Economics for Business Test Questions
Course Introduction
Economics for Business introduces students to the fundamental principles of microeconomics and macroeconomics as they apply to the business environment. The course explores how individuals, firms, and governments make choices under scarcity, how markets operate and determine prices, and how economic policies impact business decisions. Through case studies and real-world examples, students learn to analyze market structures, assess the effects of competition, and understand the economic forces that shape strategy and decision-making within organizations. The course also examines the broader economic context, including inflation, unemployment, and fiscal and monetary policies, equipping students with analytical tools to interpret and respond to changes in the business environment.
Recommended Textbook
Microeconomics 6th Edition by R. Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Refer to Table 1-1.Using marginal analysis, by how many hours should Lydia extend her nail salon's hours of operations?
A)2 hours
B)3 hours
C)4 hours
D)5 hours
E)6 hours
Answer: D
Q2) An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue.
A)market
B)trade-off
C)variable
D)model
Answer: D
Q3) What is a marginal cost?
Answer: Marginal cost is the additional cost associated with continuing with an activity.
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Figure 2-11.One segment of the circular flow diagram in the figure shows the flow of wages and salaries from market K to economic agents M.What is market K and who are economic agents M?
A)K = factor markets; M = households
B)K = product markets; M = households
C)K = factor markets; M = firms
D)K = product markets; M = firms
Answer: A
Q2) Refer to Table 2-1.Assume Tomaso's Trattoria only produces pizzas and calzones.A combination of 36 pizzas and 30 calzones would appear
A)along Tomaso's production possibilities frontier.
B)inside Tomaso's production possibilities frontier.
C)outside Tomaso's production possibilities frontier.
D)at the horizontal intercept of Tomaso's production possibilities frontier.
Answer: C
Q3) The payment received by suppliers of entrepreneurial skills is called interest.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Suppose that when the price of hamburgers decreases, the Landry family decreases their purchases of chicken nuggets.To the Landry family
A)hamburgers and chicken nuggets are complements.
B)hamburgers and chicken nuggets are inferior goods.
C)hamburgers and chicken nuggets are normal goods.
D)hamburgers and chicken nuggets are substitutes.
Answer: D
Q2) Draw a supply and demand graph showing an equilibrium price of $50 and an equilibrium quantity of 200 units.Explain what would happen if the selling price was $75, and illustrate this on the graph.Explain what would happen if the selling price was $25, and illustrate this on the graph.Be sure to label each axis and curve on the graph.
Answer: 11ea4cb1_e571_bd0d_ad47_3f7ca78db568_TB4192_00
Q3) If the population increases and input prices decrease, the equilibrium quantity of a product will definitely increase.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Sample Questions
Q1) Which of the following statements is true?
A)Consumer surplus measures the total benefit from participating in a market.
B)When a market is in equilibrium consumer surplus equals producer surplus.
C)Consumer surplus measures the net benefit from participating in a market.
D)Producer surplus measures the total benefit received by producers from participating in a market.
Q2) The excess burden of a tax is also a deadweight loss.
A)True
B)False
Q3) Economists refer a to a market where buying and selling take place at prices that violate government price regulations as
A)a black market.
B)an outlaw market.
C)a noncompetitive market.
D)a restricted market.
Q4) In a competitive market equilibrium
A)total consumer surplus equals total producer surplus.
B)marginal benefit and marginal cost are maximized.
C)consumers and producers benefit equally.
D)the marginal benefit equals the marginal cost of the last unit sold.
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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Sample Questions
Q1) Which of the following is an example of a quasi-public good?
A)cable television
B)organic apples
C)stock of knowledge in the public domain
D)crime prevention
Q2) Medical research that results in a cure for a serious disease produces positive externalities.What is the impact of this positive externality on economic efficiency?
A)At equilibrium, less than the economically efficient quantity of medical research is produced.
B)A deadweight loss occurs because at equilibrium the marginal social cost of medical research is greater than the marginal social benefit.
C)At equilibrium, more than the economically efficient quantity of medical research is produced.
D)A deadweight loss occurs because at equilibrium the marginal social cost equals the marginal social benefit.
Q3) Explain how mandatory seat belt laws may reduce the negative externalities of risky behavior.
Q4) What is an externality?
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good.Calculate the price elasticity of supply and characterize the product.
A)2; The product is elastic.
B)0.2; The product is inelastic.
C)0.5; The product is inelastic.
D)50%; The product is inelastic.
Q2) The most important determinant of the price elasticity of demand for a good is
A)the definition of the market for a good.
B)the availability of substitutes for the good.
