Managerial Economics Final Exam
Course Introduction
Managerial Economics integrates economic theory with business practice to facilitate decision-making and future planning by management. This course explores concepts such as demand analysis, production and cost functions, market structures, pricing strategies, and the behavior of firms in different market environments. Emphasis is placed on the application of microeconomic principles to real-world business problems, enabling students to analyze and interpret data, optimize resource allocation, and develop strategic solutions to maximize organizational objectives within the context of an ever-changing economic landscape.
Recommended Textbook
Microeconomics 2nd Edition by Dean Karlan
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Page 2
Chapter 1: Economics and Life
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Sample Questions
Q1) You decided to take a college accounting course to brush up on your knowledge of the language of business.The tuition expense was $500.After the date has expired to receive a refund for the course,you are offered a job that would conflict with your class time.In making the decision to accept or decline the offer,the $500 is:
A) the opportunity cost of the job.
B) the expected gain in pay from taking the accounting course.
C) a sunk cost.
D) a sunk benefit.
Answer: C
Q2) As monthly rain levels rise,golf course revenue falls because casual golfers prefer to stay dry.This is an example of:
A) scarcity.
B) incentives.
C) normative analysis.
D) correlation and causation.
Answer: D
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Chapter 2: Specialization and Exchange
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Sample Questions
Q1) Suppose an American worker can make 50 pairs of gloves or grow 300 radishes per day.On the other hand,a Bangladeshi worker can produce 100 pairs of gloves or grow 200 radishes per day.Using the concepts of absolute and comparative advantage,we can say that the United States has the comparative advantage in:
A) the production of both gloves and radishes.
B) neither the production of gloves nor radishes.
C) the production of gloves only.
D) the production of radishes only.
Answer: D
Q2) The concept of the invisible hand was first introduced to economics by:
A) David Ricardo.
B) Adam Smith.
C) Thomas Malthus.
D) Milton Friedman.
Answer: B
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4
Chapter 3: Markets
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Sample Questions
Q1) Jan heads to the store to buy burgers for dinner.Seeing a sale on hot dogs,she buys those instead.The change in her demand for burgers is due to which factor?
A) Preferences
B) Income
C) Prices of related goods
D) Number of buyers
Answer: C
Q2) The prices of related goods matters when determining supply because it affects:
A) the opportunity cost of production.
B) whether or not your good will sell.
C) the competition in the market.
D) the availability of substitute goods.
Answer: A
Q3) The best example of a standardized good would be:
A) corn.
B) a handbag.
C) an autographed baseball.
D) breakfast cereal
Answer: A
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Page 5
Chapter 4: Elasticity
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Sample Questions
Q1) Ray just got a raise,and decided to splurge on a fancy dinner to celebrate.The change to Ray's demand for fancy dinners could be measured by the:
A) price elasticity of supply.
B) price elasticity of demand.
C) cross-price elasticity.
D) income elasticity of demand.
Q2) Gasoline and motel rooms are complements for many consumers.When the price of gasoline declines,consumers take longer vacations and rent more motel rooms.Therefore,the cross price elasticity between gasoline and motel rooms is
A) positive.
B) negative.
C) less than one because neither is a luxury.
D) more than one because both are luxuries.
Q3) A good with an income elasticity of 0.4 is:
A) a luxury good.
B) a normal good.
C) an inferior good.
D) a substitute good.
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6
Chapter 5: Efficiency
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Sample Questions
Q1) In economics,the concept of surplus:
A) measures the benefit that people receive when they buy something for less than they would have been willing to pay.
B) measures the benefit that people receive when they sell something for more than they would have been willing to accept.
C) is the best way to look at the benefits people receive from successful transactions.
D) All of these are true.
Q2) Assume a market price gets set artificially high-that is,it gets set above the equilibrium price.This change means:
A) Every consumer loses surplus, and it all gets transferred to producers.
B) Every producer gains surplus, due to the higher price now being charged.
C) Some consumers drop out of the market, and those left lose some surplus.
D) None of these is true.
Q3) Creating a market that was previously "missing":
A) redistributes surplus from buyer to seller.
B) creates more total surplus.
C) redistributes surplus from seller to buyer.
D) redistributes surplus from one market to the one that was previously missing.
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Chapter 6: Government Intervention Microeconomics
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Sample Questions
Q1) Tax incidence:
A) depends on the relative elasticity of the supply and demand curves in a market.
B) depends on whether it is a buyers tax or sellers tax that is being imposed.
C) depends on the amount of tax revenue generated once administrative burdens are taken into account.
D) depends on whether the tax revenue is greater than the deadweight loss caused by the tax.
