Economics for Business Exam Review
Course Introduction
Economics for Business provides students with a foundational understanding of key economic concepts and theories as they apply to real-world business decisions. The course explores topics such as supply and demand analysis, market structures, pricing strategies, government intervention, and the macroeconomic environment that influences business operations. Through case studies and practical examples, students learn how economic factors drive business strategy, resource allocation, and competitive advantage in both domestic and global contexts. The course equips students with analytical tools to interpret economic data and make informed decisions in various business scenarios.
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) How are most fundamental economic decisions now determined in China?
A) Individuals, firms, and the government interact in a market to make these economic decisions.
B) These decisions are made by the country's elders who have had much experience in answering these questions.
C) The government decides because China is a centrally planned economy.
D) The United Nations decides because China is a developing economy.
Answer: A
Q2) Voluntary exchange increases economic efficiency
A) because neither the buyer nor the seller would agree to a trade unless they both benefit.
B) because voluntary exchange only takes place with government permission.
C) because it is free and consequently does not cost anything.
D) because it allows wealthy individuals to act altruistically and give to the poor.
Answer: A
Q3) Refer to Table 1-7.The table above shows the sales of LED light bulbs in North America.Present the information using a bar graph.
Answer: 11ea5d45_2c60_a8e2_bbc4_4bb4da1e8bbf_TB6608_00
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Page 3
Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Figure 2-11.What is the opportunity cost of producing 1 bolt of cotton in Pakistan?
A) 3/8 of a pound of cashews
B) 5/8 of a pound of cashews
C) 1 3/5 pounds of cashews
D) 150 pounds of cashews
Answer: B
Q2) All of the following are critical functions of the government in facilitating the operation of a market economy except
A) protecting private property.
B) enforcing property rights.
C) ensuring an equal distribution of income to all citizens.
D) enforcing contracts.
Answer: C
Q3) What is a circular flow diagram and what does it demonstrate?
Answer: A circular flow diagram is a model that illustrates how participants in markets are linked.It shows who supplies and purchases factors of production and who supplies and purchases goods and services.
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Chapter 3: Where Prices Come From: The Interaction of
Demand and Supply
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Sample Questions
Q1) Refer to Figure 3-4.At a price of $20,how many units will be supplied?
A) 400
B) 500
C) 600
D) 800
Answer: C
Q2) Refer to Figure 3-5.At a price of $5
A) there is a surplus of 4 units.
B) there is a scarcity of 4 units.
C) there is a shortage of 6 units.
D) there is a shortage of 4 units.
Answer: D
Q3) The law of demand implies,holding everything else constant,that as the price of gelato
A) increases, the demand for gelato will increase.
B) increases, the quantity of gelato demanded will increase.
C) decreases, the quantity of gelato demanded will increase.
D) decreases, the demand for gelato will increase.
Answer: C
Page 5
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Chapter 4: Market Efficiency and Market Failure
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Sample Questions
Q1) Explain how both renters and landlords could be either winners or losers with the imposition of rent control.
Q2) What is the difference between scarcity and a shortage?
Q3) Producer surplus is the difference between the lowest price a firm is willing to accept for a product and the price it actually receives for the product.
A)True
B)False
Q4) If marginal benefit is less than marginal cost,output is inefficiently high.
A)True
B)False
Q5) The first economist to systematically analyze market failure was A) Adam Smith.
B) Ronald Coase.
C) A. C. Pigou.
D) J. E. Meade.
Q6) Will equilibrium in a market always result in an outcome that is economically efficient? Explain.
Q7) What is economic surplus? When is economic surplus at a maximum?
Q8) What area on a supply and demand graph represents consumer surplus?
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Chapter 5: The Economics of Health Care
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Sample Questions
Q1) Adverse selection refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off.
A)True
B)False
Q2) Which of the following is not part of the "taxes" provision of the Patient Protection and Affordable Care Act (ACA)?
A) Pharmaceutical firms and health insurance firms pay new taxes.
B) Investors earning more than $200,000 pay a new tax on their investment income.
C) Beginning in 2018, all taxes on employer-provided health insurance plans will be reduced or eliminated.
D) Workers earning more than $200,000 pay higher Medicare payroll taxes.
Q3) What is adverse selection?
Q4) The rising cost of uninsured patients receiving treatment at hospital emergency rooms 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
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Chapter 6: Firms, The Stock Market, and Corporate Governance
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Sample Questions
Q1) Which of the following is a characteristic of stock?
A) Stock represents a promise to repay a fixed amount of funds.
B) The face value or principal plus interest is repaid at a specified period of time.
C) The length of coupon payments is fixed by the stated maturity period.
D) Stock represents ownership in a firm
Q2) A bond's coupon payment divided by the bond's current price is equal to the bond's
A) dividend yield.
B) current yield.
C) price-earnings ratio.
D) maturity value.
Q3) Urban Outfitters wants to raise $25 million to finance the construction of a new store,and the company wishes to raise the funds through direct finance.Which of the following methods could it use?
A) It could sell $25 million in bonds.
B) It could borrow $25 million from a bank.
