Course Introduction
Economics for Managers
Pre-Test Questions
Economics for Managers introduces foundational economic concepts and analytical tools that are essential for effective decision-making in managerial roles. The course explores both microeconomic and macroeconomic principles, focusing on topics such as supply and demand, market structures, pricing strategies, cost analysis, and the impact of government policies on business operations. Through real-world case studies and practical applications, students learn to evaluate economic environments, interpret economic data, and apply economic reasoning to solve managerial problems and make strategic business decisions.
Recommended Textbook Principles of Microeconomics 7th Canadian Edition by McKenzie Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) Why do both households and societies face many decisions
A)Resources are scarce.
B)Populations may fluctuate over time.
C)Wages for households and therefore society fluctuate with business cycles.
D)People, by nature, tend to disagree.
Answer: A
Q2) Which statement best describes the concept represented by the adage "There is no such thing as a free lunch"
A)Melissa can only attend the concert if she takes her sister with her.
B)Greg is hungry and homeless.
C)Brian must repair the tire on his bike before he can ride it to class.
D)Olivia must decide between skiing at Whistler or Lake Louise for spring break.
Answer: D
Q3) Approximately what percentage of the world's economies experience scarcity
A)25
B)50
C)75
D)100
Answer: D
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) In a circular-flow diagram,one loop shows the flow of real goods,services,and factors of production,and the other loop shows the corresponding flow of dollars.
A)True
B)False
Answer: True
Q2) In the markets for goods and services,as in the markets for the factors of production,households are buyers and firms are sellers.
A)True
B)False
Answer: False
Q3) What revenue is received by firms from sales that is NOT used to pay for factors of production
A)rent
B)wages
C)profit
D)interest
Answer: C
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) What is trade based on
A)absolute advantage
B)comparative advantage
C)production costs
D)relative dollar prices
Answer: B
Q2) Two countries can achieve gains from trade even if one country has an absolute advantage in the production of both goods.
A)True
B)False
Answer: True
Q3) Refer to Table 3-3.How could Kevin and Amy both benefit
A)by Kevin specializing in blankets and Amy specializing in sweaters
B)by Kevin specializing in neither good and Amy specializing in both goods
C)by Kevin specializing in sweaters and Amy specializing in blankets
D)by Kevin specializing in both goods and Amy specializing in neither good
Answer: A
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Market demand is given as Qd =150 - 3P.Market supply is given as Q<sub>S </sub>=
2P.What would result if the market price were $25
A)a shortage of 25
B)a surplus of 25
C)a surplus of 70
D)a shortage of 70
Q2) What would result from an increase in the number of scholarships issued for university education
A)an increase in the supply of education
B)a decrease in the supply of education
C)an increase in the demand for education
D)a decrease in the demand for education
Q3) You lose your job and,as a result,you buy fewer mystery books.What does this show that you consider mystery books to be
A)a normal good
B)an inferior good
C)a luxury good
D)a complementary good
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Chapter 5: Elasticity and Its Application
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Sample Questions
Q1) What does a perfectly elastic demand imply
A)Buyers will not respond to any change in price.
B)Any rise in price above that represented by the demand curve will result in no output demanded.
C)Price and quantity demanded respond proportionally.
D)Price will rise by an infinite amount when there is a change in quantity demanded.
Q2) The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.
A)True
B)False
Q3) What happens in the case of perfectly inelastic demand
A)The change in quantity demanded will be twice the change in price.
B)Huge changes in quantity demanded result from very small changes in the price.
C)The change in quantity demanded exactly equals the change in price.
D)Quantity demanded does not change for any change in price.
Q4) When demand is inelastic,a decrease in price increases total revenue.
A)True
B)False
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Chapter 6: Supply, demand, and Government Policies
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Sample Questions
Q1) Any time a tax is placed on the buyers of a product,what will it do to the equilibrium price (to buyers) and quantity
A)It will reduce the equilibrium price and increase the equilibrium quantity of that product.
B)It will reduce the equilibrium price and equilibrium quantity of that product.
C)It will increase the equilibrium price and equilibrium quantity of that product.
D)It will increase the equilibrium price and reduce the equilibrium quantity of that product.
Q2) What will happen if a newly imposed minimum wage is set above the equilibrium wage in a labour market
A)The equilibrium wage in the market will rise.
B)Every worker who is earning a wage below the minimum will be better off.
C)Some workers will get a raise and some workers will lose their jobs.
