Economics and Management Exam
Bank
Course Introduction
Economics and Management is an interdisciplinary course that explores the fundamental principles of both economics and business management. Students are introduced to core concepts such as supply and demand, market structures, firm behavior, and macroeconomic policy, alongside essential management topics including organizational behavior, strategy, marketing, finance, and operations. The course emphasizes the application of economic reasoning to real-world business challenges and managerial decision-making, equipping students with analytical, strategic, and leadership skills necessary for success in a variety of professional environments. Through case studies, theoretical frameworks, and practical exercises, students gain a comprehensive understanding of how economic forces shape business practices and how effective management can lead to organizational success.
Recommended Textbook Economics for Managers Global Edition 3rd Edition by Paul G. Farnham
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Page 2
Chapter 1: Managers and Economics
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Sample Questions
Q1) Which of the following market structures is most similar to perfect competition?
A)Monopsony.
B)Monopolistic competition.
C)Oligopoly.
D)Monopoly.
Answer: B
Q2) Because it has a direct effect on the hiring decisions of firms,a change in business confidence has a much larger impact on the level of economic activity than does a change in consumer confidence.
A)True
B)False
Answer: False
Q3) Within the circular flow model,which of the following is not represented as a flow of funds into firms?
A)Foreign purchases of goods and services.
B)Income payments.
C)Consumption spending.
D)Government purchases.
Answer: B
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Page 3
Chapter 2: Demand, supply, and Equilibrium Prices
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Sample Questions
Q1) File-sharing programs such as Napster,Kazaa,and iMesh make it possible for individuals to exchange music files over the Internet.All else constant,which of the following statements best describes how the development of these programs has affected the retail market for new music CDs?
A)Demand for CDs has decreased, causing equilibrium price and quantity to decrease.
B)Demand for CDs has increased, causing equilibrium price and quantity to increase.
C)Demand for CDs has decreased, causing equilibrium price to decrease and equilibrium quantity to increase.
D)Demand for CDs has increased, causing equilibrium price to increase and equilibrium quantity to decrease.
Answer: A
Q2) "Demand" refers to the relationship between the price of a good and the quantity consumers are willing and able to buy at each price.
A)True
B)False
Answer: True
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Chapter 3: Demand Elasticities
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Sample Questions
Q1) Observations of consumer behavior suggest that when the price of gasoline rose above $3.50 per gallon,consumer demand for gas became considerably more price elastic.
A)True
B)False
Answer: True
Q2) Calculate the arc price elasticity of demand for wheat in the two situations below: The Wheat Market Farmer Brown's Wheat Old price; $3.40/bu Old price; $3.40/bu
Old quantity; 2.5 billion bu Old quantity; 28,000 bu New price; $3.20/bu New price; $3.20/bu
New quantity; 2.525 billion bu New quantity; 35,000 bu
Can you account for the difference in elasticities?
Answer: Elasticity of demand for wheat in the wheat market = 0.164.Elasticity of demand for Farmer Brown's wheat = 3.67.Demand for wheat in general is relatively price inelastic since it is a necessity in many production processes,for example,bread.Demand for Farmer Brown's wheat is much more price elastic since there is a large number of good substitutes for Farmer Brown's wheat,that is,the wheat produced by any other wheat farmer.
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Page 5
Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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Sample Questions
Q1) The estimated regression equation is Y = 10 + 2.5X,if X =0 than the predicted value of Y is equal to:
A)12.5
B)10
C)2.5
D)7.5
Q2) In which of the following situations would reliance on expert opinion as a basis for a managerial decision be most preferred?
A)When the product can be packaged with a variety of price and quality combinations.
B)When the business in question serves as a supplier of inputs to other businesses, especially in multi-product situations where other strategies may be prohibitively expensive.
C)When the level of economic activity can have a significant effect on the demand for the firm's output.
D)When the product being marketed is relatively new.
Q3) What are the effects of two independent variables that are highly correlated? What can be done to remedy the problem?
Q4) Why are estimated models of demand and consumer behavior useful to managers?
Page 6
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Chapter 5: Production and Cost Analysis in the Short Run
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Sample Questions
Q1) All else constant,an increase in productivity has the effect of causing:
A)the marginal product of labor to increase and no effect on the average product of labor.
B)the average product of labor to increase and no effect on the marginal product of labor.
C)the marginal product of labor to increase and the average product of labor to decrease.
D)both the marginal and average product of labor to increase.
