Economics for Business Practice Exam
Course Introduction
Economics for Business introduces students to fundamental economic concepts and analytical tools essential for understanding the economic environment in which businesses operate. The course covers both microeconomic and macroeconomic principles, including supply and demand, market structures, pricing strategies, cost analysis, and the impact of government policies on business decision-making. Students will also explore topics such as globalization, fiscal and monetary policy, and how economic trends influence organizational strategy and performance. Real-world case studies and business scenarios are utilized to develop skills in applying economic reasoning to solve business problems and to make informed managerial decisions.
Recommended Textbook
Microeconomics 9th Edition by William Boyes
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Page 2
Chapter 1: Economics: The World Around You
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Sample Questions
Q1) Which of the following is a microeconomic concern?
A)The rate of economic growth in the United States
B)The unemployment level for a country
C)How to maintain or improve the profits of a particular firm
D)Inflation
E)The national output of the United States
Answer: C
Q2) Which of the following resources will not be considered as land?
A)Minerals
B)Timber
C)Water
D)Fertile soil
E)Processed cotton fibre
Answer: E
Q3) In economics,money is capital because it can be used to buy resources to produce goods.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Choice, opportunity Costs, and Specialization
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Sample Questions
Q1) Refer to Table 2.4.Calculate the opportunity cost of a cookie in Iowa.
A)8 chilies
B)4 chilies
C)96 chilies
D)Less than in Ohio
E)The same as in Ohio
Answer: A
Q2) If the nation depicted in Figure 2.3 is producing at combination E,the opportunity cost of producing the tenth unit of consumer good is:
A)10 units of capital goods.
B)6 units of capital goods.
C)1 unit of capital good.
D)4 units of capital goods.
E)zero unit of capital good.
Answer: C
Q3) A point lying inside the production possibilities curve [PPC] is not an attainable combination.
A)True
B)False
Answer: False
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Chapter 3: Markets, Demand and Supply, and the Price System
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Sample Questions
Q1) A sharp increase in gasoline prices will cause the supply curve for trucking services to shift to the right.
A)True
B)False
Answer: False
Q2) According to the law of demand,if the price of movie rentals decreases,ceteris paribus,:
A)the demand for movie rentals would increase.
B)the quantity demanded of movie rentals would decrease.
C)the quantity demanded of movie rentals would increase.
D)the demand for movie rentals would decrease.
E)the quantity demanded of movie rentals would not change.
Answer: C
Q3) Refer to Figure 3.4 and identify the true statement.
A)The supply of DVD rentals has decreased.
B)The original equilibrium quantity was 57.
C)The new equilibrium price is $3.
D)The demand for DVD rentals has decreased.
E)The new equilibrium quantity is 48.
Answer: D
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Chapter 4: The Market System and the Private and Public Sector
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Sample Questions
Q1) National economic policies are usually set by the local government in the U.S.,making it the focus of economic discussions.
A)True
B)False
Q2) Which of the following is a valid difference between sole proprietorship and partnership?
A)Partnerships require a written agreement while sole proprietorships do not.
B)Partnerships require a state charter while sole proprietorships do not.
C)Partnerships generate lower profits than sole proprietorships.
D)Partnerships are characterized by unlimited liability,while sole proprietorships are not.
E)Partnerships consist of two or more partners sharing the responsibility of the firm,while sole proprietorship consist of a single individual.
Q3) A trade deficit involves:
A)net flows of goods from foreign countries to the home country government.
B)net money flows from the foreign country firms to the home country government.
C)net money flows from the domestic firms to the home country government.
D)net money flows from the foreign country firms to the home country.
E)net flows of goods from foreign countries to the firms of the home country.
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Chapter 5: Elasticity: Demand and Supply
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Q1) Tax incidence explains how taxes are shared between producers and consumers.
A)True
B)False
Q2) Suppose the manager of a store wants to know whether the product of the store across the street is a substitute for her product.In other words,she would need to know if the cross-price elasticity of demand for the products _____.
A)is positive
B)is negative
C)is unity
D)is zero
E)is infinite
Q3) When the elasticity of demand for a particular good is less than 1:
A)demand is elastic.
B)demand is inelastic.
C)the elasticity of demand is unit-elastic.
D)the good is a substitute.
E)the good is a normal good.
Q4) Price elasticity of demand is the sole determinant of profit for a firm.
