Economics for Business Study Guide Questions
Course Introduction
Economics for Business introduces students to the fundamental principles of microeconomics and macroeconomics, focusing on their practical applications within a business context. The course explores how individuals and firms make decisions regarding resource allocation, production, pricing, and market competition. Students will analyze supply and demand dynamics, market structures, and the impact of government policies on business operations. Through real-world case studies and contemporary examples, learners gain a robust understanding of economic reasoning, strategic decision-making, and the broader economic environment in which businesses operate.
Recommended Textbook
Microeconomics 3rd Edition by R.
Glenn Hubbard
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16 Chapters
3331 Verified Questions
3331 Flashcards
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Page 2
Chapter 1: Economics Foundations and Models
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160 Verified Questions
160 Flashcards
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Sample Questions
Q1) If the marginal cost of keeping a doctor's office open one additional hour per day is $200, then the doctor should keep the office open for one extra hour
A) only if the marginal benefit she receives is greater than $200 plus an acceptable profit margin.
B) as long as the marginal benefit she receives is just equal to or greater than $200.
C) as long as the marginal cost does not rise.
D) until the marginal benefit she receives reaches zero.
Answer: B
Q2) When voluntary exchange takes place, neither party gains from the exchange.
A)True
B)False
Answer: False
Q3) Suppose the extra cost for a doctor to keep his office open for one extra hour is $200. Then, the doctor should stay open for the extra hour if he can generate additional revenue of $200 for that hour.
A)True
B)False
Answer: True
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3
Chapter 2: Choices and Trade - Offs in the Market
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192 Verified Questions
192 Flashcards
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Sample Questions
Q1) Refer to Table 2-6. What is China's opportunity cost of producing one kilo of wheat?
A) 0.04 units of a digital camera
B) 4 digital cameras
C) 25 digital cameras
D) 40 digital cameras
Answer: A
Q2) It is possible to have an absolute advantage in producing a good or service without having a comparative advantage.
A)True
B)False
Answer: True
Q3) All of the following countries come close to the free market benchmark except A) Canada.
B) North Korea.
C) Germany.
D) Singapore.
Answer: B
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Chapter 3: Where Prices Come Frome : The Interaction of
Demand and Supply
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202 Verified Questions
202 Flashcards
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Sample Questions
Q1) An inferior good is a good for which the quantity demanded decreases as the price increases, holding everything else constant.
A)True
B)False
Answer: False
Q2) Olive oil producers want to sell more olive oil at a higher price. Which of the following events would have this effect?
A) an increase in the price of olive oil presses
B) a decrease in the cost of transporting olive oil to markets
C) an increase in the price of land used to plant olives
D) research finds that consumption of olive oil reduces the risk of heart disease
Answer: D
Q3) Refer to Figure 3-4. If the price is $15,
A) there would be a surplus of 300 units.
B) there would be a shortage of 300 units.
C) there would be a surplus of 400 units.
D) there would be a shortage of 400 units.
Answer: B
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Chapter 4: Elasticity: The Responsiveness of Demand and Supply
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226 Flashcards
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Sample Questions
Q1) If a supply curve is a horizontal line, supply is said to be A) perfectly inelastic.
B) unit-elastic.
C) inelastic.
D) perfectly elastic.
Q2) Refer to Figure 4-9. Suppose the diagram shows the supply curves for a product in the short run and in the long run. Which supply curve represents supply in the short run and which curve represents supply in the long run?
A) S<sub>B</sub> represents supply in the short run, and S<sub>A</sub> represents supply in the long run.
B) Either S<sub>A</sub> or S<sub>B</sub> could represent supply in the short run; in the long run, the supply curve must be a vertical line.
C) Either S<sub>A</sub> or S<sub>B</sub> could represent supply in the long run; in the short run, the supply curve must be a horizontal line.
D) S<sub>A</sub> represents supply in the short run, and S<sub>B</sub> represents supply in the long run.
Q3) Explain the relationship between price elasticity of demand and total revenue.
Q4) Briefly explain the economic concept of elasticity.
Page 6
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Chapter 5: Economic Efficiency , Government Price Setting and Taxes
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187 Verified Questions
187 Flashcards
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Sample Questions
Q1) Refer to Figure 5-1. If the market price is $1.50, what is the consumer surplus on the second burrito?
A) $0.50
B) $1.00
C) $1.50
D) $3.50
Q2) Refer to Figure 5-2. What area represents the increase in producer surplus when the market price rises from P<sub>1</sub> to P<sub>2</sub>?
A) B + D
B) A + C + E
C) C + E
D) A + B
Q3) Refer to Figure 5-5. Suppose that instead of a rent ceiling, the government imposed a price floor of $2000 per month for apartments. What is the quantity of apartments demanded at the new price?