Q2) For a particular production function,over the range of output where marginal product rises as units of the variable input are added to the fixed input,marginal cost will be:
A)increasing.
B)constant.
C)decreasing.
D)cannot be determined without additional information.
Q3) Marginal cost is defined as:
A)the change in total cost due to a one unit change in output.
B)total cost divided by output.
C)the change in output due to a one unit change in an input.
D)total product divided by the quantity of input.
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Chapter 6: Production and Cost Analysis in the Long Run
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Sample Questions
Q1) The list of the major factors that create economies of scale includes all of the following except:
A)specialization and division of labor.
B)quantity discounts.
C)an increase in demand for the firm's output.
D)the use of automation devices.
Q2) According to the text there appear to be very limited opportunities for input substitution in the production of pipe organs.Which of the following is the most plausible explanation for this observation?
A)Capital costs have made it too expensive to purchase more capital stock.
B)It requires a large amount of highly trained labor to produce a single pipe organ.
C)The marginal productivity of additional trained workers is zero.
D)The capital used in producing pipe organs is much more expensive than the labor inputs.
Q3) A firm is more likely to use a labor-intensive method of production when the relative amount of available labor is greater than the available amount of capital.
A)True
B)False
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8
Chapter 7: Market Structure: Perfect Competition
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Sample Questions
Q1) Explain why,when all adjustment have taken place,the perfectly competitive firm will operate at the minimum of its short-run and long-run average total cost curves and earn zero economic profit.
Q2) In order to maximize its profits,a price-taking firm should produce the level of output at which:
A)total revenue = total cost.
B)average revenue = average cost.
C)variable revenue = variable cost.
D)marginal revenue = marginal cost.
Q3) The market structure that is most different from the model of perfect competition is:
A)monopolistic competition.
B)monopsony
C)oligopoly.
D)monopoly.
Q4) Assume that at the current level of output produced by a perfectly competitive firm,MR = $7.50 and MC = $6.In order to maximize its profit,the firm should increase output.
A)True
B)False
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Chapter 8: Market Structure: Monopoly and Monopolistic Competition
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Sample Questions
Q1) Assume that for a particular firm's output price = $80,marginal cost = $30,average total cost = $25.Based on this information,the firm's Lerner Index is equal to:
A)0.313.
B)0.375.
C)0.6.
D)0.625.
Q2) Which of the following statements about barriers to entry is false?
A)They restrict entry into industries in which positive economic profits are being made.
B)They are somewhat lessened by the existence of patents.
C)They may be due to legal impediments such as licenses.
D)They may be due to a single firm controlling access to a natural resource or production process.
Q3) Price will always exceed marginal cost for the profit-maximizing monopolist,or any price-setter firm for that matter.
A)True
B)False
Q4) Explain how network externalities act as a barrier to entry.
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Chapter 9: Market Structure: Oligopoly
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Sample Questions
Q1) Because cooperation dominates noncooperation as a strategy for maximizing profits,cheating is rarely if ever an issue that cartels have to contend with.
A)True
B)False
Q2) Which of the following is not an example of a practice that facilitates "tacit collusion"?
A)Uniform prices charged by the firms in a particular industry.
B)Advance notice of price changes by one or more of the firms in an industry.
C)The use of most-favored-customer clauses.
D)The formation of a cartel.
Q3) Suppose an oligopolistic firm raises the price of its output.Demand for the firm's output will be relatively price ________ if the other dominant firms in the market
A)elastic; do not raise price
B)unit elastic; do not raise price
C)inelastic; also raise price
D)cannot be determined
Q4) What is the significance of the mutual interdependence among the firms in an oligopolistic market?
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Chapter 10: Pricing Strategies for the Firm
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Sample Questions
Q1) By and large,the price of each item on a restaurant menu is:
A)an accurate reflection of the item's marginal cost.
B)based strictly on consumer demand.
C)a function of cost and the price elasticity of demand for the item.
D)a fixed multiple of the item's total cost.
Q2) Certain vendors that market their goods via mail order have been known to send out catalogues to different regions of the country with items priced differently across regions.Assuming prices are matched to regions on a random basis,this practice would be considered an example of group pricing,or third-degree price discrimination.
A)True
B)False
Q3) Unlike markup pricing,the strategy of price discrimination is totally independent of the price elasticity of demand for the good in question.
A)True
B)False
Q4) What role does the price elasticity of demand play in markup pricing,i.e.,how does it affect the firm's ability to mark up price over marginal cost?
