Economics for Business
Mock Exam
Course Introduction
Economics for Business introduces students to the fundamental principles of microeconomics and macroeconomics as they apply to real-world business decisions. The course explores how market mechanisms, cost structures, competition, consumer behavior, and government policies shape the strategies and operations of firms. Students analyze case studies and current economic trends to understand demand and supply dynamics, pricing strategies, resource allocation, and the impact of economic indicators on business environments. Practical applications emphasize the value of economic thinking in solving business problems and improving decision-making in both local and global contexts.
Recommended Textbook Essentials of Economics 3rd Edition by Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Jewellery manufacturers produce a range of products such as rings,necklaces,bracelets and brooches.What fundamental economic question are they addressing by offering this range of items?
A) How to produce goods that consumers want?
B) Why produce a variety of items?
C) What to produce?
D) Who to produce the items for?
Answer: C
Q2) ________ increases economic efficiency because it forces firms to produce and sell goods and services as long as the additional benefit to consumers is greater than the additional cost of production.
A) Competition
B) Voluntary exchange
C) Equity
D) A centrally planned economy
Answer: A
Q3) When voluntary exchange takes place,neither party gains from the exchange.
A)True
B)False
Answer: False
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Sample Questions
Q1) An example of a factor of production is
A) stock issued by Dell.
B) the computers exported by Dell.
C) a computer produced by Dell.
D) a worker hired by Dell.
Answer: D
Q2) Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70 silk roses and 55 silk leaves.If she now produces 60 silk roses and 80 silk leaves,what is the opportunity cost of producing an additional 10 silk roses?
A) 2.5 silk leaves
B) 10 silk leaves
C) 25 silk leaves
D) 55 silk leaves
Answer: C
Q3) On a diagram of a production possibility frontier,opportunity cost is represented by the production possibility frontier shifting outward.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) How does the decreasing use of traditional cameras affect the market for traditional camera film?
A) The demand curve for traditional camera film shifts to the right.
B) The quantity of traditional camera film demanded decreases.
C) The quantity of traditional camera film demanded increases.
D) The demand curve for traditional camera film shifts to the left.
Answer: D
Q2) Which of the following would cause both the equilibrium price and equilibrium quantity of cotton (assume that cotton is a normal good)to increase?
A) An increase in consumer income.
B) A drought that sharply reduces cotton output.
C) A decrease in consumer income.
D) Unusually good weather that results in a bumper crop of cotton.
Answer: A
Q3) Chips and salsa are complements.If the price of salsa decreases,the demand for chips will increase.
A)True
B)False
Answer: True
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Chapter 4: Market Efficiency and Market Failure
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Sample Questions
Q1) For each pair of items below,determine which product would have the higher price elasticity of demand (in absolute value).
a.Blood pressure medicine for someone who has high blood pressure and the purchase of Clairol hair colouring product
b.A new Ford Fusion or a tank of petrol for your current car
c.A Seiko watch or watches in general
Q2) At a price of $100,Beachside Canoe Rentals rented 11 canoes.When it increased its rental price to $125,9 canoes were rented.Calculate the absolute value of the price elasticity of demand for canoe rentals,using the midpoint formula.
A) 2
B) 1.25
C) 0.9
D) 0.75
Q3) The price elasticity of demand for Kellogg Corn Flakes is larger in absolute value than the price elasticity for all breakfast cereals.
A)True
B)False
Q4) Briefly explain the economic concept of elasticity.
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Page 6
Chapter 5: The Economics of Healthcare
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Sample Questions
Q1) Frieda is at her local florist to buy a dozen roses.She is willing to pay $75 for the roses,and buys them for $75.Frieda's consumer surplus from the purchase is
A) $150.
B) $75.
C) $37.50.
D) $0.
Q2) A price ceiling is a legally determined maximum price that sellers may charge. A)True B)False
Q3) The government proposes a tax on imported champagne.Buyers will bear the entire burden of the tax if the
A) supply curve for imported champagne is vertical.
B) demand curve for imported champagne is vertical.
