Managerial Economics Exam Practice Tests
Course Introduction
Managerial Economics explores the application of economic theory and quantitative methods to business decision-making. The course examines how market forces, pricing strategies, risk analysis, demand forecasting, cost analysis, and competitive dynamics influence the allocation of resources within an organization. By integrating concepts from microeconomics with real-world business scenarios, students learn to make informed managerial decisions that enhance operational efficiency and organizational profitability. Practical tools and case studies are used to bridge theory and practice, equipping students with the analytical skills necessary to address complex economic challenges in a dynamic business environment.
Recommended Textbook
Microeconomics 21st Edition by Campbell McConnell
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28 Chapters
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Page 2
Chapter 1: Limits, Alternatives, and Choices
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398 Verified Questions
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Sample Questions
Q1) A point outside (to the right of) the production possibilities curve of a nation
A) is not attainable for this nation.
B) is easily attainable for this nation.
C) implies that there are unemployed resources in this nation.
D) implies that this nation is using its resources fully.
Answer: A
Q2) Which of the following is a normative economic statement?
A) The poverty rate hit a new high last year and income distribution also worsened.
B) Health care accounts for roughly a third of total spending in the economy.
C) The government needs to revamp the Social Security program to make it sustainable. D) Retail sales are expected to continue on their downward trend in the next three quarters.
Answer: C
Q3) The study of economics is not useful for consumers, because economic analysis focuses only on businesses and the economy.
A)True
B)False
Answer: False
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Chapter 2: The Market System and the Circular Flow
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Sample Questions
Q1) The market system's answer to the fundamental question "Who will get the goods and services?" is essentially
A)"Those most willing and able to pay for them."
B)"Those who physically produced them."
C)"Those who most need them."
D)"Those who get utility from them."
Answer: No Answer
Q2) The simple circular flow model shows that
A) households are on the buying side of both product and resource markets.
B) businesses are on the selling side of both product and resource markets.
C) households are on the selling side of the resource market and on the buying side of the product market.
D) businesses are on the buying side of the product market and on the selling side of the resource market.
Answer: C
Q3) The wants of consumers are expressed in the product market with "dollar votes."
A)True
B)False
Answer: True
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Page 4
Chapter 3: Demand, Supply, and Market Equilibrium
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Sample Questions
Q1) A government will create a surplus in a market when it
A) sets a price ceiling above the equilibrium price.
B) sets a price floor above the equilibrium price.
C) sets a price floor below the equilibrium price.
D) sets a price ceiling below the equilibrium price.
Answer: B
Q2) If product Y is an inferior good, a decrease in consumer incomes will
A) make buyers want to buy less of Product Y.
B) not affect the sales of product Y.
C) shift the demand curve for product Y to the left.
D) shift the demand curve for product Y to the right.
Answer: D
Q3) Suppose product X is an input in the production of product Y. Product Y in turn is a substitute for product Z. An increase in the price of X can be expected to A) decrease the demand for Z.
B) increase the demand for Z.
C) have no effect on the demand for Z.
D) decrease the supply of Z.
Answer: B
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Page 5
Chapter 4: Market Failures: Public Goods and Externalities
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Sample Questions
Q1) Which of the following would be an example of a moral hazard problem?
A) a person in poor health who purchases life insurance
B) a person who is taxed on the purchase of a carton of cigarettes
C) a person who purchases auto insurance and then drives more recklessly
D) a person who receives a subsidy from the Federal government to insulate a home
Q2) External benefits in consumption refer to benefits accruing to
A) those who are selling the product to the consumers.
B) those who bought and consumed the product.
C) those other than the ones who consumed the product.
D) those who are consuming the product abroad.
Q3) eBay and Amazon provide "sellers' ratings" information based on the experiences of past buyers. This is to help resolve the adverse selection problem faced by potential buyers.
A)True
B)False
Q4) The government receives all of the benefits associated with the production of a public good.
A)True
B)False
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Chapter 5: Governments Role and Government Failure
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Sample Questions
Q1) Some people argue that the three main television networks all have similar programming. If true, this observation might best be explained by the
A) paradox of voting.
B) median-voter model.
C) law of diminishing marginal utility.
D) ability-to-pay principle.
Q2) Suppose that friends Jennifer, Stephanie, and Megan cannot agree on how much to spend for a bouquet of flowers to send to a person who allowed them to use her beach house for the weekend. Jennifer wants to buy a moderately priced bouquet, Stephanie wants to buy an expensive bouquet, and Megan wants to buy a very expensive bouquet. Assuming no paradox of voting, majority voting will result in the decision to buy
A) an inexpensive bouquet.