Q2) Because a price floor causes:
A) a shortage, some form of rationing must occur.
B) a surplus, some producers may ultimately lose because they won't have enough customers.
C) a shortage, rent-seeking will occur.
D) a surplus, everyone will be better off.
Q3) A prominent argument against the use of price ceilings is:
A) they are unfair.
B) they lead to a surplus and a waste of society's resources.
C) they lead to rent seeking.
D) they raise corporate profits.
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8
Chapter 7: Consumer Behavior
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Sample Questions
Q1) When the price of one good changes,while the prices of all others stay the same:
A) the change in relative prices is reflected in a change in the slope of the budget constraint.
B) the change in relative prices can be thought of as a change in the opportunity costs of each good.
C) the change in relative prices is reflected in a change in the marginal utility per dollar spent on each good.
D) All of these statements are true.
Q2) In general,a change in the price of a good:
A) causes a substitution effect only.
B) causes an income effect only.
C) causes both an income and substitution effect.
D) usually has no effect.
Q3) A budget constraint:
A) shows different bundles of goods that all yield the same total utility.
B) shows different bundles of goods that all cost the same amount.
C) shows different bundles of goods that all maximize an individual's utility.
D) shows how much income is needed to maximize total utility.
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Chapter 8: Behavioral Economics: A Closer Look at Decision Making
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Sample Questions
Q1) Economists make the general assumption that:
A) people are rational, but their behavior doesn't always follow this assumption.
B) people are irrational, but there are some correlations in behavior that have been proven.
C) people are rational, but this doesn't really ever resemble reality.
D) people are irrational, but this is too difficult to put into a model.
Q2) Behavioral economics uses concepts and theories to explain the systematic patterns in how we behave that lead to consistently erroneous decisions.These patterns are called:
A) cognitive dissonance in the field of psychology.
B) disruptive biases in the field of anthropology.
C) receptive biases in the field of anthropology.
D) cognitive biases in the field of psychology.
Q3) Undervaluing of opportunity cost sometimes occurs because:
A) the opportunity cost is easy to visualize.
B) the benefit is difficult to visualize.
C) the opportunity cost is hard to visualize.
D) opportunity cost is just theoretical.
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Chapter 9: Game Theory and Strategic Thinking
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Sample Questions
Q1) In the prisoner's dilemma game:
A) a cooperative strategy can lead to a more beneficial outcome for both players.
B) a noncooperative strategy will lead to a positive-positive outcome.
C) a stable outcome is impossible.
D) neither player has a dominant strategy.
Q2) All games involve which of the following?
A) Strategies
B) Someone to enforce the rules
C) Cards or dice
D) Full information
Q3) A game with a first-mover advantage is one in which:
A) the player who chooses first gets a higher payoff than those who follow.
B) the player who chooses first gets to decide if a repeated game will start with cooperation from the beginning.
C) the first player to move determines the payoffs for the rest of the game.
D) None of these statements is true.
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11
Chapter 10: Information
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Sample Questions
Q1) One way to solve the problems caused by information asymmetry is: A) screening.
B) signaling.
C) building a reputation.
D) All of these are solutions to information asymmetry.
Q2) An employer asking for a list of references from a potential employee is an example of:
A) signaling.
B) screening.
C) statistical discrimination.
D) building a reputation.
Q3) Taking action to reveal one's own private information is called: A) screening.
B) signaling.
C) statistical discrimination.
D) proofing.
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Page 12
Chapter 11: Time and Uncertainty
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Sample Questions
Q1) John is trying to decide whether to expand his business or not.If he continues his business as it is,with no expansion,there is a 50 percent chance he will earn $100,000 and a 50 percent chance he will earn $300,000.If he does expand,there is a 30 percent chance he will earn $100,000,a 30 percent chance he will earn $300,000 and a 40 percent chance he will earn $500,000.It will cost him $150,000 to expand.If John decides to expand based on expected value,it means that:
A) the difference in expected earnings from expanding versus not must exceed $150,000. B) the sum of expected earnings from expanding and from not must exceed $150,000. C) the difference in expected earnings from expanding versus not must not exceed $150,000.
D) his expected earnings from expansion must exceed $150,000.
Q2) If you want to own $1 million when you retire in 45 years,how much should you put into your retirement fund now,given the interest rate is 3 percent?
A) $250,005.
B) $436,770.
C) $264,439.
D) $275,389.
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Page 13
Chapter 12: The Costs of Production
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Sample Questions
Q1) Tina withdraws $20,000 from her money market account to start up her own house cleaning business.Over that time,the account would have earned 3 percent interest.In order to properly account for all costs of her business,Tina must not forget:
A) the opportunity cost of $2,600.
