Economics for Business Solved Exam Questions
Course Introduction
Economics for Business introduces students to fundamental economic principles and explores their practical application in business decision-making. The course covers both microeconomic and macroeconomic concepts, including supply and demand analysis, market structures, pricing strategies, consumer behavior, and the impact of government regulation. Additionally, students will examine how economic trends, fiscal and monetary policy, and global events influence business operations and strategy. Through real-world case studies and applied exercises, this course equips students with the analytical tools needed to interpret economic data and make informed managerial decisions in a dynamic business environment.
Recommended Textbook
Essentials of Economics 4th Edition by
R. Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) What are the five steps by which economists arrive at a useful economic model?
Answer: 1.Decide on the assumptions to use in developing the model.
2.Formulate a testable hypothesis.
3.Use economic data to test the hypothesis.
4.Revise the model if it fails to explain the economic data well.
5.Retain the revised model to help answer similar economic questions in the future.
Q2) Marginal analysis involves undertaking an activity
A)until its marginal costs start declining.
B)only when its marginal benefits are positive.
C)until its marginal benefits equal marginal costs.
D)only if its marginal costs are greater than its marginal benefits.
Answer: C
Q3) What is opportunity cost?
Answer: Opportunity cost refers to the highest-valued alternative that must be given up to engage in an activity.For example,the opportunity cost of taking this economics class is what you are giving up to take the class,which may be taking another class such as accounting or psychology,working extra hours at your job,or extra sleep (whichever is your highest-valued alternative).
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Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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Sample Questions
Q1) According to the production possibility model,if more resources are allocated to the production of physical and human capital,then which of the following is likely to happen?
A)fewer goods will be produced for consumption today.
B)the production possibilities frontier will be shift inward in the future C)future economic growth will decline.
D)the country's total production will fall.
Answer: A
Q2) Refer to Figure 2-19.Which two arrows in the diagram depict the following transaction: Lizzie Haxem hires "The Paint Pros," a professional painting company,to paint her home.
A)J and M
B)K and G
C)K and M
D)J and G
Answer: B
Q3) The basis for trade is absolute advantage,not comparative advantage.
A)True
B)False
Answer: False
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for Blu-ray discs.Which panel best describes what happens in this market if there is a substantial increase in the price of Blu-ray players?
A)Panel (a)
B)Panel (b)
C)Panel (c)
D)Panel (d)
Answer: C
Q2) If the demand for a product decreases and the supply of the same product increases,the equilibrium quantity will increase.
A)True
B)False
Answer: False
Q3) If the demand curve for a product shifts to the right and the supply curve for the product shifts to the left,equilibrium price and equilibrium quantity will both increase.
A)True
B)False
Answer: False
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Chapter 4: Market Efficiency and Market Failure
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Q1) If policymakers use a pollution tax to control pollution,the tax per unit of pollution should be set
A)equal to the marginal external cost at the economically efficient level of pollution. B)equal to the marginal private cost of production at the economically efficient level of pollution.
C)equal to the amount of the deadweight loss created in the absence of a pollution tax. D)at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product.
Q2) Refer to Figure 4-10.Suppose that instead of a price ceiling,the government imposed a price floor of R .What is the area representing producer surplus after the imposition of the price floor?
A)A
B)B + D + F
C)C + E
D)B + C + D + E + F
Q3) What area on a supply and demand graph represents producer surplus?
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Chapter 5: The Economics of Health Care
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Sample Questions
Q1) The Pre-Existing Condition Insurance Plan is a federally administered part of the Affordable Care Act,and is designed for people with pre-existing medical conditions to obtain insurance.By offering health insurance to all U.S.citizens with pre-existing medical conditions,the Pre-Existing Condition Insurance Plan
A)eliminates asymmetric information for the insurer, but not for the insured.
B)eliminates asymmetric information for the insured, but not for the insurer.
C)eliminates asymmetric information for both the insurer and the insured.
D)reduces, but does not eliminate,, asymmetric information for both the insurer and the insured.
