Economics for Managers
Textbook Exam Questions
Course Introduction
Economics for Managers is designed to equip future business leaders with the analytical tools and frameworks essential for making sound managerial decisions in a dynamic business environment. The course explores fundamental microeconomic and macroeconomic principles, such as supply and demand, market structures, pricing strategies, and resource allocation, while also examining the broader economic forces affecting firms and industries. Through case studies and real-world examples, students learn to interpret economic trends, assess risk, and apply economic reasoning to solve organizational challenges, ensuring effective and informed managerial decision-making.
Recommended Textbook
Economics for Managers Global Edition 3rd Edition by Paul
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16 Chapters
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Page 2
G. Farnham
Chapter 1: Managers and Economics
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Sample Questions
Q1) If we ranked the four market structures on the basis of degree of competition,perfect competition and monopolistic competition would be at opposite ends of the spectrum.
A)True
B)False
Answer: False
Q2) Within the circular flow model,which of the following is not represented as a flow of funds into firms?
A)Foreign purchases of goods and services.
B)Income payments.
C)Consumption spending.
D)Government purchases.
Answer: B
Q3) Because it does not face competition from other firms,a monopolist is guaranteed to make excess profits over time.
A)True
B)False
Answer: False
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Chapter 2: Demand, supply, and Equilibrium Prices
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Sample Questions
Q1) All else constant,an increase in the incomes of consumers in the market for diamonds would cause the supply of diamonds to increase.
A)True
B)False
Answer: False
Q2) All else constant,all of the following would cause the demand curve for a good to shift except:
A)a change in the cost of producing the good.
B)a change in the price of a related good.
C)a change in consumer's incomes.
D)a change in the number of buyers.
Answer: A
Q3) Assume declining profits in the market for Internet service force several firms in the area to drop out of the market.All else constant,this would cause the:
A)equilibrium price and quantity to decrease.
B)equilibrium price and quantity to increase.
C)equilibrium price to increase and equilibrium quantity to decrease.
D)equilibrium price to decrease and equilibrium quantity to increase.
Answer: C
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Page 4
Chapter 3: Demand Elasticities
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Sample Questions
Q1) Which of the following statements is correct?
A)Arc elasticity of demand is the same as the slope of the demand curve.
B)Arc elasticity of demand only applies to a nonlinear demand curve.
C)Point elasticity of demand is measured at each point along a demand curve.
D)Point elasticity of demand is measured between two adjacent points on a demand curve.
Answer: C
Q2) Suppose a consumer's income increases from $30,000 to $36,000.As a result,the consumer increases her purchases of compact disks (CDs)from 25 CDs to 30 CDs.What is the consumer's income elasticity of demand for CDs?
A)0.5
B)1.0
C)1.5
D)2.0
Answer: B
Q3) When demand is perfectly inelastic with respect to price,the demand curve is horizontal.
A)True
B)False
Answer: False
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Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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Sample Questions
Q1) Data collected on a sample of individuals with different characteristics at a specific point in time are called:
A)cross-section data.
B)time series data.
C)panel data.
D)none of the above.
Q2) When using expert opinion,consumer surveys,test marketing,and price experiments to analyze consumer behavior,managers must consider whether the answers given in these formats represent actual market behavior.
A)True
B)False
Q3) Briefly explain why empirical consumer demand studies such as Patrick McCarthy's study of automobile demand are relevant to managers.
Q4) The overall predictive power of the estimated regression equation is measured by the F-statistic.
A)True
B)False
Q5) Why are estimated models of demand and consumer behavior useful to managers?
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Chapter 5: Production and Cost Analysis in the Short Run
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Sample Questions
Q1) If,for a particular short-run production,we observe that marginal product is decreasing we can conclude that average product is decreasing as well.
A)True
B)False
Q2) In the mathematical formulation of the short-run production function:
A)the quantity of output is usually assumed to be fixed.
B)the quantity of capital employed is usually assumed to be fixed.
C)the quantity of both labor and capital employed are usually assumed to be fixed.
D)the quantity of both labor and capital must be allowed to vary so that output can vary in the short run.
Q3) Empirical evidence indicates that most firms operate where marginal and average variable costs are constant.
