Business Economics
Test Bank
Course Introduction
Business Economics explores the application of economic principles and methodologies to real-world business scenarios and decision-making. The course examines how firms operate within various market structures, how they respond to changes in demand and supply, and how they set prices and output levels. Key topics include demand analysis, cost and production theories, market dynamics, pricing strategies, and the impact of government policies on businesses. By integrating economic theory with practical business issues, students develop analytical skills crucial for effective problem-solving and strategic planning in diverse business environments.
Recommended Textbook Microeconomics 3rd Edition by R. Glenn Hubbard
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16 Chapters
3331 Verified Questions
3331 Flashcards
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Page 2
Chapter 1: Economics Foundations and Models
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160 Flashcards
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Sample Questions
Q1) DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. Should DeShawn continue to offer the engine detailing service?
A) Yes, he still makes a profit by selling the engine detailing service with the basic detailing package.
B) Yes, but only if he raises the price of the basic detailing package.
C) No, his marginal benefit is less than his marginal cost.
D) More information is needed for DeShawn to make this decision.
Answer: C
Q2) Mr. Peabody chooses to invest in companies that produce goods and services based on consumer preferences. Mr. Peabody is investing in companies that are attempting to be
A) allocatively efficient.
B) productively efficient.
C) guaranteed to make a profit.
D) all of the above.
Answer: A
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Page 3
Chapter 2: Choices and Trade - Offs in the Market
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192 Flashcards
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Sample Questions
Q1) The production possibility frontier model shows that
A) if consumers decide to buy more of a product, its price will increase.
B) a market economy is more efficient in producing goods and services than is a centrally planned economy.
C) economic growth can only be achieved by free market economies.
D) if all resources are fully and efficiently utilised, more of one good can be produced only by producing less of another good.
Answer: D
Q2) An increase in the unemployment rate may be represented as a movement from a point on the production possibility frontier to a different point on the frontier.
A)True
B)False
Answer: False
Q3) Refer to Table 2-5. What is Barney's opportunity cost of making a pogo stick?
A) 1/2 unicycle
B) 2 unicycles
C) 1/3 unicycle
D) 1.4 pogo sticks
Answer: A
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Page 4
Chapter 3: Where Prices Come Frome : The Interaction of
Demand and Supply
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Sample Questions
Q1) Refer to Figure 3-1. An increase in population would be represented by a movement from
A) A to B.
B) B to A.
C) D<sub>1</sub> to D<sub>2</sub>.
D) D<sub>2 </sub>to D<sub>1</sub>.
Answer: C
Q2) The income effect of a price change refers to the impact of a change in A) income on the price of a good.
B) demand when income changes.
C) the quantity demanded when income changes.
D) the price of a good on a consumer's purchasing power.
Answer: D
Q3) If the price of music downloads was to decrease, then
A) the demand for MP3 players would decrease.
B) the demand for MP3 players would increase.
C) the supply of MP3 players would increase.
D) the quantity demanded of MP3 players would decrease.
Answer: B
Page 5
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Chapter 4: Elasticity: The Responsiveness of Demand and Supply
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Sample Questions
Q1) The cross-price elasticity between Gillette razors and a related good is -3.4. What happens to the demand for the related good if the price of Gillette razors falls by 10 per cent?
A) The quantity demanded of the related good rises by 3.4 per cent.
B) The quantity demanded of the related good falls by 34 per cent.
C) The quantity demanded of the related good rises by 34 per cent.
D) The quantity demanded of the related good falls by 3.4 per cent.
Q2) List the five key determinants of price elasticity of demand and explain how each determinant indicates if demand tends to be elastic or inelastic.
Q3) Suppose the demand curve for hybrid cars shifts to the right. This will cause a relatively small increase in the price of hybrid cars if
A) demand is elastic and supply is inelastic.
B) demand is inelastic and supply is elastic.
C) both demand and supply are inelastic.
D) both demand and supply are elastic.
Q4) What factors would make you more sensitive or less sensitive to price when purchasing petrol?
Q5) Explain the relationship between price elasticity of demand and total revenue.
Q6) Briefly explain the economic concept of elasticity.
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Chapter 5: Economic Efficiency , Government Price Setting and Taxes
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Sample Questions
Q1) Lucinda buys a new GPS system for $250. She receives consumer surplus of $75 from the purchase. How much does Lucinda value her GPS system?
