Economics for Business
Final Test Solutions
Course Introduction
Economics for Business offers students a comprehensive introduction to fundamental economic concepts and their practical applications in the business environment. The course explores the principles of microeconomics and macroeconomics, focusing on topics such as supply and demand, market structures, pricing strategies, production costs, economic policy, and the impact of the global economy on business decisions. Through real-world examples and case studies, students learn to analyze how economic forces influence business operations, strategy, and performance, equipping them with the analytical tools necessary for effective decision-making in a constantly changing economic landscape.
Recommended Textbook
Microeconomics Principles Applications and Tools 9th Edition by Arthur OSullivan
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18 Chapters
2638 Verified Questions
2638 Flashcards
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Chapter 1: Introduction: What Is Economics
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163 Verified Questions
163 Flashcards
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Sample Questions
Q1) What assumption was used by the authors of the book when analyzing the traffic congestion problem in London?
A) They assumed that all cars are of the same make and model.
B) They assumed that traffic congestion is the same during daytime and during nighttime.
C) They assumed that every car has the same effect on the travel time of other cars.
D) They assumed that travel via public transportation is less costly that travel by car.
Answer: C
Q2) If each extra driver on the road makes every other driver's commute last one minute longer and there are 600 drivers on the road,then one extra driver costs society
A) 1 hour extra in commuting time.
B) 10 hours extra in commuting time.
C) 100 hours extra in commuting time.
D) 10 extra minutes in commuting time.
Answer: B
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3
Chapter 2: The Key Principles of Economics
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199 Flashcards
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Sample Questions
Q1) The principle of opportunity cost
A) is more relevant for firms than for individuals.
B) only refers to monetary payments.
C) is only relevant in economics.
D) is applicable to all decision-making.
Answer: D
Q2) If the nominal minimum wage is unchanged while prices rise,then the real minimum wage
A) rises.
B) declines.
C) stays the same.
D) is unaffected.
Answer: B
Q3) The Application shows that high inflation results in fewer years to pay back student loans because
A) when inflation is high, the nominal value of the loan increases.
B) when inflation is high, the nominal value of wages decreases.
C) when inflation is high, the nominal value of the loan decreases.
D) when inflation is high, the nominal value of the wages decrease.
Answer: B
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Chapter 3: Exchange and Markets
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133 Verified Questions
133 Flashcards
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Sample Questions
Q1) The ability of one person or nation to produce a good at a lower opportunity cost than another is called a(n)
A) market advantage.
B) comparative advantage.
C) absolute advantage.
D) specialization advantage.
Answer: B
Q2) What is an export?
Answer: An export is a product produced in the home country and sold in another country.
Q3) Suppose that in the time it takes for him to bake a cake,Bob can produce 5 pairs of jeans.In the time it takes for Joe to bake a cake,he can produce 8 pairs of jeans.In this example,who has the comparative advantage in baking a cake?
A) Joe
B) both Bob and Joe
C) Bob
D) neither Bob nor Joe
Answer: C
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5
Chapter 4: Demand,supply,and Market Equilibrium
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279 Verified Questions
279 Flashcards
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Sample Questions
Q1) According to the Application,what was the reason the Canadian government decreased the tax rates of cigarettes?
A) to discourage smuggling of cigarettes from the United States
B) to encourage smoking
C) to discourage smoking
D) to give in to consumer demands of lower taxes in the country
Q2) A major freeze in Florida has reduced the orange yield this winter.What will be the effect of this freeze on the price and quantity in the orange market and also in the peach market? (Assume that oranges and peaches are substitutes.)
Q3) Why is the market supply curve positively sloped?
A) At a higher price, more firms enter the market willing to sell the product or service.
B) At a higher price, fewer firms enter the market willing to sell the product or service.
C) At a higher price, the firms already in the market and are willing to sell a larger quantity of the product or service.
D) Both A and C are correct.
Q4) When consumers find their incomes increasing,they tend to buy more ________.