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Page 12
Chapter 11: Measuring Macroeconomic Activity
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Sample Questions
Q1) Monetary policy is controlled by the U.S.Congress.
A)True
B)False
Q2) In an open economy firms sell goods and services to:
A)households, government, and foreigners.
B)just households.
C)just the government.
D)none of the above.
Q3) Spending on the structures,equipment,and software that provide the industrial capacity to produce goods and services for all sectors of the economy is called:
A)inventory investment
B)business fixed investment
C)residential fixed investment
D)consumption
Q4) The producer price index focuses on price changes of domestically produced goods and includes services,construction,and imported goods.
A)True
B)False
Q5) What are some of the issues associated with the consumer price index?
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Chapter 12: Spending by Individuals, firms, and Governments on Real Goods and Services
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Q1) Stabilization of business cycle fluctuations focuses on the long run.
A)True
B)False
Q2) The currency exchange rate is the rate at which one nation's currency can be exchanged for another.
A)True
B)False
Q3) In a open economy,aggregate expenditures are the sum of personal consumption,investment,government,and net export expenditures.
A)True
B)False
Q4) You are given the following consumption function C = 50 + .80YD.What is the amount of autonomous consumption expenditures?
A)75
B)100
C)5
D)50
Q5) Briefly discuss the relationship between leakages and the size of the multiplier.
Page 14
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Chapter 13: The Role of Money in the Macro Economy
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Sample Questions
Q1) A goal of contractionary monetary policy is to:
A)decrease the rate of growth of real GDP.
B)increase the rate of growth of real GDP.
C)increase inflation.
D)none of the above.
Q2) The interest rate that commercial banks charge each other for loans of reserves to meet their minimum reserve requirements is called:
A)treasury bill rate.
B)federal funds rate.
C)prime interest rate.
D)none of the above.
Q3) The interest rate that banks charge on loans to their best customers is called the:
A)federal funds rate.
B)discount rate.
C)mortgage interest rate.
D)prime rate.
Q4) Describe the fractional reserve banking system.
Q5) Why is the money multiplier smaller than the simple deposit multiplier?
Q6) Define the three functions of money.
15
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Chapter 14: The Aggregate Model of the Macro Economy
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Sample Questions
Q1) An increase in production costs will shift the:
A)aggregate demand curve.
B)short-run aggregate supply curve.
C)long-run aggregate supply curve.
D)none of the above.
Q2) Average weekly hours in manufacturing is an example of a:
A)leading indicator.
B)coincident indicator.
C)lagging indicator.
D)none of the above.
Q3) A decrease in consumer confidence would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.
Q4) Expansionary monetary policy should be used if:
A)aggregate demand-aggregate supply equilibrium is below potential output.
B)aggregate demand-aggregate supply equilibrium is above potential output.
C)aggregate demand-aggregate supply equilibrium is equal to potential output.
D)none of the above.
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Chapter 15: International and Balance of Payments Issues in the Macro Economy
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Sample Questions
Q1) Lending abroad represents:
A)a capital outflow.
B)a capital inflow.
C)positive net savings.
D)none of the above.
Q2) An international organization created at the Bretton Woods conference in 1944 that helps coordinate international financial flows and can arrange short-term loans between countries is called the:
A)World Bank.
B)International Monetary Fund.
C)U)S. Treasury.
D)U)S. Agency for International Development.
Q3) A trade deficit means:
A)the country has positive net savings, which it lends abroad.
B)the country has negative net savings, which it lends abroad.
C)the country has positive net savings, which it borrows from abroad.
D)the country has negative net savings, which it borrows from abroad.
Q4) When it became known in 1997 that the Thai government had insufficient foreign exchange reserves to maintain the exchange rate,how did currency speculators respond? What policy did the IMF suggest?
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Chapter 16: Combining Micro and Macro Analysis for Managerial Decision Making
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Sample Questions
Q1) To cut costs in the face of declining demand and increased competition,many fast food restaurants have focused on reducing:
A)labor costs.
B)utility costs.
C)paper napkin costs.
D)none of the above.
Q2) Give some examples of oligopolistic behavior among the major fast food companies.
Q3) For much of 2001 and 2002,McDonalds faced a(n):
A)decrease in demand.
B)increase in demand.
C)increase in profits.
D)none of the above.
Q4) Briefly state several reasons for the decline in sales for McDonald's in 2001-2002.
Q5) The quoted in the textbook study of consumer behavior at Starbucks company stores demonstrated that including calorie count on menus had no impact on consumer behavior.
A)True B)False
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