Q2) In the United States in 2012,the percentage of people who received health insurance through a government program was about A)10%.
B)16%.
C)36%.
D)64%.
Q3) Briefly describe the most important differences between the market for health care and the market for other goods and services.
Q4) How can increases in a country's total income improve health?
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Page 7
Chapter 6: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) What are liabilities?
A)anything of value owned by a person or a business
B)anything a person or a business owes to entities outside the business
C)the total cost of labor for a firm
D)only those unpaid expenses for which a business or person is making interest payments
Q2) When you buy newly-issued shares of Facebook stock,this transaction takes place in the
A)primary market.
B)bond market.
C)secondary market.
D)bear market.
Q3) What is a firm's balance sheet?
Q4) What is a secondary market?
A)a market where factory seconds and damaged merchandise are sold
B)a market where newly issued bonds are sold to initial buyers by the borrowing firm
C)a market where a newly issued stocks are sold to initial buyers by the borrowing firm
D)a market where you can sell any stocks you own as a private investor
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.
A)True
B)False
Q2) Music writer Anthony Kuzminski praised rock star Tom Petty in a 2007 article in the online Unrated Magazine.Kuzminski wrote: "Something Petty never can get enough credit for is his fan-friendly attitude.He kept ticket prices for [his concerts] at $50 when other acts this summer are charging upwards of $100 for stadium gigs.Petty could charge more,but he doesn't see the point.He has stated time and time again he still makes millions when he's on the road,regardless of his ticket prices.He is the last of the fan friendly rock stars out there." Use economic reasoning to write a rationale for Tom Petty's decision to charge prices for his band's ("Tom Petty and the Heartbreakers")concerts that are less than market clearing prices.
Source: Anthony Kuzminski,"Tom Petty & The Heartbreakers at the Vic Theater" http://www.unratedmagazine.com/
Q3) What is marginal utility and what is the law of diminishing marginal utility?
Q4) What is a Giffen good?
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Chapter 8: Technology, production, and Costs
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Sample Questions
Q1) Refer to Table 8-7.What is the marginal cost per unit of production when the firm produces 100 lanterns?
A)$420
B)$32
C)$11.1
D)$8.1
Q2) Use the general relationship between marginal and average values to explain why a marginal cost curve must intersect an average total cost curve and an average variable cost curve at their minimum points.
Q3) Average fixed cost is equal to
A)the amount of total cost that does not change as output changes in the short run.
B)fixed cost divided by the quantity of output produced.
C)fixed cost multiplied by the quantity of output produced.
D)average total cost plus average variable cost.
Q4) If the average variable cost curve is above the marginal cost curve,then
A)marginal costs must be decreasing.
B)average variable costs must be increasing.
C)marginal costs must be increasing.
D)marginal costs can be either increasing or decreasing.
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Chapter 9: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Refer to Table 9-3.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?
A)Q = 1; profit = -$10.
B)Q = 3; profit = -$7.50
C)Q = 0; profit = -$10.00
D)Price and profit cannot be determined from the information given.
Q2) For a perfectly competitive firm,average revenue is equal to A)marginal cost.
B)the market price.
C)total revenue.
D)average fixed cost.
Q3) Refer to Table 9-1.What is the fixed cost of production?
A)$0
B)$500
C)$1,000
D)It cannot be determined.
Q4) In the short run,a profit-maximizing firm will shut down if its total revenue is greater than its variable costs.
A)True
B)False
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Chapter 10: Monopoly and Antitrust Policy
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Sample Questions
Q1) The Aluminum Company of America (Alcoa)had a monopoly until the 1940s because
A)it was a public enterprise.
B)it had a patent on the manufacture of aluminum.
C)the company had a secret technique for making aluminum from bauxite.
D)it had control of almost all the available supply of bauxite.
Q2) The demand curve for a monopoly firm
A)is perfectly inelastic.
B)lies below its marginal revenue curve.
C)is the same as the market demand curve.
D)is horizontal.
Q3) Refer to Table 10-3.If Comcast wants to maximize its profits,what price (P)should it charge and how many cable subscriptions per month (Q)should it sell?
