Economic Environment of Business
Exam Materials
Course Introduction
This course explores the dynamic relationship between economics and business decision-making, focusing on how external economic forces influence organizational strategies and operations. Students will examine key macroeconomic and microeconomic concepts, such as market structures, fiscal and monetary policies, inflation, unemployment, and international trade, and learn how these factors shape the environment in which businesses operate. Through real-world case studies and analysis, the course emphasizes the development of critical thinking skills needed to assess economic trends and make informed managerial decisions in various business contexts.
Recommended Textbook
Economics for Managers Global Edition 3rd Edition by Paul G. Farnham
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16 Chapters
1464 Verified Questions
1464 Flashcards
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Page 2
Chapter 1: Managers and Economics
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68 Verified Questions
68 Flashcards
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Sample Questions
Q1) A strong Japanese yen:
A)induced Japanese auto manufacturers to increase their production of cars in Japan.
B)induced Japanese auto manufacturers to shift their production of cars to the U.S.
C)made Japanese exports more price competitive globally.
D)had no meaningful impact on Japanese auto manufacturers.
Answer: B
Q2) All else constant,an increase in the amount of government spending on roads and bridges would cause GDP in the domestic economy to increase.
A)True
B)False
Answer: True
Q3) To develop a competitive advantage and increase their firm's profitability,managers need to understand what affects their revenues,costs,and their ability to set prices.
A)True
B)False
Answer: True
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Chapter 2: Demand, supply, and Equilibrium Prices
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Sample Questions
Q1) Which of the following is not considered a factor that influences supply?
A)Technology.
B)Production taxes and subsidies.
C)The number of buyers.
D)Resource prices.
Answer: C
Q2) Assume the costs of production in the U.S.auto industry are rising and,at the same time,the prices of Japanese-made autos are decreasing.What would reasonably be expected to happen to the equilibrium price and quantity of U.S.-made autos?
A)Price will increase; quantity cannot be determined.
B)Price will decrease; quantity cannot be determined.
C)Quantity will increase; price cannot be determined.
D)Quantity will decrease; price cannot be determined.
Answer: D
Q3) All of the following are non-price factors that influence demand except:
A)tastes and preferences.
B)quantity supplied.
C)income.
D)the prices of related goods.
Answer: B
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Chapter 3: Demand Elasticities
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Sample Questions
Q1) Consider the market for gasoline in a moderately large city.All else constant,it would be reasonable to conclude that the price elasticity demand for any individual gas station would be higher (more elastic)than the price elasticity of demand for gas in general.
A)True
B)False
Answer: True
Q2) The slope of the budget constraint:
A)changes as the marginal rate of substitution changes.
B)is the ratio of the prices of the two goods.
C)is the ratio of the budget to total utility.
D)equals one, since the consumer can purchase any combination along the budget constraint.
Answer: B
Q3) Over time,the price of personal computers has fallen dramatically.All else constant,this would lead us to expect that demand for personal computers has become more price elastic.
A)True
B)False
Answer: False
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Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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67 Verified Questions
67 Flashcards
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Sample Questions
Q1) Briefly explain why empirical consumer demand studies such as Patrick McCarthy's study of automobile demand are relevant to managers.
Q2) Which of the following approaches to understanding and predicting consumer behavior provides the most insight into how consumers can be expected to respond in an actual market setting?
A)Test marketing.
B)Conjoint analysis.
C)Analysis of historical data.
D)Expert opinion.
Q3) Adding an independent variable to a regression model will always reduce the coefficient of determination.
A)True
B)False
Q4) Adjusted R² gives the actual percentage of the variation in the dependent variable explained by the regression model.
A)True
B)False
Q5) Why are estimated models of demand and consumer behavior useful to managers?
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Chapter 5: Production and Cost Analysis in the Short Run
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Which of the following statements regarding historical costs is correct?
A)Historical costs represent what the firm paid for an input when it was purchased, adjusted for inflation.
B)Historical costs vary depending on the method of depreciation a firm uses.
C)Historical costs are a good indicator of the current opportunity cost of a piece of capital.
D)Using historical costs can cause true economic profit to be under or over stated.
Q2) Data on productivity gains in the 1990s in the United States strongly suggest that a significant share of those gains was attributable to:
A)improvements in education and training.
B)improvements in information technology.
C)substantial reductions in labor costs.
D)increased demand for goods and services.
Q3) Refer to Scenario 1.What is the total output when 2 hours of labor are employed?
