Economics for Managers Exam Review
Course Introduction
Economics for Managers provides an overview of key economic principles and tools that are essential for effective managerial decision-making. The course covers fundamental microeconomic and macroeconomic concepts, including supply and demand, market structures, production and cost analysis, pricing strategies, and the impact of government policies on business. Students learn how to analyze market dynamics, evaluate business opportunities, and make strategic choices using economic reasoning. Emphasis is placed on applying economic frameworks to real-world business scenarios, equipping managers to interpret economic environments, anticipate market changes, and optimize organizational performance.
Recommended Textbook
Economics 5th Edition by R. Glenn Hubbard
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30 Chapters
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Refer to Table 1-6. Using marginal analysis, determine how many hours should Ivan extend his hours of operations?
A) 2 hours
B) 3 hours
C) 4 hours
D) 5 hours
E) 6 hours
Answer: D
Q2) According to census figures and the Congressional Budget Office, the number of people aged 65 and older is projected to ________ and the number of uninsured people is projected to ________ by the year 2020.
A) increase; increase
B) decrease; increase
C) increase; decrease
D) decrease; decrease
Answer: C
Q3) List the five main factors of production.
Answer: The five main factors of production are labor, capital, human capital, natural resources, and entrepreneurial ability.
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Page 3
Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Figure 2-5. If the economy is currently producing at point Y, what is the opportunity cost of moving to point W?
A) 2 million tons of steel
B) zero
C) 9 million tons of paper
D) 16 million tons of paper
Answer: B
Q2) ________ shows that if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.
A) Comparative advantage
B) Absolute advantage
C) The mixed market system
D) The production possibilities frontier model
Answer: D
Q3) A decrease in population shifts the production possibility frontier outwards over time.
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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Sample Questions
Q1) Quantity supplied refers to the amount of a good or service that a firm is willing and able to supply at a given price.
A)True
B)False
Answer: True
Q2) Refer to Figure 3-1. A decrease in the expected future price of the product would be represented by a movement from
A) A to B.
B) B to A.
C) D1 to D2.
D) D2 to D1.
Answer: D
Q3) A decrease in the equilibrium price for a product will result
A) when the quantity demanded for the product exceeds the quantity supplied.
B) when there is a decrease in supply and a decrease in demand for the product.
C) when there is an increase in supply and a decrease in demand for the product.
D) when there is a decrease in demand and a decrease in the number of firms producing the product.
Answer: C
Page 5
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Sample Questions
Q1) A ________ curve shows the marginal cost of producing one more unit of a good or service.
A) demand
B) supply
C) production possibilities
D) marginal benefit
Q2) Tax incidence is the actual division of the
A) burden of the tax between buyers and sellers in a market.
B) tax revenues between government agencies.
C) tax revenues between the federal government and state governments.
D) population into different tax brackets.
Q3) Lucinda buys a new GPS system for $250. She receives consumer surplus of $75 from the purchase. How much does Lucinda value her GPS system?
A) $75
B) $175
C) $250
D) $325
Q4) One result of a tax is an increase in economic efficiency.
A)True
B)False
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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Sample Questions
Q1) Private solutions to the problem of externalities are most likely when A) government actively encourages these solutions.
B) transaction costs are low and the number of bargaining parties is small.
C) transaction costs are low and the number of bargaining parties is large.
D) transaction costs are low and the monetary damages to third parties is high.
Q2) When the government imposes a tax equal to the external cost of producing a product that causes pollution, the government is said to externalize the externality.
A)True
B)False
Q3) Refer to Figure 5-2. The private profit maximizing quantity for the firm is A) Qa.
B) Qb.
C) Qb - Qd.
D) Qd.
Q4) Refer to Figure 5-9. The private profit-maximizing output level is
A) Q1.
B) Q2.
C) Q3.
D) Q4.
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) The price elasticity of demand for Kellogg's Raisin Bran is larger in absolute value than the price elasticity for all breakfast cereals.