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Page 6
Chapter 5: Elasticity: a Measure of Responsiveness
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170 Verified Questions
170 Flashcards
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Sample Questions
Q1) Chris buys more new jewelry when her income rises.This means that for Chris, A) new jewelry is an inferior good.
B) the income elasticity of demand for new jewelry is positive.
C) the income elasticity of demand for new jewelry is negative.
D) none of the above
Q2) The demand for a product is
A) more elastic if there are few substitutes for product.
B) more elastic if there are many substitutes for product.
C) more elastic if the product represents a small portion of the individual's budget.
D) B and C are correct.
Q3) Refer to Figure 5.2.Using the initial-value method,the value of the price elasticity of demand from Point E to Point F can be described as A) elastic.
B) inelastic.
C) unit elastic.
D) zero.
Q4) If the supply curve is a vertical line,then supply is perfectly inelastic.
A)True
B)False
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Chapter 6: Market Efficiency and Government Intervention
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) There are winners and losers from licensing programs such as a taxi medallion policy.The losers are producers,who receive lower prices for taxi rides.
A)True
B)False
Q2) A maximum price below the market equilibrium price will lower the total surplus of the market.
A)True
B)False
Q3) What is consumer surplus?
Q4) Refer to Figure 6.1.If the price of a donut is $ 0.75,consumer surplus is
A) $1.75.
B) $1.50.
C) $0.75.
D) $0.50.
Q5) Market equilibrium maximizes the total surplus in a market and therefore it is efficient.
A)True B)False
Q6) Explain the difference between forward and backward shifting of a tax.
Page 8
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Chapter 7: Consumer Choice: Utility Theory and Insights
From Neuroscience
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) When the price of a good changes,the substitution effect and the income effect
A) work in the same direction.
B) work in opposite directions.
C) cause the demand curve to slope upward.
D) are irrelevant.
Q2) The budget line and the demand curve are both similar in the way that both show the price of a good that a consumer can buy.
A)True
B)False
Q3) Refer to Figure 7.2.The ________ movie rental has a marginal utility of zero.
A) first
B) second
C) third
D) fourth
Q4) A change in the price of a good purchased by a consumer would affect that consumer's
A) nominal income.
B) real income.
C) demand curve.
D) marginal utility.
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Chapter 8: Production Technology and Cost
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163 Verified Questions
163 Flashcards
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Sample Questions
Q1) The difference between the short run and long run is a firm's flexibility in choosing inputs.
A)True
B)False
Q2) What is the relationship between marginal cost and fixed cost?
Q3) Refer to Table 8.5.If Sherry produces zero earrings,her total fixed costs are
A) $0.
B) $50.
C) $100.
D) indeterminate from this information.
Q4) Average fixed costs rise continuously as the quantity of output rises.
A)True
B)False
Q5) Refer to Figure 8.9.Which point of the LAC represents economies of scale?
A) a
B) b
C) c
D) e
Q6) Complete Table 8.7.
Q7) Explain the difference between accounting costs and economic costs.
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Chapter 9: Perfect Competition
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167 Verified Questions
167 Flashcards
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Sample Questions
Q1) The vertical sum of the marginal cost curves (above minimum AVC)of all the firms in an industry is the long-run industry supply curve.
A)True
B)False
Q2) Refer to Figure 9.5.This farmer would earn zero economic profit if price was
A) $7.
B) $9.
C) $10.
D) $11.
Q3) For firms in perfect competition,price is equal to marginal revenue at all levels of output.
A)True
B)False
Q4) Consider a competitive firm that produces tomatoes.The fixed costs are $10 per bushel and the relationship between VC and output is shown in Table 9.2.Compute AVC and MC.How much output will be supplied if P = $45 and the firm wants to maximize profits? What if P = $55? What are profits if P = $60? What is the relationship between marginal cost,average variable cost,and the firm's supply curve?
Q5) Is it possible for a firm to maximize profit and yet incur a loss? Explain.