B) a very expensive bouquet.
C) a moderately priced bouquet.
D) an expensive bouquet.
Q3) "Informal payments" or "under-the table fees" are a common form of corruption.
A)True
B)False
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Chapter 6: Elasticity
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Sample Questions
Q1) If the demand for farm products is price inelastic, a good harvest will cause farm revenues to
A) increase.
B) decrease.
C) be unchanged.
D) either increase or decrease, depending on what happens to supply.
Q2) If an increase in the supply of a product in the market results in a decrease in price, but no change in the quantity traded, then
A) the price elasticity of supply is zero.
B) the price elasticity of supply is infinite.
C) the price elasticity of demand is unitary.
D) the price elasticity of demand is zero.
Q3) If a 10 percent increase in the price of good A results in an increase of 5 percent in the quantity demanded of good B, then it can be concluded that goods A and B are A) complementary goods.
B) substitute goods.
C) independent goods.
D) normal goods.
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8
Chapter 7: Utility Maximization
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Sample Questions
Q1) "Consumer equilibrium" refers to the situation when the consumer is getting
A) the highest total utility out of spending a given budget on various goods.
B) the highest marginal utility out of spending a given budget on various goods.
C) equal marginal utility values from each product consumed.
D) equal total utility values from each product consumed.
Q2) Health insurance often pays 80 percent of health care costs. This situation will encourage the rational consumer to
A) consume less health care because the cost is too expensive.
B) obtain health insurance that pays less than 80 percent of medical care costs.
C) use more medical services than they would if they had to paid the full price.
D) eliminate their health care coverage because it does not cover 100 percent of the cost.
Q3) It is possible that as a result of the budget line shifting outward, the consumer will buy less of a product.
A)True
B)False
Q4) It is possible for a consumer's indifference curves to intersect.
A)True
B)False
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Chapter 8: Behavioral Economics
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Sample Questions
Q1) The anchoring effect suggests that when people are made to think of large abstract numbers before they go shopping, many of them will subsequently be willing to pay higher prices for stuff.
A)True
B)False
Q2) The dictator game and ultimatum game are experiments that have provided field evidence for
A) the invisible hand.
B) fairness.
C) self-interest.
D) cognitive biases.
Q3) When economists talk about a "new normal" in terms of conditions in the production and employment sectors, they are suggesting a change in people's perceptions influenced by the A) hindsight bias.
B) confirmation bias.
C) availability heuristic.
D) framing effect.
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10
Chapter 9: Businesses and the Costs of Production
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Sample Questions
Q1) The short run is a period of time during which all costs are fixed costs.
A)True
B)False
Q2) Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This firm's
A) ATC is $35.
B) ATC is $57.
C) total cost is $270.
D) total cost is $30.
Q3) Diseconomies of scale occur mainly because
A) of the law of diminishing returns.
B) firms in an industry must be relatively large in order to use the most efficient production techniques.
C) of the inherent difficulties involved in managing and coordinating a large business enterprise.
D) the short-run average total cost curve rises when marginal product is greater than average total cost.
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11
Chapter 10: Pure Competition in the Short Run
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Sample Questions
Q1) An industry comprising four firms, each with about 25 percent of the total market for a product, is an example of
A) monopolistic competition.
B) oligopoly.
C) pure monopoly.
D) pure competition.
Q2) Which of the following is not a necessary characteristic of a purely competitive industry?
A) The industry or market demand is highly elastic.
B) Firms can easily enter or leave the industry.
C) There are so many small firms that no one firm can influence the market price.
D) Consumers see no difference between the product of one firm and that of another.
Q3) A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its
A) total variable costs.
B) total costs.
C) total fixed costs.
D) marginal costs.
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Chapter 11: Pure Competition in the Long Run
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Sample Questions
Q1) If production is occurring where marginal cost exceeds price, the purely competitive firm will
A) maximize profit, but resources will be underallocated to the product.
B) maximize profit, but resources will be overallocated to the product.
C) fail to maximize profit and resources will be overallocated to the product.
D) fail to maximize profit and resources will be underallocated to the product.
Q2) In a purely competitive industry,
A) there will be no economic profits in either the short run or the long run.
B) economic profits may persist in the long run if consumer demand is strong and stable.
C) there may be economic profits in the short run but not in the long run.
D) there may be economic profits in the long run but not in the short run.
Q3) All of the following statements apply to a purely competitive market in the long run, except
A) in the long run, all inputs are variable in quantity.
B) firms can expand their plant capacities in the long run.
C) total fixed costs remain constant even when output expands in the long run.
D) firms may enter or leave the industry in the long run.