C)the share of the good in the consumer's budget.
D)whether the good is a necessity or a luxury.
Q3) When there are few substitutes available for a good, demand tends to be relatively inelastic.
A)True
B)False
Q4) Explain the relationship between price elasticity of demand and total revenue.
Q5) Suppose a 4 percent increase in income results in a 2 percent decrease in the quantity demanded of a good.Calculate the income elasticity of demand for the good and determine what type of good it is.
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) What is moral hazard?
A)It refers to the private, self-interested actions that people pursue, which when taken collectively leads to a loss in economic surplus.
B)It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off.
C)It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.
D)It refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction.
Q2) In the United States in 2014, the percentage of people who received health insurance through a government program was about
A)10%.
B)16%.
C)36%.
D)64%.
Q3) What are the main sources of health insurance in the United States?
Q4) What is the principle-agent problem?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) Owners of a corporation share in the profits of the firm
A)by selling any bonds or stocks owned and realizing a capital gain.
B)through coupon payments on that firm's bonds.
C)through dividend payments on shares of that firm's stock.
D)by raising the interest rate on bonds.
Q2) A corporation is owned by its A)board of directors.
B)stockholders.
C)employees.
D)CEO.
Q3) In the United States, corporate profits are taxed at the corporate level and then are taxed again as personal income in the form of dividend payments.
A)True
B)False
Q4) Define a partnership.
Q5) Who controls a sole proprietorship?
A)stockholders
B)bondholders
C)the owner
D)all of these
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) The "Buy American" provision in the 2009 stimulus package required that stimulus money be spent only on U.S.-made goods, effectively acting as a quota of zero imports when stimulus money was being spent.In the market for steel, the "Buy American" provision would ________ the price of steel in the United States and ________ the quantity of steel demanded in the United States.
A)increase; increase B)increase; decrease
C)decrease; increase D)decrease; decrease
Q2) Refer to Figure 9-3.What is the area that represents the deadweight loss as a result of the quota?
A)G + H
B)G + H + I + J
C)E + I + J + M
D)E + M
Q3) Refer to Figure 9-2.With the tariff in place, the United States
A)imports 16 million pounds of rice.
B)imports 9 million pounds of rice.
C)imports 15 million pounds of rice.
D)exports 31 million pounds of rice.
Page 11
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) Gowri has $6 per day to purchase lunch.She spends all of her lunch money on pizza and iced tea.The price of pizza is $2.00 per slice and iced tea costs $1 per bottle.
a.Draw Gowri's budget constraint and label it BC .Put pizza on the horizontal axis and iced tea on the vertical axis.Be sure to identify the intercept values.
b.If the price of iced tea rises to $1.20 per bottle, show what will happen to her budget constraint in your diagram.Be sure to indicate any new intercept values.
Q2) A network externality refers to a situation in which the usefulness of a product decreases with the number of consumers who use it.
A)True
B)False
Q3) To maximize utility consumers should buy goods and services to the point where the marginal utility of each item consumed is maximized.
A)True
B)False
Q4) What is an indifference curve? Why can indifference curves never cross?
Q5) What is marginal utility and what is the law of diminishing marginal utility?
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Chapter 11: Technology, Production, and Costs
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Sample Questions
Q1) Which of the following is typically considered a fixed cost by academic book publishers but a variable cost by companies that print books?
A)postage and supplies
B)travel
C)rent
D)wages and salaries
Q2) Implicit costs can be defined as
A)accounting profit minus explicit cost.
B)the non-monetary opportunity cost of using the firm's own resources.
C)the deferred cost of production.
D)total cost minus fixed costs.
Q3) Which of the following are implicit costs for a typical firm?
A)opportunity costs of capital owned and used by the firm
B)the cost of labor hired by the firm
C)utilities cost
D)a business licensing fee
Q4) In the short run, if average product is at its maximum, then average variable cost is at its minimum.
A)True
B)False
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Which of the following is the best example of a perfectly competitive industry?
A)wheat production
B)steel production
C)electricity production
D)airplane production
Q2) Assume that the personal computer industry is perfectly competitive.The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.
A)True
B)False
Q3) Refer to Table 12-2.How many pounds of apples should Margie sell to maximize her profit?
A)300 pounds
B)400 pounds
C)This cannot be determined without knowing Margie's total or marginal production costs.
D)This can be determined only when all of the values for market price, total revenue, average revenue and marginal revenue are given.
Q4) Under what conditions should a competitive firm shut down in the short run?