B) the opportunity cost of $600.
C) the fixed cost of $20,600.
D) the fixed cost of $20,600 and the opportunity cost of $600.
Q2) In the long run,when an increase in the quantity of output decreases average total cost,this is called:
A) economies of scale.
B) diseconomies of scale.
C) constant economies to scale.
D) minimum average total cost.
Q3) Economic profits are calculated as:
A) total revenue minus explicit costs.
B) total revenue minus all opportunity costs, explicit and implicit.
C) total revenue minus implicit costs.
D) None of these is true.
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Chapter 13: Perfect Competition
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Sample Questions
Q1) A firm realizes that the market price has fallen below its average total costs,and it is now earning a loss.What is the best action for the firm to take in the short run?
A) Stay open if price is greater than average variable costs.
B) Shut down immediately and pay fixed costs only.
C) Stay open if total revenue is greater than fixed costs.
D) Shut down if price is greater than average variable costs.
Q2) When demand increases in a perfectly competitive market,in the short run __________________,and in the long run __________________.
A) prices increase; supply increases
B) prices increase; prices stay permanently higher
C) quantity supplied increases; prices increase
D) quantity supplied decreases; prices decrease
Q3) In a perfectly competitive market,producers:
A) are able to sell as much as they want without affecting the market price.
B) can influence the price upward by restricting output.
C) often undercut the competition's price and force firms to leave the market.
D) None of these is true of perfectly competitive markets.
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Page 15
Chapter 14: Monopoly
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Sample Questions
Q1) The monopolist is always constrained by:
A) the amount demanders are willing to buy at any given price.
B) his production capacity.
C) the barriers to entry.
D) government regulation.
Q2) Monopoly power in a market causes:
A) monopolists to profit.
B) consumers to gain.
C) market surplus to be constant
D) governments to neve allow them.
Q3) When a monopolist chooses the level of output where marginal cost equals marginal revenue the price:
A) equals marginal revenue.
B) equals average revenue.
C) is lower than average revenue.
D) is lower than marginal revenue.
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Page 16
Chapter 15: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Strategic behavior is key feature in which market structure?
A) Monopoly
B) Oligopoly
C) Monopolistic competition
D) Perfect competition
Q2) Monopolistically competitive firms can achieve product differentiation through:
A) creating a truly different product.
B) creating the perception of differences in their product.
C) creating a product that cannot be easily substituted with a rival's product.
D) All of these statements are true.
Q3) The long run outcome of the monopolistically competitive firm:
A) is not efficient.
B) does not maximize profits.
C) is the same as the short-run outcome.
D) maximizes total surplus.
Q4) Collusion is:
A) easy to maintain since firms always have an incentive to renege.
B) difficult to maintain since firms rarely agree on the terms.
C) easy to maintain since firms face similar cost curves.
D) difficult to maintain since firms always have an incentive to renege.
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Chapter 16: The Factors of Production
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Sample Questions
Q1) Any event that increases the value of the marginal product of labor will:
A) increase labor demand.
B) decrease labor demand.
C) increase labor supply.
D) decrease labor supply.
Q2) If the labor market worked efficiently,then an effective minimum wage law would:
A) cause unemployment.
B) hold wages higher than the equilibrium price.
C) help those who were employed at that price.
D) All of these statements are true.
Q3) A worker deciding how many hours to work can be represented:
A) with an individual labor-supply curve.
B) in the market labor-supply curve.
C) with an individual labor-demand curve.
D) in the market labor-demand curve.
Q4) The quantity of labor supplied is determined by the:
A) number of firms.
B) opportunity cost of providing labor.
C) marginal product of labor.
D) technology.
18
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Chapter 17: International Trade
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Sample Questions
Q1) The World Trade Organization (WTO)is an international organization designed to:
A) monitor and enforce trade agreements, while also promoting free trade.
B) monitor and enforce world banking policies, and lending between nations.
C) provide a forum for all nations to have discussion on various international issues of concern.
D) international governing body that is the final arbiter of all world trade.
Q2) Gains from trade are the:
A) increase in welfare in both countries that results from specialization and trade.
B) transfer of surplus by the receiving country that results from trade.
C) deadweight loss by the losing country that results from trade.
D) increased skills and human capital that results from specialization and trade.
Q3) Once a new technology spreads and is adopted by many countries:
A) the first country to use it may lose its comparative advantage.
B) the first country to use it will lose its absolute advantage.
C) other countries will perfect it, putting them at an absolute advantage.
D) the country will have to have strict intellectual property rights protections in place.
