Business Economics
Test Bank
Course Introduction
Business Economics explores the application of economic theories, methodologies, and analytical tools to real-world business decision-making. The course covers fundamental concepts such as demand and supply, cost analysis, market structures, and pricing strategies, offering insights into how businesses operate within various economic environments. Students will analyze the influence of government policies, market competition, and global economic trends on firm behavior and performance. Through case studies and practical examples, the course equips learners with the critical skills needed to interpret economic data, forecast market trends, and make informed managerial decisions in a rapidly changing business landscape.
Recommended Textbook
Principles of Microeconomics 9th Edition by John Sayre Alan Morris
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Chapter 1: The Economic Problem
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Sample Questions
Q1) Refer to the graph above to answer this question.If this society chooses to produce 10 quirks,what is the maximum quantity of quarks it can produce?
A)500 quarks.
B)800 quarks.
C)No quarks.
D)600 quarks.
Answer: D
Q2) What is the difference between productive and allocative efficiency?
Answer: Productive efficiency refers to 'the production of an output at the lowest average cost.'
Allocative efficiency refers to 'the production of the combination of products that best satisfies consumer's demand'.
Q3) Distinguish between a capital good and a consumer good.
Answer: Consumer goods are products used by consumers to satisfy their wants and needs,for example bread and beer.Capital goods are goods used to produce consumer goods and they do not directly satisfy consumer wants and needs.
Q4) Productivity refers to which type of efficiency?
Answer: Productive efficiency.
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3
Chapter 2: Demand and Supply: An Introduction
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Sample Questions
Q1) An increase in the price of a product leads to an increase in the supply.
A)True
B)False
Answer: False
Q2) Demonstrate graphically and explain verbally the concept of a shortage.Is price above or below equilibrium?
Answer: A shortage refers to situations where the quantity demanded is greater than the quantity supplied.This is illustrated in the diagram below.At price P<sub>B</sub> the quantity demanded (Q<sub>D</sub>)is greater than the quantity supplied (Q<sub>S</sub>)and thus a shortage of Q<sub>D</sub> - Q<sub>S</sub> exists.Price is below equilibrium. 11ea7cab_97d8_5402_8d24_0d52fee86f24_TB5692_00
Q3) 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
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Page 4
Chapter 3: Demand and Supply: An Elaboration
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Sample Questions
Q1) Refer to the above information to answer this question.Assume that initially the market is in equilibrium,and the demand increases by 10 units while the supply increases by 40 units.What will be the new equilibrium price and quantity?
A)$10 and 110.
B)$30 and 100.
C)$40 and 120.
D)$50 and 50.
E)$60 and 110.
Answer: B
Q2) Refer to the information above to answer this question.What would happen if the government were to establish a minimum wage of $6.50 an hour?
A)The wage would stay at $6 and there would be no unemployment.
B)The equilibrium wage would rise to $6.50 and there would be no unemployment.
C)The number employed would increase by 100.
D)There would be 200 daycare workers unemployed.
E)The daycare centres would have difficulty finding sufficient workers.
Answer: D
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Chapter 4: Elasticity
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Sample Questions
Q1) Alfred Marshall recognized time in the determination of supply elasticity.His 'momentary market period' is shown through a short-run supply curve which is:
A)perfectly elastic.
B)elastic.
C)inelastic.
D)perfectly inelastic.
E)It could either be elastic or have unitary elasticity.
Q2) If a product has many substitutes,which of the following statements is correct?
A)Its income elasticity is high.
B)It is likely that it is an inferior product.
C)Its supply elasticity is high.
D)Its price elasticity of demand is high.
Q3) What is the relationship between goods A and B if an increase in the price of A leads to an increase in the quantity demanded of B?
A)A and B are complementary goods.
B)A and B are substitute goods.
C)A must be an inferior good while B must be a normal good.
D)B must be an inferior good while A must be a normal good.
Q4) "A linear demand curve implies constant elasticity." Evaluate this statement.
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Chapter 5: Consumer Choice
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Sample Questions
Q1) Refer to the above graph to answer this question.If the price of milk is $2,the price of a cookie is $1 and Sandeep has a budget of $7,how many will he purchase if he wishes to maximize his total utility?
A)0 milk and 7 cookies.
B)1 milk and 5 cookies.
C)2 milk and 3 cookies.
D)3 milk and 1 cookie.
E)3 milk and 4 cookies.
Q2) If the MU per dollar spent on product A is greater than on product B,then a rational consumer should consume more of product B to compensate.
A)True
B)False
Q3) It is the marginal utility of the last unit consumed that determines how much a consumer is prepared to pay for a product.
A)True
B)False
Q4) What does marginal utility mean,and what is the law of diminishing marginal utility?
Q5) Explain what is meant by the term consumer surplus.
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Chapter 6: A Firms Production Decisions and Costs in the Short Run
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Sample Questions
Q1) The upward shift of the average total cost curve from ATC<sub>1</sub> to ATC<sub>2</sub> implies that:
A)Economic capacity is at a higher output level.
B)Economic capacity is at a lower output level.
C)Economic capacity is at the same level.
D)Economic capacity cannot be determined.
Q2) What is the term for the historical costs of buying plant,machinery and equipment that have no current resale value?
A)Sunk cost.
B)Depreciation.
C)Short run cost.
D)Long run cost.
E)Implicit cost.
Q3) Refer to the graph above to answer this question.At what output do diminishing returns set in?
A)80.
B)160.
C)180.
D)200.
E)120.
Page 8
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Chapter 7: Costs in the Long Run
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Sample Questions
Q1) All of the following,except one,are examples of pecuniary economies of scale.Which is the exception?
A)A lower interest rate paid on money borrowed.
B)The ability to sell the by-products of production.
