Business Economics
Final Exam
Course Introduction
Business Economics explores the application of economic theory and methodologies to real-world business decision-making. This course covers fundamental concepts such as supply and demand, elasticity, market structures, pricing strategies, and cost analysis.
Students examine how economic forces influence business operations, resource allocation, and strategic planning within competitive and regulatory environments. Emphasis is placed on critical thinking and analytical skills to evaluate economic issues affecting firms and industries, enabling students to make informed decisions in dynamic business contexts.
Recommended Textbook
Microeconomics Student Value 4th Edition by R. Glenn Hubbard
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18 Chapters
2548 Verified Questions
2548 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) What is the difference between economic efficiency and equity?
Answer: Economic efficiency is concerned with maximizing the value of output that can be generated by a given resource base while equity deals with the distribution of society's total output among the sectors and individuals of society.
Q2) ________ involves undertaking an activity until its marginal benefits equal marginal costs.
A)Scarcity reduction
B)Central planning
C)Marginal analysis
D)Market intervention
Answer: C
Q3) Refer to Scenario 1-1.Had the firm not produced and sold the last 400 t-shirts,would its profit be higher or lower,and if so by how much?
A)Its profit will be $4,800 higher.
B)Its profit will be $800 higher.
C)Its profit will be $800 lower.
D)Its profit will be $4,000 lower.
Answer: B
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3
Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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Sample Questions
Q1) According to the production possibility model,if more resources are allocated to the production of physical and human capital,then all of the following are likely to happen except
A)fewer goods will be produced for consumption today.
B)the production possibilities frontier will be shift outward in the future
C)future economic growth is enhanced.
D)the country's total production will fall.
Answer: D
Q2) Refer to Table 2-1.Dina faces ________ opportunity costs in the production of sliders and hot wings.
A)increasing
B)decreasing
C)constant
D)negative
Answer: C
Q3) It is not possible to have a comparative advantage in producing a good or service without having an absolute advantage.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) The income effect of a price change refers to the change in the quantity demanded of a good that results from a change in the price of a substitute product.
A)True
B)False
Answer: False
Q2) Suppose that when the price of hamburgers increases,the Ruiz family increases their purchases of hot dogs.To the Ruiz family,
A)hamburgers and hot dogs are complements.
B)hamburgers and hot dogs are inferior goods.
C)hamburgers and hot dogs are normal goods.
D)hamburgers and hot dogs are substitutes.
Answer: D
Q3) At market equilibrium,
A)demand equals supply.
B)quantity demanded equals quantity supplied.
C)surpluses are greater than shortages.
D)shortages are greater than surpluses.
Answer: B
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) New York City has about two million apartments.Of this number
A)all are subject to rent control.
B)about one-half are subject to rent control.
C)all are subject to price floors.
D)about 10 percent are subject to rent control.
Q2) Refer to Figure 4-12.The figure above represents demand and supply in the market for cigarettes.Use the diagram to answer the following questions.
a.How much is the government tax on each pack of cigarettes?
b.What portion of the unit tax is paid by consumers?
c.What portion of the unit tax is paid by producers?
d.What is the quantity sold after the imposition of the tax?
e.What is the after-tax revenue per pack received by producers?
f.What is the total tax revenue collected by the government?
g.What is the value of the excess burden of the tax?
h.Is this cigarette tax efficient?
Q3) A consumer is willing to purchase a product up to the point where
A)he spends all of his income.
B)the marginal benefit is equal to the price of the product.
C)the quantity demanded is equal to the quantity supplied.
Page 6
D)he is indifferent between consuming and saving.
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Sample Questions
Q1) Which of the following statements describes the Coase Theorem?
A)It is not possible to completely eliminate an externality.
B)Under some circumstances private solutions to the problems that result from externalities can be found.
C)Completely eliminating an externality is not economically efficient.
D)A negative externality occurs when the marginal social cost of production exceeds the social benefit.
Q2) Which of the following is an example of the U.S.government's use of a "command and control" approach to reducing pollution?
A)In 1990 Congress approved measures designed to reduce sulfur dioxide emissions to 8.5 million tons annually by 2010.
B)The U.S.government imposed a tax on electric utilities to reduce damages from acid rain.
C)The government issued electric utilities tradable emissions allowances in other to reduce emissions of nitrogen oxide.
D)In the 1980s the U.S.government required the installation of catalytic converters to reduce emissions from all new automobiles.
Q3) How does a positive externality in consumption reduce economic efficiency?
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) The cross-price elasticity between Gillette razors and a related good is -3.4.What happens to the demand for the related good if the price of Gillette razors falls by 10 percent?
A)The quantity demanded of the related good rises by 3.4 percent.
B)The quantity demanded of the related good falls by 34 percent.
C)The quantity demanded of the related good rises by 34 percent.
D)The quantity demanded of the related good falls by 3.4 percent.
Q2) If the demand for cell phone service is inelastic,then
A)the percentage change in quantity demanded is greater than the percentage change in price (in absolute value).
B)the percentage change in quantity demanded is equal to the percentage change in price.
C)the quantity demanded does not change in response to changes in price.