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Chapter 18: Externalities
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Sample Questions
Q1) If the social benefit is greater than the private benefit in a particular market,then the private equilibrium will be at a quantity:
A) greater than the socially optimal level.
B) equal to the socially optimal level.
C) less than the socially optimal level.
D) greater than or less than the socially optimum level, depending on the size of the external costs.
Q2) If people took external costs like pollution into consideration:
A) they would consume less of the goods causing these externalities.
B) they would act in a way that is optimal from a societal perspective
C) the markets for these goods creating such externalities would generate greater surplus.
D) All of these statements are true.
Q3) Efficient solutions to solving externality problems:
A) are always supported by the government.
B) increase surplus for everyone in society.
C) are not always supported in political arenas.
D) decrease surplus for everyone in society.
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Chapter 19: Public Goods and Common Resources
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Sample Questions
Q1) An example of a public good that is difficult to make excludable is:
A) toll roads.
B) city buses.
C) state universities.
D) police protection.
Q2) When choosing the right amount of a public good to supply,the government often:
A) guesses, because people have an incentive to overstate a good's value.
B) provides too much, because people have an incentive to understate a good's value.
C) provides too little, because people have an incentive to overstate a good's value.
D) fails to provide it, because people have an incentive to understate a good's value.
Q3) The similarity between markets for common resources and markets with externalities is that:
A) the equilibrium quantity is too high in terms of society.
B) the price that competitive firms charge does not capture the true costs and benefits of consumption.
C) government involvement is needed to reach an efficient outcome.
D) generally we get an oversupply at market.
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Chapter 20: Taxation and the Public Budget
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Sample Questions
Q1) The payroll tax and the income tax differ in that:
A) the employer pays the payroll tax, and the individual pays the income tax.
B) the payroll tax is tied directly to specific programs while the personal income tax goes toward general government revenue.
C) employers have to pay both payroll and corporate income taxes, and individuals only have to pay personal income tax.
D) the employer pays the payroll tax, but the income tax burden is shared between employer and employee.
Q2) In order to minimize deadweight loss generated by taxation,a tax should be placed on goods that are:
A) price elastic.
B) price inelastic.
C) expensive.
D) popular.
Q3) The logistical costs associated with implementing a tax are called the:
A) deadweight loss.
B) administrative burden.
C) total surplus.
D) tax revenue.
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Page 22
Chapter 21: Poverty, Inequality, and Discrimination
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Sample Questions
Q1) Today black and Hispanic Americans have poverty rates:
A) three times as high as white Americans.
B) twice as high as white Americans.
C) half as high as white Americans.
D) four times as high as white Americans.
Q2) Research shows programs like unemployment insurance,disability or health insurance,and job training can be effective in fighting:
A) both transient and chronic poverty.
B) transient poverty, but not chronic poverty.
C) chronic poverty, but not transient poverty.
D) neither transient nor chronic poverty.
Q3) As of 2010,the Gini coefficient was 33.9 in India and 40.8 in the United States.We can interpret this to mean that inequality:
A) is greater in India than the United States.
B) is greater in the United States than in India.
C) is about the same in the two countries.
D) is not a problem in either country.
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Chapter 22: Political Choices
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Q1) Despite the fact that most votes have virtually no impact on the outcome of a vote,and knowing people incur opportunity costs to vote,we recognize that people vote for all of the following reasons except they:
A) feel pressure to fulfill their civic duty.
B) altruistically decide to contribute to the democratic process by voting.
C) get utility from participating in a civic event.
D) are obligated legally to do so.
Q2) A political structure's enfranchisement refers to: A) who has the right to vote.
B) which territories are protected under particular laws.
C) which territories are restricted by particular laws. D) the government's ability to expand its power.
Q3) Pair-wise majority voting ______________ the criteria of an ideal voting system. A) fails to meet one of B) fails to meet two of C) fails to meet all of D) meets all of
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24
Chapter 23: Public Policy and Choice Architecture
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Sample Questions
Q1) When people make a decision to not participate in a program unless they actively enroll for it,program participation is:
A) likely to be higher than if people were automatically enrolled and had to actively opt-out of participating.
B) likely to be lower than if people were automatically enrolled and had to actively opt-out of participating.
C) likely to be the same as if people were automatically enrolled and had to actively opt-out of participating.
D) exclusive, which always makes it more attractive to people.
Q2) Informing people of social norms is likely to get:
A) more people to act that way, which is always positive.
B) more people to act that way, which can be a problem if policymakers are trying to change typical behavior.
C) more people to act that way, which is always negative.
D) less people to act that way, because people like to be unique.
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