A)80
B)100
C)180
D)200
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Chapter 6: Production and Cost Analysis in the Long Run
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100 Flashcards
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Sample Questions
Q1) The positively-sloped part of the long-run average total cost curve is due to which of the following?
A)Diseconomies of scale.
B)Diminishing returns.
C)The firm being able to take advantage of large-scale production techniques as it expands its output.
D)The increase in productivity that results from specialization.
Q2) In which of the following situations would a firm be more likely to rely on a capital-intensive method of production?
A)When the rate of technological innovation is low.
B)When capital is relatively expensive.
C)When the firm's output cannot be produced using the assembly line method of production.
D)When labor supply is limited relative to the available amount of capital.
Q3) Which of the following is most likely to create diseconomies of scale?
A)concentration of production in a small number of very large plants.
B)the use of automation devices.
C)technological advance.
D)division of labor.
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Page 8
Chapter 7: Market Structure: Perfect Competition
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Which of the following statements regarding a price-taking firm is correct?
A)Demand = average revenue > marginal revenue.
B)Demand = marginal revenue > average revenue.
C)Demand = price = average revenue = marginal revenue.
D)Demand = price > average revenue > marginal revenue.
Q2) The perfectly competitive firm's supply curve is that portion of the marginal cost curve that lies above the firm's average total cost curve.
A)True
B)False
Q3) Assume that at the current level of output produced by a perfectly competitive firm,MR = $7.50 and MC = $6.In order to maximize its profit,the firm should increase output.
A)True
B)False
Q4) A perfectly competitive market is characterized by a large number of small firms that produce a differentiated product.
A)True
B)False
Q5) Summarize the characteristics of a perfectly competitive market.
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Chapter 8: Market Structure: Monopoly and Monopolistic Competition
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Sample Questions
Q1) As their respective names imply,monopoly and monopolistic competition are the most similar of the four market structures.
A)True
B)False
Q2) The Herfindahl-Hirschman Index is a measure of market power that focuses on:
A)the ratio of the price of a firm's product to the price elasticity of demand for the product.
B)the share of the market controlled by the X largest firms in the market.
C)the sum of the squares of the market share of each firm in an industry.
D)the difference between a firm's product price and its marginal costs of production.
Q3) Suppose the firms in a monopolistically competitive market are earning positive economic profits.What will happen to move the market to its long-run equilibrium?
A)The firms' demand curves will become less elastic.
B)The demand curves faced by firms in the market will shift to the right.
C)More close substitutes will appear in the market.
D)Some firms will exit the market if they can't cover all of their fixed and variable costs.
Q4) Explain how network externalities act as a barrier to entry.
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Chapter 9: Market Structure: Oligopoly
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Sample Questions
Q1) Predatory pricing will be most effective when the costs structures of the firms in an industry,including potential entrants into the market,are identical or at least very similar.
A)True
B)False
Q2) In which of the following situations would each of the members be responsible for producing an equal share of the total amount of output sold by the cartel engaged in joint profit maximization?
A)When the amount of revenue generated by each member of the cartel is the same.
B)When there are no economies of scale in production.
C)When each member of the cartel is using the same scale of production.
D)When marginal costs of production are the same for each of the members of the cartel.
Q3) One could argue that price competition among oligopolistic firms is highly likely to cause the revenues of individual firms to decline,while competition on the basis of product differentiation could cause demand,and total revenues,of individual firms to increase.
A)True
B)False
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11
Chapter 10: Pricing Strategies for the Firm
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67 Verified Questions
67 Flashcards
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Sample Questions
Q1) By and large,the price of each item on a restaurant menu is:
A)an accurate reflection of the item's marginal cost.
B)based strictly on consumer demand.
C)a function of cost and the price elasticity of demand for the item.
D)a fixed multiple of the item's total cost.
Q2) Which of the following statements is correct?
A)The markup pricing rule that is derived from the rule for profit maximization can be used as a substitute for determining the profit-maximizing level of output by equating marginal revenue and marginal cost.
B)It is reasonable to assume that a profit-maximizing firm will never operate in the inelastic portion of its demand curve.
C)The ability of a profit-maximizing firm to mark up price above average cost is unaffected by the price elasticity of demand for the firm's output.
D)The markup factor and the price elasticity of demand are positively related, i.e., as the price elasticity of demand increases, the markup factor that the profit-maximizing firm can apply to its marginal cost in setting price increases as well.
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Chapter 11: Measuring Macroeconomic Activity
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) The core rate of inflation is a measure of the relative price changes that excludes changes in energy and food prices.
A)True
B)False
Q2) In year one,the GDP deflator is 100 and in year two 110.If nominal GDP in year two is $300 billion,what is real GDP for year two?