A)True
B)False
Q2) Which of the following is one reason why the income of small family farms has decreased over time?
A) Technology has increase farm productivity and market supply.
B) The demand for farm products is price elastic.
C) The demand for farm products is income inelastic.
D) The U.S. population has increased greatly since 1950.
Q3) Which of the following statements is true about the price elasticity of demand along a downward-sloping linear demand curve?
A) It is inelastic at high prices and elastic at low prices.
B) It is unit-elastic throughout the demand curve.
C) It is elastic at high prices and inelastic at low prices.
D) It is perfectly elastic at very high prices and perfectly inelastic at very low prices.
Q4) Explain the economic concept of price elasticity of supply. How is price elasticity of supply calculated?
Page 8
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) One consequence of adverse selection in the market for used cars is that most used cars sold will be lemons.
A)True
B)False
Q2) In the United States, health care spending as a percentage of GDP has declined since 1965.
A)True
B)False
Q3) Moral hazard refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off.
A)True
B)False
Q4) The largest government-run health care system in the world, with 1.7 million employees, is in
A) Canada.
B) Japan.
C) the United Kingdom.
D) the United States.
Q5) What is moral hazard?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) An investor is more likely to buy a firm's stock if the firm's income statement shows ________ and if its balance sheet shows ________.
A) a large net worth; a large price-earnings ratio
B) a large after-tax profit; a large net worth
C) a large price-earnings ratio; a large dividend yield
D) low opportunity costs; large liabilities
Q2) Who selects the board of directors of a corporation?
A) the state where the corporation is chartered
B) employees
C) stockholders
D) managers
Q3) Anything of value owned by a person or a firm is
A) an asset.
B) a liability.
C) wealth.
D) owner's yield.
Q4) A decrease in liabilities will reduce a firm's net worth.
A)True
B)False
Q5) What is the difference between retained earnings and dividends?
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Refer to Figure 9-3. What is the value of the deadweight loss as a result of the quota?
A) $5.25 million
B) $8 million
C) $17.25 million
D) $20 million
Q2) The intention of the U.S. tariff on Chinese tires was to
A) protect jobs in the U. S. tire industry.
B) protect infant industries in tire U.S. tire market.
C) insure that Chinese tires meet U.S. quality and safety standards.
D) save the government money by restricting the sale of more expensive Chinese-made tires.
Q3) What are three primary reasons for the growth of international trade over the past 50 years?
Q4) Refer to Figure 9-3. What is the area of domestic producer surplus after the imposition of a quota?
A) B
B) B + C
C) B + E + I + J + M
D) E + I + J + M
Page 11
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of
A) the law of demand.
B) the law of supply.
C) the law of increasing marginal opportunity cost.
D) the law of diminishing marginal utility.
Q2) Which of the following is used to explain why a consumer's willingness to buy Microsoft Office increases as the number of other people who use Microsoft Office increases?
A) network externalities
B) market failure
C) diminishing marginal utility
D) the income effect of a price change
Q3) The demand curve for an inferior good can never be downward sloping.
A)True
B)False
Q4) A consumer's indifference curves can never cross.
A)True
B)False
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Chapter 11: Technology, Production, and Costs
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Sample Questions
Q1) The processes a firm uses to turn inputs into outputs of goods and services is called
A) technology.
B) technological change.
C) marginal analysis.
D) positive economic analysis.
Q2) The slope of an isocost line ________ and equals the negative of ________.
A) increases as we move down the line; the ratio of input prices
B) decreases as we move down the line; the ratio of the marginal products
C) is constant; the ratio of input prices
D) is constant; the ratio of the marginal products
Q3) If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units of output is $30.23, what will happen to the average cost of production if the 15th unit is produced?
A) Average cost increases as more is produced.
B) Average cost will fall.
C) Average cost could increase or decrease depending on what happens to variable cost.
D) Average cost could increase or decrease depending on what happens to fixed cost.