A)True B)False
Q4) By definition,in the typical firm's short-run production function all inputs are fixed in amount.
A)True
B)False
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7
Chapter 6: Production and Cost Analysis in the Long Run
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Sample Questions
Q1) As the price of labor increases relative to the price of capital,the firm will move to a more labor-intensive production method to minimize costs.
A)True
B)False
Q2) X-inefficiency refers to the situation in which firms with market power are operating in the upward-sloping segment of their long-run average cost curve.
A)True
B)False
Q3) Most of the empirical research on long-run costs suggests that the long-run average cost curve for most firms has a very pronounced U-shape.
A)True
B)False
Q4) There is considerable evidence to support the assertion that legislated input combinations have reduced the costs of production in affected industries.
A)True
B)False
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Chapter 7: Market Structure: Perfect Competition
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Sample Questions
Q1) Assume the price elasticity of supply for grade wheat has been estimated to be +0.82.This means that when the price of wheat increases by 10 percent,the quantity of wheat supplied to the market increases by 82 percent.
A)True
B)False
Q2) The estimated price-cost margin of 11.9 percent in the market for broiler chickens in 1992 suggested that there was a high degree of competition in that industry.
A)True
B)False
Q3) Industry Y is a perfectly competitive industry.Assume that as a result of changes in other markets there is a twenty percent increase in the price of variable inputs used by firms in industry Y.After all adjustments have taken place,we would expect the equilibrium price in industry Y to:
A)decrease and the number of firms to increase.
B)decrease and the number of firms to decrease.
C)increase and the number of firms to increase.
D)increase and the number of firms to decrease.
Q4) Summarize the characteristics of a perfectly competitive market.
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Page 9
Chapter 8: Market Structure: Monopoly and Monopolistic Competition
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Sample Questions
Q1) A price-setting firm prefers to operate in the inelastic portion of its demand curve because total revenue increases when price is increased.
A)True
B)False
Q2) Price will always exceed marginal cost for the profit-maximizing monopolist,or any price-setter firm for that matter.
A)True
B)False
Q3) The various antitrust laws are written in very specific terms.Thus,there is little or no question as to when a firm has run afoul of one or more of these laws.
A)True
B)False
Q4) Which of the following is not a type of "lock-in" that acts as a barrier to entry into a particular market?
A)Pricing at or below the average cost of production.
B)Purchases of durable goods.
C)Loyalty programs.
D)Specialized suppliers.
10
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Chapter 9: Market Structure: Oligopoly
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Sample Questions
Q1) In order for "limit pricing" to be effective,the firm practicing such a strategy must be able to charge a price that is:
A)lower than the potential entrant's ATC but greater than the firm's own ATC.
B)greater than the potential entrant's ATC but lower than the firm's own ATC.
C)lower than the potential entrant's ATC but greater than the firm's own AVC.
D)greater than the potential entrant's ATC but lower than the firm's own AVC.
Q2) Over the past few years,airlines have tended to compete in the market for intercontinental business class travelers on the basis of:
A)price.
B)cost.
C)timeliness of their flight schedules.
D)amenities.
Q3) Pepsi and Coke have competed in the market for bottled water primarily on the basis of convenience and product differentiation as a means to avoid the negative effects on revenue that result from price competition.
A)True
B)False
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Page 11
Chapter 10: Pricing Strategies for the Firm
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Sample Questions
Q1) Promotional pricing would best be categorized as a form of:
A)first-degree price discrimination.
B)second-degree price discrimination.
C)third-degree price discrimination.
D)no price discrimination.
Q2) The text describes three different "degrees" of price discrimination.Of these,which one is theoretically capable of generating the greatest amount of economic profit for the firm? Why? In contrast,which one do you think has the greatest applicability to the range of goods and services consumers typically purchase?
Q3) All else constant,there is an inverse relationship between the price elasticity of demand and the marginal revenue resulting from a decrease in price.
A)True
B)False
Q4) When demand is elastic,the marginal revenue resulting from a decrease in price is:
A)positive.
B)zero.
C)negative.
D)cannot be determined without more information.
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Chapter 11: Measuring Macroeconomic Activity
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Sample Questions
Q1) The Full Employment and Balanced Growth Act of 1978 is also called the Humphrey-Hawkins Act and requires the President to appear before Congress twice a year to present his forecast for the economy.
