Economics for Business
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Course Introduction
Economics for Business provides students with a foundational understanding of economic principles and their practical application to real-world business decisions. The course covers essential microeconomic concepts such as supply and demand, market structures, and pricing strategies, as well as macroeconomic factors like inflation, unemployment, and fiscal policy. By analyzing case studies and current events, students learn how economic theories inform managerial choices, resource allocation, and strategic planning within organizations. This course equips future business professionals with the analytical tools needed to interpret market trends, assess economic risks, and make informed decisions in a dynamic global marketplace.
Recommended Textbook
Microeconomics 1st Canadian Edition by B. Douglas Bernheim
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Chapter 1: Introduction
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Q1) Which of the following topics is NOT studied using microeconomics?
A) Ford's decision to introduce a new car model
B) An individual's decision to get married
C) A person's decision whether or not to commit a crime
D) The rate at which an economy can grow
Answer: D
Q2) According to the text,which of the following best describes the process the FCC used to allocate spectrum licenses to telecommunications providers?
A) Licenses were auctioned one at a time, to the highest bidder
B) Licenses were sold to telecommunications providers that already had contracts with the government
C) All licenses were auctioned of at the same time
D) The government charged the same price for each license
Answer: C
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Chapter 2: Supply and Demand3
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Q1) Two products are complements if
A) A decrease in the price of one causes buyers to demand less of the other
B) An increase in the price of one causes buyers to demand more of the other
C) A decrease in the price of one causes buyers to demand more of the other
D) Individuals consume the goods together
Answer: C
Q2) The effect of an increase in the price of gasoline on the demand for sport utility vehicles would be shown by a
A) Rightward shift of the demand curve for sport utility vehicles
B) Leftward shift of the demand curve for sport utility vehicles
C) Movement up and to the left along the demand curve for sport utility vehicles
D) Movement down and to the right along the demand curve for sport utility vehicles
Answer: B
Q3) Demand is said to be perfectly inelastic when
A) The demand curve is horizontal
B) The elasticity of demand is infinite
C) The elasticity of demand is zero
D) Consumers are highly responsive to change in the price of a good
Answer: C
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Chapter 3: Balancing Benefits and Costs
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Q1) A decision maker can always make the best choice by
A) Including sunk costs as part of marginal costs
B) Including sunk costs as part of total costs
C) Ignoring sunk costs
D) Subtracting sunk costs from total benefits
Answer: C
Q2) Refer to Table 3.2,which shows some costs and benefits of having your car repaired.Suppose you use your car to deliver pizzas,for which you earn $10 per hour.If your mechanic lowers the amount she charges by $50,what happens to your best choice of hours to spend on car repairs?
A) It increases by 1 hour
B) It decreases by 1 hour
C) It doesn't change
D) It decreases by 2 hours
Answer: C
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Chapter 4: Principles and Preferences
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Q1) Homer and Marge both enjoy lasagna and wine.Homer's utility function is given by U(L.W)= 12L + 4W.Marge's utility function is given by U(L,W)= 2L + 2W.In each function,L stands for plates of lasagna and W stands for glasses of wine.Would Homer and Marge agree to a trade in which Homer gives Marge a plate of lasagna in exchange for two glasses of wine?
Q2) Information about preferences is ordinal if
A) The information tells us something about the intensity of the consumer's preferences
B) The information allows us to make comparisons between the preferences of different consumers
C) The information allows us to determine only whether one alternative is better or worse than another
D) The information allows us to make comparisons between the preferences of the same consumer at different points in time
Q3) Compare and contrast cardinal utility and ordinal utility.Which concept is sufficient for ranking consumers' preferences? Why?
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Chapter 5: Constraints, Choices, and Demand
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Q1) If the income-consumption path slopes down,then
A) Both goods are inferior
B) Both goods are normal
C) One good is normal and the other good is inferior
D) We can't tell anything about whether the goods are normal or inferior
Q2) An increase in a consumer's income will cause the budget line to
A) Shift outward
B) Shift inward
C) Become steeper
D) Become flatter
Q3) Refer to Figure 5.6.Which diagram shows a decrease in income with bread being normal and soup being inferior?