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Chapter 12: Pure Monopoly
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Sample Questions
Q1) Barriers to entry
A) usually result in pure competition.
B) can result from government regulation.
C) exist in economic theory but not in the real world.
D) are typically the result of wrongdoing on the part of a firm.
Q2) Consumers who clip and redeem discount coupons
A) exhibit the same price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
B) exhibit a higher price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
C) exhibit a lower price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
D) cause total revenue to decrease for firms that issue coupons for their products.
Q3) In order to maximize profits, the monopolist will produce the output level where MR = MC and charge a price equal to MR and MC.
A)True
B)False
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14
Chapter 13: Monopolistic Competition
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Sample Questions
Q1) If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will
A) be unaffected.
B) shift to the left.
C) become more elastic.
D) shift to the right.
Q2) Suppose that total sales in an industry in a particular year are $800 million and sales by the top four sellers are $50 million, $40 million, $30 million, and $30 million, respectively. We can conclude that
A) this industry is an oligopoly.
B) this industry is monopolistically competitive.
C) the concentration ratio is 25 percent.
D) firms in this industry likely collude with each other.
Q3) Which of the following assumptions is part of the model of monopolistic competition?
A) Firms make identical or homogeneous products.
B) There is no mutual interdependence among firms.
C) There are significant barriers to entry into the market.
D) Firms have no control over their products' prices.
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Page 15
Chapter 14: Oligopoly and Strategic Behavior
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Sample Questions
Q1) Both collusive and noncollusive oligopoly models suggest that price changes will be relatively infrequent in these types of industries.
A)True
B)False
Q2) The economic inefficiency in an oligopoly may be reduced by the following, except
A) increased competition from foreign producers.
B) limit pricing due to potential entrants.
C) economic profits used to fund technological advance.
D) aggressive advertising by rivals.
Q3) In a sequential game with two firms, the first mover into a new market
A) is guaranteed positive economic profits.
B) is assured of blocking any potential second mover from entering the market.
C) runs the risk that the untested new market will not provide enough customers.
D) will likely set a high price to reap greater profits until the second mover enters.
Q4) A sequential game can be modeled in two forms: payoff-matrix form and game-tree form.
A)True
B)False
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Page 16
Chapter 15: Technology, Rd, and Efficiency
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Sample Questions
Q1) The spread of an innovation to other products through imitation is called A) invention.
B) development.
C) diffusion.
D) applied research.
Q2) If a firm develops better methods of producing a product, then this process innovation can be expected to result in a(n)
A) upward shift in both the total product and average cost curves.
B) downward shift in both the total product and average cost curves.
C) downward shift in the total product curve and an upward shift in the average cost curve.
D) upward shift in the total product curve and a downward shift in the average cost curve.
Q3) The interest-rate cost-of-funds curve is perfectly elastic because expected rates of return on R&D are constant.
A)True
B)False
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Chapter 16: The Demand for Resources
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Sample Questions
Q1) If a firm is hiring variable resources D and F in perfectly competitive input markets, it will minimize the cost of producing any level of output by employing D and F in such amounts that
A) the price of each input equals its MP.
B) \(\mathrm { MP } _ { D } = \mathrm { MP } _ { F }\)
C) \(\mathrm{MP} _ { D } / P _ { D } =\mathrm{MP} _ { F } / P _ { F }\)
D) \(\mathrm { MP } _ { D } / P _ { F } = \mathrm { MP }_ { F } / P _ { D } \)
Q2) Suppose a firm hires both labor (L) and capital (C) under purely competitive conditions. The price of labor is P<sub>L</sub>, and that of capital is P<sub>C</sub>. The marginal product of labor is MP<sub>L</sub>, and that of capital is MP<sub>C</sub>. The firm sells its product competitively at a price of P<sub>X</sub>. Which of the following must pertain if the firm is to minimize the cost of producing any output?
A) \(\mathrm { MP }_ { C } = \mathrm { MP }_ { L } = P _ { X } \)
B) \(\mathrm{MPC}_{C}=P_{C} \text { and } \mathrm{MP}_{L}=P_{L}\)
C) \(\mathrm{MP} _{C} / P_{C}=\mathrm{MP}_{L} / P_{L}\)
D) \(\mathrm { MP } _{C} / P _{X} = M \mathrm { MP } _ { L } / P _{X} \)
Q3) The demand for labor is a derived demand, whereas the demand for capital is not.
A)True
B)False
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Page 18
Chapter 17: Wage Determination
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Sample Questions
Q1) Suppose the MRP of a firm's 12th worker is $22 and the worker's marginal wage cost is $16. We can say with certainty that the firm
A) is hiring labor in a competitive labor market at a wage rate of $16.