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Sample Questions
Q1) A monopolistically competitive firm faces a downward-sloping demand curve because
A)it is able to control price and quantity demanded.
B)there are few substitutes for its product.
C)of product differentiation.
D)its market decisions are affected by the decisions of its rivals.
Q2) If a monopolistically competitive firm breaks even, the firm is earning as much in this industry as it could in any other comparable industry.
A)True
B)False
Q3) Both the perfectly competitive firm and the monopolistically competitive firm produce at the output where marginal revenue equals marginal cost (MR = MC)but only the perfectly competitive firm achieves allocative efficiency.Explain why this is the case.
Q4) Consumers in a monopolistically competitive market do not receive any consumer surplus because the price paid for the product exceeds the marginal cost of production. A)True
B)False
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Which of the following is not a barrier to entry?
A)an inelastic demand curve
B)economies of scale
C)ownership of a key input
D)a patent
Q2) Competition from substitute goods is more of a threat when switching costs are high.
A)True
B)False
Q3) Refer to Table 14-5.Does Ming have a dominant strategy? If yes, what is it?
A)Yes, Ming's dominant strategy is to offer free pickup and delivery.
B)No, Ming does not a dominant strategy - his best outcome depends on what Henri does.
C)Yes, Ming's dominant strategy is to not to offer free pickup and delivery.
D)Yes, Ming's dominant strategy is to wait to see what Henri does first.
Q4) Firms are more likely to find themselves in a prisoner's dilemma in sequential games as opposed to simultaneous games.
A)True
B)False
Q5) List the competitive forces in the five competitive forces model.
Page 16
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) Refer to Figure 15-2.The firm's profit-maximizing price is A)P .
B)P .
C)P .
D)P .
Q2) Refer to Figure 15-11.What is the size of the deadweight loss prior to Verizon entering the market and what happens to this deadweight loss after Verizon does enter the market?
A)The deadweight loss of area D is converted to consumer surplus.
B)The deadweight loss of area C+D is converted to consumer surplus.
C)The deadweight loss of area D is converted to producer surplus.
D)The total deadweight loss is the area D+F; D is converted to consumer surplus and F to producer surplus.
Q3) If a restaurant was a natural monopoly, dividing the restaurant equally into two separate restaurants would
A)decrease marginal cost.
B)raise average total cost.
C)increase total revenue.
D)make marginal revenue less elastic.
Q4) Explain why the monopolist has no supply curve?
Page 17
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Refer to Figure 16-5.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the competitive price.(This is also called an optimal two-part tariff.)What is the quantity it should produce?
A)240 units
B)320 units
C)480 units
D)560 units
Q2) Today, Walt Disney World charges different customers different prices for admission.This pricing strategy is called A)arbitrage.
B)odd pricing.
C)cost-price pricing.
D)price discrimination.
Q3) Differentiating products to suit customers' tastes is a form of price discrimination. A)True
B)False
Q4) Are sellers who practice arbitrage taking advantage of buyers?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) An increase in the wage rate causes
A)a rightward shift of the firm's labor demand curve.
B)a leftward shift of the firm's labor demand curve.
C)a decrease in the quantity of labor demanded.
D)an increase in labor's marginal productivity.
Q2) Refer to Figure 17-4.Which of the following is true at W ?
A)The income effect is larger than the substitution effect.
B)The substitution effect is larger than the income effect.
C)The income effect and the substitution effect are equal.
D)The supply curve is positively sloped.
Q3) What is a monopsony?
Q4) If a firm is the sole employer of a factor of production, it is known as A)a monopoly.
B)a competitor.
C)a monopsony.
D)an economically discriminating firm.
Q5) If the labor demand curve shifts to the left and the labor supply curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.
Page 19
Q6) What is personnel economics?
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Chapter 18: Public Choice, Taxes, and the Distribution of Income
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Sample Questions
Q1) When the demand for a product is less elastic than the supply, consumers pay the majority of the tax on the product.
A)True
B)False
Q2) For the top 1 percent of income distribution, the share of total income earned by households in this group was about ________ percent in 2015.
A)9
B)17
C)44
D)68
Q3) The complexity of the U.S.federal income tax system results in significant annual deadweight losses.The opportunity cost of the hours taxpayers spend on record keeping and completing their tax returns amounts to billions of dollars.
a.If the tax system was simplified, how would this benefit the economy?
b.Why hasn't the tax system been simplified?
Q4) If you pay $3,000 in taxes on an income of $28,000, and $4,450 in taxes on an income of $38,000, what is your marginal tax rate? Show your work.
Q5) What is the difference between the poverty line and the poverty rate?
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