that W = $20 and W = $22 and that the market stays in equilibrium.What would happen to the marginal product of labour if the labour demand curve shifts from D to D
A)The shift decreases the value of the marginal product of labour by more than $2.
B)The shift decreases the value of the marginal product of labour by $2.
C)The shift increases the value of the marginal product of labour by less than $2.
D)The shift increases the value of the marginal product of labour by $2.
Q2) What are the factors of production best defined as
A)the output produced from raw materials
B)the inputs used to produce goods and services
C)the wages paid to the workforce
D)the opportunity of producing goods and services
Q3) Describe the difference between the purchase price of capital and the rental price of capital.If you know the value of marginal product from the flow of capital services,how would you determine the market price for the capital stock?
Q4) Why may the labour supply curve not be upward sloping?
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Chapter 19: Earnings and Discrimination
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Sample Questions
Q1) Wage differences that cannot be explained by the number of years of training are likely to be the result of factors associated with which of the following
A)demand, but not supply
B)supply, but not demand
C)compensating differentials
D)conditions of regulated markets
Q2) Some economists suggest that international trade has led to an expanding wage gap between high-skill and low-skill workers.
A)True
B)False
Q3) When the supply of workers is plentiful,what would one predict that market wages would be
A)determined outside the domain of the neoclassical theory
B)determined solely by factors that affect demand
C)low, other things equal
D)high, other things equal
Q4) Explain the role consumers play in perpetuating discrimination in labour markets.
Q5) Discuss the analogy between physical and human capital.
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Chapter 20: Income Inequality and Poverty
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Sample Questions
Q1) Based on Canadian income data from 2011,what was the middle fifth of all families' average income after transfers and taxes
A)$39,900
B)$48,900
C)$54,900
D)$57,500
Q2) Based on Canadian income data from 2011,approximately how many times as much income as the bottom fifth did the top fifth of all families receive
A)25
B)40
C)50
D)65
Q3) Which function must a measurement instrument of the distribution of income in our society perform
A)It must explain inequality.
B)It must explain why people live below poverty.
C)It must tell how many people live in poverty.
D)It must explain why the income gap is large and growing.
Q4) What is the ongoing debate regarding the current EI system in Canada?
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Chapter 21: The Theory of Consumer Choice
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Q1) In the work-leisure model,the income effect of a wage increase is when the worker chooses which option
A)She wishes to work less.
B)She wishes to work more.
C)She is indifferent between working more or less.
D)She wishes to work more but be less productive.
Q2) In which way will an increase in income cause a consumer's budget constraint to change
A)It will shift outward, parallel to its initial position.
B)It will shift inward, parallel to its initial position.
C)It will pivot around the "Y" axis.
D)It will pivot around the "X" axis.
Q3) Refer to Figure 21-5.When would it be possible for the consumer to reach I2
A)if the price of Y increased
B)if the price of X increased
C)if his income increased
D)if his preferences changed
Q4) Use consumer choice theory to explain why the demand curve is NOT always downward sloping.
Q5) List and briefly explain each of the four properties of indifference curves.
Page 23
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Chapter 22: Frontiers of Microeconomics
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Q1) A satisficer is a person whose decision making is the same as that predicted by mainstream economic models.
A)True
B)False
Q2) Does fairness play a fundamental role in economic models of household and firm behaviour
A)No, an innate sense of fairness plays no role.
B)No, maximization of utility and profits play an insignificant role.
C)No, inertia plays a significant role.
D)No, consumer preferences play no role.
Q3) Assume Ann and Bill both love apple pie, and a pie is given to them as a gift. Both Ann and Bill can eat an entire pie themselves within a one-day period, and this pie is not edible the second day. Based on economic theory, how will they split the pie? In reality, what is the likely outcome, and why?
Q4) In the field of study called political economy,economists make use of insights from the field of psychology.
A)True
B)False
Q5) Explain the Condorcet paradox.To which type of voting system does it apply?
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