Business Economics
Test Bank
Course Introduction
Business Economics explores the application of economic principles and analytical tools to decision-making within firms and organizations. This course examines how businesses operate within various market structures, analyze costs, pricing strategies, and factors affecting demand and supply. Students will learn to assess the economic environment, understand resource allocation, and evaluate how government policies, international trade, and global economic conditions impact business performance. Emphasis is placed on using economic reasoning to solve practical problems, forecast business trends, and make strategic choices for organizational success.
Recommended Textbook
Survey of Economics Principles Applications and Tools 7th Edition by Arthur OSullivan
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18 Chapters
3640 Verified Questions
3640 Flashcards
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Page 2
Chapter 1: Introduction: What Is Economics
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) The congestion tax implemented in London reduced traffic volume and cut travel time for cars and buses in half.
A)True
B)False
Answer: True
Q2) Talking about alternatives is the first step in a process that helps us make better choices about how we use our resources.
A)True
B)False
Answer: True
Q3) According to the Application, one factor which was responsible for roughly one-fifth of hybrid vehicles purchased in 2007 was a federal subsidy of up to $3,400 per hybrid vehicle. The increase in sales due to this subsidy is an example of which element of the economic way of thinking?
A) responding to incentives
B) thinking at the margin
C) isolating variables
D) using assumptions to simplify
Answer: A
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Page 3
Chapter 2: The Key Principles of Economics
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) Steven lives in a big city where there is a shortage of parking. He has a parking spot in his driveway where he parks his car. Which of the following statements is most CORRECT?
A) Steven has a lower opportunity cost of owning a car than his neighbor, who must rent a parking spot.
B) The opportunity cost of using the spot is zero, because Steven owns the house.
C) The opportunity cost of using the parking spot is the price he could charge someone else for using the spot.
D) The opportunity cost depends on how much Steven's mortgage payment is.
Answer: C
Q2) What is the opportunity cost of your college degree?
Answer: A quick answer would be to say that the cost is the tuition, room and board, and books expenditures that are borne during the college years. But such a statement would be incorrect. First, it understates one aspect of costs: one is giving up income while a student. But it also overstates the costs in another dimension: people would eat and sleep somewhere regardless of their attendance in college. Therefore, one should not consider room and board to be part of the cost of college attendance.
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Page 4
Chapter 3: Demand, Supply, and Market Equilibrium
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172 Verified Questions
172 Flashcards
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Sample Questions
Q1) If producers have an expectation of higher future prices, the supply of the good that is currently available
A) will be all that is produced.
B) will increase.
C) will decrease.
D) will not change.
Answer: C
Q2) A supply curve is defined as the relationship between
A) the price of a good and the quantity that consumers are willing to buy.
B) the price of a good and the quantity that producers are willing to sell.
C) the income of consumers and the quantity of a product that consumers are willing to buy.
D) the income of consumers and the quantity of a product that producers are willing to sell.
Answer: B
Q3) As the price of a product falls, the demand for the product increases, ceteris paribus. A)True
B)False
Answer: False
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Page 5
Chapter 4: Elasticity: A Measure of Responsiveness
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267 Flashcards
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Sample Questions
Q1) The market demand for school supplies is more elastic at the beginning of the semester than it is at the start of summer vacation.
A)True
B)False
Q2) Suppose that if poor households have a price elasticity of demand for medical care of 0.70 and wealthy households have a price elasticity of demand for medical care of 0.10, then a 10% increase in the price of medical care would lead to poor households reducing their quantity demanded for medical care by
A) seven times the amount that wealthy household reduce their quantity demanded for medical care.
B) one-seventh the amount that wealthy households reduce their quantity demanded for medical care.
C) one-tenth the amount that wealthy households reduce their quantity demanded for medical care.
D) ten times the amount that wealthy household reduce their quantity demanded for medical care.
Q3) Explain why the price elasticity varies even when a firm faces a linear demand curve.
