Economics for Business Decisions
Final Test Solutions
Course Introduction
Economics for Business Decisions introduces students to the fundamental principles of microeconomics and macroeconomics with a focus on their application to real-world business scenarios. The course covers essential topics such as supply and demand, market structures, production and cost analysis, pricing strategies, and the impact of government policies on business environments. Students will develop analytical skills to interpret economic data, assess market dynamics, and make informed decisions that enhance organizational performance. Through case studies and practical examples, the course emphasizes the integration of economic theory with business strategy, equipping students with the tools necessary to navigate complex economic challenges and contribute to effective decision-making within their organizations.
Recommended Textbook
Microeconomics Principles and Applications 6th Edition by Robert E. Hall
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18 Chapters
2377 Verified Questions
2377 Flashcards
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Page 2
Chapter 1: What Is Economics
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178 Verified Questions
178 Flashcards
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Sample Questions
Q1) How retail gasoline stations behave in a local market is an example of a macroeconomic issue.
A)True
B)False
Answer: False
Q2) The study of economics would be superfluous if __________ did not exist.
A)demand
B)capital
C)corporations
D)profit
E)scarcity
Answer: E
Q3) Positive economics deals with A)value judgments
B)how the economy does work
C)how the economy should work
D)how the federal government should operate
E)what the price level should be
Answer: B
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Page 3
Chapter 2: Scarcity, choice, and Economic Systems
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146 Flashcards
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Sample Questions
Q1) If China has an absolute advantage over Canada in producing both rice and tires,then
A)China should produce both rice and tire and Canada should produce both rice and tires
B)there are no benefits possible to China from specialization
C)Canada should produce tires and China should produce rice
D)China should produce tires and Canada should produce rice
E)more information is needed to tell whether China or Canada should specialize
Answer: E
Q2) Figure 2-5 shows five different points along the production possibilities frontier for a country that produces rockets and cruise ships.If the country is currently operating at point C and decided to move to point B,
A)the opportunity cost would be four rockets
B)it could not do so,given the current state of technology and quantity of resources
C)the country would have to forego producing six cruise ships
D)the opportunity cost would be four cruise ships
E)the opportunity cost would be six rockets
Answer: D
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Chapter 3: Supply and Demand
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184 Flashcards
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Sample Questions
Q1) A decrease in equilibrium price and an increase in equilibrium quantity could be brought about by a(n)
A)increase in demand
B)decrease in demand
C)increase in resource prices
D)improvement in production technology
E)favorable shift in tastes and preferences
Answer: D
Q2) Since producers must be compensated for the rising opportunity cost that accompanies increases in output,
A)the law of demand applies to most markets
B)supply curves usually slope downward
C)demand curves usually slope downward
D)supply curves usually slope upward
E)technical inefficiency would not exist in the long run
Answer: D
Q3) Both the supply and demand curves can shift due to changes in income.
A)True
B)False
Answer: False
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Chapter 4: Working With Supply and Demand
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58 Flashcards
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Sample Questions
Q1) If an excise tax is imposed on shoes,
A)government tax revenue will fall
B)the market price of shoes will decrease
C)the supply curve will shift downward
D)the equilibrium quantity demanded will decrease
E)the equilibrium quantity supplied will increase
Q2) Figure 4-1 shows the supply and demand for socks.If a price floor of $10 per pair is imposed by the government
A)there will be a shortage of 14 pairs of socks
B)there will be a shortage of 10 pairs of socks
C)there will be neither a shortage nor a surplus of socks
D)there will be a surplus of 6 pairs of socks
E)there will be a surplus of 14 pairs of socks
Q3) A price floor on corn would have the effect of
A)creating a surplus regardless of the level at which the price floor is set
B)creating a surplus supply when the floor is above the equilibrium price
C)creating a shortage when the price floor is set below the equilibrium price
D)creating a shortage regardless of where the price floor is set
E)ensuring a more equitable distribution of the good among consumers
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Page 6
Chapter 5: Elasticity
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150 Flashcards
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Sample Questions
Q1) Which of the following goods is likely to have the most elastic demand over the relevant range of prices?
A)insulin
B)eggs
C)milk
D)Pepsi Cola
E)gasoline
Q2) The slope of the demand curve and the price elasticity of demand are
A)basically the same thing
B)determined by supply
C)are derived from production and distribution costs
D)different because slope is based on absolute changes and elasticity is based on percentage changes
E)implicit in the shape of the supply curve
Q3) Along a perfectly elastic supply curve
A)the quantity supplied is always the same
B)the price elasticity of demand is always the same
C)the price is always the same
D)the cross-price elasticity of demand is always the same
E)the elasticity of supply is different at each point.
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Chapter 6: Consumer Choice
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) Alice has spent all of her income on ten different goods,and knows that the marginal utilities per dollar spent on the ten goods are equal.Which of the following statements is correct?