A)True
B)False
Page 7
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Chapter 6: Consumer Choice
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Sample Questions
Q1) Derek has $1 to spend at the grocery store.An apple,an orange,and a banana cost $.50 each.If Derek's MU<sub>A</sub>/P<sub>A</sub> (ratio of marginal utility to price) of an apple is 45,MU<sub>O</sub>/P<sub>O</sub> of an orange is 38,and MU<sub>B</sub>/P<sub>B</sub> of a banana is 52,he will purchase a(n) _____ first and a(n) _____ second.
A)apple; orange
B)orange; apple
C)banana; orange
D)banana; apple
E)orange; banana
Q2) If the marginal utility of a product is diminishing relative to the marginal utility of other products,then _____.
A)the consumer is in equilibrium
B)the consumer has been purchasing relatively less of the product
C)the consumer has been purchasing relatively more of the product
D)the price of this product must have increased
E)the price of the product must have decreased
Q3) A price change triggers the income effect but not the substitution effect.
A)True
B)False
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Chapter 7: Supply: The Costs of Doing Business
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Sample Questions
Q1) Refer to Table 7.2.The average fixed cost of the first unit of output is:
A)$46.
B)$98.
C)$100.
D)$50.
E)$140.
Q2) Which of the following is not correct?
A)If Average Variable Cost (AVC) are decreasing,Average Total Cost (ATC) must be decreasing.
B)AVC reaches minimum before ATC.
C)If ATC is increasing,AVC must be increasing.
D)If AVC is increasing,Marginal Cost (MC) is increasing.
E)If Average Fixed Cost (AFC) is decreasing,ATC must be decreasing.
Q3) If a firm doubles its resources and generates an output level which is more than double,it is said to be experiencing:
A)economic fluctuations.
B)recession.
C)diseconomies of scale.
D)increasing marginal returns to a factor.
E)economies of scale.
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Chapter 8: Profit Maximization
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Sample Questions
Q1) Each firm under perfect competition charges different prices for their products.
A)True
B)False
Q2) Assume that a firm's marginal revenue curve intersects the rising portion of the marginal cost curve at 100 units of output.At this output level,a profit-maximizing firm's total cost is $1,000.If the price of the product is $3 per unit and the firm produces at the profit-maximizing level,the firm will earn an economic profit equal to:
A)-$1,000.
B)-$700.
C)-$400.
D)-$600.
E)$200.
Q3) Identify the characteristics of a monopoly firm.
A)Barred entry and homogeneous product
B)Unique product and large number of sellers
C)Standardized product and price taker
D)Barred entry and price taker
E)Barred entry and price maker
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Chapter 9: Perfect Competition
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Sample Questions
Q1) What is the equilibrium price for the perfectly competitive firm described in Table 9.2?
A)$2
B)$4
C)$6
D)$8
E)$10
Q2) Quickie Inc.,a perfectly competitive firm,currently maximizes profit by producing 400 units of output.If its marginal cost is equal to $25 and its average total cost is $20,then
how much is it earning in economic profit?
A)Economic profit is always equal to zero in perfect competition.
B)$10,000
C)$8,000
D)$2,000
E)$4,000
Q3) When the marginal costs,of firms in perfect competition increases,the short-run supply curve of the industry will shift to the left.
A)True
B)False
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Chapter 10: Monopoly
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Sample Questions
Q1) The firm described in Table 10.2:
A)must be a monopoly firm.
B)must be a perfectly competitive firm.
C)cannot be a perfectly competitive firm.
D)has no market power.
E)cannot be a monopoly.
Q2) The perfectly competitive market structure results in economic efficiency because:
A)price is equal to marginal revenue in the short run.
B)firms are producing at the minimum point of the average-total-cost curve in the short run.
C)a normal profit is being earned in the long run.
D)a normal profit is being earned in the short run.
E)in the long run,price is equal to marginal cost and minimum average-total-cost.
Q3) Under price discrimination,a monopolist equates the marginal cost with the average revenues in different markets.
A)True
B)False
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) The condition under which a cartel can maintain its stability is that:
A)the barriers to entry should be relaxed.
B)an identical product should be produced by the colluding firms.
C)there should be a large number of firms in the market.
D)there should be legal barriers to share agreements.
E)the products of the colluding firms should be highly differentiated.
Q2) A monopolistically competitive firm's demand curve slopes downward because:
A)other firms are free to enter the market.
B)there are a large number of firms in the market.
C)a differentiated product gives the firm some monopoly power.
D)the firm has complete information about the market.
E)the firm sells a standardized product.
