Economics for Business Exam Review
Course Introduction
Economics for Business offers students a foundational understanding of economic principles and how they apply to real-world business scenarios. The course explores both microeconomic and macroeconomic concepts, focusing on how businesses make decisions regarding production, pricing, and resource allocation while responding to changing external environments. Topics include supply and demand, market structures, fiscal and monetary policy, and the impact of globalization on business operations. Through case studies and practical examples, students learn to analyze market trends and make informed business decisions that drive organizational success.
Recommended Textbook
Managerial Economics 5th Edition by Luke M. Froeb
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21 Chapters
1734 Verified Questions
1734 Flashcards
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Page 2
Chapter 1: The One Lessor of Business
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54 Verified Questions
54 Flashcards
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Sample Questions
Q1) A consumer values a car at $30,000 and a producer values the same car at $20,000.What amount of tax will result in unconsummated transaction?
A)$4,000
B)$9,000
C)$15,000
D)$2,000
Answer: C
Q2) A buyer values a house at $525,000 and a seller values the same house at $485,000.If sales tax is 8% and is levied on the seller,then what would be the lowest price that the seller would be willing to sell at?
A)$527,000
B)$523,800
C)$525,000
D)$500,000
Answer: B
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3
Chapter 2: Benefits, Costs, and Decisions
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67 Flashcards
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Sample Questions
Q1) Fast Food Terminals III
After firing cashiers to install touchscreens for patrons to place orders,Taco Casa determined that their average cost per touchscreen order was $0.65.After determining that the average compensation cost per human mediated order was $0.60 per order,they revert back to human order takers.Then why did the realized average cost per order with humans come in at $0.70?
Answer: Compensation costs represent the bulk of the employee costs,but not all of them.Low wage employees can have conflicts with customers that reduces orders,employees can incur costs if they get injured on the job or if they break equipment,and some employees steal while machines typically do not.A full analysis would incorporate these potentially hidden costs.
Q2) Fixed costs are
A)costs that vary with output
B)always equal to marginal costs
C)costs that do not vary with output
D)equal to total costs
Answer: C
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Chapter 3: Extent How Much Decisions
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Sample Questions
Q1) Cruise liners offer last minute deals because
A)The marginal cost is higher than the marginal revenue since fixed costs are sunk
B)The marginal costs of an additional passenger are very low at that point and companies gain by lowering prices
C)The average cost of an additional passenger is very low at that point and companies gain by lowering prices
D)All of the above
Answer: B
Q2) If the firm hires 5 workers,and produces 10 units,the average cost equals
A)$250
B)$25
C)$5
D)Need more information
Answer: B
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Chapter 4: Investment Decisions: Look Ahead and Reason
Back
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Sample Questions
Q1) Break-even quantity is a point where
A)the level of profit is maximized
B)the level of cost is minimized
C)Only variable costs are covered
D)There are zero profits
Q2) A firm sells 1000 units per week.It charges $70 per unit,the average variable costs are $25,and the average costs are $65.In the long run,the firm should
A)Shut down since price is greater than average cost
B)Continue operating price is higher than average cost,its making a profit
C)Continue operating as the firm is covering all the variable costs and some of the fixed costs
D)Shut-down because it is cost effective to pay off the remaining fixed costs
Q3) Firms that anticipate hold-up,choose organizational or contractual forms
A)that give both parties the incentive to make relationship-specific investments
B)that give both parties the incentive to exploit each other's positions
C)that gives both parties an incentive to trade,even after the relationship-specific investments have been made
D)Both A&C
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Chapter 5: Simple Pricing
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87 Flashcards
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Sample Questions
Q1) The demand for a product is more elastic
A)When it has few substitutes
B)In the long-run
C)When the expenditure on the product represent a small portion of the budget
D)When the product is broadly defined
Q2) An rational,optimizing,self interested consumer would consume up to the point where
A)the consumer surplus from the last unit is positive
B)the consumer surplus from the last unit is negative
C)the consumer surplus from the last unit is zero
D)none of the above
Q3) Its lunch time,you are hungry and would like to have some pizza.By the law of diminishing marginal value,
A)you would pay more for your first slice of pizza than your second
B)you would pay more for your second slice of pizza than your first
C)you would pay an equal amount of money for both the slices since they are identical
D)none of the above
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Chapter 6: Economies of Scale and Scope
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Sample Questions
Q1) It costs firm A $800 to produce five radios and it costs firm B $500 to produce five batteries.If Firm A merges with firm B,it can produce both the five radios and the five batteries for $1000.The firm has experienced
A)Economies of Scale
B)Economies of Scope
C)Diseconomies of Scale
D)Diseconomies of Scope
Q2) Ray's Radios believed the synergies between radio production and battery production could be realized if he expanded.However,due to overseeing the battery expansion Ray devoted less time to the radio business leading to the radio unit costs increasing.Ray's Radios is experiencing
A)Economies of scale
B)Economies of scope
C)Diseconomies of scale
D)Diseconomies of scope
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8
Chapter 7: Understanding Markets and Industry Changes
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Sample Questions
Q1) In the market for used cars we have 10 sellers,willing to sell at the prices of $1000,$2000,$3000,$4000,$5000,$6000,$7000,$8000,$9000,$10000.What could the market price be in order to induce five sellers to offer their cars for sale?
