Economics for Business Analytics
Exam Materials
Course Introduction
Economics for Business Analytics explores the foundational principles of microeconomics and macroeconomics as they relate to data-driven business decision-making. The course introduces core economic concepts such as supply and demand, market structures, pricing strategies, and consumer behavior, emphasizing how these principles can be informed and enhanced by analytical techniques. Students learn how to integrate economic theory with analytical tools to interpret data, forecast trends, and optimize business strategies. Real-world case studies and practical exercises demonstrate the use of economic models in solving complex business problems, enabling students to make more effective and evidence-based decisions in a competitive marketplace.
Recommended Textbook
Microeconomics Theory and Applications with Calculus 3rd Edition by Jeffrey M. Perloff
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Chapter 1: Introduction
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Q1) Which of the following is an example of a normative statement?
A) Since this good is bad for you, you should not consume it.
B) This good has bad health effects.
C) If you consume this good, you will get sick.
D) People usually get sick after consuming this good.
Answer: A
Q2) Society faces trade-offs because of
A) government regulations.
B) greedy corporations.
C) faceless bureaucrats.
D) scarcity.
Answer: D
Q3) Microeconomics can be used by governments to predict the impacts of a policy and suggest solutions to problems.
A)True
B)False
Answer: True
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Chapter 2: Supply and Demand
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Q1) Suppose the demand curve for movie tickets has unitary price elasticity and the supply curve is perfectly price elastic.If 3 million tickets are currently sold at a price of $5,approximately how much tax revenue could the government generate from a $1 specific tax?
A) $18 million
B) $3 million
C) $2.5 million
D) $1.5 million
Answer: C
Q2) An increase in consumer incomes will lead to
A) a rightward shift of the demand curve for plasma TVs.
B) a movement upward along the demand curve for plasma TVs.
C) a rightward shift of the supply curve for plasma TVs.
D) no change of the demand curve for plasma TVs.
Answer: A
Q3) The quantity of a good that consumers demand depends only on the price of the good.
A)True
B)False
Answer: False
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Chapter 3: A Consumers Constrained Choice
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Q1) Joe subscribes to an Internet provider that charges $2 per hour.Draw his budget line for Internet access on the horizontal axis and money spent on all other goods on the vertical axis assuming he has $100 per month to spend.Another company offers unlimited Internet access for a flat monthly fee of $20.Draw this budget line.
Answer: 11ea57b3_0cef_6771_ace2_c1611ee3ae00_TB5321_00
Q2) Suppose Charley only purchases boardgames (B)and haircuts (H)with his income.If the price of boardgames increases by 100% while the price of haircuts increases by 300%,how will the MRT change (consider the budget constraint drawn on a graph with boardgames on the horizontal axis)?
Answer: Before the price change,the MRT = -pB/pH.After the price change,the MRT' = -(2)pB/(4)pH = MRT/2.The MRT is half.
Q3) An increase in a consumer's income will increase the Marginal Rate of Transformation.
A)True
B)False
Answer: False
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Chapter 4: Demand
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Q1) Louie purchases the same quantity of Bones even after the price of bones rises.Draw Louie's price-consumption curve and demand curve (two separate graphs!)based on this information.Discuss directions and magnitudes of the income and substitution effects (or graph them clearly).Are Bones normal or inferior for Louie? Explain.
Q2) The above figure shows Bobby's indifference map for juice and snacks.Also shown are three budget lines resulting from different prices for snacks assuming he has $20 to spend on these goods.Which of the following points are on Bobby's demand curve for snacks?
A) p = 2, q = 10
B) p = 2, q = 13
C) p = 2, q = 5
D) p = 1, q = 20
Q3) Under which of the following conditions will there be no substitution bias in the CPI?
A) Indifference curves are convex.
B) Indifference curves are L-shaped.
C) Indifference curves are linear.
D) Indifference curves are downward sloping.
Q4) Why can't all goods be inferior?
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Chapter 5: Consumer Welfare and Policy Analysis
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Q1) Mary purchased a stuffed animal toy for $5.After a few weeks,someone offered her $100 for the toy.Mary refused.One can conclude that Mary's consumer surplus from the toy is
A) less than $5.
B) at least $95.
C) at least $100.