C) demand curve for imported champagne is horizontal.
D) demand curve is downward sloping and the supply curve is upward sloping.
Q4) Marginal benefit is the total benefit to a consumer from consuming one more unit of a good or service.
A)True B)False
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Chapter 6: Firms,the Stock Market,and Corporate Governance
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Sample Questions
Q1) Refer to Figure 6-10.Suppose for the past 8 years the firm has been producing Qd units per period using plant size ATC4.Now,following a permanent change in demand,it plans to cut production to Qc units.What will happen to its average cost of production?
A) In the short run, its average cost falls from $47 to $41, and in the long run average cost falls even further to $37.
B) In the short run, its average cost rises from $47 to $55, and in the long run average cost falls to $41.
C) In the short run, its average cost falls from $47 to $37, and in the long run average cost rises to $41.
D) In the short run, its average cost rises from $47 to $55, and in the long run average cost falls to $37.
Q2) If production displays increasing marginal returns,then
A) total product rises by a constant amount throughout.
B) each new worker hired adds more to output than previous hires.
C) the firm must be adding new capital to keep boosting productivity.
D) total product reaches a maximum sooner than if production displayed decreasing returns.
Q3) Is it possible for technological change to be negative? If so,give an example.
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) Refer to Figure 7-14.Which panel best represents the perfectly competitive organic produce market in which some firms are earning short-run economic profits,and the Surgeon General announces that switching from non-organic produce to organic produce will add 5 years to the average life span of consumers?
A) Panel A
B) Panel B
C) Panel C
D) Panel D
Q2) If a firm shuts down in the short run it will
A) break even.
B) declare bankruptcy.
C) suffer a loss equal to its variable costs.
D) suffer a loss equal to its fixed costs.
Q3) A perfectly competitive firm's marginal revenue
A) is greater than price.
B) is less than price because a firm must lower its price to sell more.
C) is equal to price.
D) may be either greater or less than price, depending on the quantity sold.
Q4) What is meant by the term 'long-run competitive equilibrium'?
Q5) Under what conditions should a competitive firm shut down in the short run?
Page 9
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Chapter 8: Technology, production, and Costs
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Sample Questions
Q1) Insurance companies typically charge women lower prices than men for automobile insurance.Is this an example of price discrimination?
A) No, because, on average, women have better driving records than men and the costs of insuring men are greater than the costs of insuring women.
B) Yes, because the costs of selling insurance to men and women are the same.
C) Yes, because insurance companies can prevent arbitrage; that is, women cannot transfer their insurance coverage to men.
D) No, because there are too many insurance companies for any one company to have market power. A firm must possess market power in order to practice price discrimination.
Q2) The ability of a firm to charge a price greater than marginal cost is called A) monopoly power.
B) price-making power.
C) cost-plus pricing.
D) market power.
Q3) How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.
Q4) If you own the only bookstore in a small town,do you have a monopoly?
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Page 10
Chapter 9: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) In economics,the study of the decisions of firms in industries where the profits of each firm depend on its interactions with other firms is called
A) decision theory.
B) game theory.
C) market structure analysis.
D) profit analysis.
Q2) A monopolistically competitive firm will
A) charge the same price as its competitors do.
B) always produce at the minimum efficient scale of production.
C) have some control over its price because its product is differentiated. D) produce an output level that is productively and allocatively efficient.
Q3) Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduces its price to $9.
A) $270
B) $20
C) $4
D) $2.50
Q4) What is the difference between explicit collusion and implicit collusion?
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Chapter 10: Monopoly and Antitrust
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Sample Questions
Q1) If the labour supply is unchanged,an increase in the demand for labour will A) increase the equilibrium wage and decrease the number of workers employed. B) increase the equilibrium wage and increase the quantity of jobs demanded.
C) decrease the equilibrium wage and increase the number of workers employed. D) increase the equilibrium wage and increase the number of workers employed.
Q2) Let MP = marginal product,P = output price,and W = wage,then the equation that represents a situation where a competitive firm should lay off some workers to maximise profits is
A) P × MP = W.
