Economics for Business
Final Test Solutions
Course Introduction
Economics for Business provides students with foundational knowledge of key economic principles and their application within business contexts. The course explores both microeconomic and macroeconomic concepts, helping students understand market mechanisms, consumer and producer behavior, pricing strategies, and market structures. Additionally, it addresses the impact of government policy, global economic trends, and external economic factors on business decision-making. Through case studies and real-world examples, students learn to analyze economic data, forecast market trends, and make informed strategic decisions that drive business success.
Recommended Textbook
Principles of Microeconomics 6th Canadain Edition by N. Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) Market economies are distinguished from other types of economies largely on the basis of
A) the political affiliations of government officials.
B) the process by which government officials are elected or appointed.
C) the ways in which scarce resources are allocated.
D) the number of retail outlets available to consumers.
Answer: C
Q2) A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies
A) enhance equality.
B) reduce efficiency.
C) reduce the reward for working hard.
D) All of the above are correct.
Answer: D
Q3) The economy of the former Soviet Union is best described as a A) primitive economy.
B) market economy.
C) hybrid economy.
D) centrally-planned economy.
Answer: D
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Refer to Figure 2-2.If the outer loop of this circular-flow diagram represents flows of dollars,then the inner loop includes
A) flows of goods and services from households to firms.
B) flows of inputs from households to firms.
C) flows of rent payments paid to owners of land.
D) flows of wages and salaries paid to workers.
Answer: B
Q2) Which of the following statements about the circular-flow diagram is correct?
A) One must imagine that the economy operates without money in order to make sense of the diagram.
B) The diagram leaves out details that are not essential for understanding the economic transactions that occur between households and firms.
C) The government cannot be excluded as a decision maker in a circular-flow diagram.
D) All of the above are correct.
Answer: B
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4
Chapter 3: Interdependence and the Gains from Trade
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Sample Questions
Q1) Refer to Table 3-8.Which of the following points would not be on Huang's production possibilities frontier,based on a 36-hour production period?
A) (18 parasols, 0 plates)
B) (12 parasols, 2 plates)
C) (6 parasols, 4 plates)
D) (2 parasols, 6 plates)
Answer: D
Q2) Refer to Table 3-11.Falda has an absolute advantage in the production of A) wheat.
B) cloth.
C) both goods.
D) neither good.
Answer: A
Q3) A country that currently does not trade with other countries could benefit by A) restricting imports and promoting exports.
B) promoting imports and restricting exports.
C) restricting both imports and exports.
D) not restricting trade.
Answer: D
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Refer to Figure 4-18.What is the equilibrium price in this market?
A) $0
B) $5
C) $7.50
D) $10
Q2) Refer to Figure 4-19.All else equal,the premature deaths of thousands of turkeys would cause a move from
A) DA to DB.
B) DB to DA.
C) x to y.
D) y to x.
Q3) If a increase in income decreases the demand for a good,then the good is a(n)
A) substitute good.
B) complementary good.
C) normal good.
D) inferior good.
Q4) The equilibrium price is the same as the market-clearing price.
A)True
B)False
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Chapter 5: Elasticity and Its Application
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Sample Questions
Q1) Which of the following should be held constant when calculating an income elasticity of demand?
A) the price of the good
B) prices of related goods
C) tastes
D) All of the above should be held constant.
Q2) If a change in the price of a good results in no change in total revenue,then
A) the demand for the good must be elastic.
B) the demand for the good must be inelastic.
C) the demand for the good must be unit elastic.
D) buyers must not respond very much to a change in price.
Q3) You and your college roommate eat three packages of Ramen noodles each week.After graduation last month,both of you were hired at several times your college income.Your roommate still enjoys Ramen noodles very much and buys even more,but you plan to buy fewer Ramen noodles in favor of foods you prefer more.When looking at income elasticity of demand for Ramen noodles,yours would
A) be negative and your roommate's would be positive.
B) be positive and your roommate's would be negative.
C) be zero and your roommate's would approach infinity. D) approach infinity and your roommate's would be zero.
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Chapter 6: Supply, Demand, And Government Policies
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Sample Questions
Q1) Suppose there is currently a tax of $50 per ticket on airline tickets.Buyers of airline tickets are required to pay the tax to the government.If the tax is reduced from $50 per ticket to $30 per ticket,then the
A) demand curve will shift upward by $20, and the effective price received by sellers will increase by $20.
B) demand curve will shift upward by $20, and the effective price received by sellers will increase by less than $20.