A)$4001
B)$5001
C)$6001
D)$7001
Q2) Suppose there are 11 buyers and 11 sellers,each willing to buy or sell one unit of a good,with values {$14,$13,$12,$11,$10,$9,$8,$7,$6,$5,$4,}.Assume no transaction costs and a competitive market.At the optimal bid,ask spread,what is the total profit that the market maker makes?
A)$8
B)$12
C)$18
D)$20
Q3) Olive Oil
Spain is the world's number 1 producer of olive oil,mostly in the southern Andalusia region.But very dry weather there has ravaged olive trees.What affect will the poor weather have on the olive oil market?
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Page 9
Chapter 8: Market Structure and Long Run Equilibrium
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73 Flashcards
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Sample Questions
Q1) Alan is offered a gamble.Heads he wins $100,tails he wins $20.If the game costs
$60,would he play?
A)Yes he would play since the expected value is equal to the price of the play
B)Yes he would play since the expected value of the play is higher than the price of the play
C)No he would not play since the price of the play is higher than the expected value
D)No he would not play since this is a fair bet and he is not being offered any risk premium
Q2) A perfectly competitive firm has
A)A perfectly elastic demand for its products
B)A perfectly inelastic demand for its products
C)A downward sloping demand for its products
D)None of the above
Q3) A sudden decrease in the market demand in a competitive industry leads to
A)A market equilibrium price higher than the original equilibrium in the short-run
B)A market equilibrium price equal to the original equilibrium in the long-run
C)Both a and b
D)None of the above
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Chapter 9: Strategy: the Quest to Keep Profit From Eroding
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Sample Questions
Q1) Having a competitive advantage emanates from
A)Increased price
B)Decreased cost
C)One or both of the above
D)None of the above
Q2) One of the limitation of Five Forces is that they
A)Reduce producer surplus
B)For one firm to increase profit,the profit of another participant must decrease
C)Does not provide a firm with sustainable competitive advantage
D)Both b and c
Q3) Supplier power tends to be low when
A)Suppliers are less concentrated
B)Inputs provided by the supplier are not vital
C)Inputs are homogenous
D)All the above
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11
Chapter 10: Foreign Exchange, Trade, and Bubbles
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Sample Questions
Q1) Holding other things constant,if the US dollar appreciates,it makes the US exports
A)Less attractive to foreigners
B)More attractive to foreigners
C)Neither more nor less attractive to foreigners
D)None of the above
Q2) A weaker peso,relative to the US dollar,causes the demand for US imports from Mexico to _____ and the demand for US exports to Mexico to_______
A)Increase;Decrease
B)Decrease;Increase
C)Increase;Increase
D)Decrease;Decrease
Q3) Currency devaluations hurt consumers because they make imports ________ expensive
A)Less
B)More
C)All of the above
D)None of the above
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12
Chapter 11: More Realistic and Complex Pricing
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72 Flashcards
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Sample Questions
Q1) Large amusement parks charge entrance fees rather than fee per ride because
A)Customers are more sensitive to paying a fee per ride
B)Customers are less sensitive to paying a fee per ride
C)Customers view paying per ride as a smaller cost
D)None of the above
Q2) Viceroy Vacations is deciding on how to price its vacation packages.Which of the following strategies would you suggest?