C) It could issue $25 million in stock.
D) It could choose either A or C.
Q4) How is economic profit calculated?
Page 8
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) The law of diminishing marginal utility states that
A) eventually total utility falls as more of a good is consumed, other things constant.
B) the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant.
C) the extra satisfaction from consuming a good increases slowly as more of a good is consumed, other things constant.
D) when the extra satisfaction from consuming a good becomes negative, total utility starts falling, other things constant.
Q2) When is demand perfectly elastic? When is demand perfectly inelastic? What are the values of the price elasticity of demand when demand is perfectly elastic or perfectly inelastic? What do perfectly elastic and perfectly inelastic demand curves look like?
Q3) Economists assume people's tastes are identical.
A)True B)False
Q4) The demand curve for an inferior good can never be downward sloping. A)True B)False
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Chapter 8: Technology,Production,and Costs
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Sample Questions
Q1) Which of the following can a firm do in the long run but not in the short run?
A) decrease the size of its physical plant
B) reduce its rate of output by laying off workers
C) increase its variable costs
D) increase its use of raw materials
Q2) Refer to Figure 8-7.When the output level is 100 units average fixed cost is
A) $12.
B) $8.
C) $4.
D) This cannot be determined from the diagram.
Q3) The average total cost of production
A) is the extra cost required to produce one more unit.
B) equals the explicit cost of production.
C) equals total cost of production divided by the level of output.
D) equals total cost of production multiplied by the level of output.
Q4) Refer to Figure 8-11.Constant returns to scale
A) occur for output rates greater than 5,000 picture frames.
B) occur between 5,000 and 20,000 picture frames per month.
C) occur between 10,000 and 20,000 pictures frames per month.
D) will shift the long-run average cost curve downward.
Page 10
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Chapter 9: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Which of the following is not a characteristic of a monopolistically competitive market structure?
A) There is a large number of independently acting small sellers.
B) All sellers sell products that are differentiated.
C) There are low barriers to entry of new firms.
D) Each firm must react to actions of other firms.
Q2) Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run.Which of the following is one reason for this?
A) Owners of perfectly competitive firms realize that their short-run profits are temporary. Therefore, they either sell their businesses or develop other products that will earn short-run profits.
B) Firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms. But eventually consumers realize that all of the firms sell virtually identical products.
C) Firms from other countries are able to produce similar products at lower costs.
D) Firms in these industries sell identical products.
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Page 11
Chapter 10: Monopoly and Antitrust Policy
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Sample Questions
Q1) 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
Q2) Refer to Figure 10-4.What is the profit-maximizing/loss-minimizing output level?
A) 600 units
B) 800 units
C) 940 units
D) 1,160 units
Q3) To have a monopoly in an industry there must be
A) barriers to entry so high that no other firms can enter the industry.
B) a patent or copyright giving the firm exclusive rights to sell a product for 20 years.
C) an inelastic demand for the industry's product.
D) a public franchise, making the monopoly the exclusive legal provider of a good or service.
Q4) What is a public franchise? Are all public franchises natural monopolies?
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
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 form of implicit collusion where one firm in an oligopoly announces a price change which is matched by other firms in the same industry is
A) "follow the leader" pricing.
B) price leadership.
C) retaliation pricing.
D) "tit-for-tat" pricing.
Q3) Which of the following is the best example of a firm that competes in a monopolistically competitive market?
A) the U.S. Postal Service
B) Microsoft
C) a movie theater
D) an automobile manufacturer
Q4) What are the formulas for total revenue,average revenue,and marginal revenue.
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Chapter 12: GDP: Measuring Total Production and Income
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Sample Questions
Q1) The Bureau of Economic Analysis divides it's statistics on GDP into four major categories.List the categories of expenditures and define each.
Q2) 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?
Q3) Refer to Table 12-30.The table above represents hypothetical data from the National Income Accounts for 2017.Use the data to calculate personal income and disposable personal income.
Q4) Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next?
Q5) If Gladys sells her 2003 Jeep Cherokee for $3,500 in 2018,the sale of her car contributes $3,500 to 2018 GDP.
A)True
B)False
Q6) Describe briefly how the final value of an iPhone which costs $700 must be equal to the sum of incomes generated by the production of the iPhone.
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Page 14
Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) In 2017,Boeing announced that it was laying off 1,800 employees in addition to the 7,000 workers it had cut the year before.The laid-off employees who were not able to find jobs at another aircraft manufacturer due to a permanent decline in employee demand in the aircraft industry would be considered
A) structurally unemployed.
B) frictionally unemployed.
C) seasonally unemployed.
D) cyclically unemployed.
Q2) Which of the following policies would reduce frictional unemployment?
A) a decrease in the minimum wage
B) a job retraining program
C) implementing an unemployment insurance policy
D) building an online job database that helps workers find jobs
Q3) When the labor market is at full employment
A) there is only cyclical unemployment in the economy.
B) there is only structural unemployment in the economy.
C) the unemployment rate is 0%.
D) there is no cyclical unemployment in the economy.
Q4) Describe how inflation can be costly even if it is anticipated.