C) supply curve will shift downward by $20, and the price paid by buyers will decrease by $20.
D) supply curve will shift downward by $20, and the price paid by buyers will decrease by less than $20.
Q2) Refer to Figure 6-9.At which price would a price ceiling be binding?
A) $4
B) $5
C) $6
D) $7
Q3) Price controls can generate inequities.
A)True
B)False
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Page 8
Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Sample Questions
Q1) Refer to Figure 7-15.If the government imposes a price floor of $60 in this market,then total surplus will be
A) higher by $57.50 than it would be without the price floor.
B) lower by $20.00 than it would be without the price floor.
C) lower by $45.00 than it would be without the price floor.
D) lower by $62.50 than it would be without the price floor.
Q2) Refer to Figure 7-21.Sellers whose costs are greater than the equilibrium price are represented by segment A) AC.
B) CK.
C) BC.
D) CH.
Q3) Refer to Table 7-11.The equilibrium price is A) $10.00.
B) $8.00.
C) $6.00.
D) $4.00.
Q4) Welfare economics is the study of the welfare system.
A)True
B)False
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Chapter 8: Application: The Costs of Taxation
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Sample Questions
Q1) Refer to Figure 8-12.Which of the following combinations will maximize the deadweight loss from a tax?
A) supply 1 and demand 1
B) supply 2 and demand 2
C) supply 1 and demand 2
D) supply 2 and demand 1
Q2) Refer to Figure 8-19.If the economy is at point A on the curve,then a decrease in the tax rate will
A) increase the deadweight loss of the tax and increase tax revenue.
B) increase the deadweight loss of the tax and decrease tax revenue.
C) decrease the deadweight loss of the tax and increase tax revenue.
D) decrease the deadweight loss of the tax and decrease tax revenue.
Q3) The more elastic are supply and demand in a market,the greater are the distortions caused by a tax on that market,and the more likely it is that a tax cut in that market will raise tax revenue.
A)True B)False
Q4) If the size of a tax triples,the deadweight loss increases by a factor of six.
A)True B)False
Page 10
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Chapter 9: Application: International Trade
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Sample Questions
Q1) Suppose a country abandons a no-trade policy in favor of a free-trade policy.If,as a result,the domestic price of beans increases to equal the world price of beans,then
A) that country becomes an exporter of beans.
B) that country has a comparative advantage in producing beans.
C) at the world price, the quantity of beans supplied in that country exceeds the quantity of beans demanded in that country.
D) All of the above are correct.
Q2) Refer to Figure 9-1.With trade,Scotland will
A) export 11 units of wool.
B) export 5 units of wool.
C) import 15 units of wool.
D) import 6 units of wool.
Q3) Refer to Figure 9-12.Consumer surplus before trade is
A) $3,600.
B) $4,200.
C) $5,400.
D) $6,000.
Q4) How does an import quota differ from an equivalent tariff?
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Page 11
Chapter 10: Externalities
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Sample Questions
Q1) Refer to Figure 10-11."The social value of the last unit produced exceeds the private cost of the last unit produced by $9." This statement is correct at which quantity of output?
A) 140 units
B) 180 units
C) 220 units
D) 260 units
Q2) Corrective taxes cause deadweight losses,reducing economic efficiency.
A)True
B)False
Q3) Technology spillover is one type of
A) negative externality.
B) positive externality.
C) subsidy.
D) producer surplus.
Q4) Patents do not
A) provide firms an incentive to research.
B) assign property rights to inventors.
C) protect the rights of inventors for their lifetimes.
D) internalize externalities.
Page 12
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Which of the following goods is nonrival in consumption and excludable?
A) a tornado siren
B) an uncongested toll road
C) a home
D) the environment
Q2) Refer to Table 11-3.What is the value of the 13 unit of national defense in Nirvananville?
A) $8
B) $14
C) $18
D) $24
Q3) Private companies will invest in medical research if
A) they will produce general knowledge.
B) they will produce a specific product for which they may receive a patent.
C) there is no government intervention in the market for medical products.
D) others will benefit from their discoveries.
Q4) Nontoll roads can be either public goods or common resources,depending upon the degree of congestion.
A)True
B)False
Page 13
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) High marginal income tax rates
A) distort incentives to work.
B) are used to encourage saving behavior.
C) will invariably lead to lower average tax rates.
D) are not associated with deadweight losses.
Q2) The administrative burden of any tax system is part of the inefficiency it creates.