D) $105.
Q2) Consumers who are more sensitive to changes in price suffer a greater loss of consumer surplus from any given price increase.
A)True
B)False
Q3) A study of the benefits of television asked consumers two questions: (1)How much would you pay to watch TV (versus no TV watching),and (2)How much would you have to be paid to voluntarily stop watching TV.Show how these are found with two separate graphs of indifference curves and budget constraints.Are these values likely to be equal? Discuss briefly.
Q4) Ted's uncompensated demand function for bacon is given by Q = 15/p.What is Ted's change in consumer surplus when the price of bacon rises from p = 3 to p = 5?
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Page 7
Chapter 6: Firms and Production
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Sample Questions
Q1) The above figure shows the isoquants for the production of steel.In which regions of production are there increasing,decreasing,and constant returns to scale?
Q2) An organization that converts inputs (like Labor,Capital etc.)into output is called a A) firm.
B) sole proprietorship.
C) corporation.
D) All of the above.
Q3) Find the Marginal Rate of Technical Substitution for the following production functions:
a.q = L . K .
b.q = L . + K .
c.q = min{K,L}
d.q = L + K
Q4) Consider the following short-run production function: q = 5L² - 1/3 L³.At what level of L do diminishing marginal returns begin? At what level of L do diminishing returns begin?
Q5) Explain why labor might not always be a variable input.
Q6) When do we mean by efficient production?
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Page 8
Chapter 7: Costs
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Q1) Many universities have either a top football program OR a top basketball program.Very few have both.These results suggest the presence of
A) economies of scope.
B) diseconomies of scope.
C) returns to scale.
D) the law of diminishing marginal returns.
Q2) After employing her last laborer,Rachel notices that her Average Product has decreased.True or False: Her marginal cost is greater than her average variable cost.
A)True
B)False
Q3) A specific tax of $1 per unit of output will affect a firm's
A) average total cost, average variable cost, average fixed cost, and marginal cost.
B) average total cost, average variable cost, and average fixed cost.
C) average total cost, average variable cost, and marginal cost.
D) marginal cost only.
Q4) Explain how a firm can have constant returns to scale in production and economies of scale in cost.
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Chapter 8: Competitive Firms and Markets
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Sample Questions
Q1) Explain why shutting down and going out-of-business are different concepts.
Q2) Suppose that for each firm in the competitive market for potatoes,long-run average cost is minimized at 20¢ per pound when 500 pounds are grown.The demand for potatoes is Q = 10,000/p.If the long-run supply curve is horizontal,then how many firms will this industry sustain in the long run?
A) 0
B) 100
C) 50,000
D) There is not enough information to answer.
Q3) If a competitive firm maximizes short-run profits by producing some quantity of output,which of the following must be true at that level of output?
A) p = MC.
B) MR = MC.
C) p AVC.
D) All of the above.
Q4) Draw a graph that shows how the short-run shut-down price changes when an input price increases.
Q5) Suppose there are 1000 identical wheat farmers.For each,TC = 10 + q².Derive the market supply curve.
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Chapter 9: Properties and Applications of the Competitive Model
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Q1) Competitive firms earn zero profit in the long run when A) entry is completely free.
B) entry is limited.
C) Both A and B.
D) Neither A or B.
Q2) The welfare loss of a tariff equals that of a import quota that leads to the same level of imports.
A)True
B)False
Q3) The above figure shows the market for rice in Japan.SD m st c represents the domestic supply curve,and Sw ld represents the world supply curve.If a $1 tariff is imposed on imported rice,the change in consumer surplus is
A) c + d.
B) c + d +g.
C) a + b + c + d.
D) f + g.
Q4) The inverse supply curve in a market is given by Q = 3p².What is the producer surplus when the market price is $6? Illustrate using a graph.
Q5) When is the profit a firm earns equal to the producer surplus? Explain.
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Chapter 10: General Equilibrium and Economic Welfare
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Q1) A general-equilibrium analysis of the impact of a tax on the peanut butter market would include an investigation of the impacts in
A) the television market.
B) the coffee market.
C) the salsa market.
D) the jelly market.
Q2) At a given point in time,the Rawlsian welfare function gives equal weight to each individual's utility.
