Economics for Business
Mock Exam
Course Introduction
Economics for Business explores the fundamental principles of microeconomics and macroeconomics as they apply to real-world business decision-making. The course examines how market forces, consumer behavior, and government policies influence business operations and strategic planning. Key topics include demand and supply analysis, market structures, pricing strategies, cost analysis, and the impact of economic indicators on business activity. Emphasis is placed on applying economic reasoning to solve practical problems, assess market opportunities, and make informed managerial decisions in a dynamic global environment.
Recommended Textbook foundations of macroeconomics 7th edition by robin bade
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Page 2
Chapter 1: Getting Started
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Q1) In the above figure,which of the figures show(s)a relationships between x and y with a positive slope?
A) Figure A and Figure D
B) Figure B and Figure C
C) Figure C only
D) Figure D only
E) Figure A and Figure B
Answer: A
Q2) By donating $1,000 to the Salvation Army,Caroline reduces her taxable income.To Caroline,the reduction in her taxable income is
A) a marginal benefit.
B) an opportunity cost.
C) an incentive.
D) a marginal cost.
E) the margin.
Answer: C
Q3) In the figure above,what can you deduce about the slope of the curve?
Answer: The slope is positive and increasing in size as we move rightward along the curve.
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Page 3
Chapter 2: The USand Global Economies
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Sample Questions
Q1) Which of the following is NOT shown explicitly in the circular flow model?
A) the governments' purchases in the goods market
B) the taxes the governments collect from households
C) the governments' interaction with firms
D) the legal system
E) the transfers the governments make to households
Answer: D
Q2) In the circular flow model,
A) the government is represented as a separate market.
B) the government buys goods and services from firms.
C) goods and services are sold by households and purchased by firms.
D) factor markets are where goods rather than services are bought and sold.
E) the government has no direct interaction with either households or firms.
Answer: B
Q3) What is the difference between the functional and the personal distribution of income?
Answer: The functional distribution of income shows how total income is divided among the factors of production.The personal distribution of income shows how total income is divided among households.
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Page 4
Chapter 3: The Economic Problem
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Sample Questions
Q1) The figure above represents the production possibilities frontier for a country.
a.The nation is currently producing at point B and wants to move to point C.What is the opportunity cost of the move?
b.The nation is currently producing at point B and wants to move to point A.What is the opportunity cost of the move?
c.The nation is currently producing at point D and wants to move to point B.What is the opportunity cost of the move?
Answer: a.By moving from point B to point C,the production of automobiles decreases by 1 million,from 3 million to 2 million.The 1 million decrease in automobiles is the opportunity cost of the movement.
b.By moving from point B to point A,the production of cameras decreases by 3 million,from 3 million to 0 million.The 3 million decrease in cameras is the opportunity cost of the movement.
c.By moving from point D to point B the nation gains 1 million additional cameras and also gains 2 million additional automobiles.The opportunity cost of this movement is zero,because there are no goods forgone.No goods are forgone because the nation is moving from a point with inefficiently used resources,point D,to one at which resources are efficiently utilized,point B.
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Page 5
Chapter 4: Demand and Supply
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Sample Questions
Q1) Which of the following is true?
A) For an inferior good, when income increases, the demand curve shifts leftward.
B) If the price of a substitute rises, the demand curve shifts leftward.
C) If people expect the price of a good will rise in the future, the demand curve shifts leftward.
D) An increase in population shifts the demand curve leftward.
E) An increase in the cost of producing a good shifts the demand curve leftward.
Q2) The above figure shows the market for pizza.The market is in equilibrium when people learn that eating pizza helps prevent heart disease.What point represents the most likely new price and quantity?
A) A
B) B
C) C
D) D
E) E
Q3) Smart phones are becoming less expensive as new technology reduces the cost of production.In a supply and demand model,explain the effects of the technological innovations and their effect on the quantity of smart phones.
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Chapter 5: Elasticities of Demand and Supply
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Q1) You are more sensitive to a change in price if you
A) spend a lot of your income on the good.
B) spend a small percentage of your income on the good.
C) buy very little of the good.
D) do not buy the good regularly.
E) have a very inelastic demand for the good.