A)True B)False
Q3) The income tax requires that taxpayers pay 10% on the first $40,000 of income and 20 percent on all income over $40,000.Karen paid $6,000 in taxes.What were her marginal and average tax rates?
A) 20 percent and 12 percent, respectively
B) 20 percent and 15 percent, respectively
C) 10 percent and 12 percent respectively
D) 10 percent and 15 percent respectively
Q4) The equity of a tax system concerns whether the tax burden is distributed equally among the population.
A)True B)False
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Chapter 13: The Costs of Production
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Sample Questions
Q1) The long-run average total cost curve is always
A) flatter than the short-run average total cost curve, but not necessarily horizontal.
B) horizontal.
C) falling as output increases.
D) rising as output increases.
Q2) Refer to Figure 13-5.Curve A represents which type of cost curve?
A) marginal cost
B) average total cost
C) average variable cost
D) average fixed cost
Q3) Refer to Table 13-7.What is the value of I?
A) $110
B) $120
C) $220
D) $270
Q4) A firm's total profit equals its marginal revenue minus its marginal cost.
A)True
B)False
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) For a firm in a competitive market,an increase in the quantity produced by the firm will result in
A) a decrease in the product's market price.
B) an increase in the product's market price.
C) no change in the product's market price.
D) either an increase or no change in the product's market price depending on the number of firms in the market.
Q2) If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue,then
A) a one-unit increase in output will increase the firm's profit.
B) a one-unit decrease in output will increase the firm's profit.
C) total revenue exceeds total cost.
D) total cost exceeds total revenue.
Q3) If all firms have the same costs of production,then in long-run equilibrium,
A) price exceeds average total cost for all firms.
B) price exceeds marginal cost for all firms.
C) some firms may earn positive economic profits.
D) all firms have zero economic profits and just cover their opportunity costs.
Q4) List and describe the characteristics of a perfectly competitive market.
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Chapter 15: Monopoly
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Sample Questions
Q1) If the government regulates the price a natural monopolist can charge to be equal to the firm's average total cost,the firm has no incentive to reduce costs.
A)True
B)False
Q2) Refer to Figure 15-4.A profit-maximizing monopoly's total cost is equal to
A) P4 x Q3.
B) P2 x Q3.
C) P1 x Q3.
D) (P4-P1) x Q3.
Q3) Which of the following is not an example of a barrier to entry?
A) Mighty Mitch's Mining Company owns a unique plot of land in Tanzania, under which lies the only large deposit of Tanzanite in the world.
B) A college student starts a part-time tutoring business.
C) A novelist obtains a copyright for her new book.
D) A taxi cab driver in New York City obtains a license to legally provide transportation in New York City.
Q4) Give some examples of the benefits and costs of antitrust laws.
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17
Chapter 16: Monopolistic Competition
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Sample Questions
Q1) Refer to Table 16-3.What is the concentration ratio for Industry A?
A) approximately 52%
B) approximately 58%
C) approximately 66%
D) approximately 72%
Q2) Monopolistic competition is an inefficient market structure because
A) price exceeds marginal cost.
B) it has a deadweight loss, just as monopoly does.
C) at the equilibrium, some consumers will value the good at more than the marginal cost of production.
D) All of the above are correct.
Q3) If firms in a monopolistically competitive market are earning economic profits,which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long-run equilibrium?
A) an increase in demand for each firm
B) a decrease in demand for each firm
C) a downward shift in the marginal cost curve for each firm
D) an upward shift in the marginal cost curve for each firm
Q4) List five goods that are likely sold in a monopolistically competitive market.
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Chapter 17: Oligopoly
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Sample Questions
Q1) Refer to Figure 17-1.The dominant strategy for ABC is to A) produce high output, and the dominant strategy for XYZ is to produce high output.
B) produce high output, and the dominant strategy for XYZ is to produce low output.
C) produce low output, and the dominant strategy for XYZ is to produce high output.
D) produce low output, and the dominant strategy for XYZ is to produce low output.
Q2) Oligopolies can end up looking like competitive markets if the number of firms is
A) large and they all cooperate.
B) large and they do not cooperate.
C) small and they all cooperate.
D) small and they do not cooperate.
Q3) An oligopoly would tend to restrict output and drive up price if A) barriers to entering the industry are negligible.
B) firms engage in informative advertising.
C) firms produce a standardized product.
D) firms collude and behave like a monopoly.
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19
Chapter 18: The Market For the Factors of Production
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Sample Questions
Q1) Which of the following would not shift a market labor supply curve to the right?
