Economics for Business Exam Questions
Course Introduction
Economics for Business provides an introduction to key economic concepts and analytical tools essential for understanding the business environment. The course examines the principles of microeconomics and macroeconomics, focusing on how individuals, firms, and governments make decisions and interact in markets. Topics include supply and demand, market structures, pricing strategies, business cycles, and the impact of government policies on business operations. Through case studies and real-world examples, students will develop the skills to apply economic reasoning to business problem-solving and decision-making in a global context.
Recommended Textbook
Essentials of Economics 6th Edition by
R. Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) In the market for factors of production,households earn income by supplying factors of production to firms.
A)True
B)False
Answer: True
Q2) Explain the economic idea that "people respond to incentives."
Answer: Human beings act from a variety of motives,including religious belief,envy,and compassion."People respond to incentives" means that people will act in the way that they feel is in their best interest.
Q3) Which of the following is a positive economic statement?
A) People should not buy SUVs.
B) The government should mandate electric automobiles.
C) Scarcity necessitates that people make trade-offs.
D) Foreign workers should not be allowed to work for lower wages than the citizens of a country.
Answer: C
Q4) What is an economic model?
Answer: An economic model is a simplified version of reality used to analyze real-world economic situations.
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Figure 2-8.If Vidalia chooses to produce 80 dozen roses,how many orchids can it produce to maximize production?
A) 24 dozen orchids
B) 48 dozen orchids
C) 60 dozen orchids
D) 74 dozen orchids
Answer: B
Q2) An outward shift of a nation's production possibilities frontier represents A) economic growth.
B) rising prices of the two goods on the production possibilities frontier model.
C) an impossible situation.
D) a situation in which a country produces more of one good and less of another.
Answer: A
Q3) The idea underlying Adam Smith's "invisible hand" is that people tend to behave in ways that go unnoticed in society.
A)True
B)False
Answer: False
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Chapter 3: Where Prices Come From: The Interaction of
Demand and Supply
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Sample Questions
Q1) At a product's equilibrium price
A) the product's demand curve is the same as the product's supply curve.
B) the quantity of the product demanded is greater than the quantity of the product supplied.
C) the quantity of the product demanded is less than the quantity of the product supplied.
D) the product's demand curve crosses the product's supply curve.
Answer: D
Q2) How does the decreasing use of DVD players affect the market for prerecorded DVDs?
A) The demand curve for prerecorded DVDs shifts to the right.
B) The quantity of prerecorded DVDs demanded decreases.
C) The quantity of prerecorded DVDs demanded increases.
D) The demand curve for prerecorded DVDs shifts to the left.
Answer: D
Q3) A surplus is defined as the situation that exists when the quantity of a good supplied is greater than the quantity demanded.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Market Efficiency and Market Failure
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Q1) If Uber is required to start paying the value-added tax (VAT)in Great Britain,this will have the potential to raise the equilibrium price in this market and,therefore,decrease efficiency.This would have a tendency to
A) decrease producer surplus and decrease deadweight loss.
B) decrease consumer surplus and increase deadweight loss.
C) increase consumer surplus and increase producer surplus.
D) maximize consumer surplus and minimize producer surplus.
Q2) Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain.This is an example of
A) a transactions cost.
B) a Pigovian tax.
C) a Pigovian subsidy.
D) the Coase Theorem.
Q3) If the social cost of producing a good or service exceeds the private cost
A) a positive externality exists.
B) the sum of consumer surplus and producer surplus is maximized.
C) the market achieves economic efficiency.
D) a negative externality exists.
Q4) What area on a supply and demand graph represents consumer surplus?
Page 6
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Chapter 5: The Economics of Health Care
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Q1) Refer to Figure 5-1.At the market equilibrium
A) the marginal social benefit is equal to the marginal cost.
B) the marginal social benefit is greater than the marginal cost.
C) the marginal social benefit is less than the marginal cost.
D) the marginal social benefit is zero.
Q2) The rising cost of malpractice insurance is one of the leading causes of the increase in health care spending as a percentage of GDP in the United States.
A)True
B)False
Q3) Adverse selection occurs in the market for used cars because used car buyers
A) have more information than used car sellers.
B) have less information than used car sellers.
C) have less incentive to maintain the value of their cars than new car buyers.
D) tend to have more accidents than new car buyers.
Q4) Under the Patient Protection and Affordable Care Act (ACA),insurance companies are required to participate in a high-risk pool that will cover individuals with pre-existing medical conditions.
A)True
B)False
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Chapter 6: Firms, The Stock Market, and Corporate Governance
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Sample Questions
Q1) A corporation's board of directors
A) hire the managers of the corporation.
B) control the day-to-day activities of the corporation.
C) are personally liable for the debts of the corporation.
D) are the sole owners of the corporation.
Q2) What takes place in the indirect finance market?
A) Part ownership of corporations is sold in the form of stocks.
B) Corporate and government bonds are sold to savers.
C) Deposits of savers are accepted and lent to borrowers.
D) Government purchases of buildings and equipment are sold to the highest bidder.