A) A
B) B
C) C
D) D
Q4) Suppose that an individual consumes just hamburgers and soft drinks.Using a carefully-labeled diagram,derive the price-consumption curve that would result from a decrease in the price of hamburgers.
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Chapter 6: Rom Demand to Welfare
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Q1) Refer to Figure 6.6.What area represents the compensation for an increase in the price of gasoline from $1.75 to $3.00 per gallon?
A) a + b + c + d + e
B) f + g + h
C) a + b + c
D) d + e
Q2) For low wages,the leisure demand curve slopes ______; for higher wages it slopes ______.
A) Upward; downward
B) Downward; upward
C) Downward; downward
D) Upward; upward
Q3) Which of the following does NOT occur when the price of a good increases?
A) The good becomes more expensive relative to all other goods
B) The consumer's purchasing power increases
C) Consumers shift their purchases away from the more expensive good
D) The consumer is effectively poorer than before the increase in price
Q4) Define consumer surplus.Using a graph,explain the change in consumer surplus that would result from a decrease in the price of a gasoline.
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Chapter 7: Technology and Production
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Q1) The rate at which one input can be substituted for another is shown by
A) The slope of a firm's production function
B) The slope of a firm's efficient production frontier
C) The shape of a firm's isoquants
D) The shape of a firm's production function
Q2) Suppose you mange a firm with two production plants.The marginal product of labour at plant 1 is MP<sub>1</sub> = 1400 - L<sub>1</sub> where L<sub>1</sub> is the number of workers employed in plant 1.The marginal product of labour at plant 2 is MP<sub>2</sub> = 2000 - L<sub>2</sub> where L<sub>2</sub> is the number of workers employed in plant 2.Given that you have 1,000 workers,what is the best allocation of workers between the two plants?
Q3) When the marginal product of an input is ______ than the average product,the marginal units of the input _____ the average product.
A) Larger; lower
B) Smaller; raise
C) Smaller; do not affect
D) Larger; raise
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Chapter 8: Cost
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Q1) Suppose a firm's production function is given by Q = F(L,K)= 5LK,where L is the amount of labour and K is the amount of capital.The wage rate is $100 per unit of labour and the rental rate of capital is $50 per unit of capital.
a)What is the least-cost combination of capital and labour if the firm produces 1000 units of output?
b)What is the firm's long run cost function?
c)If the firm currently uses 10 units of capital,what is its short-run cost function?
Q2) Which of the following statements is true for a given level of output?
A) Long-run average cost will always be greater than or equal to short-run average cost
B) Long-run average cost and short-run average cost will be equal because the firm will use different input combinations in each period
C) Long-run cost will usually be greater than short-run cost
D) Long-run average cost will always be less than or equal to short-run average cost
Q3) Using a graph,explain the relationship between average cost and marginal cost.
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Chapter 9: Rofit Maximization
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Sample Questions
Q1) Refer to Figure 9.3.What is the smallest sales quantity that this firm will produce?
A) 0
B) Q1
C) Q2
D) Q3
Q2) Refer to Figure 9.1.What is the maximum profit that can be achieved?
A) $250
B) $500
C) $750
D) $850
Q3) At any price below ______ a firm has no incentive to produce anything.
A) AC
B) MR
C) AC<sub>min</sub>
D) MC<sub>min</sub>
Q4) What is an inverse demand function? If the demand for a firm's product is given by the expression Q = 600 - 3P,what is the firm's inverse demand function? By how much would the firm have to change its price in order to increase sales from 300 units to 450 units?
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Chapter 10: Choices Involving Time
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Q1) Refer to Scenario 10.1.Given this information,what should Jennifer do upon graduating from high school?
A) Take the job
B) Go to college
C) Take the job until the interest rate goes down and then go to college
D) Cannot determine from the information given
Q2) If you were to invest $10,000 for two years and the interest rates for each of those years are 4.5% and 4.65% respectively,how much interest would you earn from the end of year one until the end of year two? Assume interest compounds annually.
Q3) Suppose you have put $5,000 into a project that should generate cash inflows of $1,250 for each of the next 5 years.If the interest rate is 8% is this a good investment?
