Economics for Business Test Questions
Course Introduction
Economics for Business introduces students to fundamental economic principles and their application within the business environment. The course explores how markets function, the role of supply and demand, cost structures, competition, market dynamics, and decision-making processes within firms. Students learn to analyze market trends, understand consumer behavior, and evaluate the impact of government policy on businesses. Emphasis is placed on applying economic reasoning to business problems, using real-world examples and case studies to illustrate concepts such as pricing strategies, profit maximization, and resource allocation in both domestic and international contexts.
Recommended Textbook Essentials of Economics 6th Edition by
N. Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) If the price of a dozen eggs were fixed above the current price,then we would expect
A) an increase in the number of eggs people want to buy and an increase in the number of eggs farmers want to sell.
B) an increase in the number of eggs people want to buy and a decrease in the number of eggs farmers want to sell.
C) a decrease in the number of eggs people want to buy and an increase in the number of eggs farmers want to sell.
D) a decrease in the number of eggs people want to buy and a decrease in the number of eggs farmers want to sell.
Answer: C
Q2) In the long run the primary effect of increasing the quantity of money is higher prices.
A)True
B)False
Answer: True
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Chapter 2: Thinking Like an Economist
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Q1) When two variables have a negative correlation,
A) when the x-variable decreases,the y-variable decreases.
B) when the x-variable decreases,the y-variable increases.
C) when the x-variable increases,the y-variable increases.
D) More than one of the above is correct.
Answer: B
Q2) Production possibilities frontiers can be used to illustrate scarcity,trade-offs,opportunity cost,efficiency,unemployment,technological advances,and economic growth.
A)True
B)False
Answer: True
Q3) When a variable that is named on an axis of a graph changes,the curve shifts. A)True
B)False
Answer: False
Q4) Refer to Figure 2-14.It is possible for this economy to produce 75 doghouses.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Interdependence and the Gains From Trade
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Q1) In most countries today,many goods and services consumed are imported from abroad,and many goods and services produced are exported to foreign customers.
A)True
B)False
Answer: True
Q2) Refer to Table 3-11.Falda's opportunity cost of one bushel of wheat is
A) 2/3 yard of cloth and Varick's opportunity cost of one bushel of wheat is 2/5 yard of cloth.
B) 2/3 yard of cloth and Varick's opportunity cost of one bushel of wheat is 5/2 yards of cloth.
C) 3/2 yards of cloth and Varick's opportunity cost of one bushel of wheat is 2/5 yard of cloth.
D) 3/2 yards of cloth and Varick's opportunity cost of one bushel of wheat is 5/2 yards of cloth.
Answer: D
Q3) Some countries win in international trade,while other countries lose.
A)True
B)False
Answer: False
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Q1) The signals that guide the allocation of resources in a market economy are
A) surpluses and shortages.
B) quantities.
C) government policies.
D) prices.
Q2) Once the supply curve for a product or service is drawn,it
A) remains stable over time.
B) can shift either rightward or leftward.
C) is possible to move along the curve,but the curve will not shift.
D) tends to become steeper over time.
Q3) A likely example of complementary goods for most people would be
A) butter and margarine.
B) lawnmowers and automobiles.
C) chips and salsa.
D) cola and lemonade.
Q4) The supply of a good or service is determined by A) those who buy the good or service.
B) the government.
C) those who sell the good or service.
D) both those who buy and those who sell the good or service.
Page 6
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Chapter 5: Elasticity and Its Application
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Q1) Refer to Figure 5-11.Using the midpoint method,the price elasticity of demand between point A and point B is about
A) 0.33.
B) 0.5.
C) 2.0.
D) 3.0.
Q2) Refer to Table 5-6.Using the midpoint method,the income elasticity of demand for good Y is
A) 2.33,and good Y is a normal good.
B) -2.33,and good Y is an inferior good.
C) -0.43,and good Y is a normal good.
D) -0.43,and good Y is an inferior good.
Q3) If the price elasticity of demand is 1.5,regardless of which two points on the demand curve are used to compute the elasticity,then demand is
A) perfectly inelastic,and the demand curve is vertical.
B) elastic,and the demand curve is a straight,downward-sloping line.
C) perfectly elastic,and the demand curve is horizontal.
D) elastic,and the demand curve is something other than a straight,downward-sloping line.
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Page 7
Chapter 6: Supply,demand,and Government Policies
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Q1) Suppose that the demand for picture frames is highly inelastic,and the supply of picture frames is highly elastic.A tax of $1 per frame levied on picture frames will decrease the effective price received by sellers of picture frames by A) less than $0.50.
B) $0.50.
C) between $0.50 and $1.
D) $1.