D)Workers earning more than the minimum wage will be worse off.
Q3) If a price ceiling is below equilibrium price,the quantity demanded will exceed the quantity supplied.
A)True
B)False
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8
Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) Refer to Table 7-3.If the market price is $1000,what is the total cost in the market
A)$1500
B)$2550
C)$2700
D)$3700
Q2) Total surplus in a market is consumer surplus minus producer surplus.
A)True
B)False
Q3) In order for market outcomes to maximize the total benefits to buyers and sellers,the markets must be perfectly competitive.
A)True
B)False
Q4) Connie can clean windows in large office buildings at a cost of $1 per window.The market price for window cleaning is $3 per window.If Connie cleans 100 windows,her producer surplus is $100.
A)True
B)False
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Chapter 8: Application: the Costs of Taxation
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Sample Questions
Q1) When a tax is levied on the sellers of a good,how does the supply curve shift
A)up by the amount of the tax
B)down by the amount of the tax
C)up by less than the tax
D)down by less than the tax
Q2) When the size of a tax is doubled,what happens to the deadweight loss from the tax
A)It increases by the size of the tax.
B)It doubles.
C)It remains constant.
D)It increases by a factor of four.
Q3) What did Ronald Reagan obviously believe about the labour supply curve
A)It was perfectly inelastic.
B)It was perfectly elastic.
C)It was relatively inelastic.
D)It was relatively elastic.
Q4) The EI tax,and to a large extent the federal income tax,are labour taxes.
A)True
B)False
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Chapter 9: Application: International Trade
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Sample Questions
Q1) Aquilonia has decided to end its policy of not trading with the rest of the world.When it ends its trade restrictions,it discovers that it is importing cinnamon,exporting steel,and neither importing nor exporting rugs.What can we conclude about consumer surplus in Aquilonia
A)It is now higher for steel, lower for cinnamon, and the same for rugs.
B)It is now higher for cinnamon and steel, but not rugs.
C)It is now higher for cinnamon and rugs, but not steel.
D)It is now higher for cinnamon, lower for steel, and the same for rugs.
Q2) China produces shoes at a lower cost than Canada. As a result, most of the shoes purchased in Canada are made in China. Should this be a concern to anyone in Canada? If so, who should be concerned and why? If not, why not?
Q3) Refer to Figure 9-6.If this country allows free trade in wagons,how much will producers gain or lose
A)gain by $45
B)gain by $210
C)lose by $210
D)lose by $165
Q4) Define the two approaches a nation can take to achieve free trade.Does one approach have an advantage over the other
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Chapter 10: Externalities
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Sample Questions
Q1) What will a market that experiences a positive externality also experience
A)a smaller market output and a higher market price than is optimal
B)a greater market output and lower market price than is optimal
C)a greater market output and higher market price than is optimal
D)a smaller market output and lower market price than is optimal
Q2) What happens when parties who are bargaining to eliminate an externality problem hold out for a better deal
A)Bargaining breaks down and the inefficient outcome persists.
B)The eventual outcome will maximize total well-being.
C)Transaction costs must be reduced as part of the bargain.
D)One party will gain more than the other party.
Q3) In a market economy,what guides economic activity
A)the government
B)businesses
C)central planners
D)prices
Q4) Firms that can reduce pollution easily would be willing to sell their pollution permits.
A)True
B)False
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Ten friends who love to ski decide to pool their financial resources and equally share the cost of a one-week time-share condominium in Banff,Alberta.If lift lines at the ski resort become more congested when these ten additional people start to ski,then which of the following is most likely the case
A)Use of the ski resort by all of these 10 new skiers will yield a positive externality.
B)The ski resort cannot do anything to reduce the congestion externality
C)An increase in lift ticket prices could be viewed as a Pigovian tax on the externality of congestion.
D)Everyone would have been better off to stay at home.
Q2) The citizens of Smalltown,Canada like seeing fireworks on Canada Day.Each of the town's 1000 residents places a $5 value on the experience.The cost of putting on a fireworks display is $1000.Should there be a fireworks display What is socially optimal
Would the private market result in a fireworks display
Q3) Based on "The Dismal Education" by Yoram Bauman,what is the main reason that students majoring in economics tend to contribute less to public goods than other students
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) Refer to Scenario 12-1.Assume that the government places a tax of $4 on each slice of turkey.What is Kelsey's consumer surplus from turkey
A)$0
B)$2
C)$3
D)$6
Q2) What is the second largest component of provincial spending,after health care
A)education
B)social services
C)transportation and communication
D)police and protection
Q3) Refer to Table 12-8.Which tax illustrates a progressive tax
A)tax A
B)tax B
C)tax C
D)tax D
Q4) Vertical equity is not consistent with a regressive tax structure.