C)The ability to use specialized inputs such as a robotics assembly line.
D)The ability to obtain lower prices by buying in bulk.
Q2) Suppose that a firm's output increases from 500 to 600 units and its total cost increases from $50,000 to $72,000,and if the price of inputs and technology remain unchanged,calculate the change in average total cost and state whether constant returns to scale,economies of scale or diseconomies of scale exist in this case.
A)Increase of $20 and economies of scale
B)Increase of $20 and diseconomies of scale
C)Increase of $20 and constant returns to scale
D)No change and constant returns to scale
Q3) A market can be too small if its limits the size of the firm to an output level that is below economic capacity in the long-run
A)True
B)False
Q4) Discuss the difference between increasing returns and economies of scale.
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Chapter 8: Perfect Competition
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Sample Questions
Q1) Which of the following refers to the perfectly competitive firm?
A)It is a price-maker.
B)It is a price-taker.
C)It might be either a price-maker or a price-taker.
D)It is neither a price-maker nor a price-taker.
Q2) Refer to Figure 8.13 to answer this question.What is the value of the shutdown price?
A)$0.
B)$10.
C)$20.
D)$40.
E)Cannot be determined from the information.
Q3) Refer to Table 8.8 to answer this question.What is the value of the break-even price?
A)$3.25.
B)$5.
C)$5.60.
D)$18.
E)$28.
Q4) What is the significance of MC = ATC for a perfectly competitive firm?
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Chapter 9: An Evaluation of Competitive Markets
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Sample Questions
Q1) Refer to the above information to answer this question.In an effort to increase the number of daycare spaces,suppose the authorities give parents a subsidy of $150 for each child registered.What will be the new equilibrium fee?
A)$350.
B)$450.
C)$500.
D)$550.
E)$600.
Q2) Which of the following statements is correct regarding the term marginal social cost?
A)It includes only the private costs of production.
B)It includes only the external costs of production.
C)It includes both the private and the external costs of production.
D)It is the difference between external costs and private costs of production.
Q3) Military defense is a:
A)Rival good
B)Excludable good
C)Quasi-public good
D)Public good
Q4) What are the four strengths of a perfectly competitive market?
11
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Chapter 10: Monopoly
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Sample Questions
Q1) Refer to the above graph to answer this question.Suppose that the graph represents a monopolist.At the profit maximizing price and output,what will be the level of total profit?
A)$0.
B)6.
C)$180.
D)$240.
E)Cannot be determined.
Q2) Draw a linear demand curve,marginal revenue curve,marginal cost curve,average total cost curve,and an average variable cost curve for a monopolist making an economic loss.Shade in the area of the economic loss.
Q3) Under what circumstances will a profit-maximizing monopolist be forced to shut down?
A)If the average revenue exceeds the average costs of production.
B)If the average revenue exceeds the average variable costs of production.
C)If the average variable costs of production exceeds the average revenue.
D)If marginal revenue exceeds average revenue.
Q4) What are the main features of a monopoly?
Q5) Describe why marginal revenue is always less than price for a monopolist.
Q6) State five criticisms of a monopoly.
Page 12
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Chapter 11: Imperfect Competition
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Sample Questions
Q1) Determine whether each of the following is a form of product differentiation.
a)Developing an advertising strategy.
b)Developing new packaging
c)Charging a lower price than its competitor.
d)Designing a new logo.
e)Renaming the product
Q2) All of the following statements,except one,are correct about game theory analysis.Which is the exception?
A)It has led some economists to conclude that the likelihood of cheating is a more effective barrier to collusion than government legislation.
B)It emphasizes the importance of mutual interdependence.
C)It is an attempt to explain firm behaviour.
D)It shows that it is rational for each firm to trust the other.
E)It is able to predict a likely outcome of two firms engaged in considering a specific action.
Q3) Explain mutual interdependence.
Q4) "Since monopolistically competitive firms do not earn economic profits in the long-run,they are both allocatively and productively efficient." Evaluate this statement.
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Chapter 12: The Factors of Production
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Sample Questions
Q1) Using a graph,contrast a firm operating in a perfectly competitive (pc)labour market and in a monopsony labour market.
Q2) Refer to the above information to answer this question.In what type of market does Nearly Done Inc.sell its output?
A)Perfect competition.
B)Monopoly.
C)Oligopoly.
D)Monopolistic competition.
E)Natural monopoly.
Q3) List the three determinants of the demand for capital goods?
Q4) Through the use of a graph,illustrate the relationship between common property resources and deadweight loss
Q5) Differentiate between a product market and a factor market.
Q6) John Kenneth Galbraith is known for his theory regarding the replacement of entrepreneurs by bureaucrats.Explain the basis of Galbraith's argument.
Q7) What is a 'common property' resource?
Q8) Factors K and L are used in the production of Good X.If the price of Good X increases,what happens to the factor prices (PK and PL)
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Chapter 13: International Trade
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Sample Questions
Q1) Refer to the information above to answer this question.What is the opportunity cost of one unit of soya milk in Etheric?
A)0.5 units of rice cakes.
B)0.75 units of rice cakes.
C)1.33 units of rice cakes.
D)20 units of rice cakes.
E)40 units of rice cakes.
Q2) Define tariffs and Quotas,and explain the similarities and differences between them.
Q3) Refer to above figure to answer this question.Suppose that both Harmony and Tranquility are producing 20 pears;what will be the total gains from trade for the two countries?
A)20 apples and 0 pears.
B)30 apples and 10 pears.
C)20 apples and 10 pears.
D)20 apples and 30 pears.
E)0 apples and 20 pears.
Q4) Explain why free trade may not be possible.
Q5) Distinguish between the European Union (EU)and North American Free Trade Agreement (NAFTA).
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