A) $75
B) $175
C) $250
D) $325
Q2) Refer to Figure 5-1. If the market price is $1.50, what is the consumer surplus on the first burrito?
A) $0.50
B) $1.00
C) $1.50
D) $7.50
Q3) If the market price is at equilibrium, the deadweight loss is maximised.
A)True
B)False
Q4) The minimum wage is an example of a price ceiling.
A)True
B)False
Q5) What is a black market?
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Chapter 6: Concumer Choice and Behavioural Economics
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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) The law of diminishing marginal utility states that
A) eventually total utility falls as more of a good is consumed, other things constant.
B) the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant.
C) the extra satisfaction from consuming a good increases slowly as more of a good is consumed, other things constant.
D) when the extra satisfaction from consuming a good becomes negative, total utility starts falling, other things constant.
Q3) The demand curve for a luxury good is upward sloping.
A)True
B)False
Q4) What is a Giffen good?
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Chapter 7: Technology , Production and Costs
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Sample Questions
Q1) If, when a firm doubles all its inputs, its average cost of production decreases, then production displays
A) diminishing returns.
B) economies of scale.
C) diseconomies of scale.
D) declining fixed costs.
Q2) The division of labour and specialisation explain
A) why, when the marginal product of labour increases, so does the average product of labour.
B) why the average product of labour falls when firms use more capital or change the layout of their businesses.
C) why the marginal product of labour rises as a firm hires its first units of labour.
D) why firms may find it profitable to use more workers when the marginal product of labour is negative.
Q3) A downward-sloping marginal product of labour curve demonstrates the law of diminishing marginal returns.
A)True
B)False
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9
Chapter 8: Firms in Perfectly Compitive Markets
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Sample Questions
Q1) Refer to Figure 8-13. Assume that the medical screening industry is perfectly competitive and that some firms are incurring short-run losses. Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans are critical for good health. Which of the diagrams in the figure best describes what happens in the industry?
A) Panel A
B) Panel B
C) Panel C
D) Panel D
Q2) A firm could continue to operate for years without ever earning a profit as long as it is producing an output where
A) MR < ATC.
B) ATC > AVC.
C) MR > AVC.
D) AFC < AVC.
Q3) In the short run, if price falls below a firm's minimum average total cost, the firm should shut down.
A)True
B)False
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Page 10
Chapter 9: Monopoly Markets
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Sample Questions
Q1) Refer to Figure 9-4. What is the profit-maximising/loss-minimising output level?
A) 600 units
B) 800 units
C) 940 units
D) 1160 units
Q2) Many universities practice yield management to maximise the revenue they receive from tuition and
A) to maximise the amount of aid they receive from the federal government.
B) to maximise the amount of their student loans.
C) to maximise the size of their endowments.
D) to increase the academic quality of the students who enroll in their schools.
Q3) Refer to Table 9-3. Suppose Julie's marginal cost of providing this service is constant at $7 and she decides to charge each customer according to his or her willingness to pay. What is Julie's total revenue and how many hours of service will be purchased?
A) 4 hours and her total revenue = $39
B) 4 hours and her total revenue = $28
C) 1 hour and her total revenue = $7
D) 5 hours and her total revenue = $35
Q4) Are restaurant coupons a form of price discrimination? Why or why not?
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Chapter 10: Monopolistic Competition : The Competitive Model
in More Realistic Setting
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Sample Questions
Q1) Refer to Figure 10-9. Which of the graphs in the figure depicts a monopolistically competitive firm that is minimising its losses?
A) Panel A
B) Panel B
C) Panel C
D) Panel A and Panel C
Q2) Which of the following is not a characteristic of a monopolistically competitive firm in long-run equilibrium?
A) Marginal revenue is equal to marginal cost.
B) Price is equal to average revenue.
C) The firm has excess capacity.
D) Price is equal to marginal cost.
Q3) Discuss the role of product differentiation and advertising in monopolistic competition.
Q4) The ability to engage in product differentiation is one of the factors a manager or owner of a firm can control in order to create value for consumers.
A)True
B)False
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Q5) What is the difference between zero accounting profit and zero economic profit?
Chapter 11: Oligopoly : Firms in Less Competitve Markets
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Sample Questions
Q1) In the kinked demand curve model of oligopoly, under what circumstances would an increase in marginal costs lead to an increase in the price?
Q2) An entry barrier exists when firms in an industry charge the lowest price possible for their products.
A)True
B)False
Q3) Which of the following is not an example of a government-imposed entry barrier?