A)True
B)False
Q2) To compute GDP:
A)simply sum the number of final goods and services.
B)sum the cost of producing final goods and services.
C)use a weighted average by a survey regarding how much people value different goods and services.
D)sum the market values of final goods and services.
Q3) The largest component of national income is:
A)compensation of employees
B)proprietor's income
C)rental income
D)corporate profits
Q4) When shopping the consumer is interested in absolute prices.
A)True
B)False
Q5) What are the two policy options used to influence the economy?
Page 13
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Chapter 12: Spending by Individuals, firms,
and
Governments on Real Goods and Services
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Sample Questions
Q1) The slope of the linear consumption function represents induced consumption expenditures.
A)True
B)False
Q2) Potential GDP measures the capacity of the economy in terms of the actual goods and services to be produced.
A)True
B)False
Q3) Short-run macroeconomic policies concentrate on:
A)minimizing fluctuations around potential GDP.
B)maximizing fluctuations around potential GDP.
C)incentives for increasing productivity and the potential output of the economy.
D)none of the above.
Q4) Increase in the real interest rate will ________ the expenditure curve:
A)decrease.
B)increase.
C)not change.
D)none of the above.
Page 14
Q5) What are the determinants of investment spending?
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Chapter 13: The Role of Money in the Macro Economy
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Sample Questions
Q1) The interest rate the Federal Reserve charges banks which borrow reserves at the Federal Reserve's discount window is called the:
A)federal funds rate.
B)discount rate.
C)prime interest rate.
D)mortgage interest rate.
Q2) Credit cards do not fulfill the three functions of money.
A)True
B)False
Q3) The primary monetary policy tool is reserve requirements.
A)True
B)False
Q4) The fraction of deposits banks are required to keep as reserves is called the:
A)deposit requirement.
B)reserve requirement.
C)excess reserve requirement.
D)none of the above.
Q5) In the context of the money market,graphically illustrate and explain the impact of an increase in the use of ATM machines on interest rates.
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Chapter 14: The Aggregate Model of the Macro Economy
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Sample Questions
Q1) Using the aggregate demand-aggregate supply diagram,graphically illustrate and explain the impact of an expansionary monetary policy on the price level and real income in the very short run.
Q2) Business debt is an example of a lagging indicator.
A)True
B)False
Q3) Discretionary expenditures are federal government expenditures for programs whose funds are authorized and appropriated by Congress and signed by the President,where explicit decisions are made on the size of the programs.
A)True
B)False
Q4) An open market purchase,a decrease in the discount rate,and a decrease in the reserve requirement would shift the aggregate demand curve rightward.
A)True
B)False
Q5) Expansionary fiscal policy will shift the AD curve leftward.
A)True
B)False
Q6) Why is judging trends in economic indicators important to managers?
Page 16
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Chapter 15: International and Balance of Payments Issues in the Macro Economy
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Sample Questions
Q1) The flow of capital results from the changes or differences in interest rates among countries.
A)True
B)False
Q2) The balance of payments accounts are divided into two sections: the current account and the financial account.
A)True
B)False
Q3) Under a gold standard,a continual balance of surplus in any country can be sustained only as long as the country's gold reserves hold out.
A)True
B)False
Q4) When a country's export spending exceeds import spending,the country is experiencing a:
A)trade deficit.
B)trade surplus.
C)budget deficit.
D)none of the above.
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Chapter 16: Combining Micro and Macro Analysis for Managerial Decision Making
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Sample Questions
Q1) If a good is price inelastic,an increase in price will decrease total revenues.
A)True
B)False
Q2) Managers in firms with market power can:
A)not influence price.
B)develop strategies that involve both the demand and supply sides of the market.
C)only focus on the demand side of the market.
D)none of the above.
Q3) In China,beef is considered a:
A)luxury.
B)necessity.
C)close substitute for chicken.
D)none of the above.
Q4) When entering the Chinese market,McDonalds had to confront:
A)mainly technical issues.
B)mainly political issues.
C)mainly cultural issues.
D)all of the above.
Q5) How did McDonalds address the obesity issue in China?
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