A)$200 billion.
B)$100 billion.
C)$272.73 billion.
D)$220 billion.
Q3) What is the difference between inflation and deflation?
A)Inflation is a sustained decrease in the price level whereas deflation is a sustained increase in the price level.
B)Inflation is a sustained increase in the price level whereas deflation is a sustained decrease in the price level.
C)Inflation is a measure of relative prices whereas deflation is a sustained increase in the price level.
D)None of the above.
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13
Chapter 12:
Spending by Individuals, firms, and
Governments on Real Goods and Services
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) The slope of the linear consumption function represents autonomous consumption expenditures.
A)True
B)False
Q2) Increase in consumer confidence will ________ the expenditure curve:
A)decrease.
B)increase.
C)down.
D)none of the above.
Q3) Any uses of current income for purposes other than purchasing currently produced domestic goods and services are called an injection.
A)True
B)False
Q4) The currency exchange rate is the rate at which one nation's currency can be exchanged for another.
A)True
B)False
Q5) What factors will shift the aggregate expenditure function for a given level of real domestic income?
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Chapter 13: The Role of Money in the Macro Economy
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90 Flashcards
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Sample Questions
Q1) Define the three functions of money.
Q2) Institutions that accept deposits from individuals and organizations,against which depositors can write checks on demand for their market transactions and that use these deposits to make loans are called:
A)depository institutions.
B)financial market institutions.
C)insurance companies.
D)none of the above.
Q3) The quantity of money demanded is positively related to the interest rate.
A)True
B)False
Q4) The equilibrium price in the money market is the:
A)inflation rate.
B)exchange rate.
C)interest rate.
D)none of the above.
Q5) There are 15 Federal Reserve District Banks.
A)True
B)False
Q6) Describe the fractional reserve banking system.
Page 15
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Chapter 14: The Aggregate Model of the Macro Economy
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Sample Questions
Q1) The portion of the short-run aggregate supply that reflects the economy's resources are not fully employed is the:
A)vertical portion.
B)horizontal portion.
C)upward sloping portion.
D)none of the above.
Q2) An income tax system where higher tax rates are applied to increased amounts of income is called a:
A)regressive tax system.
B)proportional tax system.
C)progressive tax system.
D)flat tax system.
Q3) The long-run aggregate supply curve is influenced by the price level.
A)True
B)False
Q4) Using the aggregate demand-aggregate supply diagram,graphically illustrate and explain the impact of an escalating budget deficit on the price level and real income in the long-run.
Q5) Explain the long-run consequences of continued increases in the money supply.
Page 16
Q6) Why is judging trends in economic indicators important to managers?
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Chapter 15: International and Balance of Payments Issues in the Macro Economy
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Sample Questions
Q1) An increased supply of U.S.dollars on the foreign exchange market,all else equal,will result in an appreciation of the U.S.dollar.
A)True
B)False
Q2) Capital outflows occur if:
A)domestic interest rates are higher than foreign interest rates.
B)domestic interest rates are lower than foreign interest rates.
C)domestic and foreign interest rates are the same.
D)none of the above.
Q3) When it became known in 1997 that the Thai government had insufficient foreign exchange reserves to maintain the exchange rate,how did currency speculators respond? What policy did the IMF suggest?
Q4) The major factor contributing to the depreciation of the dollar in 2007-2008 was:
A)higher U.S. interest rates resulting in lower capital outflows.
B)lower U.S. interest rates resulting in higher capital outflows.
C)higher U.S. interest rates resulting in higher capital outflows.
D)lower U.S. interest rates resulting in lower capital outflows.
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Chapter 16: Combining Micro and Macro Analysis for Managerial Decision Making
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Sample Questions
Q1) Give some examples of oligopolistic behavior among the major fast food companies.
Q2) Managers can increase firm profits by:
A)increasing revenue only.
B)decreasing costs only.
C)increasing revenue and decreasing costs.
D)none of the above.
Q3) To counter parents' concerns about fast foods and childhood obesity,McDonalds considered:
A)a variety of menu items such as milk shakes and candy.
B)a variety of menu items such as apple slices, fruit juices, peanut butter and jelly sandwiches, and carrot sticks.
C)not changing the menu.
D)all of the above.
Q4) Briefly state several reasons for the decline in sales for McDonald's in 2001-2002.
Q5) How did McDonald's attempt to address the cultural differences around the world in selling its product?
Q6) How did McDonalds address the drive-through innovation in China?
Q7) How did McDonalds address the obesity issue in China?
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