A) Yes, because you will earn a profit of $1,250 dollars in 5 years
B) Yes, because the internal rate of return is higher than the interest rate
C) No, because the internal rate of return is higher than the interest rate
D) No, because the net present value is negative
Q4) What would the interest rate need to be in order to earn $100 on an investment of $1,000 over two years? Assume interest compounds annually.
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Chapter 11: Choices Involving Risk
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Q1) Refer to Figure f.A benefit function,W(F),is plotted in Figure f.Point A represents the
A) Risk premium of the consumption bundle
B) Expected utility of the consumption bundle
C) Certainty equivalent of the consumption bundle
D) Expected consumption
Q2) Refer to Figure g.Lily's benefit function (dashed)is more concave than Millie's (dotted)in Figure g.Millie
A) Is more risk averse than Lily
B) Is less risk averse than Lily
C) Has a larger risk premium than Lily
D) Has a lower certainty equivalent than Lily
Q3) Two variables are positively correlated if
A) They move in the same direction
B) They move in the opposite direction
C) Their movements tend to be unrelated
D) One is simply a multiple of the other
Q4) Explain the relationship between the correlation of payoffs and the risk reducing effects of diversification and hedging.
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Chapter 12: Choices Involving Strategy
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Q1) In a multiple-stage game
A) At least one participant observes a choice by another participant before making some decision
B) Each participant makes all of his choices before observing any choice by any other participant
C) At least one participant makes his choice before observing the choices made by other participants
D) One participant has full information of the other players choices before making his choice
Q2) Playing the equilibrium of a one-stage game over and over again when the one-stage game is repeated is
A) Always a Nash equilibrium
B) Only a Nash equilibrium if the game is finite
C) Only a Nash equilibrium if the game is infinite
D) Dominated in some cases
Q3) Use the concepts of reputation and asymmetric information to explain why some faculty members become less productive after gaining tenure.
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Chapter 13: Behavioral Economics
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Q1) Behavioral economists view the standard economic theory of decisions involving time as being too restrictive because people have
A) Lapses in self-control
B) Perfect foresight
C) A tendency to ignore sunk costs
D) Budget constraint
Q2) A person is dynamically inconsistent if
A) Lapses in self-control occur
B) He does not always follow through on his plans and intentions
C) He changes his ranking of alternatives available at some future date as the date approaches or once it arrives
D) All of these
Q3) Advantages of experiments include
A) It is easier to determine whether people's choices are consistent with standard economic theory
B) It is often harder to establish causality
C) Cost saving
D) None of these
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Chapter 14: Equilibrium and Efficiency
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Q1) Properties of long-run competitive equilibrium with free entry include
A) The equilibrium price must equal the minimum MC
B) Firms must earn positive profits
C) Active firms must produce at their efficient scale of production
D) All of these
Q2) In a perfectly competitive market
A) Firms take quantities as given
B) Firms produce the quantity for which marginal cost equals price
C) Firms can increase profits by charging a price higher than the market price
D) Firms produce the quantity for which marginal cost equals marginal revenue
Q3) Discuss some of the changes in the organization of the economic systems of countries transitioning from communism to capitalism.How does this type of market reform increase economic efficiency?
Q4) Products are homogenous when
A) They are identical in the eyes of the purchasers
B) Some purchasers view the products as different
C) Suppliers can charge different prices for the same good
D) They are different in the eyes of the purchasers
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Chapter 15: Market Intervention
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Q1) A sales tax is an example of
A) A specific tax
B) An ad valorem tax
C) A lump sum tax
D) An income tax
Q2) Discuss why the government would implement a program to lower the price of a good and the welfare effects of such a program.Give an example of good for which such a policy has been implemented and explain the purpose of the policy.