A)True
B)False
Q5) Evaluate the statement: Tax loopholes increase the efficiency of tax systems.
Page 14
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Chapter 13: The Costs of Production
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Sample Questions
Q1) Economists and accountants both include forgone income as a cost to a small business owner.
A)True
B)False
Q2) According to the mathematical laws that govern the relationship between average total cost and marginal cost, where must these two curves intersect?
Q3) Refer to Figure 13-5.Which curve represents the long-run average total cost
A)ATC<sub>A</sub>
B)ATC<sub>B</sub>
C)ATC<sub>C</sub>
D)ATC<sub>D</sub>
Q4) For a firm,what does the production function represent
A)the relationship between implicit costs and explicit costs
B)the relationship between quantity of inputs and total cost
C)the relationship between quantity of inputs and quantity of output
D)the relationship between quantity of output and total cost
Q5) The production function depicts a relationship between which two variables? Draw a production function that exhibits diminishing marginal product.
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) Market demand is given as Q<sub>D </sub>= 120 - 2P.Market supply is given as Q<sub>S </sub>= 2P.Each identical firm has MC = 6Q and ATC = 3Q.What quantity of output will a typical firm produce
A)5
B)6
C)16
D)24
Q2) Refer to Figure 14-1.When price is equal to P ,at what level of output will the profit-maximizing firm produce A)Q
B)Q
C)Q
D)Q
Q3) At the profit-maximizing level of output,which equation is correct
A)Marginal revenue = Average total cost
B)Marginal revenue = Average variable cost
C)Marginal revenue = Marginal cost
D)Average revenue = Average total cost
Q4) List and describe the characteristics of a perfectly competitive market.
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Chapter 15: Monopoly
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Sample Questions
Q1) Explain the benefits and costs of competition law.
Q2) Refer to Table 15-1.Assume this monopolist's marginal cost is constant at $11.What quantity (Q) of output will it produce and what price (P) will it charge
A)Q = 4; P = $25
B)Q = 4; P = $26
C)Q = 5; P = $23
D)Q = 7; P = $17
Q3) What do we know about a monopoly's marginal cost
A)It will be less than its average fixed cost.
B)It will be less than the price per unit of its product.
C)It will exceed its marginal revenue.
D)It will equal its average total cost.
Q4) What is the defining characteristic of a natural monopoly
A)constant marginal cost over the relevant range of output
B)constant average fixed costs over the relevant range of output
C)constant returns to scale over the relevant range of output
D)economies of scale over the relevant range of output
Q5) Explain how a profit-maximizing monopolist chooses its level of output and the price of its goods.
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Chapter 16: Monopolistic Competition
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Sample Questions
Q1) With what is the product-variety externality associated
A)the producer surplus that accrues to incumbent firms in a monopolistically competitive industry
B)loss of consumer surplus from exposure to additional advertising
C)the consumer surplus that is generated from the introduction of a new product
D)the opportunity cost of firms exiting a monopolistically competitive industry
Q2) In markets where the government imposes an excise tax on unit sales,it also has a tendency to dabble with restrictions on advertising (e.g.,cigarettes,hard liquor).Do potential (or actual) restrictions on advertising in these markets serve the interest of a government that is interested in maximizing its tax revenue from the sale of these products
Explain your answer.
Q3) Refer to Figure 16-3.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is earning a positive profit
A)panel (a)
B)panel (b)
C)panel (c)
D)panel (d)
Q4) List five goods that are sold in a monopolistically competitive market.
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Chapter 17: Oligopoly
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Sample Questions
Q1) Refer to Scenario 17-1.If Irun fails to live up to the production agreement and overproduces,what can be said about Urun's situation
A)Urun will invariably be worse off than before the agreement was broken.
B)Urun will counter by decreasing its production in order to maintain price stability.
C)Urun's profit will be maximized by holding its production constant.
D)Urun will be even worse off if it follows suit and increases production.