A) a decrease in the wage paid to workers in a competing market
B) labor-augmenting technology
C) a change in worker tastes so that workers want to retire later
D) an increase in immigration
Q2) In economics,the term capital refers to
A) money.
B) stocks and bonds.
C) equipment and structures used in production.
D) All of the above are correct.
Q3) Suppose that the market for labor is initially in equilibrium.An increase in the price of output will cause the equilibrium wage
A) and the equilibrium quantity of labor to rise.
B) and the equilibrium quantity of labor to fall.
C) to rise and the equilibrium quantity of labor to fall.
D) to fall and the equilibrium quantity of labor to rise.
Q4) The demand for computer programmers is inseparably tied to the supply of computer software.
A)True
B)False
Page 20
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Chapter 19: Earnings and Discrimination
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Sample Questions
Q1) By definition,there is discrimination when the marketplace offers different opportunities to similar individuals who differ only by
A) race, ethnic group, sex, age, or other personal characteristics.
B) qualifications, experience, or job preferences.
C) the levels of human capital.
D) All of the above are correct.
Q2) Discrimination occurs when the marketplace offers different opportunities to similar individuals who differ only by A) race.
B) level of education.
C) attitudes toward risk.
D) attitude toward the tradeoff between labor and leisure.
Q3) Which theory explains the fact that some firms may choose to pay their employees more then they would earn as determined by equilibrium in the labor market?
A) the theory of efficiency wages
B) the marginal-productivity theory
C) human-capital theory
D) signaling theory
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21
Chapter 20: Income Inequality and Poverty
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Q1) Refer to Figure 20-4.In 2001,the percent of children under age 18 in poverty is
A) higher than both the percentage of adults aged 18 to 64 and the percentage of elderly aged 65 years and over in poverty.
B) higher than the percentage of adults aged 18 to 64 but is lower than the percentage of elderly aged 65 years and over in poverty.
C) lower than both the percentage of adults aged18 to 64 and the percentage of elderly aged 65 years and over in poverty.
D) lower than the percentage of adults aged 18 to 64 but is higher than the percentage of elderly aged 65 years and over in poverty.
Q2) Refer to Table 20-4.In 2007,the top fifth of families have
A) almost 15 times as much income as the bottom fifth of families.
B) 96.6% more income than the bottom fifth of families.
C) 50.3% more income than the bottom fifth of families.
D) 46.9% more income than the bottom fifth of families.
Q3) Temporary Assistance for Needy Families (TANF)is an example of a negative income tax program.
A)True
B)False
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Chapter 21: The Theory of Consumer Choice
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Sample Questions
Q1) Carlos goes to the movies every Sunday afternoon.The movie theater offers 4 combinations of popcorn and beverages: the "mini-combo" costs $5 and includes a small popcorn and a small drink,the "medium-combo" costs $7 and includes a medium popcorn and a medium drink,the "value-combo" also costs $7 and includes a small popcorn and a large drink,and the "large-combo" costs $9 and includes a large popcorn and a large drink.Carlos always purchases the "value-combo." We can conclude that
A) Carlos cannot afford the "large-combo."
B) Carlos cannot afford the "medium-combo."
C) Carlos prefers a combo with a larger popcorn-to-beverage ratio.
D) Carlos prefers a combo with a smaller popcorn-to-beverage ratio.
Q2) A consumer consumes two normal goods,coffee and chocolate.The price of coffee rises.The income effect,by itself,suggests that the consumer will consume
A) more coffee and more chocolate.
B) less coffee and less chocolate.
C) more coffee and less chocolate.
D) less coffee and more chocolate.
Q3) For a typical consumer,most indifference curves are bowed inward.
A)True
B)False
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Chapter 22: Frontiers in Microeconomics
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Q1) Based on the studies of human decision making,which of the following statements is correct?
A) Most people are not bothered by perceived unfairness as long as they receive some compensation, even if the amount is very small.
B) Most people are very willing to change their minds.
C) Many people's preferences are inconsistent over time.
D) All of the above are correct.
Q2) Which of the following is not correct?
A) Economics is a study of the choices that people make and the resulting interactions they have with one another.
B) Economists are not interested in finding new areas to study and new phenomena to explain.
C) Economists are trying to expand their understanding of human behavior and society.
D) The economics of asymmetric information, political economy, and behavioral economics are all topics at the frontier of microeconomics.
Q3) How have insights from the field of psychology influenced the thinking of economists in recent years?
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