Q2) If the price of suntan lotion increases from $6 to $8 per bottle and quantity demanded decreases from 900,000 bottles to 845,000 bottles,using the midpoint method,what is the price elasticity of demand for suntan lotion?
Q3) The price elasticity of supply measures
A) the percentage change in supply from a percentage change in demand.
B) the extent to which the quantity supplied of a good changes when the price of a good changes, other things remaining the same.
C) the slope of the supply curve.
D) how the equilibrium price changes in response to a change in the equilibrium quantity supplied.
E) Both answers B and C are correct.
Q4) What is the price elasticity of demand? In terms of percentage changes,what is its formula?
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Chapter 6: Efficiency and Fairness of Markets
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Sample Questions
Q1) Allocating resources by the order of someone in authority is a ________ allocation method.
A) first-come, first-served
B) market price
C) contest
D) majority rule
E) command
Q2) The marginal cost curve is
A) downward sloping to reflect the bowed out PPF.
B) downward sloping as marginal benefits increase.
C) upward sloping because marginal cost falls as more of a good or service is produced.
D) upward sloping to reflect the increasing opportunity cost of producing one more unit.
E) U-shaped to reflect the bowed out PPF.
Q3) What is the "invisible hand"?
Q4) "A demand curve is the same as a marginal cost curve." Is this statement correct or incorrect? Explain your answer.
Q5) Explain how the invisible hand delivers an efficient market outcome.
Q6) Why is a competitive market efficient?
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Chapter 7: Government Actions in Markets
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Sample Questions
Q1) The graph shows the market for holiday condos in West Palm Beach.If a rent ceiling is set at $1,700 a week,the quantity of holiday condos rented ________.
A) is 2,000 a week
B) is 4,000 a week
C) is 5,000 a week
D) is some amount, but more information is needed to determine the amount.
E) depends on the black market
Q2) In a housing market with a rent ceiling set below the equilibrium rent,
A) some people seeking an apartment to rent will not be able to find one.
B) the total cost of renting an apartment will decrease for all those seeking housing.
C) some landlords will not be able to find renters to fill available apartments.
D) search will decrease because renters no longer need to search for less expensive apartments.
E) None of the above answers are correct because to have an impact, the rent ceiling must be set above the equilibrium rent.
Q3) Will an increase in the minimum wage create more unemployment if the supply and demand for labor are highly elastic or highly inelastic?
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Page 9
Chapter 8: Taxes
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Sample Questions
Q1) Which resource has the least elastic supply?
A) labor
B) capital
C) land
D) money
E) taxes
Q2) A tax imposed on a resource's income is paid by both the resource's owners and the resource's employers,except for a tax
A) on labor income.
B) on the income of capital.
C) on land rent.
D) that is imposed on employers.
E) that is imposed on employees.
Q3) Most of a tax hike will be paid by workers if the demand for labor is ________ and the supply of labor is ________.
A) elastic; inelastic
B) elastic; elastic
C) inelastic; inelastic
D) inelastic; stable
E) elastic; stable
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Chapter 9: Global Markets in Action
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Q1) Most t-shirts bought by Americans are made in Asia.As a result of free trade,the production of t-shirts in America
A) has increased.
B) has stayed the same.
C) has decreased.
D) has been taken over by the government.
E) might change, but more information about what else the United States imports is needed to determine if U.S. production increased, decreased, or did not change.
Q2) A tax on a good that is imposed when it is imported is called A) an import quota.
B) a VER.
C) a tariff.
D) a sanction.
E) a border tax.
Q3) How does the United States attempt to compensate losers from lower trade restrictions?
Q4) Briefly define a tariff and a quota.Do any of these methods restrict trade without harming domestic consumers?
Q5) How do exports affect buyers' consumer surplus?
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Chapter 10: Externalities
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Sample Questions
Q1) A payment made by the government to private producers of roads and libraries would be an example of
A) a subsidy.
B) a copyright.
C) a voucher.
D) public provision.
E) a Coase payment.
Q2) For a product with an external cost,the supply curve
A) represents the various quantities people can buy.
B) is the same as the marginal private cost curve.
C) is the same as the marginal social cost curve.
D) is the same as the marginal external cost curve.
E) is undefined.
Q3) The figure shows the market for college education.The efficient number of students is
A) less than 4 million.