Q2) Sienna and Connell are competitors in a local market and each is trying to decide if it is worthwhile to advertise.If both of them advertise,each will earn a profit of $5000.If neither of them advertises,each will earn a profit of $10,000.If one advertises and the other doesn't,then the one who advertises will earn a profit of $15,000 and the other will earn $7000.To make the most money,what should Sienna do and what will she earn
A)She should advertise, and she will earn $5000.
B)She should not advertise, and she will earn $10,000.
C)She should advertise, and she will earn $15,000.
D)Martha has no strategy that guarantees her the most money.
Q3) Explain how the output effect and the price effect influence the production decision of the individual oligopolist.
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Chapter 18: The Markets for the Factors of Production
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Sample Questions
Q1) A competitive firm will hire workers up to the point at which the value of the marginal product of labour equals which of the following
A)average total cost
B)average variable cost
C)wage
D)price per unit of output
Q2) The quantity available of one factor of production can affect the marginal product of other factors.
A)True
B)False
Q3) What is most likely if a profit-maximizing firm starts with 50 employees and then decreases employment
A)The firm is losing market share.
B)The firm is not likely to be minimizing losses.
C)The wage exceeds the value of the marginal product of labour.
D)The value of the marginal product of labour exceeds the wage.
Q4) What is a monopsony? Give a few examples of a market showing the characteristics of a monopsony.
Q5) Why may the labour supply curve not be upward sloping?
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Chapter 19: Earnings and Discrimination
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Q1) Politicians often point to average wage differentials as evidence of labour market discrimination against ethnic minorities and women; however,economists argue against this approach because they question the validity of the statistics quoted by the politicians.
A)True
B)False
Q2) Differences in human capital among groups of workers are possibly a reflection of discrimination.
A)True
B)False
Q3) What is a natural solution to employer discrimination in market economies
A)the threat of judicial review
B)the profit motive
C)the political process
D)the union movement
Q4) Explain the role consumers play in perpetuating discrimination in labour markets.
Q5) Consumers are often a primary source of discrimination in labour markets.
A)True
B)False
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Chapter 20: Income Inequality and Poverty
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Sample Questions
Q1) Based on Canadian income data from 2011,the fourth fifth of all families received approximately how many times as much income as the bottom fifth
A)10
B)15
C)20
D)25
Q2) As a result of the tradeoff between income equality and incentives to work,what do we know about an optimal redistribution policy
A)It can never be funded through taxes on wage income.
B)It must always achieve a full egalitarian society.
C)It is only consistent with transfers to the middle class.
D)It always falls short of achieving a full egalitarian society.
Q3) Libertarians believe that the government should enforce individual rights to ensure that everyone has the same opportunity to use his or her talents to achieve success.
A)True
B)False
Q4) Why do all welfare programs reduce the incentives to work, and what is the solution to this problem?
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Chapter 21: The Theory of Consumer Choice
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Q1) Refer to Figure 21-8.Assume that the consumer depicted has an income of $200.If the price of a bag of chocolate chips is $10 and the price of a bag of marshmallows is $10,what would the optimizing consumer choose to purchase
A)3 bags of marshmallows and 9 bags of chocolate chips
B)5 bags of marshmallows and 5 bags of chocolate chips
C)8 bags of marshmallows and 6 bags of chocolate chips
D)10 bags of marshmallows and 10 bags of chocolate chips
Q2) What does the bowed shape of the indifference curve reflect about the consumer's willingness
A)It reflects his unwillingness to give up a good that he already has in large quantity.
B)It reflects his unwillingness to purchase a good that he already has in large quantity.
C)It reflects his greater willingness to give up a good that he already has in large quantity.
D)It reflects his greater willingness to purchase a good that he already has in large quantity.
Q3) Explain the relationship between the budget constraint and the indifference curve at consumer optimum.
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Chapter 22: Frontiers of Microeconomics
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Q1) One property of Kenneth Arrow's perfect voting system is that the ranking between any two outcomes A and B should not depend on whether some third outcome C is also available.What did Arrow call this property
A)transitivity
B)unanimity
C)independence of irrelevant alternatives
D)individual preference
Q2) The problem of moral hazard is a problem of hidden action.
A)True
B)False
Q3) The Condorcet paradox implies that the order in which items are voted under majority rule is unimportant.
A)True
B)False
Q4) What outcome will a majority rule produce
A)an inconclusive outcome
B)the outcome least preferred by the median voter
C)the outcome most preferred by the median voter
D)an outcome that is inconsistent with transitive preferences
Q5) Explain the Condorcet paradox.To which type of voting system does it apply?
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