A)Price the flight,hotel and car separately
B)Advertise it as an all-inclusive vacation
C)Give them away as free vacations to everyone
D)Close down your company.No one goes on vacations anymore
Q3) If advertising makes demand of a product less elastic,it makes sense for a firm to
A)Decrease the price of the product
B)Increase the price of the product
C)Leave the price unchanged
D)None of the above
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13
Chapter 12: Direct Price Discrimination
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Sample Questions
Q1) Which of the following are ways to sell a customer additional units without dropping the price on previous purchases
A)Offer quantity discounts
B)Offer two-part pricing ex: membership fees
C)Bundle the goods together
D)All of the above
Q2) Given an equal amount of users,if the firm can only set one price,how should the firm price the no-name brand wok?
A)Price low and sell to both the users
B)Price high and sell only to the professional chefs
C)Price low and sell only to the home users
D)All of the above
Q3) Circle of Crust
Pie Five Pizzas has a frequent purchaser program,called Circle of Crust,in which patrons earn points with every purchase.With enough points,the patron's next purchase is free.How does this program alter customer decisions?
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14
Chapter 13: Strategic Games
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Sample Questions
Q1) What is the Nash equilibrium of this simultaneous game?
A)Steal,Vigilant
B)Steal,Not vigilant
C)Not steal,Vigilant
D)The game has no Nash equilibrium
Q2) If the security guard knows that the shoplifter has been caught before,his best response would be
A)Being watchful
B)Sleeping on the job
C)Run
D)Hide
Q3) If Bratty Brenda decides to hit Tattling Tina,what would Tattling Tina's best response be
A)Tell
B)Not tell
C)Run
D)Hide
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Page 15
Chapter 14: Bargaining
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Sample Questions
Q1) Burn the Boats
When Hernán Cortés was leading his men in conquest of the Aztecs in Mexico,he famously burned his boats on the beach before setting off inland.How does this help him to bargain with his sometimes unwilling men?
Q2) If,during the negotiations between the union and the management a strike occurs,it would be because
A)The union is trying to convince the management that it will stick to its strategy
B)The management doesn't believe the union's threat
C)All of the above
D)None of the above
Q3) Suppose the shopkeeper is known to usher low bidders out of the store even if it means giving up the sale.If the customer moves first,he would
A)Offer the high price
B)Offer the low price
C)Get ushered out of the store
D)All of the above
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16
Chapter 15: Making Decisions With Uncertainty
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Sample Questions
Q1) You can invest $100,000 into either project A or B.You estimate that A would succeed with a probability of 0.5 in which case it doubles in value.If it fails,its scrap value is $50,000.Project B would succeed with probability 0.8,in which case it would have a value of $150,000.If it fails,project B's scrap value is $30,000.Which project should you invest in?
A)Project A
B)Project B
C)Neither of the projects
D)You cannot tell from the information presented
Q2) You can either invest in project A or B.Project A could have a value of $150 with a probability of 0.1 or a value of $75 with probability 0.9.Project B could have a value of $120 with probability 0.2 or a value of $75 with a probability of 0.8.Which project should you invest in?
A)Project A
B)Project B
C)Neither of the projects
D)You cannot tell from the information presented
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Chapter 16: Auctions
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Sample Questions
Q1) Bid-rigging has all of these features EXCEPT
A)It is a collusive agreement
B)The bid-riggers pay a smaller amount than without bid-rigging
C)Bid-riggers need an auxiliary mechanism to allocate the good within the bid-riggers
D)Bid rigging is usually a legitimate and legal strategy for the buyer-side
Q2) Anna's Antiques expects to get three bidders for the unique china teacup it sells.Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability.If three bidders show up at the auction and all of them are low-value bidders,what would the winning bid be?
