Business Economics
Study Guide Questions
Course Introduction
Business Economics provides students with an understanding of economic concepts and analytical tools that are essential for effective decision-making in business environments. The course covers topics such as demand and supply analysis, production and cost theories, market structures, pricing strategies, and the impact of government policies on business operations. Emphasis is placed on applying economic reasoning to real-world business situations, enabling students to evaluate market dynamics, forecast trends, and optimize resource allocation for sustainable organizational success.
Recommended Textbook
Macroeconomics 4th Edition by Glenn P. Hubbard
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19 Chapters
2676 Verified Questions
2676 Flashcards
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Refer to Scenario 1-1.Using marginal analysis terminology,what is another economic term for the incremental cost of producing the last 3,000 cell phones?
A) marginal cost
B) operating cost
C) explicit cost
D) Any of the above terms are correct.
Answer: A
Q2) The three fundamental questions that any economy must address are:
A) What will be the prices of goods and services; how will these goods and services be produced; and who will receive them?
B) What goods and services to produce; how will these goods and services be produced; and who receives them?
C) Who gets jobs; what wages do workers earn; and who owns what property?
D) How much will be saved; what will be produced; and how can these goods and services be fairly distributed?
Answer: B
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Sample Questions
Q1) Refer to Figure 2-7.What is the opportunity cost of producing 1 bolt of cotton in Indonesia?
A) 3/8 of a pound of cashews
B) 5/8 of a pound of cashews
C) 2 2/3 pounds of cashews
D) 120 pounds of cashews
Answer: A
Q2) In the circular flow model,producers
A) sell goods and services in the input market.
B) and households spend earnings from resource sales on goods and services in the factor market.
C) hire resources sold by households in the factor market.
D) spend earnings from resource sales on goods and services in the product market.
Answer: C
Q3) Crude oil is not an example of a factor of production,but when crude oil is processed into gasoline,it is a factor of production.
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) If the price of a product is above equilibrium,what forces it down?
Answer: When the price is above equilibrium,a surplus occurs.Some producers who are unable to sell the product will have an incentive to offer to sell the product at a lower price.A lower price will simultaneously decrease the quantity supplied and increase the quantity demanded.This downward pressure on price continues until the surplus is eliminated and equilibrium is achieved.
Q2) Indicate whether each of the following situations would shift the supply curve to the left,to the right,or not at all.
a.An increase in the number of firms in the market
b.An increase in the current price of the product
c.A decrease in productivity
d.An increase in the expected future price of a product
e.A decrease in the price of an input
Answer: a.Shift to the right
b.No shift
c.Shift to the left
d.Shift to the left
e.Shift to the right
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Chapter 4: Economic Efficiency,government Price
Setting,and Taxes
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Sample Questions
Q1) Refer to Figure 4-1.If the market price is $1.00,what is the consumer surplus on the third burrito?
A) $0.50
B) $1.00
C) $1.50
D) $7.50
Q2) Refer to Table 4-5.The equations above describe the demand and supply for Chef Ernie's Sushi-on-a-Stick.What are the equilibrium price and quantity (in thousands)for Chef Ernie's sushi?
A) $80 and 80 thousand
B) $60 and 20 thousand
C) $50 and 100 thousand
D) $40 and 50 thousand
Q3) Refer to Figure 4-3.What is the value of the deadweight loss at a price of $18?
A) $100
B) $180
C) $660
D) $1,040
Q4) What is "tax incidence"? What determines tax incidence in a competitive market?
Q5) What is producer surplus? What does producer surplus measure?
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Chapter 5: The Economics of Health Care
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Sample Questions
Q1) Which of the following factors help to explain the sustained increases in health care spending in the United States,and which do not:
a.the additional paperwork,duplication,and waste generated in the U.S.health care system compared to systems in other countries
b.the increasing costs of malpractice insurance and malpractice lawsuit settlements
c.the number of uninsured patients receiving hospital treatment that could have been preformed at a lower cost in doctors' offices
d.the slow growth in labor productivity in health care compared to that in the economy as a whole
e.the aging population
f.increases in the cost of providing health care
Q2) The average height of adult males in the United States
A) has steadily increased since the early 1700s.
