Managerial Economics Question
Bank
Course Introduction
Managerial Economics focuses on applying microeconomic principles and quantitative tools to aid managerial decision-making within organizations. The course examines how managers analyze demand and production, evaluate costs, set prices, and allocate resources efficiently in competitive markets. Topics include market structures, risk analysis, decision-making under uncertainty, game theory, and the impact of government regulation and policy on business operations. Students will learn to interpret economic data, forecast trends, and utilize economic reasoning to solve real-world business problems and enhance strategic planning.
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) When does a rational decision maker take an action
A)only if the marginal benefit is less than the marginal cost
B)only if the marginal benefit is greater than the marginal cost
C)only if the average benefit is greater than the average cost
D)only if the marginal benefit is greater than both the average cost and the marginal cost
Answer: B
Q2) How do prices direct economic activity in a market economy
A)by influencing the actions of buyers and sellers
B)by reducing scarcity of the goods and services produced
C)by eliminating the need for government intervention
D)by allocating goods and services produced in the most equitable way
Answer: A
Q3) A rational decision maker takes an action if and only if the marginal cost exceeds the marginal benefit.
A)True
B)False
Answer: False
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3
Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Which concept is NOT illustrated by the production possibilities frontier
A)efficiency
B)opportunity cost
C)equity
D)tradeoffs
Answer: C
Q2) Why do economists make assumptions
A)to diminish the chance of wrong answers
B)to make the world easier to understand
C)because all scientists make assumptions
D)to make certain that all necessary variables are included
Answer: B
Q3) Refer to Figure 2-8.Which combination is NOT possible for this economy to produce
A)10 barrels and 14 bathtubs
B)20 barrels and 8 bathtubs
C)25 barrels and 10 bathtubs
D)30 barrels and 6 bathtubs
Answer: C
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4
Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Refer to Table 3-6.What is the opportunity cost of one unit of cheese in Italy
A)1/4 bread
B)1/2 bread
C)2 breads
D)4 breads
Answer: A
Q2) Refer to Table 3-5.Which country has an absolute or comparative advantage in each product
A)Japan has a comparative advantage in airplanes, and Canada has an absolute advantage in cars.
B)Japan has a comparative advantage in cars, and Canada has an absolute advantage in airplanes.
C)Japan has a comparative advantage in cars, and Canada has an absolute advantage in neither good.
D)Japan has a comparative advantage in airplanes, and Canada has an absolute advantage in both goods.
Answer: B
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) If the number of buyers in the housing market decreases,what will happen
A)Demand in the market will increase.
B)Demand in the market will decrease.
C)Supply in the market will increase.
D)Supply in the market will decrease.
Q2) Refer to the Figure 4-4.If the price is $25,what would happen
A)There would be a surplus of 300 and the price would fall.
B)There would be a surplus of 200 and the price would fall.
C)There would be a shortage of 200 and the price would rise.
D)There would be a shortage of 300 and the price would rise.
Q3) If 50-inch flat screen TVs became cheaper and buyers expected Netflix subscription prices to fall next year,what could we safely conclude would happen to the equilibrium price of a new Netflix subscription
A)It would rise.
B)It would fall.
C)It would stay the same.
D)It could either rise or fall.
Q4) Baseballs and baseball bats are substitute goods.
A)True
B)False
Page 6
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Chapter 5: Elasticity and Its Application
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Sample Questions
Q1) Refer to Figure 5-6.If price decreases from $15 to $10,what will happen to total revenue,and what does this tell us about demand
A)It will decrease by $5, so demand must be inelastic.
B)It will decrease by $20, so demand must be inelastic.
C)It will increase by $10, so demand must be elastic.
D)It will increase by $20, so demand must be elastic.
Q2) Refer to Figure 5-4.If price falls in the A range of the demand curve,what can we expect total revenue to do as one moves down the curve
A)increase
B)decrease
C)stay the same
D)decrease, then increase
Q3) Cross-price elasticity is used to determine whether goods are inferior or normal goods.
A)True
B)False
Q4) Demand is inelastic if the elasticity is greater than 1.
A)True
B)False
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Chapter 6: Supply, demand, and Government Policies
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Sample Questions
Q1) Policymakers use taxes both to raise revenue for public purposes and to influence market outcomes.
A)True
B)False
Q2) What results from a tax placed on the sellers of blueberries
A)It increases costs, lowers profit, and shifts supply to the left (upward).
B)It increases costs, lowers profit, and shifts supply to the right (downward).