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Chapter 5: Production Technology and Cost
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211 Verified Questions
211 Flashcards
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Sample Questions
Q1) Figure 5.3 shows a firm's marginal cost, average total cost, and average variable cost curves. At Q = 100, the total variable cost is
A) $2,800.
B) $4,000.
C) $4,500.
D) $6,300.
Q2) Recall the Application. Which country has the highest marginal cost of extracting oil?
A) Saudi Arabia
B) Russia
C) United Arab Emirates
D) Canada
Q3) If the first copy cost of a music video is $223,000 and the marginal cost is $0, then how many copies should the firm sell in order to break even if the price was $10 each?
A) zero
B) 2,230
C) 22,300
D) 223,000
Q4) What are the differences between economic cost and accounting cost?
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Chapter 6: Perfect Competition
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218 Verified Questions
218 Flashcards
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Sample Questions
Q1) Figure 6.5 shows the short-run and long-run effects of an increase in demand of an industry. The industry is
A) a constant-cost industry.
B) an increasing-cost industry.
C) a decreasing-cost industry.
D) There isn't sufficient information.
Q2) If the demand for a product in an increasing cost perfectly competitive industry decreases, we would expect that price in the long run would ________ and the number of firms in the market would ________.
A) decrease; decrease
B) increase; increase
C) decrease; increase
D) increase; decrease
Q3) The long-run supply curve is upward sloping in a constant cost industry.
A)True
B)False
Q4) What happens in the short run and long run in a constant cost industry such as bags of ice after a natural disaster like a hurricane?
Q5) What is marginal revenue?
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Chapter 7: Monopoly and Price Discrimination
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144 Flashcards
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Sample Questions
Q1) Figure 7.1 shows a monopolist's demand curve. If the monopolist were to maximize its total revenue, it would produce ________ units of output and charge a price of
A) 3; $5
B) 4; $4
C) 5; $3
D) 6; $2
Q2) Table 7.2 contains price, demand and cost data for the Capri Theater, the only first-run movie theater in a small town. What is its profit from students under the single price policy?
A) $150
B) $180
C) $450
D) $540
Q3) When a hair stylist charges men less than women for a haircut because men's hair take less time to cut, the hairstylist is price discriminating.
A)True
B)False
Q4) Why do some markets have more firms than others?
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Chapter
8:
Market Entry, Monopolistic Competition, and Oligopoly
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464 Verified Questions
464 Flashcards
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Sample Questions
Q1) The Clayton Act of 1914
A) prohibited selling products at "unreasonably low prices" with the intent of reducing competition.
B) made it illegal to monopolize a market.
C) repealed the Sherman Act.
D) outlawed price discrimination for the purpose of reducing competition.
Q2) Predatory pricing occurs when a monopolist charges a
A) price above average total cost.
B) price above average variable cost.
C) low price to drive out competition, then charges a high price.
D) high price to drive out competition, then charges a low price.
Q3) When there are just a few firms in the industry, the industry structure is most likely to be
A) a perfectly competitive industry.
B) an oligopoly market.
C) a monopoly market.
D) a natural monopoly market.
Q4) An oligopoly is an industry with just one firm.
A)True
B)False
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Chapter 9: Imperfect Information, External Benefits, and
External Costs
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416 Verified Questions
416 Flashcards
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Sample Questions
Q1) The existence of the Federal Deposit Insurance Corporation (FDIC)
A) increases the risk of moral hazard in the savings and loan industry.
B) reduces the risk of moral hazard in the savings and loan industry.
C) increases the risk that customers of savings and loans will engage in moral hazard, but reduces the risk that the lenders will engage in moral hazard.
D) reduces the risk that customers of savings and loans will engage in moral hazard, but increases the risk that the lenders will engage in moral hazard.
Q2) What are the main differences between adverse selection and moral hazard in the insurance market?
Q3) If Tom drives a car more recklessly after he purchases a comprehensive insurance plan, the change in his behavior is an adverse selection problem.