B) has remained very constant since the Civil War.
C) rose significantly beginning in 1830.
D) declined in the mid-1800s before beginning to rise again around 1890.
Q3) What is adverse selection?
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Chapter 6: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) Who controls a partnership?
A) the owners
B) stockholders
C) bondholders
D) employees
Q2) Eighty-five percent of all firms employ ________ workers.
A) only one or two
B) fewer than 20
C) 50 or more
D) over 100
Q3) Tanesha sells homemade candles over the Internet.Her annual revenue is $64,000 per year,the explicit costs of her business are $17,000,and the opportunity costs of her business are $22,000.What are the implicit costs of her business?
A) $17,000
B) $22,000
C) $39,000
D) $47,000
Q4) Explain what potential conflict exists between shareholders in a corporation and the corporation's managers.
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Chapter 7: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Use Figure 9-4 to answer questions a-i.
a.Following the imposition of the tariff,what is the price that domestic consumers must now pay and what is the quantity purchased?
b.Calculate the value of consumer surplus with the tariff in place.
c.What is the quantity supplied by domestic sugar producers with the tariff in place?
d.Calculate the value of producer surplus received by U.S.sugar producers with the tariff in place.
e.What is the quantity of sugar imported with the tariff in place?
f.What is the amount of tariff revenue collected by the government?
g.The tariff has reduced consumer surplus.Calculate the loss in consumer surplus due to the tariff.
h.What portion of the consumer surplus loss is redistributed to domestic producers? To the government?
i.Calculate the deadweight loss due to the tariff.
Q2) Distinguish between a voluntary export restraint and a quota.
Q3) What is autarky?
Q4) How have U.S.imports and exports,as a fraction of GDP,changed from 1950 to the present?
Page 9
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Chapter 8: Gdp: Measuring Total Production and Income
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Sample Questions
Q1) Depreciation is
A) the value of worn-out equipment, machinery, and buildings.
B) the value of the decrease in business inventory stocks.
C) the value of the addition to the capital stock.
D) the decline in the value of the stock market, net of dividends.
Q2) Suppose that in 2011,the national income in the United States was $200 billion,depreciation was $15 billion,personal taxes were $20 billion,and transfer payments were $10 billion.Gross domestic product in 2011 is
A) $185 billion.
B) $215 billion.
C) $220 billion.
D) $245 billion.
Q3) If real GDP in 2011 (using 2002 prices)is lower than nominal GDP of 2010,then
A) prices in 2011 are lower than prices in 2010.
B) nominal GDP in 2011 equals nominal GDP in 2010.
C) prices in 2011 are higher than prices in 2010.
D) real GDP in 2011 is larger than real GDP in 2010.
Q4) Refer to Table 19-13.Consider the following data for a simple economy: Calculate nominal GDP and real GDP for 2011,using 2009 as the base year.Show your work.
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Chapter 9: Unemployment and Inflation
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Sample Questions
Q1) Which of the following statements is true about the U.S.economy?
A) Each year, many new jobs are created, but few existing jobs are destroyed, and the unemployed find jobs quickly.
B) Each year, few new jobs are created, but few existing jobs are destroyed, keeping unemployment low.
C) Each year, many new jobs are created and many existing jobs are destroyed.
D) Each year few jobs are created, and therefore it takes the unemployed a long time to find a new job.
Q2) Which of the following would be the best measure of the cost of living?
A) real GDP
B) real GDP per person
C) GDP deflator
D) consumer price index
Q3) If the price level rose in three consecutive years from 100 to 120 to 140,then the annual inflation rate over those years would
A) increase.
B) remain the same.
C) decrease.
D) equal 20%.
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Chapter 10: Economic Growth, the Financial System, and Business Cycles
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Sample Questions
Q1) Use the equations for public and private saving to demonstrate how total saving in the economy equals investment.
Q2) Since 1950,the average length of a recession in the United States has been A) such that recessions barely exist.
B) less than a year.
C) between 1 and 2 years.
D) greater than 2 years.