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Chapter 10: Monopoly and Price Discrimination
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) Suppose Coca Cola Company uses heat sensors and microchips to automatically change prices of its products.Which of the following economic concepts describes Coca Cola's goal to charge higher prices for a can of Coke on a hot day?
A) price discrimination
B) rent-seeking
C) deadweight loss
D) internalizing an externality
Q2) Compared to a monopoly market,a perfectly competitive market will produce more output at a higher price.
A)True
B)False
Q3) When the firm is producing at the monopoly equilibrium,its producer surplus will be ________ and the consumer surplus will be ________ than if the industry was competitive.
A) higher; lower
B) higher; higher
C) lower; lower
D) lower; higher
Q4) How does rent-seeking behavior result in additional deadweight loss?
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Chapter 11: Market Entry and Monopolistic Competition
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) List four ways in which product differentiation can be achieved.
Q2) With respect to output production,a monopolistically competitive firm produces A) a larger amount of output than a perfectly competitive firm.
B) an identical amount of output as a perfectly competitive firm.
C) a smaller amount of output than a perfectly competitive firm.
D) none of the above
Q3) Explain the process by which long-run equilibrium will be achieved in a monopolistically competitive industry if some firms are incurring losses.
Q4) In the long run,which two curves are tangent for a firm in monopolistic competition?
A) marginal cost and marginal revenue
B) marginal cost and demand
C) average total cost and demand
D) average total cost and marginal revenue
Q5) Under monopolistic competition,the typical firm maximizes profit at the point where marginal revenue equals marginal cost.
A)True
B)False
Q6) Why do existing firms earn smaller profits as new firms enter an industry?
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Chapter 12: Oligopoly and Strategic Behavior
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116 Flashcards
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Sample Questions
Q1) Refer to Figure 12.7 The numerical data show daily profits for each of the two firms when they choose a specific pricing strategy.In the Nash equilibrium
A) both firms would charge a high price.
B) both firms would charge a low price.
C) only Zeta would charge a low price.
D) only Omega would charge a low price.
Q2) Refer to Figure 12.11.What is Firm A's dominant strategy? What is Firm B's dominant strategy? Explain.
Q3) Figure 12.2 shows the decision tree for setting price for the only two firms in a market.One way for both firms to charge a high price is for both firms to A) play their dominant strategies.
B) collude.
C) expand output.
D) any of the above
Q4) Under tit-for-tat retaliation,a firm will mimic the other firm's choice from the preceding period.
A)True
B)False
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Chapter 13: Controlling Market Power: Antitrust and Regulation
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81 Verified Questions
81 Flashcards
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Sample Questions
Q1) A merger is a process in which two or more firms combine their operations.
A)True
B)False
Q2) The Robinson-Patman Act prohibits the selling of products at "unreasonably low prices" with the intention of increasing competition.
A)True
B)False
Q3) If Xerox requires individuals who purchase their copiers to also purchase Xerox toner fluid,then Xerox is engaging in the practice of predatory pricing.
A)True
B)False
Q4) A natural monopoly is characterized by
A) decreasing average total cost and a long-run average cost curve being positively sloped and steep.
B) decreasing average total cost and low and increasing marginal cost.
C) decreasing average total cost and a long-run average cost curve being negatively sloped and steep.
D) increasing average total cost and large and increasing marginal cost.
Page 15
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Chapter 14: Imperfect Information: Adverse Selection and Moral Hazard
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98 Verified Questions
98 Flashcards
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Sample Questions
Q1) Explain the two predictions made by the lemons model.
Q2) The result of adverse selection is that the presence of high-quality goods in the market drive low-quality goods out of the market.
A)True
B)False
Q3) Refer to Table 14.1,which shows the market for used motorcycles in a small Midwestern town.As buyers adjust their expectations of lemons in this market,
A) the price they will be willing to pay will rise.
B) the quantity of plums supplied will rise.
C) the proportion of lemons in the market will rise.