A) patents
B) occupational licensing
C) barriers to international trade
D) antitrust legislation
Q4) What is the dominant strategy in a second-price auction?
A) bidding below one's true value
B) bidding above one's true value
C) bidding one's true value
D) There is no dominant strategy.
Q5) Decision trees can only be used to analyse sequential games.
A)True
B)False
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Chapter 12: The Market for Labour and Other Factors of Production
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Sample Questions
Q1) Despite evidence that companies will find it more profitable to use a commission system of compensation rather than a salary system, many companies continue to pay their workers salaries. Which of the following is one reason why firms choose a salary system?
A) Most business owners and managers are not trained economists; therefore, they are unaware of the research that shows a commission system is more profitable than a salary system.
B) Firms often use salary systems to overcome their principal-agent problems.
C) Firms that have salary systems do not have to use compensating differentials to attract employees to do hazardous jobs.
D) Many workers dislike risk and prefer to be paid a salary rather than to be paid by commission.
Q2) The demand for capital is similar to the demand for labour in that
A) the marginal product of labour is derived from the marginal product of capital.
B) the marginal revenue product curve for labour is the same as the marginal revenue product curve for capital.
C) both are derived demands.
D) both are inelastic at high prices and elastic at low prices.
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Chapter 13: International Trade
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Sample Questions
Q1) ________ refers to reductions in a firm's costs that result from an increase in the size of an industry.
A) Internal economies
B) External economies
C) Autarkial dominance
D) Streamlining
Q2) Jobs lost to foreign trade are generally easy to identify, but jobs created by foreign trade are generally less easy to identify.
A)True
B)False
Q3) A numerical limit imposed by a government on the quantity of a good that can be imported into the country is called a
A) tariff.
B) quota.
C) quantity floor.
D) barricade.
Q4) Selling a product at a price below its cost is known as dumping.
A)True
B)False
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Chapter 14: Government Intervention in the Market
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Sample Questions
Q1) Which of the following is a possible solution when a scarce resource is subject to the tragedy of the commons?
A) Access to the commons can be restricted through community norms and laws.
B) Offer subsidies to consumers.
C) Force people to move away from the commons.
D) Persuade people to use less of the scarce resource through an advertising campaign.
Q2) A tragedy of the commons occurs when a resource is
A) rival and excludable.
B) rival and non-excludable.
C) non-rival and non-excludable.
D) non-rival and excludable.
Q3) A successful trademark is one that becomes a generic name for a product, for example, 'Kleenex' has become a generic term for tissues.
A)True
B)False
Q4) Will equilibrium in a market always result in an outcome that is economically efficient? Explain.
Q5) What is rent seeking and how is it related to regulatory capture?
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Chapter 15: Externalities , Environmental Policy and Public Goods
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Sample Questions
Q1) What are transactions costs? Why do transactions costs create difficulties in finding a private solution to the problem of pollution?
Q2) A positive externality causes
A) the marginal social benefit to be equal to the marginal private cost of the last unit produced.
B) the marginal social benefit to be less than the marginal private cost of the last unit produced.
C) the marginal social benefit to exceed the marginal private cost of the last unit produced.
D) the marginal private benefit to exceed the marginal social cost of the last unit produced.
Q3) How does a public good differ from a quasi-public good? In your answer give an example of each type of good.
Q4) Refer to Figure 15-2. The private profit-maximising quantity for the firm is
A) Q<sub>a</sub>.
B) Q<sub>b</sub>.
C) Q<sub>b</sub> - Q<sub>d</sub>.
D) Q<sub>d</sub>.
Q5) State the Coase theorem.
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Chapter 16: The Distribution of Income and Social Policy
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Sample Questions
Q1) What is meant by 'tax incidence'?
Q2) The government of Silverado raises revenue through a general income tax paid by all its residents to operate the city's marina. The marina is used by private boat owners. This method of raising revenue to operate the marina is
A) consistent with the benefits-received principle.
B) consistent with the ability-to-pay principle.
C) inconsistent with the benefits-received principle.
D) inconsistent with the ability-to-pay principle.
Q3) The actual division of a tax between buyers and sellers in a market is the excess burden of the tax.
A)True
B)False
Q4) If the marginal tax rate is less than the average tax rate as taxable income increases, the tax structure is
A) regressive.
B) proportional.
C) progressive.
D) unfair.
Q5) What is a Lorenz curve and what is a Gini coefficient?
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