Q3) In long-run equilibrium,the monopolistically competitive firm:
A)will break even.
B)will cease to advertise.
C)will earn a positive economic profit.
D)will face a perfectly elastic demand curve.
E)will no longer need to engage in non-price competition.
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Chapter 12: Antitrust and Regulation
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Sample Questions
Q1) Regulation of monopolies is justified on the ground that a monopolist sells too less at a too high price.
A)True
B)False
Q2) The most reliable measure of market concentration is:
A)the Cost of Living index.
B)the Herfindahl index.
C)the Market index.
D)the Market-Value weighted index.
E)the Wholesale Price index.
Q3) Being a monopoly or attempting to monopolize act as sufficient evidence that lead to a guilty verdict under the rule of reason.
A)True
B)False
Q4) When regulating a natural monopoly,government officials face a dilemma that:
A)the efficient price may not allow the firm to break even.
B)the efficient price may lead to an inefficiently high level of output.
C)the efficient price leads to an output level that is too low.
D)the efficient price may not allow the firm to enjoy positive profits.
E)long-run average costs are constantly increasing.
Page 14
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Chapter 13: Market Failures, Government Failures, and Rent
Seeking
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Sample Questions
Q1) The Austrian school of economists stressed on the efficiency of the markets on the pretext that:
A)resources can be efficiently allocated through price system and free markets.
B)governmental intervention was necessary for the efficient allocation of resources.
C)the price charged under the free market system was always lower than under central planning.
D)the market had never failed earlier.
E)the market did not suffer from imperfect information.
Q2) According to Figure 13.2:
A)both points a and b are socially efficient.
B)both points a and b are inefficient.
C)point a represents the social equilibrium,whereas point b represents the private equilibrium.
D)point a represents the private equilibrium,whereas point b represents the social equilibrium.
E)when external costs are zero,the socially efficient output level is equal to 0Q<sub>s</sub> units.
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15
Chapter 14: Resource Markets
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Sample Questions
Q1) If the ratio of marginal revenue product to marginal factor cost for labor is greater than that for capital,then:
A)the producer can maximize profit by hiring more units of capital.
B)the producer suffers losses by hiring more units of labor.
C)the producer does not alter the resource allocation.
D)the producer can maximize profit by hiring more units of labor.
E)the producer will earn above normal profit by hiring less units of labor.
Q2) If there is imperfect competition in the product market,the marginal revenue product of a factor will be greater than the value of its marginal product.
A)True B)False
Q3) Economic rent is the sum of actual earning and transfer earning. A)True B)False
Q4) Burger King has a direct demand for the cheese which it uses in its burgers. A)True B)False
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Chapter 15: The Labor Market
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Sample Questions
Q1) Illegal immigrants pay social security tax.Therefore they receive social security benefits on retirement.
A)True
B)False
Q2) The distortions created by income taxes could be minimized by changing the progressive tax system to a flat tax system.
A)True
B)False
Q3) Because of illegal immigrants,the equilibrium wage rate of unskilled labor falls.
A)True
B)False
Q4) In Figure 15.5,if a minimum wage of $10 is set by the government,then in market B:
A)wage increases but labor employment decreases.
B)wage increases but labor employment remains constant.
C)wage decreases from $12 to $10.
D)both wage and employment increase.
E)both wage and employment decrease.
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Chapter 16: Capital Markets
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Sample
Questions
Q1) A stock index measures the:
A)change in dividend payments of a group of stocks.
B)fluctuation in the price earning ratio of each share.
C)change in the trading volume in the stock exchange.
D)price movements of a group of stocks.
E)change in the number of enlisted companies.
Q2) Which of the following factors lead to a drastic rise in the price of assets?
A)Increased supply of assets
B)Increase in the market rate of interest
C)Reduced demand for money.
D)Increased liquidity in the economy.
E)Contractionary monetary and fiscal policies being undertaken by the government
Q3) A decline in the interest rate will lead to an increase in the price of capital,supply of capital remaining constant.
A)True
B)False
Q4) As the price of capital falls,the quantity of capital that producers are willing and able to offer falls.
A)True
B)False
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Chapter 17: The Land Market and Natural Resources
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Sample Questions
Q1) The returns that skilled engineering professionals earn consist of both transfer earnings and economic rent.This implies:
A)demand for these professionals is highly elastic.
B)the supply curve of skilled engineering professionals is upward-sloping.
C)the supply curve of skilled engineering professionals is backward bending.