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Refer to Figure 12-4. If the market price is $30 and the firm is producing output, what is the amount of the firm's profit or loss?
A) loss of $1,080
B) profit of $1,440
C) loss of $2,520
D) profit of $1,300
Q2) If firms do not earn economic profits in a competitive equilibrium, why would the firms choose to stay in business?
Q3) Both buyers and sellers are price takers in a perfectly competitive market because A) the price is determined by government intervention and dictated to buyers and sellers.
B) each buyer and seller knows it is illegal to conspire to affect price.
C) both buyers and sellers in a perfectly competitive market are concerned for the welfare of others.
D) each buyer and seller is too small relative to others to independently affect the market price.
Q4) Why are individual buyers and sellers in perfect competition called price takers?
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Sample Questions
Q1) For a monopolistically competitive firm, marginal revenue
A) equals the price.
B) is greater than the price.
C) is less than the price.
D) and price are unrelated.
Q2) The entry and exit of firms in a monopolistically competitive market guarantee that A) marginal revenue equals marginal cost and average total cost is minimized.
B) firms can earn economic profits in the long run.
C) price equals average total cost in the long run.
D) firms can earn economic profits in the short run.
Q3) For productive efficiency to hold,
A) price must equal the marginal cost of the last unit produced.
B) price must equal marginal revenue of the last unit sold.
C) average variable cost is minimized in production.
D) average total cost is minimized in production.
Q4) Monopolistically competitive firms face a perfectly elastic demand curve.
A)True
B)False
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Q5) What is the difference between zero accounting profit and zero economic profit?
Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) The fraction of an industry's sales that are accounted for by the largest firms is called
A) the four-firm competition ratio.
B) the four-firm concentration ratio.
C) the four-firm industry ratio.
D) the four-firm oligopoly ratio.
Q2) In game theory, the three key characteristics of a game are
A) rules, strategies, and payoffs.
B) rules, regulations, and payoffs.
C) winners, losers, and rules.
D) risks, rewards, and penalties.
Q3) The four-firm concentration ratio in the breakfast cereal industry is 78 percent. How does the five competitive forces model provide better insight into the degree of competition in the breakfast cereal industry than just observing the concentration ratio?
Q4) A prisoner's dilemma leads to a noncooperative equilibrium.
A)True
B)False
Q5) Explain why OPEC is caught in a prisoner's dilemma?
Q6) List the competitive forces in the five competitive forces model.
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) Refer to Figure 15-15. What is the economically efficient output level and what is the price at that level?
A) Q4, P1
B) Q3, P2
C) Q2, P2
D) Q2, P3
Q2) In the United States, barriers to entry in professional team sports (for example, football and baseball) result from
A) the draft of college players, which grants teams exclusive signing rights to individual players.
B) long-term leases teams sign for stadiums and ballparks in major cities.
C) television contracts, which give networks the exclusive rights to broadcast games.
D) the reserve clause, which is a provision in contracts of professional athletes that require them to play for specific teams over the length of their contracts.
Q3) Unlike a perfect competitor, a monopolist faces the market demand curve.
A)True
B)False
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17
Chapter 16: Pricing Strategy
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Sample Questions
Q1) The Walt Disney Company is in a position to use a two-part tariff by charging for admission and also charging for rides inside its two theme parks, Disneyland and Disney World. Which of the following statements regarding Disney's pricing strategy is true?
A) At one time, admission fees were charged at both parks but all rides were free. Disney has since changed its pricing policy; it earns higher profits by charging for both admission and rides.
B) At one time, customers had to pay for admission and rides at Disneyland and Disney World. Disney has since changed its pricing policy; it earns higher profits by charging for admission but not for rides.
C) At one time, customers had to pay for admission and rides at Disneyland and Disney World. Disney has since changed its pricing policy; it earns higher profits by charging for rides but not for admission.
D) At one time, fees for admission and rides at both parks were set at their profit-maximizing levels. Disney has since changed its pricing policy; it uses a cost-plus pricing strategy for admission and does not charge for rides.