D)the percentage change in quantity demanded is less than the percentage change in price (in absolute value).
Q3) Explain the concepts of cross-price elasticity of demand and income elasticity of demand.What do positive and negative values indicate for each of these demand elasticities
Q4) Briefly explain the economic concept of elasticity.
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) Under current U.S.tax laws individuals do not pay taxes on health insurance benefits they receive from their employers.
A)True
B)False
Q2) Adverse selection will occur in a market as a result of
A)asymmetric information.
B)moral hazard.
C)the sale of "lemons."
D)rational ignorance.
Q3) Which of the following Nobel laureates became known for the study of asymmetric information?
A)Gary Becker
B)Michael Spence
C)George Ackerlof
D)Ronald Coase
Q4) On average,people in the United States spend a smaller percentage of their income on health care than do people in most other countries.
A)True
B)False
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) All of the following are examples of explicit cost a firm might incur except A)the out-of-pocket expense to hire employees.
B)taxes owed to the state government.
C)the rental value of the warehouse space the company owns and uses for itself.
D)the revenue a firm generates in using its resources.
Q2) In many corporations,there is "separation of ownership from control." What does this mean?
A)The shareholders control the corporation,although the board of directors owns the corporation.
B)The managers of the corporation run the corporation,although the shareholders own the corporation.
C)The board of directors controls corporate operations,although the managers of the corporation own the corporation.
D)Top corporate managers only make decisions that have been approved unanimously by shareholders.
Q3) An increase in liabilities will reduce a firm's net worth.
A)True
B)False
Q4) What is a firm's balance sheet?
Page 10
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Countries gain from specializing in producing goods in which they have ________ and trading for goods in which other countries have ________.
A)a comparative advantage; an absolute advantage
B)an absolute advantage; an absolute advantage
C)a comparative advantage; a comparative advantage
D)an absolute advantage; a comparative advantage
Q2) Over the past several decades there has been a rapid growth in international trade.This growth has been due to all except one of the following factors.Which factor has not contributed to the growth of international trade?
A)the spread of reliable communications
B)a change in the tariffs charged on many goods
C)a reduction in shipping costs
D)favorable changes in government policies
Q3) Refer to Figure 9-2.The increase in domestic producer surplus as a result of the tariff is equal to
A)$11.25 million.
B)$18 million.
C)$32.5 million.
D)$45 million.
Page 11
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) Refer to Figure 10-2.Best friends Laurel and Hardy both enjoy watching romantic comedies and science fiction movies.Based on the diagrams above what can you conclude about their movie preferences?
A)They have identical movie preferences.
B)Hardy enjoys romantic comedies more than Laurel.
C)Hardy enjoys science fiction movies more than Laurel.
D)The diagrams do not provide any information about relative preferences.
Q2) Refer to Figure 10-4.Given the budget constraint in the diagram,which of the following statements is false?
A)The consumer receives the same level of utility from consumption bundles d,e and f.
B)Consumption bundles b and c yield the same level of utility,which is higher than the utility represented by bundle a.
C)Although the consumer receives the same level of utility from bundles d and e,she cannot afford to purchase bundle d.
D)The consumer's optimal bundle could be bundle d,e or f.
Q3) Explain the endowment effect.
Q4) What is an indifference curve? Why can indifference curves never cross?
Q5) Explain the concept of network externalities.
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Chapter 11: Technology, production, and Costs
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Sample Questions
Q1) Two stores - Lazy Guys and Ralph's Recliners - are located in the same city.Both stores buy recliner chairs from the same manufacturer at the same price and both stores are about the same size,so that the fixed costs of production for both stores are the same.Ralph's Recliners sells more recliners per month and Ralph's has a lower average total cost of production.Which of the following can explain why the average total cost of production is lower for Ralph's Recliners?
A)Because Ralph's Recliners sells more output its average fixed costs are lower than Lazy Guy's average fixed cost.
B)The rent Lazy Guys pays for its building is greater than the rent paid by Ralph's Recliners.
C)Ralph's explicit costs are less because Ralph owns the land on which his building is located.Lazy Guy must make lease payments for the land on which its store is located.
D)The price of recliners charged by Ralph's is greater than the price charged by Lazy Guys.
Q2) Economic costs include implicit costs but not explicit costs.
A)True B)False
Q3) What is the marginal product of labor and what is the average product of labor.
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) If a perfectly competitive firm achieves productive efficiency then
A)it will raise its price in order to earn an economic profit.
B)the price of the good it sells is equal to the benefit consumers receive from consuming the last unit of the good sold.
C)it is producing at minimum efficient scale.
D)it is producing the good it sells at the lowest possible cost.
Q2) What is the relationship among the following variables in for a perfectly competitive firm: the market price,average revenue and marginal revenue?
A)Average revenue is equal to the market price; average revenue is greater than marginal revenue.
B)The market price is equal to both average revenue and marginal revenue.
C)Average revenue is equal to marginal revenue; average revenue is greater than the market price.
D)As a firm lowers the market price to sell more output,marginal revenue and average revenue will be less than the market price.
