Business Economics
Chapter Exam Questions
Course Introduction
Business Economics explores the application of economic theory and methods to business decision-making. The course covers fundamental concepts such as supply and demand, market structures, production and cost analysis, and pricing strategies. It examines how firms operate within different market environments and how economic forces impact managerial decisions, resource allocation, and organizational efficiency. Students will also study the roles of government regulation, global economic factors, and business strategies in shaping business activity, preparing them to analyze economic problems and make informed decisions in a competitive business landscape.
Recommended Textbook
Principles of Microeconomics 9th Edition by
John Sayre Alan Morris
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Page 2
Chapter 1: The Economic Problem
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Q1) Refer to the graph above to answer this question.What is the opportunity cost of 1 unit of rye?
A)0.5 units of wheat.
B)2 units of wheat.
C)5 units of wheat.
D)$400.
Answer: B
Q2) Refer to the table above to answer this question.Erewhon is producing 21 units of wine,approximately how many units of cheese can it produce?
A)7 units of cheese
B)9 units of cheese
C)14 units of cheese
D)19 units of cheese
Answer: C
Q3) Why is economics relevant?
Answer: The study of economics helps us to understand better how the world functions.Analyzing issues from an economic dimension gives you the insight to the different arguments of many controversies in our society.
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Chapter 2: Demand and Supply: An Introduction
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Q1) If the price of a product does not change immediately,which of the following will cause an initial shortage of a product?
A)An increase in the demand or an increase in the supply.
B)A decrease in the demand or a decrease in the supply.
C)An increase in the demand or a decrease in the supply.
D)A decrease in the demand or an increase in the supply.
E)A change in the quantity supplied.
Answer: C
Q2) What will a surplus of a product lead to?
A)A reduction in supply.
B)A reduction in price.
C)An increase in price.
D)An increase in supply.
Answer: B
Q3) What is the effect of a decrease in the supply of a product?
A)It will cause an increase in both the price and in the quantity traded.
B)It will cause an increase in the price but a decrease in the quantity traded.
C)It will cause a decrease in both the price and in the quantity traded.
D)It will cause a decrease in the price but an increase in the quantity traded.
Answer: B
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Chapter 3: Demand and Supply: An Elaboration
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Q1) Refer to the graph above to answer this question.What is the result if the government establishes a minimum wage of $5 in this market?
A)There would be 2,000 unemployed workers.
B)There would be 3,000 unemployed workers.
C)Firms would employ 18,000 workers.
D)Firms would employ 21,000 workers.
E)It would have no effect on the market.
Answer: E
Q2) Refer to the graph above to answer this question.Suppose that the government imposes a price floor of $6.What quantity will the government have to buy?
A)0.
B)15.
C)25.
D)40.
Answer: B
Q3) Distinguish between surplus and supply.
Answer: A surplus exists when quantity supplied is greater than quantity demanded.Supply is the quantities that producers are willing and able to sell per period of time at various prices.
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Page 5
Chapter 4: Elasticity
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Q1) Which of the two following pairs of product categories are income inelastic?
A)Food and shelter.
B)Furniture and clothing.
C)Recreation and restaurant meals.
D)Education and textbooks.
Q2) What is income elasticity?
A)The change in the quantity supplied as a result of a change in price.
B)The responsiveness of the change in the quantity demanded to a change in the price of a product.
C)The change in the price of a product as a result of a change in supply.
D)The responsiveness of the quantity demanded to a given change in income.
Q3) Refer to the graph above to answer this question.What is the price elasticity of demand between the original equilibrium and the new equilibrium after the increase in supply of 30 million bushels?
A)0.44.
B)0.5.
C)2.
D)2.25.
Q4) How can income elasticity be used to determine whether a good is normal or inferior?
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Chapter 5: Consumer Choice
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Q1) Refer to the above information to answer this question.If Ketta has a budget of $8 and the price of both eggs and bacon are $1,what will be her optimal purchase?
A)1 egg and 7 bacon.
B)2 eggs and 6 bacon.
C)3 eggs and 5 bacon.
D)4 eggs and 4 bacon.
E)5 eggs and 3 bacon.
Q2) Refer to the graph above to answer this question.The graph shows a tennis coach charges $20 per hour for tennis lessons for adults and $10 per hour for tennis lessons for children.Suppose the coach provides lessons to the children only.What is the amount of the consumer surplus of the children taking the tennis lessons?
A)$20.
B)$50.
C)$120.
D)$160.
E)Cannot be determined.
Q3) What is the significance of the marginal utility being equal to zero?
Q4) What conditions must exist in order for price discrimination to be practiced?
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Chapter 6: A Firms Production Decisions and Costs in the
Short Run
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Q1) "A downward shift in the average fixed cost curve will lead to a downward shift in the marginal cost curve." Evaluate this statement.
Q2) Refer to the information above to answer this question.What is total variable cost when output is 3?
A)Zero.
B)$3.
C)$18.
D)$29.
E)$39.
Q3) Refer to the previous question to answer this question.How many units of labour are being used when diminishing returns first become evident?
A)1.
B)2.
C)3.
D)4.
E)Cannot be determined.
Q4) The diagram below shows the production function for Clean-Like-New car wash business.
Number of Washed Cars
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Chapter 7: Costs in the Long Run
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Q1) Which of the following is the most likely cause of diseconomies of scale?
A)Increasing returns to scale.
B)A small scale of operations and output.
C)Low productivity.
D)Complex interpersonal communication structures.