A)P = $12; Q = 8
B)P = $14; Q = 6
C)P = $16; Q = 4
D)P = $15: Q = 5
Q4) A monopoly is defined as a firm that has the largest market share in an industry.
A)True
B)False
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Chapter 11: Monopolistic Competition and Oligopoly
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Q1) Long-run equilibrium under monopolistic competition is similar to that under perfect competition in that
A)firms produce at the minimum point of their average cost curves.
B)price equals marginal cost.
C)firms earn normal profits.
D)price equals marginal revenue.
Q2) Every firm that has the ability to affect the price of the good or service it sells will
A)have a perfectly elastic demand curve.
B)have a marginal revenue curve that lies below its demand curve.
C)earn a short-run profit but break even in the long run.
D)shut down in the short run.
Q3) In the long-run equilibrium,a monopolistically competitive firm earning normal profit produces the allocatively efficient output level.
A)True
B)False
Q4) What is the difference between zero accounting profit and zero economic profit?
Q5) Most economists are concerned about entry barriers.Why is this so important to them?
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Chapter 12: Gdp: Measuring Total Production and Income
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Q1) If prices are rising on average,then
A)real GDP will always be equal to nominal GDP.
B)real GDP will be greater than nominal GDP in the years after the base year.
C)real GDP will be less than nominal GDP in the years before the base year.
D)real GDP will be greater than nominal GDP in the years before the base year.
Q2) When lumber from Brazilian forests is used by a U.S.-owned company to produce furniture in Canada,the value of the furniture produced will be counted as a final good in A)U)S.GDP.
B)Canada's GDP.
C)Brazil's GDP.
D)Brazil's GNP.
Q3) Which of the following is considered a durable good?
A)medical care
B)clothing
C)food
D)a washing machine
Q4) People complain that inflation increases the cost of goods and services and therefore reduces their purchasing power.If inflation and income grow at the same rate,is this complaint valid? Explain carefully.
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Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) A student who just graduated from college but has not found a job would most likely be
A)frictionally unemployed.
B)structurally unemployed.
C)cyclically unemployed.
D)seasonally unemployed.
Q2) Refer to Table 13-16.Looking at the table above,real wages ________ from 2011 to 2012,and real wages ________ from 2012 to 2013.
A)rose; rose
B)rose; fell
C)fell; rose
D)fell; fell
Q3) Which of the following is an example of a worker experiencing frictional unemployment?
A)A worker quits his job at the Post Office to find more interesting work.
B)A computer programmer loses her job because it is outsourced to India.
C)An employee is laid off because the economy is suffering a recession.
D)A United Airlines pilot loses her job because of lack of demand for air travel.
Q4) Describe the three types of unemployment.
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Chapter 14: Economic Growth, the Financial System, and Business Cycles
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Sample Questions
Q1) What factors increase potential GDP? Include a definition of potential GDP in your answer.
Q2) Potential GDP is estimated to grow at a rate of 3.2% in the United States.Actual GDP in the U.S.
A)always grows at a slower rate than potential GDP.
B)always grows at a faster rate than potential GDP.
C)always grows at the same rate as potential GDP.
D)is the same as potential GDP if all firms in the economy were working at capacity.
Q3) The period between a business cycle peak and a business cycle trough is called A)expansion.
B)recession.
C)diffusion.
D)recalculation.
Q4) If an economy is growing at a rate of 2.5% per year,how long will it take the economy to double in size?
A)60 years
B)43 years
C)36 years
D)28 years
Page 16
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Q1) Workers and firms both expect that prices will be 2.5% higher next year than they are this year.As a result
A)workers will be willing to take lower wages next year, but not lower than a 2.5 percent decrease.
B)the purchasing power of wages will rise if wages increase by 2.5%.
C)the short-run aggregate supply curve will shift to the left as wages increase.
D)aggregate demand will increase by 2.5%
Q2) Workers expect inflation to rise from 3% to 5% next year.As a result,this should
A)shift the short-run aggregate supply curve to the left.