Q5) Why would a firm pay efficiency wages?
Page 15
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Chapter 14: Economic Growth, The Financial System, and Business Cycles
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Sample Questions
Q1) An increase in the government budget deficit will shift the ________ curve for loanable funds to the ________ and the equilibrium real interest rate will ________.
A) supply; right; fall
B) supply; left; rise
C) demand; right; rise
D) demand; left; fall
Q2) Which of the following explains why fluctuations in real GDP have become less volatile in the United States since 1950?
A) Services have become a smaller fraction of GDP since the 1950s.
B) Unemployment insurance and other government transfer programs are more prevalent since the 1950s.
C) The government has become more reluctant to intervene when real GDP declines and unemployment rises since the 1950s.
D) both B and C
Q3) Describe what happens to inflation during the business cycle.Give an intuitive explanation as to why inflation changes the way it does over the business cycle.
Q4) Explain why the demand curve for loanable funds has a negative slope.
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) Why does the short-run aggregate supply curve slope upward?
Q2) Which of the following is considered a negative supply shock?
A) increasing immigration in the economy causes the labor supply to rise
B) an improvement in technology
C) an increase in unemployment
D) an unexpected decrease in the refining capacity for oil
Q3) 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.
Q4) The main belief of the monetarist model is that
A) workers and firms have rational expectations.
B) the quantity of money should be increased at a constant rate.
C) productivity shocks explain fluctuations in real GDP.
D) the economy is slow to adjust to sticky wages and prices.
Q5) An increase in government spending will result in an increase in the price level and an increase in real GDP in the long run.
A)True
B)False
Page 17
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Chapter 16: Money,Banks,and the Federal Reserve System
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Sample Questions
Q1) The portion of ________ that a bank does not loan out or spend on securities is known as ________.
A) loans; reserves
B) deposits; reserves
C) deposits; securities
D) loans; securities
Q2) The Federal Reserve was established in 1913 to
A) prevent inflation by decreasing the money supply.
B) stimulate the economy by increasing bank reserves.
C) stop bank panics by acting as a lender of last resort.
D) prevent bad loans by requiring banks to hold reserves.
Q3) The real power within the Federal Reserve lies with the
A) Federal Reserve District banks.
B) Board of Governors.
C) Council of Economic Advisors.
D) Council of Monetary Advisors.
Q4) Liquidity increases as we move from the M1 to the M2 definition of the money supply.
A)True
B)False
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Chapter 17: Monetary Policy
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Sample Questions
Q1) Refer to Table 17-6.Suppose the table above illustrates the values of real and potential GDP and the price level if the Fed does not vote to change their current policy to be more contractionary or expansionary.If the Fed wants to keep real GDP at its potential level in 2019,should the Fed use a contractionary or expansionary policy? Should it raise or lower its interest rate target? How should it conduct open market operations to achieve its goal?
Q2) Why doesn't the Fed have both a money supply target and an interest rate target?
A) Short-term interest rates do not respond to changes in the money supply, which the Fed can control.
B) The Fed does not control money demand.
C) The Fed cannot offset the impact of changes in cash management by the public or changes in lending policies of commercial banks on the money supply.
D) Only the level of interest rates matters when we consider rates of growth in real GDP, employment, and rates of price inflation.
Q3) Use a graph to show the effects of a contractionary monetary policy to reduce inflation and move an economy back to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.
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Chapter 18: Fiscal Policy
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Sample Questions
Q1) Consider the following statement,"The Federal Reserve fights recessions by increasing the money supply so people will have more money to spend." What is wrong with the statement and how can it be corrected?
Q2) The long-run growth rate of real GDP depends primarily on the growth in the number of hours worked and the growth rate of labor productivity.
A)True
B)False
Q3) If policymakers implement an expansionary fiscal policy but do not take into account the potential for crowding out,the new equilibrium level of GDP is likely to A) be at potential GDP.
B) be above potential GDP.
C) be below potential GDP.
D) There is insufficient information given here to draw a conclusion.
Q4) An increase in the money supply is a discretionary fiscal policy which will increase aggregate demand.
A)True
B)False
Q5) What is the difference between federal purchases and federal expenditures?
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Chapter 19: Comparative Advantage, International Trade, and Exchange Rates
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Sample Questions
Q1) Refer to Table 19-11.What is the opportunity cost to produce 1 hat in Belize?
A) 1/2 of a clock
B) 2/3 of a clock
C) 1.5 clocks
D) 2 clocks
Q2) Refer to Table 19-12.All of the following are terms of trade that could possibly benefit both countries except
A) 2/3 of a belt : 1 sword.
B) 4/5 of a belt : 1 sword.
C) 7/10 of a belt : 1 sword.
D) 1/4 of a belt : 1 sword.
Q3) When exchange rates are not determined in the market but are instead set by a country's central bank,we say that the country's exchange rate is A) flexible.
B) fixed.
C) a nominal exchange rate.
D) a real exchange rate.
Q4) What are the four main sources of comparative advantage? Briefly explain each source and provide examples.
Page 21
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