Q2) What is the difference between price discrimination and other forms of discrimination?
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Page 18
Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) The combined effect (both income and substitution) of a wage increase is that
A) the substitution effect always dominates, leading to more work at a higher wage.
B) the income effect always dominates, leading to less work at a higher wage.
C) if the substitution effect outweighs the income effect, the labor supply curve slopes upward, but if the income effect outweighs the substitution effect, the labor supply curve is backward bending.
D) if the substitution effect outweighs the income effect, the labor supply curve is backward bending, but if the income effect outweighs the substitution effect, the labor supply curve slopes upward.
Q2) The demand for labor is described as a derived demand because
A) it is derived by workers seeking to earn income to fund the consumption of goods and services.
B) it is derived by producers seeking to make profits by starting new businesses.
C) it is derived from the demand for products that use labor in the production process. D) it is derived from government institutions which rely on labor markets for the purpose of raising tax revenue.
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Chapter 18: Public Choice, Taxes, and the Distribution of Income
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Sample Questions
Q1) Refer to Table 18-1. Suppose a series of votes are taken in which each pair of alternatives is considered in turn. If the vote is between allocating funds to education subsidies and increased border security,
A) Ivy and Jasmine vote for education subsidies, Rose votes for increased border security, and education subsidies wins.
B) Ivy and Rose vote for increased border security, Jasmine votes for education subsidies, and increased border security wins.
C) Jasmine and Rose vote for education subsidies, Rose votes for increased border security, and education subsidies wins.
D) Jasmine and Ivy vote for increased border security, Rose votes for education subsidies, and increased border security wins.
Q2) Refer to Figure 18-1. Area B + C represents
A) the portion of sales tax revenue borne by consumers.
B) the portion of sales tax revenue borne by producers.
C) the excess burden of the sales tax.
D) sales tax revenue collected by the government.
Q3) What is the difference between the voting paradox and the Arrow impossibility theorem?
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Chapter 19: GDP: Measuring Total Production and Income
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Sample Questions
Q1) Which of the following transactions would take place in the "underground economy"?
A) Elizabeth tells her mother she's going to work but really goes to see a movie.
B) Paul buys 15 gallons of gasoline for $3.29 a gallon, not realizing that $1.50 per gallon of that price goes to the government as tax revenue.
C) John makes chain-link belts and necklaces and sells them at a local flea market for cash to avoid paying taxes.
D) Matt bought an iPad for $499 but decided to sell it on eBay instead of keeping it.
Q2) An inflation rate of 5% between 2013 and 2014 would be implied by a change in the GDP deflator from ________ in 2013 to ________ in 2014.
A) 105; 115
B) 200; 205
C) 400; 420
D) 375; 390
Q3) In the term "real GDP," what does "GDP" stand for and what does it measure? What does "real" indicate?
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21
Chapter 20: Unemployment and Inflation
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Sample Questions
Q1) Why does the substitution bias cause the consumer price index to overstate inflation and the cost of living? Why does the increase in quality bias cause the consumer price index to overstate inflation and the cost of living?
Q2) An advantage of the household survey over the establishment survey of the labor market is that the household survey
A) is based on actual payrolls, rather than on unverified answers.
B) includes the number of self-employed persons.
C) includes the number of discouraged workers.
D) omits persons employed at newly opened firms.
Q3) When deflation occurs,
A) the real interest rate is greater than the nominal interest rate.
B) the nominal interest rate is greater than the real interest rate.
C) the nominal interest rate is equal to the real interest rate and inflation is negative.
D) the nominal interest rate is equal to the real interest rate and inflation is positive.
Q4) List three different price indices and explain how they differ in terms of the market basket on which they are based.
Q5) Explain how the CPI is constructed.
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Page 22
Chapter 21: Economic Growth, the Financial System, and Business Cycles
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Sample Questions
Q1) Explain what happens to inflation during the business cycle. Give an intuitive explanation as to why inflation changes the way it does over the business cycle.