Q2) The tax burden will fall most heavily on sellers of the good when the demand curve
A) is relatively steep,and the supply curve is relatively flat.
B) is relatively flat,and the supply curve is relatively steep.
C) and the supply curve are both relatively flat.
D) and the supply curve are both relatively steep.
Q3) A binding price floor causes quantity supplied to be less than quantity demanded.
A)True
B)False
Q4) A tax of $1 on buyers always decreases the equilibrium price by $1.
A)True
B)False
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Q1) Refer to Figure 7-15.At the equilibrium price,producer surplus is A) $80.
B) $100.
C) $120.
D) $135.
Q2) Kristi and Rebecca sell lemonade on the corner.It costs them 7 cents to make each cup.On a certain day,they sell 40 cups.Their producer surplus for that day amounts to $19.20.Kristi & Rebecca sold each cup for
A) 31 cents.
B) 38 cents.
C) 45 cents.
D) 55 cents.
Q3) An example of normative analysis is studying
A) how market forces produce equilibrium.
B) surpluses and shortages.
C) whether equilibrium outcomes are socially desirable.
D) income distributions.
Q4) Producer surplus is the amount a seller is paid minus the cost of production. A)True B)False
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Chapter 8: Application: the Costs of Taxation
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Q1) Refer to Figure 8-5.After the tax is levied,producer surplus is represented by area
A) A.
B) A+B+C.
C) D+H+F.
D) F.
Q2) Suppose that policymakers are considering placing a tax on either of two markets.In Market A,the tax will have a significant effect on the price consumers pay,but it will not affect equilibrium quantity very much.In Market B,the same tax will have only a small effect on the price consumers pay,but it will have a large effect on the equilibrium quantity.Other factors are held constant.In which market will the tax have a larger deadweight loss?
A) Market A
B) Market B
C) The deadweight loss will be the same in both markets.
D) There is not enough information to answer the question.
Q3) When a tax is imposed on sellers,consumer surplus and producer surplus both decrease.
A)True
B)False
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Page 10
Chapter 9: Application: International Trade
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Q1) Domestic producers of a good become worse off,and domestic consumers of a good become better off,when a country begins allowing international trade in that good and
A) the country becomes an importer of the good as a result.
B) the world price exceeds the domestic price of the good that prevailed before international trade was allowed.
C) the country in question has a comparative advantage,relative to other countries,in producing the good.
D) total surplus does not change as a result.
Q2) Refer to Figure 9-16.Government revenue raised by the tariff is represented by the area
A) E.
B) B + E.
C) D + E + F.
D) B + D + E + F.
Q3) Free trade allows firms to realize economies of scale,resulting in higher costs of production.
A)True
B)False
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Chapter 10: Externalities
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Sample Questions
Q1) Refer to Figure 10-19.Each additional unit of the good that is produced yields an external benefit of
A) $15.
B) $23.
C) $36.
D) $89.
Q2) Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.
A)True
B)False
Q3) Corrective taxes cause deadweight losses,reducing economic efficiency.
A)True
B)False
Q4) Internalizing a positive externality will cause the demand curve to
A) shift to the right.
B) shift to the left.
C) become more elastic.
D) remain unchanged.
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Page 12
Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) When property rights are not well established,
A) private goods become public goods.
B) markets fail to allocate resources efficiently.
C) the distribution of private goods is unfair.
D) government resources are used inefficiently.
Q2) Economists argue that we can calculate the value of a human life by observing voluntary risks that people take every day.
A)True
B)False
Q3) For private goods allocated in markets,
A) prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources.
B) prices guide the decisions of buyers and sellers and these decisions lead to an inefficient allocation of resources.
C) the government guides the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources.
D) the government guides the decisions of buyers and sellers and these decisions lead to an inefficient allocation of resources.
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13
Chapter 12: The Costs of Production
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Sample Questions
Q1) Refer to Figure 12-10.The firm experiences constant returns to scale if it changes its level of output from
A) Q<sub>1</sub> to Q<sub>2</sub>.
B) Q<sub>2</sub> to Q<sub>4</sub>.
C) Q<sub>1</sub> to Q<sub>3</sub>.
D) Q<sub>4</sub> to Q<sub>5</sub>.
Q2) Refer to Table 12-7.What is the value of K?
A) $25
B) $50
C) $110
D) $220
Q3) Diminishing marginal productivity implies decreasing total product.
A)True
B)False
Q4) Total cost can be divided into two types of costs:
A) fixed costs and variable costs.
B) fixed costs and marginal costs.
C) variable costs and marginal costs.
D) average costs and marginal costs.
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Chapter 13: Firms in Competitive Markets
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Q1) A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost but greater than the firm's average fixed cost.