A)True
B)False
Q3) The above figure depicts the Edgeworth box for two individuals,Al and Bruce.If the endowment is at point a and trade is possible,which of the following points are possible equilibria?
A) a and b
B) a and c
C) b and d
D) c and d
Q4) Can consumption efficiency be achieved even if the efficient product mix is not achieved?
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Chapter 11: Monopoly and Monopsony
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Sample Questions
Q1) A dominant-firm's residual demand curve is
A) the horizontal difference between the market demand curve and the supply curve of the fringe firms.
B) the vertical difference between the market demand curve and the supply curve of the fringe firms.
C) the demand curve left for the fringe firms after the dominant firm has determined an output level.
D) None of the above.
Q2) A monopoly sets a price of $50 per unit for an item that has a marginal cost of $10.Assuming profit maximization,the implicit demand elasticity is A) -0.2.
B) -0.8.
C) -1.25.
D) -5.0.
Q3) For a monopoly,marginal revenue is less than price because A) the demand for the firm's output is downward sloping.
B) the firm has no supply curve.
C) the firm can sell all of its output at any price.
D) the demand for the firm's output is perfectly elastic.
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Page 13
Chapter 12: Pricing and Advertising
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Sample Questions
Q1) Which of the following is NOT an example of firms trying to prevent resale?
A) Movie theatres check student ID for students' discounted tickets.
B) An aluminum company starts its own wire production firm to sell to the aircraft parts at a higher price.
C) Government limits the sale of international edition textbooks in the U.S. market.
D) Milk producers sell the milk to processed dairy products producers at a lower price.
Q2) An electric utility is going to use a block-pricing schedule.They plan to charge P for the first Q units and P for the subsequent units.The units sold at P are the total units sold,Q ,minus the total units sold at P .The inverse demand curve is P = $100 - Q,and the marginal and average cost is $40.Use calculus to solve for P ,P ,Q ,Q .
Q3) Charging a higher price for a motel room to customers with dogs or cats than to customers with no pets is most likely an example of
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) actual cost differences.
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Chapter 13: Game Theory
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Q1) All Nash equilibria consist of Dominant Strategies
A)True
B)False
Q2) The above figure shows the payoff to two airlines,A and B,of serving a particular route.If the two airlines must decide simultaneously,which one of the following statements is true?
A) Only firm A will enter the market.
B) Only firm B will enter the market.
C) Neither firm entering is a Nash equilibrium.
D) The outcome of the game is unpredictable.
Q3) The above figure shows the payoff matrix for two firms,A and B,choosing to produce a basic computer or an advanced computer.Now the payoff of the firm who produces a basic computer falls to 10 if the other firm chooses to produce an advanced computer.Then the joint profits
A) will be maximized at a Nash equilibrium.
B) will be maximized when both firms take different actions.
C) will be maximized when both firms choose to produce advanced computers.
D) will be maximized when both firms choose to produce basic computers.
Q4) How can a firm be made better off by limiting its options?
Q5) Why is collusion more likely in a repeated game?
Page 15
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Chapter 14: Oligopoly and Monopolistic Competition
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Q1) If only two identical firms operate in a market,consumers prefer
A) a Cournot equilibrium.
B) a Stackelberg equilibrium.
C) a collusive equilibrium.
D) any equilibrium, since they all result in the same consumer surplus.
Q2) One criticism of the Bertrand pricing model is that
A) the model is implausible when there is product differentiation.
B) when there is an oligopoly with no product differentiation, the model's prediction is inconsistent with reality.
C) the model's predicted price is solely a function of demand conditions.
D) the model's predicted price is dependent on the number of firms.
Q3) Incumbents are unaffected by fixed costs of entry while potential entrants are affected by them because
A) for potential entrants the cost is avoidable, while for the incumbent, it is not.
B) fixed costs will be greater for the potential entrant than for the incumbent.
C) fixed costs are zero for the incumbent.
D) incumbents will act to prevent entry at all costs.
Q4) What happens in a duopoly if both firms try to act as the Stackelberg leader?
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Chapter 15: Factor Markets
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Q1) Suppose two people with the same level of income and wealth have different discount rates.Joe has a very high discount rate and Jim has a very low discount rate.Which one of the following is TRUE?