Q3) Explain two different ways to determine the profit-maximizing level of output for a firm in a perfectly competitive market.
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Sample Questions
Q1) The demand curve of a monopolistically competitive firm
A)is horizontal because the firm must cut its price to sell more.
B)is perfectly elastic.
C)is downward-sloping because it sells an identical product.
D)is downward-sloping because it must cut its price to sell more.
Q2) Long-run equilibrium under monopolistic competition and perfect competition is similar in that
A)firms produce at the minimum point of their average cost curves.
B)price equals marginal cost.
C)firms break even.
D)price equals marginal revenue.
Q3) When new firms are encouraged to enter a monopolistically competitive market
A)some existing firms must be earning economic profits.
B)they do so because there is insufficient product differentiation.
C)the demand curve facing an existing firm shifts to the right.
D)the marginal cost curve facing an existing firm shifts downwards.
Q4) A monopolistically competitive firm should lower its price if its marginal revenue exceeds its marginal cost.
A)True
B)False
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) A sequential game can be used to analyze whether a retail firm should build a large store or a small store in a city,when the correct choice depends on whether a competing firm will build a new store in the same city.Which of the following is used to analyze this type of decision?
A)a decision tree
B)a decision matrix
C)a sequential matrix
D)an either-or graph
Q2) Why are decision trees useful to managers who plan business strategies?
A)Decision trees explain the level of concentration in an industry.
B)Decision trees can be used to increase the amount of product differentiation; this enables managers to charge higher prices for their products.
C)Decision trees provide a systematic way of thinking through the implications of a strategy.
D)Using a decision tree always leads to a dominant strategy.
Q3) On January 2,1971,all cigarette advertising was banned on U.S.television and radio stations.Did this ban likely increase or decrease the profits of cigarette companies in 1971? Briefly explain.
Q4) Firms in an oligopoly are said to be interdependent.What does this mean?
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) The Clayton Act is an antitrust law that was passed to A)outlaw monopolization.
B)address loopholes in the Sherman Act.
C)prohibit charging buyers different prices if the result would reduce competition.
D)toughen restrictions on mergers by prohibiting mergers that reduce competition.
Q2) When the government makes a firm the exclusive legal provider of a good or service,it grants the firm
A)a copyright.
B)a network externality.
C)a quota.
D)a public franchise.
Q3) When the government wants to give an exclusive right to one firm to produce a product,it
A)imposes a tariff on imports of the product.
B)imposes a quota on imports of the product.
C)grants a patent or copyright to an individual or firm.
D)uses antitrust laws to keep other firms from entering the market.
Q4) Identify four reasons for high entry barriers? Briefly explain each reason.
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) If price discrimination occurs in a market,
A)the law of one price does not hold.
B)the firm earns arbitrage profits.
C)consumers whose demand for the product sold is more elastic pay higher prices than consumers whose demand is less elastic.
D)the marginal cost of production is constant.
Q2) Refer to Table 16-1.Suppose Julie's marginal cost of providing this service is constant at $7 and she decides to charge each customer according to his or her willingness to pay.What is Julie's total revenue and how many hours of service will be purchased?
A)4 hours and her total revenue = $39
B)4 hours and her total revenue = $28
C)1 hour and her total revenue = $7
D)5 hours and her total revenue = $35
Q3) Publishers practice price discrimination when they sell books at high prices to A)early adopters.
B)local bookstores.
C)large chain bookstores.
D)online book sellers.
Q4) What conditions are required for a firm to use a price discrimination strategy?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) Compensating differentials are associated most closely with which of the following?
A)hazardous jobs
B)comparable worth
C)economic discrimination
D)differences in education
Q2) A firm might prefer to choose a salary system rather than a commission or piece-rate system of compensation when there are concerns about output quality.
A)True
B)False
Q3) There are 345 Division 1-A college basketball programs.If the NCAA chose to increase the number of basketball programs from 345 to 400,the labor supply curve for Division 1-A head basketball coaches would
A)go from being upward sloping to being vertical.
B)go from being vertical sloping to being upward sloping.
C)remain upward sloping.
D)remain vertical.
Q4) The demand for labor is a derived demand.Explain what is meant by the term "derived demand."
19
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Chapter 18: Public Choice, taxes, and the Distribution of Income
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Sample Questions
Q1) The proposition that the outcome of a majority vote is likely to represent the preferences of the voter who is in the political middle is called
A)the mean (or average)voter theorem.
B)the voting paradox.
C)the Arrow impossibility theorem.
D)the median voter theorem.
Q2) The complexity of the U.S.federal income tax system results in significant annual deadweight losses.The opportunity cost of the hours taxpayers spend on record keeping and completing their tax returns amounts to billions of dollars.
a.If the tax system was simplified,how would this benefit the economy?
b.Why hasn't the tax system been simplified?
Q3) Which of the following is the largest source of revenue for the U.S.federal government?
A)the individual income tax
B)social insurance taxes
C)sales taxes
D)property taxes
Q4) What is a Lorenz curve and what is a Gini coefficient?
Q5) What is meant by "tax incidence"?
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