C)It reduces costs, raises profit, and shifts supply to the left (upward).
D)It reduces costs, lowers profit, and shifts supply to the right (downward).
Q3) What happens when government imposes price ceilings and floors in a market
A)Price no longer serves as a rationing device.
B)Efficiency in the market is increased.
C)Shortages and surpluses are eliminated.
D)Buyers and sellers are both better off.
Q4) The incidence of a tax depends on whether the tax is levied on buyers or sellers.
A)True
B)False
Q5) How does elasticity affect the burden of a tax
Justify your answer using supply and demand diagrams.
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) Refer to Figure 7-5.What area represents consumer surplus when the price is P
A)A
B)B
C)C
D)D
Q2) Who is the marginal seller
A)the seller who cannot compete with the other sellers in the market
B)the seller who would leave the market first if the price were any lower
C)the seller who can produce at the lowest cost
D)the seller who has the greatest producer surplus
Q3) What does the equilibrium of supply and demand in a market do
A)It maximizes the prices at which producers are willing to sell.
B)It minimizes the prices that consumers are willing to pay.
C)It produces both an efficient and equitable market outcome.
D)It maximizes the total benefits received by buyers and sellers.
Q4) In a competitive market,sales go to those producers who are willing to supply the product at the lowest price.
A)True
B)False
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Chapter 8: Application: the Costs of Taxation
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Sample Questions
Q1) How is the benefit received by buyers in the market measured
A)by the demand curve
B)by consumer surplus
C)by the amount buyers are willing to pay for the good
D)by the equilibrium price
Q2) Economists disagree on whether labour taxes have a small or a large deadweight loss.
A)True
B)False
Q3) Refer to Figure 8-5.If the tax is imposed in this market,what price would the buyers pay for the good
A)$2
B)$6
C)$10
D)$16
Q4) Often,the tax revenue collected by the government equals the reduced welfare of buyers and sellers caused by the tax.
A)True
B)False
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Chapter 9: Application: International Trade
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Sample Questions
Q1) Refer to Figure 9-4.What is producer surplus in this market after trade
A)A
B)C + B
C)C
D)C + D + B
Q2) Refer to Figure 9-7.If trade in shoes is allowed,what will happen to Korean shoe consumers and producers
A)Both consumers and producers will gain.
B)Both consumers and producers will lose.
C)Consumers will gain, and producers will lose.
D)Consumers will lose, and producers will gain.
Q3) Refer to Figure 9-6.Without trade,what would consumer surplus be
A)$210.50
B)$245.50
C)$367.50
D)$560.00
Q4) What are the arguments in favour of trade restrictions, and what are the counterarguments? As an economist, do any of these arguments justify trade restrictions? Explain.
Q5) How is an import quota similar to,and different than,an equivalent tariff
Page 11
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Chapter 10: Externalities
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Sample Questions
Q1) What does research into new technologies lead to
A)It provides positive externalities because it creates knowledge others can use.
B)It results in negative externalities because government funding for research leads to cuts in government spending in other areas.
C)It results in negative externalities because too many resources are used for the small benefits received by society.
D)It provides positive externalities because it increases profits for the company that receives government funding for research.
Q2) What is an example of a positive externality
A)A college student buys a new car when she graduates.
B)The mayor of a small town plants flowers in the public park.
C)Local high school teachers have pizza delivered every Friday for lunch.
D)An avid fisherman buys new fishing gear for his weekend fishing trip.
Q3) What is one way to internalize a technology spillover
A)with taxes
B)with patents
C)with government regulations
D)with private bargaining
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Why is basic research a public good
A)It is difficult to exclude those who might benefit from it.
B)It is used to develop public goods.
C)It always benefits developed countries at the expense of developing countries.
D)It is a rival in consumption good.
Q2) What are common resources
A)Both rival in consumption and nonexcludable.
B)Both rival in consumption and excludable.
C)Both nonrival in consumption and excludable.
D)Both nonrival in consumption and nonexcludable.
Q3) In some cases,the government can make everyone better off by raising taxes to pay for certain goods that the market fails to provide.