A) Joe is more likely to borrow than Jim.
B) Joe is less likely to borrow than Jim.
C) Joe and Jim will borrow the same amount.
D) Neither Joe nor Jim would be borrowers.
Q2) Why does a monopsonist's marginal expenditure curve lie above the labor supply curve?
Q3) If the labor market is competitive,a monopoly output market will result in
A) a lower wage than that of a competitive output market.
B) a higher wage than that of a competitive output market.
C) less labor hired than in a competitive output market.
D) more labor hired than in a competitive output market.
Q4) The real internal rate of return on a college education is about
A) 0%.
B) 2.5%.
C) 6.9%.
D) 15%.
Q5) Why is the short-run demand curve for labor downward sloping?
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Chapter 16: Uncertainty
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Sample Questions
Q1) Sarah buys little stuffed animals for $5 each.They come in different varieties.If the producer stops making (retires)a certain variety,a stuffed animal of that variety will be worth $100; otherwise it is worth $0.There is 50% chance that any variety will be retired.What is the value to Sarah of knowing ahead of time whether a variety will be retired?
A) $50
B) $5
C) $2.50
D) $0
Q2) If there are 10,000 people in your age bracket,and 10 of them died last year,an insurance company believes that the probability of someone in that age bracket dying this year would be
A) 0.
B) .001.
C) .0001.
D) 1,000.
Q3) For the utility function U = W ,what values of "a" correspond to being risk averse,risk neutral,and risk loving?
Q4) Explain why insurance companies usually do not offer earthquake insurance.
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Chapter 17: Property Rights, externalities, rivalry, and Exclusion
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Sample Questions
Q1) The above figure shows the market for steel ingots.What is the change in consumer surplus if the market switches from competitive equilibrium to social optimum?
A) $625
B) $1250
C) $1875
D) $2500
Q2) If a market is subject to a positive externality,
A) the demand curve reflecting social benefit will be to the right of the demand curve representing private benefit.
B) there is only one demand curve.
C) the demand curve reflecting social benefit will be to the left of the demand curve representing private benefit.
D) private benefit will exceed social benefit.
Q3) To alleviate the commons problem,the government can
A) apply a tax.
B) set a quota.
C) assign property rights.
D) All of the above.
Q4) Explain why the optimal amount of pollution is often not zero.
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Chapter 18: Asymmetric Information
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Q1) Explain what may occur when a buyer and a seller have unequal amounts of limited information.Describe two different types of problems that may arise when asymmetric information exists.
Q2) If consumers have limited information about price and search costs exist,then
A) the result must be that all firms will charge the same price.
B) the monopoly price must result.
C) the full-information, competitive price is not an equilibrium.
D) the difference in prices between firms will be greater than the search cost.
Q3) Government mandated safety standard within firms
A) will always decrease efficiency.
B) can increase efficiency by avoiding a prisoner's dilemma outcome.
C) are unnecessary because of asymmetric information.
D) will create unfair competition among firms.
Q4) In the tourist-trap model,a consumer might pay more than marginal cost for a good sold in a competitive market if the cost of possibly finding the good cheaper is more than the markup over marginal cost.
A)True
B)False
Q5) How can a warranty at the seller's expense signal that a product is of high quality?
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Chapter 19: Contracts and Moral Hazards
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Q1) Jacko's rock band is putting out a new CD with its music label.The contract between the band and the label specifies that the band receive 25% of the gross revenues plus another $10,000 up front.The record label projects the demand for the album p = 50 - 0.003Q where p is the price per CD (in $)and Q is the number of CDs demanded.The cost (not including the band's salary)of producing the CD is constant at $5 per disc.
a.Compute the joint-profit-maximizing price and quantity.
b.Compute the profit maximizing price that the label will wish to set.
c.What price will Jacko want his band's CD sold for (assume he only cares about money earned from the CDs).
Q2) In the presence of asymmetric information,
A) all contracts are efficient.
B) efficiency in risk bearing cannot be achieved.
C) a trade-off exists between risk-bearing efficiency and production efficiency.
D) no contracting will take place.
Q3) When does it make sense to offer a worker a piece-rate contract?
Q4) Explain how more than one possible state of nature affects contract choices.
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