A)Just above $100
B)$100
C)Just above $70
D)$70
Q3) Bid-rigging is more likely when
A)auctions are for larger amounts
B)auctions are infrequent
C)auctions are for smaller amounts
D)the auctioneer is paid on commission rather than a fixed fee
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Page 18
Chapter 17: The Problem of Adverse Selection
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Sample Questions
Q1) Adverse selection happens because
A)One of the parties has more information about itself then the other party
B)Individuals that the principle want to least select are the ones more likely to apply
C)Parties most likely to accept an offer would be least qualified
D)All of the above
Q2) Scatterbrain Samantha often forgets to lock her house.This has caused the probability of a burglary to be 30%.If her house gets broken into,she faces a property loss of $10,000,otherwise she gets to keep her $100,000.What is her expected loss?
A)$3000
B)$10,000
C)$30,000
D)$100,000
Q3) Potential solutions to sell a high-quality used car include
A)offering a warranty
B)selling through a reputable dealer
C)documenting the complete repair history
D)all of the above
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Chapter 18: The Problem of Moral Hazard
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Sample Questions
Q1) For a mortgage lender that makes mortgage loans to borrowers,which one of the following would be an example of moral hazard?
A)After the loan has been made,individuals become careless with their finances
B)Individuals most likely to default are the ones most likely to apply for the loan
C)Lenders performing a credit check on all potential borrowers
D)None of the above
Q2) To decrease anxiety in its most accomplished teachers,a school decides to offer them tenure,to help them concentrate on teaching better.Instead it notices that even the best of the teachers started to get sloppy with their work.The school did not foresee
A)Adverse selection
B)Moral hazard
C)All of the above
D)None of the above
Q3) One difference between moral hazard and adverse selection is
A)Moral hazard has to do with unobservable characteristics of individuals
B)Moral hazard has to do with unobservable actions of individuals
C)Adverse selection is individuals change their behaviors because of a contract
D)Adverse selection is when you choose the wrong answer on a test
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Page 20
Chapter 19: Getting Employees to Work in the Firms Best Interest
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108 Flashcards
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Sample Questions
Q1) In a franchising relationship
A)the franchisor is the local businessman or businesswoman
B)the corporate brand owner contracting with local operator is the franchisor
C)the local operators are the franchisors
D)the corporate brand owner contracting with local operators is the franchisee
Q2) The types of problems in principal-agent relationships typically include
A)adverse selection - whom to hire
B)moral hazard - how to motivate workers
C)uncertainty - how many workers will be needed
D)Both A&B
Q3) A payday loan company has decided to open several new locations in the city.To decide where to open these locations it hires consultants and pays them per store opened.At the end of the quarter,the company notices a many of the new stores' sales volume fail to meet expectations.To incentivize the consultants to instead focus on opening profitable stores,the company should have paid them
A)Per store opened
B)A percentage of the profit earned per new store
C)A fixed salary
D)All of the above
Page 21
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Chapter 20: Getting Divisions to Work in the Firms Best Interest
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Sample Questions
Q1) Which of the following is TRUE about firms organized along functional lines?
A)Workers develop functional expertise
B)Workers can easily share information within their division
C)They foster the exploitation of economies of scale
D)All of the above
Q2) If the fixed costs can be ignored,a relatively good approximation of the correct transfer price is
A)average costs
B)average fixed costs
C)average variable costs
D)the market price
Q3) Which of the following is a feature of an M-Form organization?
A)divisions have difficulty responding to changes in customer demand
B)it is easier to maintain customer relationships
C)coordination across divisions is simple and does not take much management time
D)evaluating employees is easier because managers typically are similarly trained
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22
Chapter 21: Managing Vertical Relationships
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Sample Questions
Q1) Retailers do not find it profitable to engage in promotional activities because
A)They reap the full benefits of the promotion
B)They have to share the benefits of the promotion with the manufacturer
C)They are unaware of competing retailers' ability to "free ride" on their efforts
D)All of the above
Q2) Vertical contracts can also be seen as
A)An increase in coordination between firms producing complementary goods
B)An increase in competition among firms producing complementary goods
C)An increase in coordination between firms producing substitute goods
D)An increase in competition between firms producing substitute goods
Q3) Vertical contracts that aim to decrease retailer prices typically
A)Benefit the consumer and the manufacturer but hurt the retailer
B)Benefit the manufacturer and retailer but hurt the consumer
C)Benefits the consumers,manufacturers and retailers
D)Hurts all the manufacturers,consumers and retailers
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