A)True
B)False
Q4) One result of adverse selection in the market for used cars is
A) more lemons (low quality) may be offered for sale than plums (high quality).
B) more plums (high quality) may be offered for sale than lemons (low quality).
C) few lemons (low quality) are sold.
D) no used cars are sold.
Page 11
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Chapter 10: The Labor Market and the Distribution of Income
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241 Verified Questions
241 Flashcards
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Sample Questions
Q1) For a perfectly competitive firm, the marginal-revenue product curve is the same as the firm's short run demand for labor curve.
A)True
B)False
Q2) Suppose that the wage for musicians increases relative to other occupations. We know that ________ people will work in music, and the total number of hours worked will ________.
A) more; increase
B) more; decrease
C) fewer; increase
D) fewer; decrease
Q3) The earned income tax credit (EITC) has been a successful anti-poverty policy by encouraging participation in the workforce.
A)True
B)False
Q4) Why do college graduates earn higher wages than non-graduates?
Q5) Why is the demand for labor downward sloping in the short run?
Q6) What does Temporary Aid to Needy Families (TANF) provide to recipients?
Q7) What is means testing?
Page 12
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Chapter 11: Measuring a Nations Production and Income
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152 Verified Questions
152 Flashcards
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Sample Questions
Q1) Between 2013 and 2016, a country's nominal GDP grew by 18 percent and its inflation rate (based on the chain-weighted price index for GDP) was 11 percent. How fast did real GDP grow over this period?
Q2) Nominal GDP measures the value of goods and services using current-year prices.
A)True
B)False
Q3) This Application addresses the economic concept of
A) real versus nominal GDP.
B) fluctuations in GDP.
C) GDP as a measure of welfare.
D) measuring a nation's national income.
Q4) Explain why only final goods are included in GDP.
Q5) According to the Application
A) reported levels of happiness in the United States have increased over the past 30 years.
B) stable marriages account for no more happiness than marriages ending in divorce.
C) retired people report higher levels of happiness than people below the age of 40.
D) money does appear to buy happiness, ceteris paribus.
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Chapter 12: Unemployment and Inflation
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155 Flashcards
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Sample Questions
Q1) Given the data in Table 12.1, the labor force participation rate of Metropolis is approximately
A) 96 percent.
B) 91 percent.
C) 83 percent.
D) 78 percent.
Q2) Hyperinflation refers to an inflation rate which exceeds 5 percent per month.
A)True
B)False
Q3) On what kind of income is our tax system based?
A) real
B) nominal
C) adjusted
D) inflationary
Q4) In the United States today, economists estimate that the natural rate of unemployment is between ________ and ________ percent.
A) 3; 5.5
B) 3; 4
C) 5; 6.5
D) 6.5; 7.5
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Chapter 13: Why Do Economies Grow
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144 Flashcards
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Sample Questions
Q1) Why is it difficult to make accurate and valid comparisons of real GDP or GNP for different countries, and how do the World Bank and the IMF deal with these difficulties?
Q2) This Application emphasizes the importance of
A) wealth distribution.
B) economic incentives.
C) literacy rates.
D) none of the above
Q3) Capital deepening causes ________ in the demand for labor.
A) an increase
B) a decrease
C) no change
D) either an increase or decrease
Q4) In a simple economy without government or foreign trade, any income not consumed is called
A) investment.
B) net investment.
C) saving.
D) depreciation.
Q5) Will increased imports of supercomputers for industry promote economic growth?
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Chapter 14: Aggregate Demand and Aggregate Supply
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160 Verified Questions
160 Flashcards
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Sample Questions
Q1) The short run in macroeconomics is the period in which
A) prices change significantly.
B) no contracts or agreements exist to fix prices.
C) demand determines output.
D) the demand curve is vertical.
Q2) When there is a shift the aggregate supply curve caused by factors external to a nation's economy, it is called
A) a trade imbalance.