B) more than 4 million and less than 8 million.
C) 4 million.
D) 8 million.
E) more than 8 million.
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Chapter 11: Public Goods and Common Resources
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Q1) The marginal benefit of a public good is the
A) sum of the marginal benefits of all the individuals at each quantity.
B) marginal benefit of the individual person who places the lowest value on the good, multiplied by the number of people in the economy.
C) marginal benefit of the individual person who places the highest value on the good, multiplied by the number of people in the economy.
D) benefit of the last person's consumption.
E) average of the marginal benefits of all the individuals at each quantity.
Q2) Which of the following goods is best described as nonexcludable?
A) flood-control levees
B) pay-per-view television
C) a restaurant meal
D) a college education
E) a cow grazing in a pasture
Q3) What are the differences between public goods and private goods?
Q4) Is a sailboat purchased in Victoria,British Columbia,a private good or a public good?
Q5) What is the free-rider problem and with what is it associated?
Q6) How is the efficient quantity of public goods determined?
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Chapter 12: Markets with Private Information
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Q1) The tendency for people to enter into agreements in which they can use their private information to their own advantage and to the disadvantage of the less informed party is known as
A) adverse selection.
B) a pooling selection.
C) moral hazard.
D) the market for oranges.
E) a signal.
Q2) What role does moral hazard play in the market for health care?
Q3) In the used car market,adverse selection creates the lemon problem when
A) sellers cannot judge buyers' creditworthiness.
B) buyers believe that sellers will offer only high-priced "good" used cars for sale.
C) buyers believe that sellers will sell only lemons.
D) sellers offer warranties on all used cars.
E) None of the above answers is correct because it is moral hazard that creates the lemon problem.
Q4) What is the missing insurance market in health care? Why don't private markets provide this insurance?
Q5) Explain the concept of moral hazard.Give an example.
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Chapter 13: Consumer Choice and Demand
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Q1) Suppose Alice spends her budget on books and downloaded movies.If her budget does not change,and the price of a book stays the same but the price of a downloaded movie falls,her budget line
A) shifts outward and its slope does not change.
B) shifts inward and its slope does not change.
C) rotates inward and its slope changes.
D) rotates outward and its slope changes.
E) does not change because her budget has not changed.
Q2) The above table shows Homer's utility from boxes of doughnuts.The marginal utility that Homer receives from the third box of doughnuts is equal to A) 75.
B) 25.
C) 20.
D) 3.
E) 50.
Q3) If the price of a good rises and the consumer's budget remains the same,what happens to the consumer's consumption possibilities?
Q4) Is "utility" another word for the cost we give up when we consume a good?
Q5) What is the utility-maximizing rule?
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Chapter 14: Production and Cost
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Sample Questions
Q1) The marginal cost curve is U-shaped.Over the range of output for which the marginal cost is falling as output increases,the marginal product is A) increasing. B) decreasing.
C) constant.
D) probably changing, but there is no stable relationship between the marginal cost and the marginal product.
E) not defined.
Q2) The table above shows the total product schedule for Rick's Lawn Service,a yard care company.Increasing marginal returns
A) end when the fourth worker is hired. B) occur at all levels of employment.
C) occur as long as output increases. D) end when the second worker is hired. E) never occur.
Q3) The average total cost curve is U-shaped.At the quantity of output where average total cost is at its minimum,is the marginal cost curve above the average total cost curve,below the average total cost curve,or intersecting the average total cost curve?
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Chapter 15: Perfect Competition
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Q1) The U.S.oil industry has only a few firms in it,so an economists is likely to describe the industry as
A) a monopoly.
B) an oligopoly.
C) perfectly competitive.
D) monopolistically competitive.
E) Both answers C and D can be correct.
Q2) The above figure shows a perfectly competitive firm.If the market price is $20 per unit,the firm
A) will definitely shut down to minimize its losses.
B) will stay open to produce and will make zero economic profit.
C) will stay open to produce and will incur an economic loss.
D) will stay open to produce and will make an economic profit.
E) might shut down but more information is needed about the fixed cost.
Q3) Suppose a farmer raising beef is making a normal profit.Then,because of a scare about mad cow disease,the demand for beef decreases drastically.What happens to the profits of the beef farmer in the short run and in the long run?