D)demand for these professionals is perfectly inelastic.
E)the supply curve of skilled engineering professionals is vertical.
Q2) If the rate of extraction of a renewable resource is greater than its rate of replenishment,the price of the resource is likely to fall in future.
A)True
B)False
Q3) The marginal cost of extraction of a nonrenewable resource increases with passage of time because:
A)the technology used in extraction depreciates in value.
B)the price of the product that uses this resource increases.
C)the exchange rate in the international market appreciates.
D)the tragedy of commons problem is encountered.
E)the resource gradually becomes scarce.
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Chapter 18: Aging, Social Security and Health Care
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Sample Questions
Q1) Which of the following can increase the price of medical care even if the demand for medical care remains constant?
A)Decrease in the cost of medical care
B)Availability of high end technology in modern medical care
C)Increase in the cost of medical care
D)General improvement in the standard of living
E)An increase in preference for herbal medicines among people
Q2) Which of the following would not reduce the problem with the social security system?
A)Reducing the benefits paid to the retirees
B)Paying retirement benefits only to those without any alternative source of income
C)Increasing the minimum age for receiving retirement benefits
D)Privatizing the system by allowing individuals to decide how to invest their social security taxes
E)Including everyone in the Congressional retirement program
Q3) If the ratio of those working to those retired increases it implies that "The World is Aging."
A)True
B)False
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Chapter 19: Income Distribution,Poverty and Government Policy
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Sample Questions
Q1) Foreign aid should be given to all poor countries without considering if the aid reaches the poor and the needy.
A)True
B)False
Q2) Refer to Table 19.4.If the family's monthly income rises from $300 to $400,the marginal penalty on working (in terms of reduced fuel assistance) is:
A)$80
B)$40
C)$50
D)$90
E)$100
Q3) Supplementary Security Incomes are provided to those by the U.S.government who:
A)regularly pay a social security tax.
B)are below 65 years of age.
C)lack the required education to be absorbed in the job market.
D)earn less than $4,500 per year.
E)are temporarily unemployed.
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Page 21
Chapter 20: World Trade Equilibrium
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Sample Questions
Q1) If Japan has a comparative advantage over Canada in the production of computers,which of the following must be true?
A)Supply of unskilled labor in Japan is higher than that in Canada.
B)Japan incurs a lower input cost in the production of computers.
C)Japan incurs a higher input cost in the production of computers.
D)Japan has a lower opportunity cost in the production of computers.
E)Japan has a higher opportunity cost in the production of computers.
Q2) The standard interpretation of the Ricardian model is that differences in factor endowments between countries account for differences in labor productivity.
A)True
B)False
Q3) Countries tend to export different goods and services because of:
A)differences in their comparative advantages.
B)differences in tastes and technological needs.
C)differences in income.
D)similarities in resource endowment.
E)differences in the exchange rates.
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Chapter 21: International Trade Restrictions
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Sample Questions
Q1) When barriers to trade are imposed,we should expect some groups to be harmed at the expense of other groups.
A)True
B)False
Q2) In 1992 the EEC was replaced by the EU with an agreement to:
A)reduce trade barriers among the member countries.
B)reduce trade barriers against nonmember countries.
C)mutually restrict imports from nonmember countries.
D)create a single market for goods and services in western Europe.
E)enable the countries of Western Europe to emerge as major world powers.
Q3) According to strategic trade policy,international trade largely involves firms which:
A)enjoy monopolistic power in the domestic market.
B)has a high initial cost of production.
C)pursues economies of scale.
D)experiences diseconomies of scale.
E)generates adequate employment in the domestic economy.
Q4) Every country imposes tariffs on at least some imports.
A)True
B)False
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Chapter 22: Exchange Rates and Financial Links Between Countries
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Q1) The euro floats against other currencies,but the member nations of the euro have no separate national money.For this reason,Spain,that uses the euro as its currency is listed under the managed float arrangement.
A)True
B)False
Q2) Interest rate parity can be summarized by which of the following equilibrium conditions?
A)The foreign interest rate must equal the domestic interest rate plus the expected inflation.
B)The foreign interest rate must equal the domestic interest rate.
C)The foreign interest rate must equal the expected change in the exchange rate.
D)The domestic interest rate must equal the foreign interest rate plus the expected change in exchange rate.
E)The domestic interest rate must equal the foreign interest rate minus any expected inflation.
Q3) The World Bank was created to help finance economic development in poor countries.
A)True
B)False
24
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