A)True
B)False
Q2) When entry and exit behavior of firms in an industry does not affect a firm's cost structure,
A) the long-run market supply curve must be horizontal.
B) the long-run market supply curve must be upward-sloping.
C) the long-run market supply curve must be downward-sloping.
D) we do not have sufficient information to determine the shape of the long-run market supply curve.
Q3) Refer to Scenario 13-2.At Q = 999,the firm's total costs equal
A) $24,970.
B) $24,975.
C) $24,980.
D) $25,025.
Q4) List and describe the characteristics of a perfectly competitive market.
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Page 15
Chapter 14: Monopoly
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Sample Questions
Q1) Refer to Table 14-7.What are Sally's fixed costs?
A) $0
B) $100
C) $600
D) $745
Q2) The market demand curve for a monopolist is typically A) unit price elastic.
B) downward sloping.
C) horizontal.
D) vertical.
Q3) Economists assume that monopolists behave as A) cost minimizers.
B) profit maximizers.
C) price maximizers.
D) maximizers of social welfare.
Q4) A rational pricing strategy for a profit-maximizing monopolist is A) price discrimination.
B) price segregation.
C) synergy pricing.
D) average cost pricing.
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Chapter 15: Measuring a Nations Income
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Q1) For the purpose of calculating GDP,investment is spending on A) stocks,bonds,and other financial assets.
B) real estate and financial assets such as stocks and bonds.
C) capital equipment,inventories,and structures,including household purchases of new housing.
D) capital equipment,inventories,and structures,excluding household purchases of new housing.
Q2) The investment component of GDP refers to financial investment in stocks and bonds.
A)True
B)False
Q3) Which of the following statements about GDP is correct?
A) GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services.
B) Money continuously flows from households to firms and then back to households,and GDP measures this flow of money.
C) GDP is generally regarded as the best single measure of a society's economic well-being.
D) All of the above are correct.
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Page 17
Chapter 16: Measuring the Cost of Living
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Q1) The consumer price index and the GDP deflator are two alternative measures of the overall price level.Which of the following statements about the two measures is correct?
A) The CPI involves a base year; the GDP deflator does not involve a base year.
B) The CPI can be used to compute the inflation rate; the GDP deflator cannot be used to compute the inflation rate.
C) The CPI reflects the prices of goods and services produced domestically; the GDP deflator reflects the prices of all goods and services bought by consumers.
D) The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services.
Q2) In the United States,real interest rates were
A) high in the 1970s and 1990s.
B) low in the 1970s and 1990s.
C) high in the 1970s and low in the 1990s.
D) low in the 1970s and high in the 1990s.
Q3) Why does the GDP deflator give a different rate of inflation than the CPI?
Q4) List the three major problems in using the CPI as a measure of the cost of living.
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Page 18
Chapter 17: Production and Growth
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Q1) If a country made it easier for people to establish and prove the ownership of their property,real GDP per person would likely rise.
A)True
B)False
Q2) If a country's saving rate declined,then other things the same,in the long run the country would have
A) lower productivity,but not lower real GDP per person.
B) lower productivity and lower real GDP per person.
C) lower real GDP per person,but not lower productivity
D) neither lower productivity nor lower real GDP per person.
Q3) What is a production function? Write an equation for a typical production function,and explain what each of the terms represents.
Q4) All else equal,if there are diminishing returns,then which of the following is true if a country increases its capital by one unit?
A) Output will rise by more than it did when the previous unit was added.
B) Output will rise but by less than it did when the previous unit was added.
C) Output will fall by more than it did when the previous unit was added.
D) Output will fall but by less then it did when the previous unit was added.
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Page 19
Chapter 18: Saving,investment,and the Financial System
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Q1) As a money management fee,mutual funds usually charge their customers
A) between 0.5 and 2.0 percent of assets each year.
B) between 1.5 and 3.0 percent of assets each year.
C) nothing,because they receive commissions from the firms whose stock they buy.
D) a flat fee of about $50.
Q2) The primary economic function of the financial system is to
A) keep interest rates low.
B) provide expert advice to savers and investors.
C) match one person's consumption expenditures with another person's capital expenditures.
D) match one person's saving with another person's investment.
Q3) Which of the following expressions must be equal to national saving for a closed economy?
A) Y - I - G - NX
B) Y - C - G
C) Y - I - C
D) G + C - Y
Q4) Lenders sell bonds and borrowers buy them.
A)True
B)False
Page 20
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Chapter 19: The Basic Tools of Finance
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Q1) The idea of insurance
A) would not appeal to a risk-averse person.
B) is,other things the same,to reduce the probability of a fire,accident,or death.
C) is to share risk.