Q2) The federal budget deficit can be reduced by A) raising taxes.
B) raising government spending.
C) raising transfer payments.
D) higher interest rates.
Q3) Refer to Table 21-2. Using the table above, what is the approximate growth rate of real GDP from 2011 to 2012?
A) 1%
B) 2%
C) 3%
D) 4%
Q4) Typically, as an economy begins to emerge from a recessionary phase of the business cycle,
A) unemployment falls immediately.
B) unemployment continues to rise.
C) inflation begins to fall.
D) investment begins to fall.
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Chapter 22: Long-Run Economic Growth: Sources and Policies
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Q1) Most economic growth in the world occurred between 1,000,000 B.C. and 1300 A.D.
A)True
B)False
Q2) Which of the following would you expect to result in faster economic growth?
A) the invention of new computers that increase labor productivity
B) a decrease in the average level of education in the economy
C) a decrease in the stock of capital per worker
D) a decrease in research and development spending
Q3) Refer to Table 22-7. Consider the statistics in the table above in describing the following industrialized and developing countries. Are these consistent with the economic growth model? Briefly explain.
Q4) The Soviet Union's economic growth rate slowed despite rapid increases in capital per hour worked.
A)True B)False
Q5) Would you expect to see higher or lower growth rates for countries that start out with a relatively low level of real GDP per capita? Explain using the concept of "catch-up" and support your answer with a graph.
Q6) Describe the process of "creative destruction" using a specific example.
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Chapter 23: Aggregate Expenditure and Output in the Short Run
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Q1) Refer to Table 23-4. Given the consumption schedule in the table above, the marginal propensity to consume is
A) 0.5.
B) 0.6.
C) 0.75.
D) 0.8.
Q2) If firms sell what they expected to sell, which of the following will be true?
A) Aggregate expenditure will be greater than GDP.
B) There is no unplanned change in inventories.
C) Inventories will rise, and GDP and employment will fall.
D) Aggregate expenditure will be less than GDP.
Q3) When Jack's income increases by $1,000, he spends an additional $850 dollars. This implies that his marginal propensity to save is 0.85.
A)True
B)False
Q4) When Javier's income increases by $5,000, he spends an additional $3,750 dollars. This implies that his marginal propensity to consume is 0.75.
A)True
B)False
Page 25
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Chapter 24: Aggregate Demand and Aggregate Supply Analysis
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Q1) Last week, 13 Mexican pesos could purchase one U.S. dollar. This week, it takes 11 Mexican pesos to purchase one U.S. dollar. This change in the value of the dollar will ________ exports from the United States to Mexico and ________ U.S. aggregate demand.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
Q2) Explain how each of the following events would affect the short-run aggregate supply curve.
a. A decrease in the price level
b. A decrease in what the price level is expected to be in the future
c. A price level that is currently lower than expected
d. An unexpected decrease in the price of an important raw material
e. A decrease in the labor force
Q3) Most recessions in the United States since World War II have begun with
A) a decline in residential construction.
B) a rapid increase in the price level.
C) a substantial number of bank failures.
D) a stock market crash.
Page 26
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Chapter 25: Money, Banks, and the Federal Reserve System
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Q1) Soldiers in a World War II prisoner-of-war camp
A) used gold as a fiat money.
B) used cowrie shells as money.
C) used cigarettes as money.
D) used U.S. dollars as a commodity money.
Q2) Would the invention of money, as opposed to barter, increase the growth rate of real GDP in a country over time? Why or why not?
Q3) Refer to the Article Summary. In 2013, the European Union agreed to essentially bail out the banks in the nation of Cyprus, but in doing so also included what is being called a special bank levy which was changed to bank depositors. This levy may have been needed to prevent bank runs, which are situations in which
A) a majority of the shareholders in a bank decide to sell off all their shares of stock.
B) many depositors simultaneously decide to withdraw money from a bank.