Q3) If Southwest Airlines borrows $20 million from a bank to finance the renovation of their corporate offices,this is an example of
A) a bond market transaction.
B) indirect finance.
C) a stock market transaction.
D) direct finance.
Q4) If you own a bond with a six percent coupon rate and new bonds are paying six percent,what will happen to your bond's market price?
Page 8
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) Refer to Figure 7-9.As price falls from PA to PB,the quantity demanded increases the most along D ; therefore
A) D is unit elastic.
B) D is more inelastic than D or D .
C) D is more elastic than D or D
D) D is elastic at PA but inelastic at PB.
Q2) As a consumer consumes more and more of a product in a particular time period,eventually marginal utility
A) rises.
B) is constant.
C) declines.
D) fluctuates.
Q3) Seth is a competitive body builder.He says he has to have his 12-oz package of protein powder to "feed his muscles" every day.On the basis of this information,what can you conclude about his price elasticity of demand for protein powder?
A) It is elastic.
B) It is perfectly elastic.
C) It is perfectly inelastic.
D) The price elasticity coefficient is 1.
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Chapter 8: Technology,Production,and Costs
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Sample Questions
Q1) Refer to Figure 8-7.When output level is 100,what is the total cost of production?
A) $20
B) $800
C) $1,200
D) $2,000
Q2) If,when a firm doubles all its inputs,its average cost of production increases,then production displays
A) diminishing returns.
B) economies of scale.
C) diseconomies of scale.
D) declining fixed costs.
Q3) The additional output a firm produces by hiring one more worker is called the marginal product of labor.
A)True
B)False
Q4) What is the difference between total cost and variable cost in the long run?
Q5) State the law of diminishing returns.How do diminishing returns differ from diseconomies of scale? Be sure to define diseconomies of scale in your answer.
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Chapter 9: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Firms that are price takers
A) must lower their prices to increase sales.
B) are able to sell a fixed quantity of output at the market price.
C) can raise their prices as a result of a successful advertising campaign.
D) are able to sell all their output at the market price.
Q2) In the short run,a profit-maximizing firm will shut down if its total revenue is greater than its variable costs.
A)True
B)False
Q3) In the short run,a firm might choose to produce rather than shut down even if its market price is less than its average total cost of production.
A)True
B)False
Q4) Refer to Figure 9-2.The firm breaks even at an output level of
A) Q units.
B) Q units.
C) Q units.
D) Q units.
Q5) What is meant by the term "long-run competitive equilibrium?
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Chapter 10: Monopoly and Antitrust Policy
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Sample Questions
Q1) Why does a monopoly cause a deadweight loss?
A) because it stops producing output at a point where price is above marginal cost
B) because it appropriates a portion of consumer surplus for itself
C) because it increases producer surplus at the expense of consumer surplus
D) because it does not produce some output for which demand exceeds supply
Q2) A narrow definition of monopoly is that a firm is a monopoly if it can ignore
A) government antitrust laws.
B) the pricing decisions of its suppliers.
C) the pricing decisions of firms that produce complementary products.
D) the actions of all other firms.
Q3) Refer to Figure 10-16.In the absence of any government regulation,the profit-maximizing owners of this firm will produce ________ units and charge a price of ________.
A) Q units; P
B) Q units; P
C) Q units; P
D) Q units; P
Q4) Identify four reasons for high entry barriers.Briefly explain each reason.
Q5) Identify two ways by which the government controls monopolies?
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Chapter 11: Monopolistic Competition and Oligopoly
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Q1) Refer to Table 11-10.Does Martin have a dominant strategy? If yes,what is it?
A) Yes, Martin's dominant strategy is to offer free rides.
B) No, Martin does not a dominant strategy - his best outcome depends on what Lewis does.
C) Yes, Martin's dominant strategy is to not to offer free rides.
D) Yes, Martin's dominant strategy is to wait to see what Lewis does first.
Q2) A cooperative equilibrium results when firms
A) choose the best strategy regardless of what other players do.
B) choose the strategy that maximizes the total game payoff.
C) choose the strategy that minimizes the payoff to other players.
D) choose a strategy by random chance.
Q3) For productive efficiency to hold
A) price must equal the marginal cost of the last unit produced.
B) price must equal marginal revenue of the last unit sold.
C) the average variable cost must be minimized in production.
D) the average total cost must be minimized in production.
Q4) For a downward-sloping demand curve,the marginal revenue decreases as the quantity sold increases.
A)True
B)False
Page 13
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Chapter 12: GDP: Measuring Total Production and Income
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Sample Questions
Q1) National income is equal to
A) personal income minus personal taxes.
B) GDP minus depreciation.
C) disposable personal income plus depreciation plus personal taxes.
D) GNP plus depreciation.
Q2) Which of the following is not a durable good?
A) furniture
B) automobile
C) clothing
D) refrigerator
Q3) China's current rate of GDP growth is quite rapid.Its current growth rate is probably three times that of the United States.However,the levels of pollution are much higher in China.Would you consider China to be better off than the United States given this information? Why or why not?
Q4) An increase in national income could by caused by which of the following?