A)She could possibly increase her total utility by redistributing her income among the ten items.
B)She has violated the assumption of rationality.
C)The law of diminishing marginal utility does not apply to her.
D)Any reallocation of income among the ten items will reduce her total utility.
E)She must be at a point inside of her budget line.
Q2) Economists usually assume
A)that Americans' preferences are systematically different from Europeans
B)that there are some features common to the preferences of a wide variety of people
C)that everyone has the same preferences
D)that everyone has the same preferences that they (the economists)do
E)that individuals prefer to purchases goods rather than services
Q3) The ratio of the prices of two goods multiplied by -1 is equal to the slope of the budget line.
A)True
B)False
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Page 8
Chapter 7: Production and Cost
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) The change in cost resulting from producing one additional unit of output is
A)average total cost
B)total variable cost
C)average variable cost
D)marginal cost
E)total cost
Q2) If a firm is experiencing diminishing marginal returns to labor,then
A)total output must be decreasing
B)total output rises more slowly as additional workers are added
C)the firm must decrease the amount of labor it hires
D)total output per worker must be rising
E)the firm must be operating in the long run
Q3) Long-run average total cost must always be
A)rising
B)declining
C)greater than or equal to the marginal unit of variable cost
D)greater than or equal to the short run average total cost
E)less than or equal to short-run average total cost
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Chapter 8: How Firms Make Decisions: Profit Maximization
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) If a firm faces a downward-sloping demand curve,its marginal revenue is
A)less than its marginal cost
B)greater than price
C)less than price
D)equal to price
E)equal to its total revenue
Q2) Myron worked at a factory where he earned $20,000 per year.One day,he quit his job and opened a bumper sticker business.After one year,his business earned $60,000 in sales revenue and he incurred $30,000 in direct business expenses.If he received no salary from the new business,what is his economic profit?
A)$10,000
B)$30,000
C)$60,000
D)$20,000
E)$50,000
Q3) Every firm is constrained by the demand curve for the product it produces.
A)True
B)False
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Chapter 9: Perfect Competition
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250 Verified Questions
250 Flashcards
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Sample Questions
Q1) When the average total cost curves for firms are unaffected by the entry of other firms,
A)it is an increasing-cost industry
B)it is a decreasing-cost industry
C)the market's equilibrium price will eventually be restored after the market demand increases
D)firms will charge a higher price when demand rises
E)the long-run supply curve is positively sloped
Q2) In perfect competition,no individual producer can significantly affect the market price because
A)the market is regulated by the government
B)each producer is ignorant of the market price
C)each producer provides a very small portion of the total market supply
D)strictly enforced collusion prevents any producer from acting independently
E)each firm's product is so different that there is no market price
Q3) Figure 9-16 shows that the profit-maximizing output level is A)0. B)25.
C)75. D)200.
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Chapter 10: B:Perfect Competition
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5 Flashcards
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Sample Questions
Q1) Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.
A)True
B)False
Q2) Which of the following is not a characteristic of a perfectly competitive market
A)buyers and sellers are well informed about the market
B)standardized product
C)many buyers and few sellers
D)easy exit out of the industry
E)easy entry into the industry
Q3) In perfect competition,technological advances will allow economic profits for A)all firms.
B)only the firm developing the new technology.
C)early adopters.
D)none of the firms,as the advance will be immediately adopted by all of them.
Q4) In a perfectly competitive market,a technological advance allows all firms to earn higher economic profits in the long run.
A)True
B)False
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Chapter 11: Monopolistic Competition and Oligopoly
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192 Flashcards
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Sample Questions
Q1) Which of the following best describes real-world U.S.markets?
A)In most markets,the firms face steep demand curves for their output.
B)They combine characteristics of monopolistic competition,oligopoly,and monopoly.
C)Effective competition exists in only about 25 percent of those markets.
D)The dominant share of U.S.manufacturing output is produced by firms with the power to vary their prices over a wide range.
E)Perfect competition is useful as a model for very few U.S.markets.
Q2) Which of the following would make cheating on a collusive agreement more likely?
A)greater ease of observing other firms' prices
B)a reduction in the number of sellers in the market
C)close monitoring by the Department of Justice
D)more frequent shifts in market demand
E)an increase in the number of customers in the market
Q3) New technologies may reduce oligopoly power by
A)increasing the minimum efficient scale
B)raising barriers to entry
C)raising prices and lowering output
D)reducing barriers to entry
E)reducing the choices available to consumers in the market
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Page 13
Chapter 11: Monopoly
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214 Flashcards
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Sample Questions
Q1) Figure 10-11 shows a single-price monopolist.The maximum level of profit that could be achieved is
A)-$20
B)$20
C)$300
D)$280
E)$40
Q2) Which of the following is a legal entry barrier established by government?
A)Patents.