B) P × MP > W.
C) P × MP < W.
D) MP × W = P.
Q3) The marginal productivity theory of income distribution was developed by A) Edward Lazear.
B) George Akerlof.
C) William Stanley Jevons.
D) John Bates Clark.
Q4) If the labour supply curve shifts to the right and the labour demand curve remains unchanged,what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.
Page 12
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) A quasi-public good differs from a public good in that unlike a public good,it is possible to keep out those who do not pay for the quasi-public good from enjoying the benefits of the good.
A)True
B)False
Q2) Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after the patents on the prescription drugs expire because they have established a strong foothold in the market.
A)True
B)False
Q3) Negative externalities and the tragedy of the commons are problems that have a common source.What is this common source?
A) Self-interest motives of producers and consumers
B) A lack of concern for human rights
C) A lack of competition
D) A lack of clearly defined and enforced property rights
Q4) An externality is an example of a market failure.
A)True
B)False
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Chapter 12: GDP: Measuring Total Production and Income
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Q1) Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next?
Q2) What are the three methods of calculating GDP used by the Australian Bureau of Statistics,and define each method.
Q3) Explain the difference between gross domestic product and gross national income.
Q4) What reasons does Paul Romer give to support his claim that firms free ride on knowledge capital?
Q5) Which of the following describes the Soviet Union's economy between 1950 and the 1980s?
A) The Soviet economy grew rapidly due to an increase in capital per worker.
B) The Soviet economy increased capital per worker very slowly from 1950 through 1980.
C) The Soviet economy grew slowly because of the slow rate of technological change.
D) The Soviet economy grew because it added labour through immigration-its policy in the 1950s.
Q6) Explain the shortcomings of GDP as a measure of total production in an economy,and as a measure of economic wellbeing.
Q7) Outline the trend in real GDP per capita in Australia from 1901 to 2013.
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Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) In Australia in early 2014,approximately how many people were in the labour force?
A) 6.3 million
B) 12 million
C) 18.3 million
D) 11.4 million
Q2) In Australia between 2003 and 2013
A) the fastest job growth was experienced in the full-time job category.
B) the fastest job growth was experienced in the part-time job category.
C) total net jobs growth fell.
D) the unemployment rate rose.
Q3) Weekly expenditures for a family of four in 2012 averaged $1400.In 2013,the cost of the same purchases was $1500.If 2012 is the base year,what was the CPI in 2013?
A) 110
B) 107
C) 100
D) 93
Q4) Explain what economists mean by 'full employment' and why the associated rate of unemployment is not zero.
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Page 15
Chapter 14: Economic Growth, the Financial System and Business Cycles
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Sample Questions
Q1) The lengths of the recession and expansion phases and which sectors of the economy are most affected will rarely be the same in any two business cycles.
A)True
B)False
Q2) Outline the phases of the business cycle.
Q3) 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
Q4) If technological change occurs in the economy,the
A) long-run aggregate supply curve will shift to the right.
B) long-run aggregate supply curve will shift to the left.
C) economy will move up along the long-run aggregate supply curve.
D) economy will move down along the long-run aggregate supply curve.
Q5) On the 45° line diagram,for points that lie above the 45° line
A) planned aggregate expenditure is greater than GDP.
B) planned aggregate expenditure is less than GDP.
C) planned aggregate expenditure is equal to GDP.
D) planned aggregate expenditure is less than aggregate income.
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Q1) What role does the Reserve Bank of Australia (RBA)have in the economy? Describe the structure of the Reserve Bank of Australia's Board,and explain what open market operations are.
Q2) Which of the following criteria would make gold a poor medium of exchange?
A) Its value depends on its purity, and its purity is not easy to visibly identify.
B) Durability so that value is not lost by spoilage.
C) Value relative to its weight so that amounts large enough to be useful in trade can be easily transported.
D) Divisibility because different goods are valued differently.
Q3) If banks increase their reserve ratios,the deposit multiplier increases.