A) 0
B) 200
C) 300
D) 500
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Chapter 6: Concumer Choice and Behavioural Economics
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254 Flashcards
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Sample Questions
Q1) Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping. A logical reason for this is that the decline in fuel prices
A) shifted the supply curve for airline tickets to the left, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices did not decline.
B) shifted the supply curve for airline tickets to the right, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices still increased.
C) shifted the supply curve for airline tickets to the right, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices still increased.
D) shifted the supply curve for airline tickets to the left, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices did not decline.
Q2) What did economists Robert Jensen and Nolan Miller determine must be true for a good to be a Giffen good, where the income effect is larger than its substitution effect?
Q3) What is marginal utility and what is the law of diminishing marginal utility?
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Page 8
Chapter 7: Technology , Production and Costs
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300 Verified Questions
300 Flashcards
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Sample Questions
Q1) The level of output at which all economies of scale have been exhausted is known as A) constant returns to scale.
B) minimum efficient scale.
C) the economically efficient output level.
D) optimal economic size.
Q2) Stan owns a software design business. He obtained a bank loan to buy computer equipment for his business. He pays $1000 per month for interest on the loan. He has 10 employees, each of whom is paid $4000 per month. Because his business has been successful, next month he will increase employee wages to $5000. If the revenue from his business remains at its current level, Stan is considering an addition to his office. Which of the following statements regarding Stan's business is false?
A) The payments Stan makes to his employees are variable costs and explicit costs.
B) The monthly payment Stan makes for his bank loan is an implicit cost.
C) The monthly payment Stan makes for his bank loan is a fixed cost.
D) The time and effort Stan spends on his software design business is an implicit cost.
Q3) State the law of diminishing marginal returns.
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Page 9
Chapter 8: Firms in Perfectly Compitive Markets
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270 Verified Questions
270 Flashcards
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Sample Questions
Q1) In the short run, if a firm shuts down its maximum loss equals the amount of its fixed cost.
A)True
B)False
Q2) A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000. If the prevailing market price is $48, the number of firms and the industry's output will decrease in the long run.
A)True
B)False
Q3) Allocative efficiency is achieved in an industry when firms supply those goods and services that provide consumers with a marginal benefit equal to the marginal cost of producing those goods and services.
A)True
B)False
Q4) A perfectly competitive firm faces a demand curve that is A) horizontal.
B) vertical.
C) perpendicular to the quantity axis.
D) perfectly inelastic.
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Chapter 9: Monopoly Markets
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281 Flashcards
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Sample Questions
Q1) When the government makes a firm the exclusive legal provider of a good or service, it grants the firm
A) a copyright.
B) a network externality.
C) a quota.
D) a public franchise.
Q2) Successful price discrimination cannot take place if
A) the market is perfectly competitive.
B) the market can be segmented into different buyer groups.
C) customers are not able to resell the product.
D) the demand curve facing the firm is downward sloping.
Q3) Relative to a perfectly competitive market, a monopoly results in
A) a gain in producer surplus equal to the gain in consumer surplus.
B) a gain in producer surplus equal to the loss in consumer surplus.
C) a gain in producer surplus less than the loss in consumer surplus.
D) greater economic efficiency.
Q4) A public franchise gives the exclusive right to produce a product for 20 years from the date the product is invented.
A)True
B)False
Page 11
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Chapter 10: Monopolistic Competition : The Competitive Model
in More Realistic Setting
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255 Verified Questions
255 Flashcards
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Sample Questions
Q1) Brand management refers to
A) picking a brand name for a new product that will attract attention.
B) the efforts to maintain the differentiation of a product over time.
C) efforts to reduce the cost of production.
D) selling the right to use a brand name in a particular market.
Q2) There are many cattle ranchers in the world, and there are also many McDonald's restaurants in the world. Why, then, does a McDonald's restaurant face a downward-sloping demand curve while a cattle rancher faces a horizontal demand curve?
Q3) Refer to Table 10-4. Victoria's profit-maximising output is where
A) total profit equals $3.
B) marginal revenue and marginal cost both equal $4.
C) marginal revenue and marginal cost both equal $3.
D) marginal cost is at its minimum value.
Q4) ________ describes the actions a firm takes to maintain the differentiation of its product over time.
A) Product differentiation
B) Brand management
C) Aggressive marketing
D) Advertising
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Chapter 11: Oligopoly : Firms in Less Competitve Markets
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186 Verified Questions
186 Flashcards
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Sample Questions
Q1) Suppose we want to use game theory to analyse how an oligopolist selects its optimal price. The cells of the payoff matrix show
A) the profit that each producer can expect to earn by pursuing a single strategy.
B) the profit that each producer can expect to earn from every combination of strategies by the firms in the market.
C) the strategy that a firm must pursue to earn various levels of profit.