D) is to provide a sure thing,not a gamble.
Q2) Jorge deposited $1,000 into an account three years ago.The first two years he earned 5 percent interest; the third year he earned 6 percent interest.How much money does Jorge have in his account today?
A) $1,157.90
B) $1,168.65
C) $1,176.00
D) None of the above are correct to the nearest cent.
Q3) Refer to Figure 19-1.Which distance along the vertical axis represents the marginal utility of an increase in wealth from $600 to $800?
A) the distance between the origin and point B
B) the distance between the origin and point C
C) the distance between point A and point C
D) the distance between point B and point C
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21
Chapter 20: Unemployment
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Q1) Refer to Figure 20-1.If the government imposes a minimum wage of $4,then unemployment will increase by
A) 0 workers.
B) 2000 workers.
C) 4000 workers.
D) 5000 workers.
Q2) Suppose that telemarketers are not unionized.If they unionize,then the supply of labor in other sectors of the economy will
A) decrease,raising wages in industries that are not unionized.
B) decrease,reducing wages in industries that are not unionized.
C) increase,raising wages in industries that are not unionized.
D) increase,reducing wages in industries that are not unionized.
Q3) Almost nine-tenths of all spells of unemployment end when the unemployed person finds a job.
A)True
B)False
Q4) Employment can rise in one region of the country while it falls in another.
A)True
B)False
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Chapter 21: The Monetary System
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Q1) The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of
A) the Board of Governors.
B) the FOMC.
C) the regional Federal Reserve Bank presidents.
D) the U.S.Treasury.
Q2) If the Fed raised the reserve requirement,the demand for reserves would
A) increase,so the federal funds rate would fall.
B) increase,so the federal funds rate would rise.
C) decrease,so the federal funds rate would fall.
D) decrease,so the federal funds rate would rise.
Q3) Are credit cards and debit cards money? What's the difference between credit and debit cards?
Q4) Credit cards are a medium of exchange.
A)True B)False
Q5) Federal Reserve governors are given long terms to insulate them from politics. A)True B)False
Page 23
Q6) What makes the New York Federal Reserve regional bank so important?
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Chapter 22: Money Growth and Inflation
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Q1) Which of the following is correct?
A) The Continental Congress used the inflation tax to help finance the American Revolution.
B) The inflation is today a principal source of revenue for the U.S.government.
C) There is no way a person can avoid the inflation tax.
D) None of the above is correct.
Q2) Suppose the United States unexpectedly decided to pay off its debt by printing new money.Which of the following would happen?
A) People who held money would feel poorer.
B) Prices would rise.
C) People who had lent money at a fixed interest rate would feel poorer.
D) All of the above are correct.
Q3) Relative-price variability is "automatic" when
A) firms change prices only once in a while.
B) firms change prices often.
C) people increase the frequency of their trips to the bank.
D) people decrease the frequency of their trips to the bank.
Q4) The quantity equation is M x V = P x Y.
A)True
B)False
Page 24
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Chapter 23: Aggregate Demand and Aggregate Supply
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Q1) In the last half of 1999,the U.S.unemployment rate was about 4 percent.Historical experience suggests that this is
A) above the natural rate,so real GDP growth was likely low.
B) above the natural rate,so real GDP growth was likely high.
C) below the natural rate,so real GDP growth was likely low.
D) below the natural rate,so real GDP growth was likely high.
Q2) Which of the following decreases in response to the interest-rate effect from an increase in the price level?
A) both investment and consumption
B) consumption but not investment
C) investment but not consumption
D) neither investment nor consumption
Q3) As recessions begin,production
A) and unemployment both rise.
B) rises and unemployment falls.
C) falls and unemployment rises.
D) and unemployment both fall.
Q4) Technological progress shifts the long-run aggregate supply curve to the right.
A)True
B)False
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Chapter 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) Permanent tax cuts shift the AD curve
A) farther to the right than do temporary tax cuts.
B) not as far to the right as do temporary tax cuts.
C) farther to the left than do temporary tax cuts.
D) not as far to the left as do temporary tax cuts.
Q2) According to liquidity preference theory,if the price level decreases,then
A) the interest rate falls because money demand shifts right.
B) the interest rate falls because money demand shifts left.
C) the interest rate rises because money supply shifts right.
D) the interest rate rises because money supply shifts left.
Q3) Refer to Figure 24-1.There is an excess demand for money at an interest rate of A) 2 percent.
B) 3 percent.
C) 4 percent.
D) None of the above is correct.
Q4) Fiscal policy refers to the idea that aggregate demand is affected by changes in A) the money supply.
B) government spending and taxes.
C) trade policy.
D) All of the above are correct.
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