B)Copyrights.
C)Government franchises.
D)All of the above.
Q3) The change in total revenue obtained by selling an additional unit of output is A)average revenue
B)business revenue
C)marginal revenue
D)overhead revenue
E)profit margin
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Chapter 12: Labor Markets
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97 Verified Questions
97 Flashcards
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Sample Questions
Q1) A firm's labor demand curve is derived from the supply of the goods and services it produces.
A)True
B)False
Q2) In a perfectly competitive labor market,the supply of labor curve facing a firm will be
A)horizontal
B)vertical
C)upward sloping
D)downward sloping
E)equal to its marginal revenue product curve
Q3) A firm's labor demand curve is derived from the demand for the goods and services it produces.
A)True
B)False
Q4) A change in the wage rate causes a firm's labor demand curve to shift.
A)True
B)False
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Chapter 13: B: Labor Markets
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86 Flashcards
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Sample Questions
Q1) Discrimination occurs when a group of people have different opportunities because of characteristics that have nothing to do with their individual abilities.
A)True
B)False
Q2) The more dangerous of two jobs currently pays $3 more per hour.The jobs are equivalent in all other respects.If labor is migrating from the higher-risk job to the lower-risk job,then
A)the equilibrium compensating wage differential is less than $3 per hour
B)the wage rate will drop for the more dangerous job
C)the wage rate will rise for the less dangerous job
D)the equilibrium compensating wage differential is greater than $3 per hour
E)equilibrium is unattainable in the two labor markets
Q3) Even if employers are not prejudiced,employee or customer discrimination will tend to be reinforced by market forces and may lead to permanent wage differences between the favored and unfavored groups.
A)True
B)False
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16
Chapter 14: Capital and Financial Markets
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114 Flashcards
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Sample Questions
Q1) The amount of money that someone would pay today for the right to receive a future payment is called
A)the present value of the future payment
B)the determinate value of the future payment
C)the interest rate
D)the principal
E)the time discount
Q2) You are thinking of buying a newly issued,5-year bond that has a face value of $10,000 and offers no annual coupon payments.What is the most you should pay for this bond,if the interest rate is 5 percent (0.05)per year?
A)$5,000.00
B)$6,139.13
C)$7,835.26
D)$10,000.00
E)$43,294.77
Q3) The supply curve for a particular bond is horizontal.
A)True
B)False
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Chapter 15: Economic Efficiency and the Competitive Ideal
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80 Verified Questions
80 Flashcards
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Sample Questions
Q1) If a perfectly competitive market is in equilibrium and then market demand increases,which of the following would happen?
A)producer surplus would definitely increase and consumer surplus may increase or decrease
B)producer surplus would definitely decrease and consumer surplus may increase or decrease
C)consumer surplus would definitely decrease and producer surplus may increase or decrease
D)consumer surplus would definitely increase and producer surplus may increase or decrease
E)producer and consumer surplus would remain unchanged
Q2) A mutually advantageous trade leads a Pareto improvement.
A)True
B)False
Q3) Taking money from a wealthy individual in order to feed a destitute family would be a Pareto improvement.
A)True
B)False
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Chapter 16: Governments Role in Economic Efficiency
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115 Flashcards
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Sample Questions
Q1) A good is nonexcludable if the benefits derived from consuming it cannot be easily denied to those who do not purchase it.
A)True
B)False
Q2) A contract
A)is an example of a side payment
B)eliminates the possibility of simultaneous exchange
C)is worthless unless it refers to a perfectly competitive market
D)often requires one party to do something first,and the other party to do something later
E)can be enforced through the application of criminal law
Q3) Because of the free rider problem
A)side payments are necessary in order to achieve an efficient outcome
B)a needed side payment can shrink until it is not large enough to compensate losers and still leave gainers better off
C)efficient outcomes can never be achieved
D)the Coase Theory often applies to real-world situations
E)externalities are less common than they would otherwise be
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19
Chapter 17: Comparative Advantage and the Gains From International Trade
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) If Country A can produce a good at a lower opportunity cost than Country B can, A)there are benefits from trade
B)Country A has an absolute advantage in producing the good C)economic efficiency has been achieved
D)Country A does not have a comparative advantage in producing the good
E)Country A can sell the good for a higher price abroad
Q2) In Figure 16-3,if Costa Rica and Panama have identical resources,then Panama has a(n)
A)absolute advantage only in producing bicycles
B)comparative advantage in producing both bicycles and rugs
C)absolute advantage only in producing rugs
D)comparative advantage only in producing rugs
E)absolute advantage in producing both rugs and bicycles
Q3) Both tariffs and quotas
A)benefit domestic consumers by lowering prices
B)benefit domestic consumers by expanding consumption choices
C)are illegal in the United States
D)benefit domestic producers
E)are policy tools that help bring about free trade
Page 20
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