B) is hiring labor in a monopsonistic labor market.
C) will find it profitable to hire fewer workers.
D) will find it profitable to hire more workers.
Q2) The American Medical Association, a physicians' union, is a good example of a(n) A) demand-enhancing union.
B) craft union.
C) inclusive union.
D) industrial union.
Q3) Suppose in some economy there are 100 million workers; 10 million of those workers work in retail trade, and 1 million of the retail workers belong to unions. Total union membership in this economy is 40 million. The rate of unionization in retail trade is A) 1 percent.
B) 10 percent.
C) 40 percent.
D) 100 percent.
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Chapter 18: Rent, Interest, and Profit
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Sample Questions
Q1) When the inflation rate is 4 percent and the nominal interest rate on long-term government bonds is 8 percent, the real interest rate is 12 percent.
A)True
B)False
Q2) Other things equal, the interest rate on a loan will be smaller,
A) the greater the risk involved.
B) the smaller the amount of the loan.
C) the longer the length of the loan.
D) if the loan interest is exempt from taxation.
Q3) The "time-value of money" refers to the fact that
A) a given amount of money becomes more valuable over time.
B) a given amount of money is more valuable the sooner it is obtained.
C) people expect monetary compensation for their labor time.
D) a given amount of money today is equivalent to a smaller amount of money in the future.
Q4) A given future value of money would have a smaller present value if
A) the interest rate used in discounting is higher.
B) the length of time over which it is "discounted" is shorter.
C) the interest rate is zero.
D) there is no compounding of interest.
Page 20
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Chapter 19: Natural Resource and Energy Economics
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Sample Questions
Q1) Per capita water use in the United States has steadily increased since 1973.
A)True
B)False
Q2) If the property rights for forests are clear and enforced, then
A) they will become common property.
B) governments will not be able to overtax them.
C) owners have profit incentives to harvest slowly over time.
D) the logging of the forest will increase at an unsustainable rate.
Q3) If the world begins to run out of oil, which of the following statements would be incorrect?
A) The relative price of oil would become very high.
B) The world would run out of energy.
C) Alternative energy sources would become economically viable.
D) The cost of energy would rise.
Q4) In time-value of money analysis, an increase in interest rates
A) raises the present value of a future amount.
B) lowers the present value of a future amount.
C) lowers the future value of a present amount.
D) has no effect on present or future amount.
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Chapter 20: Public Finance: Expenditures and Taxes
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Sample Questions
Q1) The basic tax rate on taxable corporate income is
A) 15 percent.
B) 22 percent.
C) 35 percent.
D) 52 percent.
Q2) The U.S. federal expenditures for "pensions and income security" are dominated by A) housing subsidies.
B) unemployment benefits.
C) food stamps.
D) Social Security payments.
Q3) (Advanced analysis) The equations for the demand and supply curves for a particular product are P = 10 0.4Q and P = 2 + 0.4Q, where P is price and Q is quantity expressed in units of 100. After an excise tax is imposed on the product, the supply equation is P = 3 + 0.4Q. The excise tax on each unit of the product
A) is $1.
B) is $2.
C) is $3.
D) cannot be determined with the information given.
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22
Chapter 21: Antitrust Policy and Regulation
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Sample Questions
Q1) In 2013, Apple was convicted, along with five publishers, including Harper Collins, Penguin, and Macmillan, of which antitrust violation?
A) monopoly structure
B) price-fixing
C) tying contracts
D) dividing up the market
Q2) Those who may file antitrust lawsuits against violators of the Sherman Act include the following, except
A) injured private parties.
B) state attorneys general.
C) the U.S. Department of Labor.
D) the U.S. Department of Justice.
Q3) Legislation designed to regulate natural monopolies would be based on which theory of regulation?
A) social
B) legal cartel
C) public interest
D) price-fixing
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Chapter 22: Agriculture: Economics and Policy
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Sample Questions
Q1) The food-stamp program is designed to
A) increase the supply of farm products.
B) decrease the supply of farm products.
C) increase the demand for farm products.
D) decrease the demand for farm products.
Q2) Which of the following was a feature of farm policy present in the Food, Conservation, and Energy Act of 2008 that was not part of the Freedom to Farm Act of 1996?
A) direct payments (direct subsidies) based on crops currently grown
B) countercyclical payments
C) farm buyouts by government
D) acreage allotments (restrictions on planting)
Q3) Agricultural price-support programs result in consumers paying lower prices for the product.
A)True
B)False
Q4) About 10 percent of the U.S. labor force is in agriculture.