Q2) State whether each of the following scenarios shows economies of scale or diseconomies of scale.
a)Increase firm size leads to greater problems in communication between the firms major stakeholders.
b)Increase firm size creates coordination problems among departments.
c)Increase firm size leads to greater specialization of management.
d)Increase firm size enables greater division of labour.
Q3) Which of the following is correct in reference to the long run?
A)All costs are explicit costs.
B)Both fixed and variable costs exist.
C)All inputs are variable.
D)Only one input is variable while all others are fixed.
Q4) Are diminishing marginal productivity and diseconomies of scale the same thing? Explain why or why not.
Q5) Can a firm size be too large?
Page 9
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Chapter 8: Perfect Competition
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Q1) In what situation should a firm shut down in the short run?
A)When its total revenue is less than its total fixed costs at all output levels.
B)When its total revenue exceeds its total variable costs at all output levels.
C)When the price is below its lowest average variable cost at all output levels.
D)When the price is below its lowest average total cost at all output levels.
Q2) Refer to the above information to answer this question.If the total fixed costs were to increase by $50 what would be the new break-even price?
A)$30.
B)$40.
C)$50.
D)$60.
E)$70.
Q3) Refer to the above graph to answer this question.What is the value of the break-even price?
A)P1.
B)P2.
C)P3.
D)P4.
E)P5.
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Chapter 9: An Evaluation of Competitive Markets
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Q1) Under what conditions will a competitive firm continue to grow in size?
A)Until diminishing returns set in.
B)Until it is just able to cover its variable costs.
C)As long as other firms do.
D)Until it achieves minimum efficient scale.
E)Until it makes an economic profit.
Q2) What is meant by the term productive efficiency? If an economy is productively efficient,what conditions must be true?
Q3) Explain why competitive markets encourage technological change?
Q4) When a competitive market is in long-run equilibrium,the firms will be making economic profits but not normal profits.
A)True
B)False
Q5) List and briefly explain five types of market failures.
Q6) What is an externality? Why do they exist?
Q7) a)Give the definition of "externality" and indicate why externalities can result in a failure to achieve equality between social marginal cost and social marginal benefit.Demonstrate your answer with a graph showing external costs.
b)What are the 3 reasons why governments decide to provide quasi-public good?
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Chapter 10: Monopoly
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Q1) Refer to the above graph to answer this question.If the monopolist is regulated and forced to charge a fair-return price,what will be its price and output?
A)$10 and 70.
B)$25 and 110.
C)$30 and 100.
D)$45 and 70.
E)$60 and 40.
Q2) What will be the effect of a monopoly sales tax imposed on a monopolist's output?
A)It will lead to an increase in the price and a reduction in output.
B)It will lead to an increase in price but will have no effect on output.
C)It will lead to a reduction in output but will have no effect on price.
D)It will have no impact on price or on output.
Q3) Refer to the graph above.Area C represents:
A)the loss of surplus by consumers resulting from a monopoly.
B)the cost to society of increasing output from Qm to Qc.
C)consumer surplus redistributed to the monopolist.
D)the loss of surplus by producers resulting from a monopoly.
Q4) Calculate consumer surplus based on the graph above.
Q5) State three arguments for a monopoly.
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Chapter 11: Imperfect Competition
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Q1) Refer to the graph above to answer this question.What is the firm's profit or loss at its optimum price and output?
A)A loss of $1,015.
B)A loss of $1,350.
C)$0.
D)A profit of $1,350.
E)A profit of $1,584.
Q2) Use the kinked demand curve diagram to illustrate and describe why prices are often sticky in an oligopoly market.
Q3) Which one of the following statements is true about a monopolistically competitive firm in long-run equilibrium?
A)Its output is larger than it would be under conditions of perfect competition.
B)Its average cost is lower that it would be under conditions of perfect competition.
C)It is producing at economic capacity just as it would be under conditions of perfect competition.
D)Its price is equal to its marginal cost just as it would be under conditions of perfect competition.
E)None of the choices are correct.
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Chapter 12: The Factors of Production
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Q1) Some form of regulation is needed to ensure that a common property resource is not over extracted.
A)True
B)False
Q2) Differentiate between marginal revenue and marginal revenue product.
Q3) John Kenneth Galbraith is known for his theory regarding the replacement of entrepreneurs by bureaucrats.Explain the basis of Galbraith's argument.
Q4) What is a common property resource?
A)Any natural resource such as iron ore.
B)Any resource openly bought and sold in the market place.
C)Any resource supplied by the government.
D)Any resource not owned by an individual or a firm.
Q5) What two factors determine the optimum rate of oil extraction?
Q6) Differentiate between economic rent and transfer earnings.
Q7) Explain the income effect and the substitution effect in the context of the supply of labour.
Q8) Through the use of a graph,illustrate the world's supply of oil.
Q9) List five explanations for wage differentials.
Page 14
Q10) Explain why Canada's labour force has grown considerably over the last 35 years?
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Chapter 13: International Trade
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Q1) Refer to the information above to answer this question.Suppose that a single worker in each country is transferred from the less to the more productive industry.What will be the total gains from specialization?
A)Beef + 6 and pork + 2.
B)Beef + 6 and pork - 2.
C)Beef + 2 and pork + 6.
D)Beef - 2 and pork + 6.
Q2) Refer to table 13.13 to answer this question.What is the cost of producing one sword in Rings?
A)4 broomsticks.
B)0.25 broomsticks.
C)0.67 broomsticks.
D)1.5 broomsticks.
Q3) Which of the following statements about the impact of the introduction of free trade is correct?
A)It results in higher prices for domestic producers.
B)It results in higher prices for foreign producers.
C)It results in lower prices for foreign consumers.
D)It results in higher prices for domestic consumers.
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