A)True
B)False
Q4) Fiat money
A) has no or very little value except as money.
B) is rarely used in modern economies.
C) functions well only if it can be redeemed for gold or other precious metals.
D) serves well as a medium of exchange, but not as a store of value.
Q5) How does the existence of financial intermediaries affect liquidity in the financial market?
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Chapter 16: Money, banks, and the Federal Reserve System
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Sample Questions
Q1) Explain and show graphically how a decrease in household saving affects the equilibrium interest rate and the equilibrium quantity of loanable funds.
Q2) The Reserve Bank of Australia can increase the cash rate by
A) borrowing from the banks using reverse repurchase agreements.
B) purchasing bonds and securities, which increases banks' reserves.
C) lending cash to banks using repurchase agreements.
D) purchasing bonds and securities, which decreases banks' reserves.
Q3) The Reserve Bank of Australia engages in open market operations only when it wants to change interest rates.
A)True
B)False
Q4) If the Reserve Bank of Australia lowers its target for the cash rate,this indicates that it is
A) pursuing an expansionary monetary policy.
B) pursuing a contractionary monetary policy.
C) attempting to combat inflation.
D) concerned that the growth in aggregate demand will exceed potential GDP.
Q5) What effect will a rise in interest rates have on the exchange rate and net exports?
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Page 18
Chapter 17: Monetary Policy
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Sample Questions
Q1) Suppose you are an economic advisor for a political candidate in the early 1960s.Your candidate understands the political value of a very low unemployment rate.Currently,the unemployment rate is a bit high and he/she wants to advocate polices to lower it permanently.How do you advise your candidate about what the cost of such a choice is,given the economic understanding of the day?
Q2) Suppose the federal government reduces income taxes.Assume that the movement from A to B in Figure 17.6 represents normal growth in the economy before the tax change.If the tax change is not effective and labour supply and savings do not increase because of the tax change,then the tax change will
A) decrease the price level below P<sub>2</sub>.
B) increase output above Y<sub>2</sub>.
C) not change the price level.
D) shift LRAS<sub>2</sub> to the right.
Q3) Cutting taxes will
A) lower disposable income and lower spending.
B) raise disposable income and lower spending.
C) lower disposable income and raise spending.
D) raise disposable income and raise spending.
Q4) What is fiscal policy,and who is responsible for fiscal policy?
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Chapter 18: Fiscal Policy
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Sample Questions
Q1) Refer to Table 18-5.
a.Which person has an absolute advantage in the production of bows? Of arrows?
b.Which person has a comparative advantage in the production of bows?
c.Which person has a comparative advantage in the production of arrows?
Q2) Japan has developed a comparative advantage in designing and producing automobiles.The source of its comparative advantage in these products is
A) abundant supplies of natural resources.
B) a favourable climate.
C) a strong central government.
D) technology.
Q3) Trade between countries that is without restrictions is called
A) unobstructed commerce.
B) unabated trade.
C) free trade.
D) unencumbered trade.
Q4) Imports are goods and services bought domestically
A) but produced in other countries.
B) and resold at a profit.
C) and produced domestically.
D) and not subject to tariffs.
Page 20
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Chapter 19: Comparative Advantage, international Trade, and Exchange Rates
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Q1) Suppose that the average price of goods imported from Great Britain increased.Is it likely that the value of the Australian dollar would appreciate or depreciate versus the British pound,ceteris paribus? Is it likely that the average price in British pounds of goods exported from Australia to Great Britain would rise or fall?
Q2) In international exchange markets,a rise in interest rates in Australia,ceteris paribus,will cause the demand for dollars to ________ and the supply of dollars to
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Q3) The demand for yen in exchange for dollars will increase if,ceteris paribus, A) Japanese interest rates increase relative to interest rates in other countries.
B) income in Australia falls.
C) speculators think the value of the yen relative to the dollar will fall.
D) the desirability of investing in Japan falls.
Q4) What determined the exchange rates among currencies under the gold standard,and what caused the gold standard to collapse?
Page 21
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