B) government control.
C) a supply shock.
D) an economic anomaly.
Q3) Prices of industrial products and wages tend to be the most "flexible."
A)True
B)False
Q4) Real business cycle theory emphasizes the role of
A) demand shocks as a cause of economic fluctuations.
B) technology shocks as a cause of economic fluctuations.
C) shocks to the money supply as a cause of economic fluctuations.
D) government spending as a cause of economic fluctuations.
Q5) Explain why the long-run aggregate supply curve is vertical.
Page 16
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Chapter 15: Fiscal Policy
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133 Verified Questions
133 Flashcards
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Sample Questions
Q1) Briefly explain how a change in the personal income tax rate affects aggregate demand.
Q2) In the United States, the use of fiscal policy tools to stabilize the economy gained prominence during
A) the depression era.
B) the Kennedy administration.
C) the Reagan administration.
D) the Clinton administration.
Q3) The time it takes to formulate a policy is known as A) fiscal policy.
B) crowding out.
C) inside lags.
D) outside lags.
Q4) Why are transfer payments not included in GDP?
A) The amount is too low to have any effect.
B) Unemployment varies and can't be tracked.
C) They do not represent payments to those who contributed resources to currently produced goods or services.
D) Money companies receive from the government isn't reported.
Q5) What is meant by the term "inside lags"?
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Chapter 16: Money and the Banking System
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150 Flashcards
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Sample Questions
Q1) According to the U.S. Secret Service, approximately $2.6 billion of U.S. paper currency in circulation is counterfeit. Undetected counterfeit currency which is spent and circulated in the marketplace is an example of the counterfeit currency being used as a A) medium of exchange.
B) commodity money.
C) store of value.
D) bank reserve.
Q2) The Federal Reserve System was created by the A) U.S. Treasury.
B) President.
C) Congress.
D) Supreme Court.
Q3) The money multiplier tends to be greater when A) individuals hold less cash.
B) individuals hold more cash.
C) banks hold more excess reserves.
D) the reserve ratio increases.
Q4) Distinguish M1 from M2.
Q5) What is a commodity money system?
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Chapter 17: Monetary Policy and Inflation
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Sample Questions
Q1) To decrease the money supply using the reserve requirements, what would the Fed typically do?
A) raise the reserve requirement for banks
B) reduce the reserve requirement for banks
C) make each bank voluntarily set its own reserve levels
D) let each bank get less currency from the Treasury
Q2) If the Federal Reserve conducts an open market purchase, the
A) interest rate will not change.
B) interest rate will increase.
C) interest rate will decrease.
D) money supply is decreased.
Q3) At higher interest rates the
A) money supply is higher.
B) money supply is indeterminate.
C) quantity of money demanded is higher.
D) quantity of money demanded is lower.
Q4) What is the "good news" and the "bad news" about a higher value of the U.S. dollar?
Q5) Explain the three different types of money demand.
Q6) How would the Fed's changing the discount rate affect the money supply?
Page 19
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Chapter 18: International Trade and Finance
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210 Flashcards
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Sample Questions
Q1) A country undertakes a revaluation in order to A) increase its net exports.
B) decrease its net exports.
C) lower the value at which its currency is pegged.
D) move to a flexible exchange rate system.
Q2) A comparative advantage is the ability of one person or nation to produce a good at an opportunity cost that is lower than that of another person or nation.
A)True
B)False
Q3) From the perspective of consumers, a quota is preferred to a tariff.
A)True
B)False
Q4) Distinguish between fixed and flexible exchange rate systems.
Q5) A rich nation will trade with a poor nation because the
A) rich nation has the absolute advantage in producing all products.
B) poor nation has the absolute advantage in producing all products.
C) poor nation has the comparative advantage in producing a product.
D) rich nation has the comparative advantage in producing all products.
Q6) What is a tariff?
Q7) What is a voluntary export restraint (VER)?
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