Q4) Why do you never see firms in a perfectly competitive market advertise their product?
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Chapter 16: Monopoly
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Q1) Compared to a perfectly competitive market,a single-price monopoly sets
A) a lower price.
B) the same price.
C) a higher price.
D) a price that might be higher, lower, or the same depending on whether the monopoly's marginal revenue curve lies above, below, or on its demand curve.
E) a price that might be higher, lower, or the same depending on whether the monopoly's marginal cost curve lies above, below, or on its marginal revenue curve.
Q2) Compare the outcome in a market with a single-price monopoly to that in a perfectly competitive market.
Q3) How does marginal revenue compare to price for a single-price monopoly?
Q4) Which of the following firms is most likely to be a monopoly?
A) local restaurant
B) local distributor of natural gas
C) local book store
D) clothing store
E) local bank
Q5) Why do some utilities have an incentive to exaggerate their costs of production?
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Chapter 17: Monopolistic Competition
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Q1) A firm in monopolistic competition is
A) efficient because in the long run it makes zero economic profit.
B) efficient because it produces at the minimum average total cost.
C) inefficient because price exceeds marginal cost.
D) efficient because of the ease of entry.
E) efficient because it produces where MR = MC.
Q2) The firm in the above figure has excess capacity of ________ meals per day.
A) 0
B) between 1 and 10
C) between 11 and 20
D) more than 21 and 30
E) more than 31
Q3) Why are firms in monopolistic competition unable to make an economic profit in the long run?
Q4) What do demand and marginal revenue curves look like in monopolistic competition? How do they compare to the demand and marginal revenue curves in perfect competition and monopoly?
Q5) There are 9 firms in an industry with market shares in the table above.Calculate the HHI for the industry.What kind of market does this operate in and why?
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Chapter 18: Oligopoly
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Q1) Game theory reveals that
A) the equilibrium might not be the best solution for the parties involved.
B) firms in oligopoly are not interdependent.
C) each player looks after what is best for the industry.
D) if all firms in an oligopoly take the action that maximizes their profit, then the equilibrium will have the largest possible combined profit of all the firms.
E) firms in an oligopoly choose their actions without regard for what the other firms might do.
Q2) Which of the following is found ONLY in oligopoly?
A) producers who sell identical products
B) one firm's actions affect another firm's profit
C) entry into the industry is blocked
D) sellers face a downward sloping demand curve for their product
E) the firm's demand curve is horizontal
Q3) In a cartel,how does the number of firms affect the likelihood that the cartel will be able to successfully maintain a high price?
Q4) If price fixing is necessary because without it a firm will go bankrupt,is the price fixing legal?
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Page 20
Chapter 19: Markets for Factors of Production
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Q1) Sky High Camping offers overnight camping in tree houses built on its 10-acre property.Workers are hired to build and maintain the tree houses.Which of the following are true statements?
i.The land and the trees grown are considered natural resources.
ii.The demand for trees and land is not a derived demand because supply is limited. iii.The demand for workers is considered a derived demand because they help produce the service of tree house camping.
A) i and iii.
B) i, ii and iii.
C) i only.
D) iii only.
E) ii and iii.
Q2) Entrepreneurship differs from the other factors of production because it A) is not real.
B) is the most important.
C) has only existed since the new economy of the 1990s.
D) is not traded in a factor market.
E) is not paid.
Q3) Why is the supply of an nonrenewable natural resource perfectly elastic?
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Page 21
Chapter 20: Economic Inequality
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Q1) As a tool that is used to measure inequality in the distribution of income,the Lorenz curve graphs
A) the cumulative percentage of money income against the cumulative percentage of households.
B) the percentage of total money income received by each given percentage of households.
C) the mean income, median income, and mode income against the percentage of households.
D) the mean money income received by households over time.
E) the cumulative percentage of money income against the mean and median money income.
Q2) Passing the TANF welfare program has
A) made welfare programs more open-ended entitlement programs.
B) limited assistance to five years.
C) eliminated work and public service requirements.
D) hurt economic incentives to work.
E) made it into a negative income tax program.
Q3) What are the three ways that the government redistributes income in the United States? Briefly discuss each.
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Page 22