A)True
B)False
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Chapter 23: Income Inequality, Poverty, and Discrimination
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Sample Questions
Q1) Which of the following employers is the most prejudiced? Employer
A) A, whose d is $0.
B) B, whose d is $2.
C) C, whose d is $4.
D) D, whose d is $6.
Q2) People's incomes are relatively low when they are young, reach a peak in middle age, and then decline. This fact helps explain
A) the wide variations of Gini ratios among nations.
B) the equality-efficiency trade-off.
C) why the lifetime distribution of income is more equal than the distribution in any given year.
D) why the lifetime distribution of income is less equal than the distribution in any given year.
Q3) The average household income in the United States in 2014 was close to
A) $35,000.
B) $50,000.
C) $70,000.
D) $100,000.
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25
Chapter 24: Health Care
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Sample Questions
Q1) Managed-care organizations attempt to control their enrolled members' use of health care as a way of containing costs.
A)True
B)False
Q2) Sam decides to join the Gigantic State University's rugby team when he learns that his health insurance will pay for any subsequent injury. This illustrates
A) the diagnosis-related-group system.
B) a "pay or play" system.
C) the moral hazard problem.
D) the Coase theorem.
Q3) If labor productivity in the health care industry rises very slowly relative to wages and salaries in the industry, this would tend to
A) increase the demand for health care.
B) decrease the demand for health care.
C) increase the supply of health care.
D) increase the cost of health care.
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Chapter 25: Immigration
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Sample Questions
Q1) Other things equal,
A) workers with higher levels of human capital will tend to migrate to countries providing greater wage opportunities.
B) workers with lower levels of human capital will tend to migrate to countries providing greater wage opportunities.
C) smaller wage differences between countries will tend to increase the flow of immigration between countries.
D) workers with higher levels of human capital will migrate to higher-wage countries regardless of the distance between countries.
Q2) A person will be more likely to migrate the
A) greater the distance they will have to travel from their country of origin.
B) greater the wages in their prospective new country relative to wages in their home country.
C) fewer the number of "beaten paths" that exist to their prospective new country.
D) greater the number of children they have.
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Chapter 26: International Trade
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Sample Questions
Q1) The accompanying table gives domestic supply and demand schedules for a product. Suppose that the world price of the product is $1. \(\begin{array}{|c|c|c|}
\hline\text { Ouantity }&&\text { Ouantity }\\
(\text { Supplied }&&\text { Demanded }\\
\hline \text { (Domestic) } & \text { Price } & \text { (Domestic) } \\
\hline 12 & \$ 5 & 2 \\
\hline 10 & 4 & 4 \\
\hline 7 & 3 & 7 \\
\hline 4 & 2 & 11 \\
\hline 1 & 1 & 16 \\
\hline
\end{array}\) With free trade, that is, assuming no tariff, the outputs produced by domestic and foreign producers would be
A) 1 unit and 15 units, respectively.
B) 4 units and 7 units, respectively.
C) 7 units and 0 units, respectively.
D) 4 units and 6 units, respectively.
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Chapter 27: The Balance of Payments, Exchange Rates, and Trade Deficits
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Sample Questions
Q1) If a European importer can buy $10,000 for 11,100 euros, the exchange rate for the euro is
A) 1 euro = $0.80.
B) 1 euro = $0.90.
C) 1 euro = $0.95.
D) 1 euro = $1.11.
Q2) Under a gold standard, a balance of payments disequilibrium would be corrected automatically by
A) the depreciation of that country's currency.
B) an increase in the gold content of that nation's monetary unit.
C) the appreciation of that country's currency.
D) an outflow or inflow of gold.
Q3) In 1985, the exchange rate between the U.S. dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 = 110 yen. Between 1985 and 2003, the
A) dollar appreciated in value relative to the yen.
B) yen appreciated in value relative to the dollar.
C) dollar price of yen fell.
D) yen price of dollars rose.
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Chapter 28: The Economics of Developing Countries
Available Study Resources on Quizplus for this Chatper
249 Verified Questions
249 Flashcards
Source URL: https://quizplus.com/quiz/59406
Sample Questions
Q1) The population growth rate of the DVCs (developing countries) as a group in recent decades has been
A) steady.
B) declining.
C) rising modestly.
D) rising rapidly.
Q2) The building of a new factory by a corporation would be an example of increasing the infrastructure in a developing nation.
A)True
B)False
Q3) Approximately what percentage of the world's income is received by the poorest one-fifth of the world's population?
A) 2
B) 5
C) 7
D) 10
Q4) The capricious universe view is the idea that the IACs are exploiting the DVCs.
A)True
B)False
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