Q3) A subsidy
A) Is a payment that increases the amount that buyers pay for a good
B) Is a payment that reduces the amount that buyers pay for a good
C) Is a payment that reduces the amount that sellers receive
D) A and C
Q4) The incidence of a tax
A) Falls entirely on consumers if supply is perfectly inelastic
B) Falls entirely on consumers if demand is perfectly elastic
C) Is shared by suppliers and consumers if demand is perfectly elastic
D) Falls entirely on suppliers if demand is perfectly elastic
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Chapter 16: General Equilibrium, Efficiency, and Equity
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Q1) Utilitarianism
A) Was favored by Jeremy Bentham
B) Was favored by John Rawls
C) Is a process-oriented notion of equity
D) Was favored by John Nash
Q2) An allocation of resources is Pareto efficient if it is
A) Possible to make at least one consumer better off without making someone else worse off
B) Possible to make all consumers better off
C) Impossible to make any consumer better off without making someone else worse off
D) Impossible to make any consumer better off without making everyone worse off
Q3) General equilibrium analysis
A) Is the study of competitive equilibrium in one market
B) Illustrates the independency among markets
C) Concerns competitive equilibrium in a single market, considered in isolation
D) Is the study of competitive equilibrium in many markets
Q4) Compare and contrast the principles of utilitarianism,Rawlsianism and egalitarianism.Discuss the assumptions of each and the difficulties societies might face while trying to conform to them.
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Chapter 17: Monopoly
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Q1) A firm's markup
A) Is the amount by which its price exceeds its marginal cost, expressed as a percentage of its price
B) Is the amount by which its marginal cost exceeds its average cost
C) Is the amount by which its average cost exceeds its marginal cost
D) Is the value of its profit
Q2) A firm has market power
A) When it can profitably charge any price of it's choosing
B) When it is characterized as a price taker
C) When it can profitably charge a price that is above its marginal cost
D) Only when it is the sole firm producing in a market
Q3) Significant market power exists in
A) All markets
B) Perfectly competitive markets
C) Unregulated markets
D) Monopoly markets and Oligopoly markets
Q4) Explain the difference between a monopoly and a monophony.
Q5) Discuss the difference between first-best and second-best price regulation.In your answer,you should address why governments regulate markets and the difficulties faced when doing so.
Page 19
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Chapter 18: Pricing Policies
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Q1) A monopolist can perfectly price discriminate
A) When it can distinguish consumers with a high versus low willingness to pay
B) When it offers a menu of alternatives, designed so that different customers will make different choices based on their willingness to pay
C) If it knows perfectly the customer's willingness to pay for each unit its sells and can charge a different price for each unit
D) When it cannot distinguish consumers with a high versus low willingness to pay
Q2) Firms bundle their products because
A) It is technologically efficient to do so
B) It can increase a firm's ability to extract consumer surplus
C) It can increase a firm's profits
D) All of these
Q3) A telephone company that charges both a monthly fee plus a price per minute used are employing
A) Quality dependent pricing
B) Ordinary price discrimination
C) A two-part tariff
D) Quantity dependent pricing
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Chapter 19: Oligopoly
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Q1) Monopolistic competition occurs in a market with free entry
A) When there are only a few firms, each producing a unique product, prices above marginal cost and earns zero profit net of fixed costs
B) When there is a large number of firms, each producing an identical product, prices above marginal cost and earns zero profit net of its fixed costs
C) When there is a large number of firms, each of which produces a unique product, prices above marginal cost and earns zero profit net of its fixed costs
D) When there is a large number of firms, each of which produces a unique product, prices above marginal cost and earns a positive profit net of its fixed costs
Q2) Business stealing arises when
A) Some of a new entrant's sales are due to new buyers in the market
B) Some of a new entrant's sales are due to stolen ideas
C) Some a new entrant's sales come at the expense of existing firms, whose sales contract after the new firm enters the market
D) A and B
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Chapter 20: Externalities and Public Goods
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Q1) Pigouvian taxation
A) Involves the use of taxes or fees to remedy negative externalities
B) Involves the use of subsidies to remedy negative externalities
C) Is a legal principles requiring a party who takes an action that harms others to compensate the affected parties for some or all of their losses
D) Requires that victims of an externality pay a tax to the producers of the externality
Q2) A free rider
A) Contributes everything to a public good
B) Causes a market failure with private goods
C) Contributes little or nothing to a public good, but also does not benefit from others' contributions
D) Contributes little or nothing to a public good while benefiting from others' contributions
Q3) Explain ways in which the government can remedy an externality.
Q4) Why might bargaining break down when parties negotiate to remedy a market failure and its associated externality?
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