A) an increase in depreciation
B) an increase in personal taxes
C) a decrease in personal income
D) an increase in gross domestic product
Q5) Give two reasons why GDP does not reflect total production in an economy.
Page 14
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Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) The labor force is the sum of
A) employed workers and discouraged workers.
B) employed workers and unemployed workers.
C) employed workers and individuals not looking for work.
D) unemployed workers and the working-age population.
Q2) Which of the following price indices comes closest to measuring the cost of living of the typical household?
A) GDP deflator
B) producer price index
C) consumer price index
D) household price index
Q3) Refer to Table 13-7.Suppose that the data in the table above reflect price levels in the economy.What is the inflation rate between 2017 and 2018?
A) 2.9%
B) 3.5%
C) 4.6%
D) 5%
E) 7.5%
Q4) Explain how the CPI is constructed.
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Chapter 14: Economic Growth, The Financial System, and Business Cycles
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Sample Questions
Q1) Use the equations for public and private saving to demonstrate how total saving in the economy equals investment.
Q2) Increases in capital per hour worked cannot sustain high rates of economic growth unless accompanied by technological change.
A)True
B)False
Q3) The demand for loanable funds has a ________ slope because the lower the interest rate,the ________ number of investment projects are profitable,and the ________ the quantity of loanable funds demanded.
A) negative; greater; greater
B) negative; greater; lesser
C) negative; lesser; greater
D) positive; lesser; lesser
Q4) An increase in the demand for loanable funds will occur if there is
A) an increase in the real interest rate.
B) a decrease in the real interest rate.
C) an increase in expected profits from firm investment projects.
D) an increase in the nominal interest rate accompanied by an equal increase in inflation.
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Q1) Declines in spending on residential construction are often due to increases in interest rates.The collapse in residential construction prior to and during the recession of 2007-2009 was due more to ________ than to higher interest rates.
A) the financial crisis that began in 2007
B) the rapid inflation of the early 2000s
C) increases in the price of lumber
D) rising wages in the construction industry
Q2) How do lower taxes affect aggregate demand?
A) They increase disposable income, consumption, and aggregate demand.
B) They reduce disposable income, consumption, and aggregate demand.
C) they increase corporate investment and aggregate demand.
D) They increase aggregate supply and thus increase aggregate demand as well.
Q3) In the long run
A) GDP = potential GDP.
B) unemployment is below its natural rate.
C) LRAS and SRAS lie on the same line.
D) unemployment is above its natural rate.
Q4) An increase in imports increases aggregate demand.
A)True
B)False
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Chapter 16: Money,Banks,and the Federal Reserve System
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Q1) A financial asset is considered ________ if it can be bought or sold in a financial market.
A) a bond
B) a security
C) a stock
D) liquid
Q2) The M2 measure of the money supply equals
A) savings account balances plus small-denomination time deposits plus traveler's checks.
B) savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares.
C) M1 plus savings account balances plus small-denomination time deposits.
D) M1 plus savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares.
Q3) How do open market operations work?
Q4) Your checking account balance is included in your bank's assets.
A)True
B)False
Q5) What is the principle monetary policy tool used by the Fed.Why?
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Chapter 17: Monetary Policy
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Q1) The relationship between GDP and the money supply has gotten stronger since the 1980s.
A)True
B)False
Q2) The Fed can use expansionary monetary policy to lower interest rates to stimulate aggregate demand.
A)True
B)False
Q3) Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in long-run macroeconomic equilibrium.For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the Federal Reserve to conduct an expansionary monetary policy.Briefly explain the condition of the economy and what the Federal Reserve is attempting to do.
Q4) In March 2008,the Fed announced that primary dealers would be eligible to receive discount loans.
A)True
B)False
Q5) Give an example of a monetary policy target.Explain why the Fed uses policy targets.
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Chapter 18: Fiscal Policy
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Q1) Decreasing government spending ________ the price level and ________ equilibrium real GDP.
A) decreases; increases
B) increases; decreases
C) increases; increases
D) decreases; decreases
Q2) The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was
A) in a recession.
B) in an expansion.
C) at potential GDP.
D) at potential tax revenue.
Q3) Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,approximately ________ took the form of tax cuts and ________ took the form of increases in government expenditures.
A) one-half; one-half
B) three-fourths; one-fourth
C) one-tenth; nine-tenths
D) one-third; two-thirds
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Chapter 19: Comparative Advantage, International Trade, and Exchange Rates
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Q1) Twenty-eight countries in Europe have eliminated all tariffs with each other.This group of countries is known as the
A) European Union.
B) United Federation of Europe.
C) Gruppo Euro.
D) European Free Trade Association.
Q2) Globalization is the process of countries imposing trade restrictions on other countries.
A)True
B)False
Q3) Refer to Table 19-5.Select the statement that accurately interprets the data in the table.
A) Madison has a comparative advantage in making empanadas.
B) Austin has an absolute advantage in making tacos.
C) Austin has a comparative advantage in making empanadas.
D) Austin has a comparative advantage in making empanadas and making tacos.
Q4) In the United States,imports and exports make up more than half of GDP.
A)True
B)False
Q5) What is a tariff?
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