Q3) What is "human capital," and how does human capital affect labor productivity and economic growth?
Q4) If government saving is negative,then
A) T > TR.
B) G > T.
C) T - TR < G.
D) Y + TR < C - T.
Q5) Which of the following would you expect to increase the equilibrium interest rate?
A) an increase in the percentage of income after net taxes that households save
B) an increase in the budget deficit
C) a decrease in the profitability of investment projects firms are considering D) a change from an income tax to a consumption tax
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Chapter 11: Long-Run Economic Growth: Sources and Policies
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Sample Questions
Q1) If the slope of the per-worker production function is 1/2 in a given range,how will a $10,000 increase in capital per hour worked affect real GDP per hour worked in the same given range?
A) Real GDP per hour worked will increase by $5,000.
B) Real GDP per hour worked will increase by $20,000.
C) Real GDP per hour worked will increase by $10,000.
D) Real GDP per hour worked will decrease by $20.000.
Q2) Under the Soviet system of communism,
A) managerial pay was determined by the extent to which managers could lower the per-unit costs of production.
B) technological progress was slow because managers had little incentive to develop new technologies.
C) competitive pressures in the Soviet Union allowed the country's technological progress to keep pace with the rest of the world.
D) the per-worker production function in the Soviet Union shifted up more rapidly than production functions in other countries.
Q3) Explain how market economies are generally better able to achieve technological progress than are centrally planned economies.
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Chapter 12: Aggregate Expenditure and Output in the Short Run
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Sample Questions
Q1) Equilibrium GDP is equal to
A) autonomous expenditure times the marginal propensity to consume.
B) autonomous expenditure times the marginal propensity to save.
C) autonomous expenditure times the multiplier.
D) autonomous expenditure.
Q2) ________ describes the relationship between consumption spending and disposable income.
A) Household wealth
B) The liquidity trap
C) The consumption function
D) The paradox of thrift
Q3) U.S.net export spending rises when
A) the price level in the United States rises relative to the price level in other countries.
B) the growth rate of U.S. GDP is slower than the growth rate of GDP in other countries.
C) the value of the U.S. dollar increases relative to other currencies.
D) the inflation rate is higher in the United States relative to other countries.
Q4) Why do economists care about aggregate expenditures?
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Chapter 13: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) Suppose a developing country receives more machinery and capital equipment as foreign entrepreneurs increase the amount of investment in the economy.As a result,
A) the long-run aggregate supply curve will shift to the right.
B) the long-run aggregate supply curve will shift to the left.
C) the economy will move up along the long-run aggregate supply curve.
D) the economy will move down along the long-run aggregate supply curve.
Q2) Stagflation usually results from
A) a supply shock.
B) a decrease in aggregate demand.
C) an increase in aggregate supply.
D) an increase in aggregate demand.
Q3) Higher personal income taxes
A) increase aggregate demand.
B) increase disposable income.
C) decrease aggregate demand.
D) both B and C
Q4) The long-run aggregate supply curve is vertical.
A)True
B)False
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Chapter 14: Money,banks,and the Federal Reserve System
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Sample Questions
Q1) The required reserves of a bank equal its ________ the required reserve ratio.
A) deposits divided by B) deposits multiplied by C) loans divided by D) loans multiplied by
Q2) Suppose you withdraw $1,000 from your savings account and put it in your checking account.Briefly explain how this will affect M1 and M2.
Q3) If a bank receives a $1 million discount loan from the Federal Reserve,then the bank's reserves will
A) not change.
B) increase by $1 million.
C) increase by less than $1 million.
D) increase by more than $1 million.
Q4) If banks receive a greater amount of reserves and do not hold all of these reserves as excess reserves,the money supply expands.
A)True
B)False
Q5) Although gold is highly valued by most people,it is difficult to use as a medium of exchange.Explain.
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Chapter 15: Monetary Policy
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Sample Questions
Q1) Refer to Figure 26-5.Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from
A) A to B.
B) B to D.
C) C to B.
D) B to C.
E) C to D.
Q2) Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime.