A)True
B)False
Q4) Some goods can be either common resources or public goods,depending on which of the following
A)whether the good is rival in consumption
B)how policymakers deal with the good
C)the marginal cost of the good
D)whether the good is excludable
Page 13
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) What do social services primarily consist of
A)welfare programs for low-income people
B)a government health plan for the poor
C)the same services as Old Age Security
D)pensions collected for the infirm
Q2) What is the benefits principle used to justify
A)property taxes
B)the gasoline tax
C)taxes on cigarettes and alcoholic beverages
D)personal income taxes
Q3) Who said,"In this world nothing is certain but death and taxes"
A)Mark Twain
B)Winston Churchill
C)Benjamin Franklin
D)Pierre Elliott Trudeau
Q4) What happens as government debt increases
A)Evidence suggests that spending on social insurance programs will be reduced.
B)Government must spend a larger share of its revenue on interest payments.
C)A trade-off with government deficits is inevitable.
D)Taxes must rise to cover the deficit.
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Chapter 13: The Costs of Production
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Sample Questions
Q1) Which of the following situations does a firm have when long-run average total cost decreases as the quantity of output increases
A)economies of scale
B)diseconomies of scale
C)coordination problems arising from the large size of the firm
D)fixed costs greatly exceeding variable costs
Q2) What does industrial organization study
A)how labour unions organize workers in industries
B)how profitable firms are in organized industries
C)how industries organize for political advantage
D)how firms make decisions depending on different market conditions
Q3) Examination of the costs of production is unnecessary to the field of industrial organization.
A)True
B)False
Q4) Refer to Table 13-1.What is the variable cost of producing zero widgets
A)$0
B)$1.00
C)$10.25
D)$11.00
Page 15
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) When individual firms in competitive markets increase their production,it is likely that the market price will fall.
A)True
B)False
Q2) Refer to Figure 14-2.When price falls from P to P ,which of the following does the firm find
A)It should produce Q units of output.
B)It should produce Q units of output.
C)Fixed cost is higher at a production level of Q than it is at Q .
D)It is unwilling to produce any output.
Q3) Refer to Scenario 14-3.If the increased production of irradiated grapefruit caused a rise in the marginal transportation costs of moving irradiated grapefruit to market,which statement would describe the long-run market supply curve for irradiated grapefruit
A)It would be perfectly inelastic.
B)It would be perfectly elastic.
C)It would be downward sloping.
D)It would be upward sloping.
Q4) List and describe the characteristics of a perfectly competitive market.
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Page 16
Chapter 15: Monopoly
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Sample Questions
Q1) A monopolist faces market demand given by P = 80 - Q.For this market,MR = 80 - 2Q and MC = 20.What is the deadweight loss due to the monopoly
A)$300
B)$450
C)$600
D)$900
Q2) What is a rational pricing strategy for a profit-maximizing monopolist
A)price discrimination
B)price differentiation
C)socially optimal pricing
D)average cost pricing
Q3) For a typical natural monopoly,what is the relationship between average total cost and marginal cost
A)average total cost is falling, and marginal cost is above average total cost
B)average total cost is falling, and marginal cost is below average total cost
C)average total cost is rising, and marginal cost is below average total cost
D)average total cost is rising, and marginal cost is above average total cost
Q4) What are the four ways that government policymakers can respond to the problem of monopoly?
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Chapter 16: Monopolistic Competition
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Sample Questions
Q1) When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,marginal cost must lie below average total cost.
A)True
B)False
Q2) If firms in a monopolistically competitive market are earning economic profits,which scenario would best reflect the change facing incumbent firms as the market adjusts to its new equilibrium
A)an increase in demand
B)a decrease in demand
C)a downward shift in their marginal-cost curve
D)an upward shift in their marginal-cost curve
Q3) Refer to Figure 16-1.Panel (d) in the set of figures shown depicts the effect on incumbent firms of which circumstance
A)long-run economic losses
B)a decrease in the diversity of products offered in the market
C)new entrants in the market
D)existing firms exiting the market
Q4) Why does a typical monopolistically competitive firm face a downward-sloping demand curve?
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Chapter 17: Oligopoly
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Sample Questions
Q1) In a competitive market,strategic interactions among the firms are not important.
A)True
B)False
Q2) Emily and Brooklyn are competitors in a local market.Each is trying to decide if it is better to advertise on TV,on radio,or not at all.If they both advertise on TV,each will earn a profit of $5000.If they both advertise on radio,each will earn a profit of $7000.If neither advertises at all,each will earn a profit of $10,000.If one advertises on TV and the other advertises on radio,then the one advertising on TV will earn $8000 and the other will earn $3000.If one advertises on TV and the other does not advertise,then the one advertising on TV will earn $15,000 and the other will earn $2000.If one advertises on radio and the other does not advertise,then the one advertising on radio will earn $12,000 and the other will earn $4000.If both follow their dominant strategy,what will Emily do and what will she earn
A)advertise on TV and earn $5000
B)advertise on radio and earn $7000
C)not advertise and earn $10,000
D)advertise on TV and earn $15,000
Q3) Explain the practice of tying and discuss why it is controversial.