D) all of the above
Q4) On an automobile insurance policy,a deductible is the dollar amount that the driver will pay toward damages before the insurance company will pay anything.Asymmetric information suggests that
A) high-risk drivers will buy a policy without any deductible.
B) high-risk drivers will buy a policy with a very high deductible.
C) insured drivers drive more safely than uninsured drivers.
D) insured drivers drive more recklessly than uninsured drivers.
Q5) What is moral hazard?
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Chapter 15: Public Goods and Public Choice
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95 Verified Questions
95 Flashcards
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Sample Questions
Q1) Give an example of an external benefit and explain why the outcome is inefficient.
Q2) Which of the following is true?
A) Public goods are generally paid for by voluntary contributions.
B) Public goods are generally paid for by the government with tax revenues.
C) Private goods will not be produced in the private market.
D) none of the above
Q3) Recall the Application.Who are the recipients of the external benefits generated by LoJack?
A) the purchasers of the LoJack system
B) the producers of the LoJack system
C) the owners of cars that do not have the LoJack system
D) the insurance companies that offer discounts to LoJack purchasers
Q4) Which of the following is NOT a way to overcome the free-rider problem?
A) offer contributors private goods in return
B) arrange for matching contributions
C) have the government "volunteer" a wealthy person to pay for it by lottery
D) appeal to the individual's sense of civic or moral responsibility
Q5) List three ways in which an organization can overcome the free-rider problem.
Q6) Explain the free-rider problem.
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Chapter 16: External Costs and Environmental Policy
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) How is the price of a marketable pollution permit determined?
Q2) Economically speaking,it would be socially optimal to chose the level of pollution where the marginal abatement cost is considerably less than the marginal benefit.
A)True
B)False
Q3) Comment on the following statement: "The socially optimal amount of pollution is zero."
Q4) Recall the Application.What does the optimal level of methane abatement depend on?
A) the level at which the polluting firms are able to maximize their profits
B) the total cost of abatement
C) the marginal benefit of abatement
D) It is not possible to determine an optimal level of methane.
Q5) The study of external costs is a major concern of
A) labor economics.
B) international economics.
C) environmental economics.
D) macroeconomists.
Q6) What is an external cost?
18
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Chapter 17: The Labor Market and the Distribution of Income
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177 Flashcards
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Sample Questions
Q1) Refer to Table 17.4.Suppose the wage rate equals $8 per worker.How many workers will the firm hire?
A) 2
B) 3
C) 4
D) There is not enough information to tell.
Q2) The perfectly competitive firm's short-run demand for labor is downward sloping because
A) the output price falls as the firm produces more output.
B) of diminishing marginal productivity.
C) the labor supply curve is upward sloping.
D) as more labor is hired, the firm has less money available per worker.
Q3) Recall the Application.A study of the taxi market in New York City showed that in 2004,a 19 percent increase in the regulated fare
A) did not change the miles driven per cabbie.
B) increased the miles driven per cabbie.
C) decreased the miles driven per cabbie.
D) All of the above represent results of the study.
Q4) What is the learning effect of a college education?
Q5) Explain the input-substitution effect and provide an example.
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Chapter 18: International Trade and Public Policy
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224 Verified Questions
224 Flashcards
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Sample Questions
Q1) Do most infant industries become as efficient as their international competition?
A) No. This rarely happens.
B) Yes, but only if they get very large protection.
C) Yes, it always happens.
D) Yes, but only after decades of protection.
Q2) Suppose France produces only two goods,airplanes and grapes.If France has a comparative advantage in grapes,a move toward free trade will
A) harm grape workers, benefit airplane workers, but benefit the nation as a whole.
B) harm grape workers, harm airplane workers, but benefit the nation as a whole.
C) benefit grape workers, harm airplane workers, but harm the nation as a whole.
D) benefit grape workers, harm airplane workers, but benefit the nation as a whole.
Q3) A tax on an imported good is known as a(n)
A) import ban.
B) tariff.
C) voluntary export restraint.
D) import quota.
Q4) Explain how an import tariff can result in an import ban.
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