D) the expected profits of rival firms.
Q2) Which of the following statements is generally true?
A) The larger the number of firms in an industry, the less rivalry there is.
B) The smaller the number of firms in an industry, the greater the rivalry.
C) The larger the number of firms in an industry, the greater the rivalry.
D) The degree of rivalry in an industry is largely independent of the number of firms.
Q3) The prisoner's dilemma is used to analyse business situations in which one firm acts first and then other firms respond.
A)True
B)False
Q4) Firms in an oligopoly are said to be interdependent. What does this mean?
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13
Chapter 12: The Market for Labour and Other Factors of Production
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253 Verified Questions
253 Flashcards
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Sample Questions
Q1) Refer to Table 12-2. The firm represented in the table
A) has market power in the factor market.
B) has market power in the output market.
C) has market power in both the factor and product market.
D) has no market power in the factor or product market.
Q2) Customer discrimination occurs when
A) a firm pays workers different wages based on irrelevant factors.
B) customers refuse to buy products produced by a racially diverse workforce.
C) customers refuse to buy products they believe to be of poor quality.
D) workers refuse to serve customers of a different race.
Q3) The marginal product of labour is
A) the payment made to workers for their contribution to the output they produce.
B) equal to the demand for labour.
C) the change in a firm's revenue as a result of hiring one more worker.
D) the additional output a firm produces as a result of hiring one more worker.
Q4) While labour unions tend to negotiate above-equilibrium wage rates for their members, they also tend to reduce the quantity of labour hired.
A)True
B)False
Page 14
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Chapter 13: International Trade
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) What is an 'open economy'?
Q2) The largest proportion of world trade is in which of the following sectors?
A) agriculture
B) manufacturing
C) mining
D) services
Q3) The process of countries becoming more open to foreign trade and investment is known as outsourcing.
A)True
B)False
Q4) One of the main sources of comparative advantage is internal economies.
A)True
B)False
Q5) Domestically produced goods and services sold to other countries are referred to as A) capital outflow.
B) exports.
C) imports.
D) transfer payments.
Q6) Why do domestic firms offshore production processes?
Page 15
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Chapter 14: Government Intervention in the Market
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122 Flashcards
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Sample Questions
Q1) The cost of group health insurance is lower than if an individual buys a policy on his own because
A) the problem of adverse selection is reduced.
B) moral hazard costs of a group tend to move to a low average.
C) it is easier for the company to deny claims from a large group.
D) insuring a group eliminates the problem of buyers having more information than the seller.
Q2) Automobile insurance companies have a problem with people who buy insurance and then drive recklessly or take less care to avoid losses after being insured. In other words, the automobile insurance market is subject to
A) asymmetric information.
B) market signaling.
C) moral hazard.
D) adverse selection.
Q3) What is rent seeking and how is it related to regulatory capture?
Q4) A public good that is a good that is both rival and excludable.
A)True
B)False
Q5) Why might a young, healthy person choose not to buy health insurance?
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Chapter 15: Externalities , Environmental Policy and Public Goods
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212 Verified Questions
212 Flashcards
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Sample Questions
Q1) How does a public good differ from a quasi-public good? In your answer give an example of each type of good.
Q2) Suppose a negative externality exists in a market. If transactions costs are low and parties are willing to bargain, then, according to the Coase theorem,
A) an efficient solution can be reached only if property rights are assigned to the victims of the pollution.
B) an efficient solution can be reached only if property rights are assigned to the polluters.
C) an efficient solution can be reached regardless of the initial assignment of property rights.
D) government intervention is critical to reach an efficient solution.
Q3) Refer to Figure 15-2. The marginal benefit of the last unit produced is represented by the price
A) P<sub>a</sub><sub>.</sub>
B) P<sub>b</sub><sub>.</sub>
C) P<sub>c</sub><sub>.</sub>
D) P<sub>f</sub><sub>.</sub>
Q4) What is an externality?
Page 17
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Chapter 16: The Distribution of Income and Social Policy
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Sample Questions
Q1) Suppose the government imposes an 8 per cent sales tax on clothing items and the tax is levied on sellers. Who pays for the tax in this situation? (Assume that the demand curve is downward sloping and that the supply curve is upward sloping.)
A) The tax is borne entirely by the sellers.
B) The sellers will pass on the entire sales tax to consumers, and therefore the consumers bear the tax.
C) The tax will be borne partly by consumers and partly by sellers.
D) It is not possible to answer the question without information on price elasticities.
Q2) Refer to Figure 16-1. The sales tax revenue collected by the government is represented by the area
A) B + C.
B) F + G.
C) E + H.
D) B + C + F + G.
Q3) The actual division of a tax between buyers and sellers in a market is the excess burden of the tax.
A)True
B)False
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