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Chapter 18: The Markets for the Factors of Production
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Sample Questions
Q1) Refer to Table 18-1.If the firm hires three workers,what do the three workers together produce
A)80 units
B)100 units
C)180 units
D)240 units
Q2) Changes in supply and demand in the labour market will cause changes in wages.
A)True
B)False
Q3) When firms are able to increase the amount of physical capital available to workers,what will occur
A)The marginal product of labour will decrease.
B)The profits of the firm will increase.
C)The value of the marginal product of labour will increase.
D)The final product price will increase.
Q4) Using the theory of wage determination,explain why wages in developing countries are typically quite low.
Q5) Labour supply curves are upward sloping.
A)True
B)False
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Chapter 19: Earnings and Discrimination
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Sample Questions
Q1) To what extend can we use differences in human capital to explain wage differentials
A)they are unrelated to wage rate differences across gender classifications, since both men and women are required to complete requirements for a high school diploma.
B)they are most helpful in explaining age discrimination, but unhelpful in explaining discrimination on the basis of ethnicity.
C)they explain some of the difference in average wage rates across age classifications.
D)they explain all of the difference in average wage rates across gender classifications.
Q2) If business owners care only about making money,what would be the likely result if they are competing with discriminating businesses
A)They are likely to discriminate against certain groups of workers.
B)They are likely to be replaced by discriminating businesses.
C)They are very interested in the colour of their employees' skin.
D)They are at an advantage when competing against those who practice discrimination.
Q3) Discuss the analogy between physical and human capital.
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Chapter 20: Income Inequality and Poverty
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Sample Questions
Q1) Jeremy earns more than Emily.A benevolent legislator has proposed taxing Jeremy in order to supplement Emily's income.How would a libertarian view this proposal
A)as a way to increase social justice
B)as a way to enhance Emily's income in a socially responsible way
C)as validation of the superiority of a libertarian maximin criterion over Rawlsian social justice
D)as an inappropriate role for government, since government cannot morally redistribute income that is not its own
Q2) Whether or not policymakers should try to make our society more egalitarian is largely a matter of which of the following
A)economic efficiency
B)political philosophy
C)egalitarian principles
D)enhanced opportunity
Q3) Explain what is meant by "in-kind transfer" programs.Briefly outline the pros and cons associated with an in-kind transfer program.
Q4) What is the ongoing debate regarding the current EI system in Canada?
Q5) What is the R-factor? How did the R-factor change from 1976 to 2011 in Canada?
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Chapter 21: The Theory of Consumer Choice
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Sample Questions
Q1) What happens when indifference curves are bowed in toward the origin
A)A consumer is less willing to trade away any goods when his income decreases.
B)A consumer is more willing to trade away goods when his income increases.
C)A consumer is less willing to trade away goods that he has in abundance than the goods of which he has little.
D)A consumer is more willing to trade away goods that he has in abundance than the goods of which he has little.
Q2) When both consumptions are considered "normal goods," what could result from the income effect of an increase in the interest rate
A)an increase in saving when young
B)an increase in saving when old
C)a decrease in saving when young, and a decrease in saving when old
D)an increase in saving when young, and an increase in saving when old
Q3) When two goods are perfect complements,what types of indifference curves will they have
A)indifference curves with a positive slope
B)indifference curves that are vertical
C)indifference curves that are horizontal
D)indifference curves that are right angles
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Chapter 22: Frontiers of Microeconomics
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Sample Questions
Q1) What does the Condorcet paradox show
A)preferential voting based on majority rule are inefficient in all cases.
B)problems in counting votes can negate legitimate democratic outcomes.
C)the order in which items are voted on can affect the result.
D)transitive preferences are inconsistent with rationality.
Q2) What is the problem called that arises when one person performs a task on behalf of another person
A)the hidden characteristics problem
B)the "lemons" problem
C)moral hazard
D)adverse selection
Q3) The suggestion that people are satisficers is similar to which view
A)People are wealth-maximizers.
B)People are "near rational"
C)People go to a lot of trouble to weigh costs and benefits before choosing a course of action.
D)People frequently change their minds.
Q4) Majority rule will produce the outcome most preferred by the median voter.
A)True
B)False
Page 24
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