A)True
B)False
Q3) When calculating GDP,the Bureau of Economic Analysis revises its quarterly data
A) a total of one time.
B) a total of two times.
C) a total of three times.
D) many times over the next several years.
Q4) Using the money demand and money supply model,show and explain why the Federal Reserve cannot achieve a target for both the money supply and an interest rate.
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Chapter 16: Fiscal Policy
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Sample Questions
Q1) The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises.
A)True
B)False
Q2) Suppose the federal budget deficit for the year was $100 billion and the economy was in a recession.If the economy had been at potential GDP,it is estimated that tax revenues would have been $60 billion higher and government spending on transfer payments $50 billion lower.Using these estimates,the cyclically adjusted budget
A) deficit was $210 billion.
B) deficit was $110 billion.
C) surplus was $10 billion.
D) surplus was $110 billion.
Q3) In Year 1 suppose the economy is at potential GDP and that the federal budget deficit equals $100 billion.In Year 2 the federal budget deficit rises to $150 billion,but the cyclically adjusted budget deficit falls to $75 billion.How can the actual budget deficit rise and the cyclically adjusted budget deficit fall?
Q4) What is the difference between fiscal policy and monetary policy?
Q5) How can tax simplification be beneficial to the economy?
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Chapter 17: Inflation, unemployment, and Federal Reserve Policy
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Sample Questions
Q1) A higher inflation rate can lead to lower unemployment if ________ mistakenly expect the inflation rate to be lower than it turns out to be.
A) workers, but not employers
B) employers, but not workers
C) both workers and employers
D) neither workers nor employers
Q2) Refer to Figure 28-2.Suppose the economy is at point C in the figure above.If workers adjust their expectations of inflation,which of the following will be true?
A) The short-run Phillips curve will shift to the right.
B) The short-run Phillips curve will shift to the left.
C) The economy will move from C to A.
D) Workers and firms expect inflation to be 1%.
E) The natural rate of unemployment is 6%.
Q3) The natural rate of unemployment is the rate that exists when the economy is producing at potential GDP.
A)True
B)False
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Chapter 18: Macroeconomics in an Open Economy
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Sample Questions
Q1) If the exchange rate changes from $1.45 = 1 euro to $1.37 = 1 euro,then
A) both the euro and dollar have appreciated.
B) both the euro and dollar have depreciated.
C) the euro has appreciated and the dollar has depreciated.
D) the euro has depreciated and the dollar has appreciated.
Q2) Which of the following would result in a trade surplus for the United States?
A) Exports of goods = $450 billion Imports of goods = $400 billion Exports of services = $200 billion Imports of services = $250 billion
B) Exports of goods = $450 billion Imports of goods = $450 billion Exports of services = $200 billion Imports of services = $250 billion
C) Exports of goods = $450 billion Imports of goods = $460 billion Exports of services = $200 billion Imports of services = $100 billion
D) Exports of goods = $450 billion Imports of goods = $490 billion Exports of services = $200 billion Imports of services = $100 billion
Q3) Explain the relationship between net exports and net foreign investment.
Q4) Public saving equals taxes minus government spending minus transfer payments.
A)True
B)False
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Chapter 19: The International Financial System
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Sample Questions
Q1) If relative purchasing power between the United States and Argentina is 3.22 pesos per dollar,under which circumstances would we say that the dollar is "overvalued"?
A) if the actual exchange rate between the dollar and the Argentinean peso is 3.22 pesos per dollar
B) if the actual exchange rate between the dollar and the Argentinean peso is 4 pesos per dollar
C) if the actual exchange rate between the dollar and the Argentinean peso is 0.22 pesos per dollar
D) if the actual exchange rate between the dollar and the Argentinean peso is 3 pesos per dollar
Q2) Although the pegged exchange rate between the yuan and the dollar has undervalued the yuan,China has been reluctant to abandon the peg for fear that abandoning the peg would
A) increase exports and increase the current account deficit.
B) reduce capital inflows.
C) reduce exports and reduce economic growth.
D) increase Chinese holdings of dollars.
Q3) What are the three main exchange rate systems,and how do they operate?
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