B)shift the short-run aggregate supply curve to the right.
C)move the economy up along a stationary short-run aggregate supply curve.
D)move the economy down along a stationary short-run aggregate supply curve.
Q3) Monetarism is a school of thought put forth by Milton Friedman.He argued that the economy would most likely
A)be below potential GDP.
B)be at potential GDP.
C)be unstable.
D)be above potential GDP.
Q4) Explain how "menu costs" affect the slope of the short-run aggregate supply curve.
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Chapter 16: Money, banks, and the Federal Reserve System
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Q1) Commodity money
A)has value independent of its use as money.
B)has little to no value independent of its use as money.
C)is backed by a valuable commodity such as gold.
D)can be used to purchase commodities, but not services.
Q2) If the Federal Open Market Committee wants to decrease the money supply through open market operations it will
A)buy U.S.Treasury Securities.
B)sell U.S.Treasury Securities.
C)increase the discount rate.
D)decrease the discount rate.
Q3) In 1913,Congress established the Federal Reserve system with the intention of putting an end to
A)high interest rates.
B)high unemployment rates.
C)inflation.
D)bank panics.
Q4) Why is the real-world deposit multiplier smaller than 1/RR,where RR is the required reserve ratio?
Q5) What is the principle monetary policy tool used by the Fed.Why?
Page 18
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Chapter 17: Monetary Policy
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Q1) How do economists generally rate the Fed's performance in the 1980s,1990s,and the early 2000s? Has the public been supportive of their policies? Is there anything on the horizon for the Fed that might cause the public concern?
Q2) Falling interest rates can
A)increase a firm's stock price, which causes firms to issue more stock shares, and thus increases funds for investment.
B)raise the cost of borrowing for firms and decrease investment.
C)raise the cost of buying new homes and fewer new homes will be purchased.
D)lower the cost of buying new homes and fewer new homes will be purchased.
Q3) Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy,but not until after the economy has passed the trough of the recession.Then
A)the Fed's contractionary policy will result in too large of a decrease in GDP.
B)the Fed's contractionary policy will result in too small of a decrease in GDP.
C)the Fed's expansionary policy will result in too small of a decrease in GDP.
D)the Fed's expansionary policy will result in too large of an increase in GDP.
Q4) Monetary policy is conducted by the U.S.Treasury Department.
A)True
B)False
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Chapter 18: Fiscal Policy
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Q1) For the federal deficit to be lowered
A)the federal government must decrease its spending and increase net exports.
B)the federal government's expenditures must be lower than its tax revenue.
C)the Federal Reserve must raise interest rates and lower the required reserve ratio.
D)the Federal Reserve must reduce the money supply.
Q2) A cut in tax rates effects equilibrium real GDP through two channels: ________ disposable income and consumer spending,and ________ the size of the multiplier effect.
A)decreasing; increasing B)decreasing; decreasing C)increasing; increasing D)increasing; decreasing
Q3) An increase in the tax wedge associated with a given economic activity will decrease the level of that activity.
A)True
B)False
Q4) The majority of the federal government debt is held by government agencies.
A)True
B)False
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Chapter 19: Comparative Advantage, international Trade, and Exchange Rates
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Q1) The textbook referred to the following quotation from a Federal Reserve publication: "Trade is a win-win situation for all countries that participate." But many firms and workers oppose free trade policies and protests against globalization have become a regular occurrence at meetings of the World Trade Organization.If trade is a "win-win" situation,why is there strong opposition to free trade and globalization?
Q2) Refer to Figure 19-3.What is the value of consumer surplus after the imposition of the quota?
A)$8 million
B)$26.25 million
C)$45.5 million
D)$72.25 million
Q3) Which of the following statements is true?
A)Exports benefit trading countries because exports create jobs.Imports do not benefit trading countries because they result in a loss of jobs.
B)Each year China exports about 50 percent of its wheat crop and 40 percent of its rice crop.
C)Most of the leading exporting countries are large, high-income countries.
D)All sectors of the U.S.economy are affected equally by international trade.
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