C) a majority of the bank's loans go into default all at once.
D) a bank stops paying interest on all of its interest-bearing accounts.
Q4) Most U.S. currency held outside the U.S. banking system is held by foreigners.
A)True
B)False
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Chapter 26: Monetary Policy
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Q1) The Federal Reserve's performance in the mid-to-late 1980s, 1990s, and early 2000s has received high marks from economists, even without inflation targeting.
A)True
B)False
Q2) The Taylor rule helps explain the relationship between the Fed's ________ and
A) money supply target; economic conditions
B) money supply target; the federal funds target
C) federal funds target; the monetary growth rule
D) federal funds target; economic conditions
Q3) The Fed
A) always engages in countercyclical policy.
B) always intends to engage in procyclical policy.
C) can engage in procyclical policy if it mistimes its policy response.
D) never intends to engage in countercyclical policy.
Q4) What is a mortgage? What were the important developments in the mortgage market during the years after 1970?
Q5) List the Fed's four main monetary goals.
Q6) What problems can high inflation rates cause for the economy?
Page 28
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Chapter 27: Fiscal Policy
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Q1) As spending on government purchases increases, income rises and money demand falls.
A)True
B)False
Q2) In an open economy, the government purchases multiplier will be larger the A) smaller the marginal propensity to import.
B) smaller the marginal income tax rate.
C) larger the marginal propensity to consume.
D) All of the above are correct.
Q3) If Congress wanted to counteract the effects of a recession it could
A) increase tax rates.
B) increase taxes by a fixed amount.
C) increase government purchases.
D) decrease defense spending.
Q4) The tax multiplier is calculated as "one minus the government purchases multiplier."
A)True
B)False
Q5) How could the existence of an unemployment insurance system or other transfer programs have reduced the severity of the Great Depression?
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Chapter 28: Inflation, Unemployment, and Federal Reserve Policy
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Q1) According to economists Robert Lucas and Thomas Sargent, the apparent short-run trade-off between unemployment and inflation in the 1950s and 1960s was the result of A) unexpected changes in monetary policy.
B) expected changes in monetary policy.
C) unexpected changes in fiscal policy.
D) expected changes in fiscal policy.
Q2) In the decade of the ________, A.W. Phillips plotted data for Great Britain which revealed a relationship between rates of changes in wages versus unemployment rates. Economists later discovered other "Phillips Curve" relationships between rates of inflation versus unemployment rates.
A) 1930s
B) 1940s
C) 1950s
D) 1960s
Q3) An increase in the level of structural unemployment will shift the long-run Phillips curve.
A)True
B)False
Q4) What does it mean to say that workers and firms have rational expectations?
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Chapter 29: Macroeconomics in an Open Economy
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Q1) National saving equals
A) income - taxes - consumption.
B) taxes - government spending.
C) income - consumption - government spending.
D) private saving + public saving - net foreign investment.
Q2) Holding all else constant, a rise in interest rates in the United States will cause the dollar to appreciate in international exchange markets.
A)True
B)False
Q3) In international exchange markets, a rise in interest rates in the United States will cause the demand for dollars to ________ and the supply of dollars to ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Q4) Monetary policy has a greater impact in an open economy than it does in a closed economy.
A)True
B)False
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Chapter 30: The International Financial System
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Q1) By 2013, ________ members of the European Union were using the euro as their currency.
A) 12
B) 17
C) 28
D) 57
Q2) Which of the following statements about capital markets is true?
A) The U.S. capital market is currently larger than all other capital markets combined.
B) At one time, the U.S. capital market was larger than all other capital markets combined, but that is no longer the case.
C) There are currently large capital markets in Europe, but none in Asia.
D) The largest capital markets in the world today are in East Asia and Latin America.
Q3) What is the difference between a devaluation and a revaluation of a currency?
Q4) Both countries involved in a pegging of currency must agree to the terms of the pegging.
A)True
B)False
Q5) Explain why international capital markets have expanded since the 1980s.
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