MBA Economics Exam Review
Course Introduction
MBA Economics explores the principles of economics as applied to business decision-making, focusing on both microeconomic and macroeconomic concepts relevant to managers. The course covers topics such as market structures, supply and demand analysis, pricing strategies, production and cost functions, and the impact of government policies on the business environment. Additionally, it examines macroeconomic indicators, fiscal and monetary policies, and global economic trends, equipping students with the analytical tools needed to interpret economic data and make informed strategic choices in a dynamic business landscape.
Recommended Textbook Economics for Managers 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) Macroeconomics is concerned with the behavior of all of the firms in a particular industry, while microeconomics focuses on a single firm in the same industry.
A)True
B)False
Answer: False
Q2) In the equation GDP = C + I + G + F, in which F equals net export spending (i.e., total spending on exports minus total spending on imports), imports are subtracted from the other types of expenditures because:
A)imports reduce national welfare.
B)other countries do not import goods from the U.S.
C)it represents a flow of expenditures out of the domestic economy to the rest of the world.
D)the value of imports is difficult to determine due to the fact that they are frequently stated in terms of foreign currency.
Answer: C
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Chapter 2: Demand, Supply, and Equilibrium Prices
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Sample Questions
Q1) Assume the demand function for good X can be written as Qd = 80 - 3Px + 2Py + 10I where Px = the price of X, Py = the price of good Y, and I = Consumer income.
This equation implies that X and Y are substitutes.
A)True
B)False Answer: True
Q2) When market price is higher than the equilibrium price, a surplus is created.This will put downward pressure on price, causing quantity demanded to increase and quantity supplied to decrease until equilibrium is reestablished.
A)True
B)False Answer: True
Q3) Prices of related goods are a determinant of demand but not supply. A)True
B)False
Answer: False
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Page 4
Chapter 3: Demand Elasticities
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Sample Questions
Q1) Suppose a consumer's income increases from $30,000 to $36,000.As a result, the consumer increases her purchases of compact disks (CDs)from 25 CDs to 30 CDs.What is the consumer's income elasticity of demand for CDs?
A)0)5
B)1)0
C)1)5
D)2)0
Answer: B
Q2) While the demand for beer is relatively price inelastic, the price elasticity of demand for a particular brand is relatively high, due in large part to availability of close substitutes.
A)True
B)False
Answer: True
Q3) When a consumer moves from a lower to a higher indifference curve, the marginal rate of substitution automatically increases.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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Sample Questions
Q1) The approach to analyzing consumer behavior that asks consumers to rank and choose among different product attributes to reveal their relative valuation of different characteristics is called:
A)a direct consumer survey.
B)contingent valuation.
C)the hedonic estimation technique.
D)conjoint analysis.
Q2) A measure of how much the coefficient would vary in regressions based on different samples is called:
A)standard error of the estimated coefficient.
B)F-statistic.
C)partial F-statistic.
D)t-statistic.
Q3) Regression analysis that analyzes the relationship between one dependent variable and several independent variables is called:
A)simple regression analysis.
B)correlation analysis.
C)multiple regression analysis.
D)cluster analysis.
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Chapter 5: Production and Cost Analysis in the Short Run
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Sample Questions
Q1) Refer to Scenario 2.The marginal cost of the sixth unit of output is:
A)$1.33.
B)$7.50.
C)$8.00.
D)$45.00.
Q2) Assume a firm is currently producing 100 units of output, total fixed costs are $10,000, and average variable costs are $8.Based on this information we can conclude, with certainty, that the firm's:
A)marginal costs are $8.
B)total variable costs are $8000.
C)average fixed costs are $2.
D)total costs are $10,800.
Q3) Refer to Scenario 3.The marginal cost of producing the sixth unit of output is:
A)$33.33 (approximate).
B)$55.
C)$200.
D)$250.
Q4) Explain the difference between the short run and the long run as it relates to the firm's production function.Why is this distinction important to a firm's manager?
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Chapter 6: Production and Cost Analysis in the Long Run
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Sample Questions
Q1) A production method that relies on large quantities of machines and equipment and smaller quantities of labor is referred to as a:
A)variable-input-intensive method of production.
B)labor-intensive method of production.
C)technology-intensive method of production
D)capital-intensive method of production.
Q2) A firm is more likely to use a labor-intensive method of production when the relative amount of available labor is greater than the available amount of capital.
A)True
B)False
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.
Q4) Use the firm's long-run cost-minimizing decision rule to explain the differences in the relative use of capital and labor in agriculture in the United States and the Peoples Republic of China.
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Chapter 7: Market Structure: Perfect Competition
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Sample Questions
Q1) Which of the following is not a characteristic of the broiler chicken industry?
A)A significant degree of industry concentration, with the four largest firms producing 40 percent of the industry's output.
B)A significant degree of real and subjective product differentiation.
C)An inability of individual firms to have any influence market price.
D)A significant amount of advertising.
Q2) Assume there is a decrease in the market demand for a good sold by price-taking firms that are initially producing the profit-maximizing level of output.For the individual firm, this would result in:
A)a decrease in both price and the profit-maximizing quantity of output.
B)a decrease in price and increase in the profit-maximizing quantity of output.
C)an increase in both price and the profit-maximizing quantity of output.
D)an increase in price and decrease in the profit-maximizing quantity of output.
Q3) The elasticity of demand for a particular perfectly competitive firm's output is positively related to the number of firms supplying the market.
A)True
B)False
Q4) 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) All of the following are strategies a firm with market power can adopt to increase it profits over time except:
A)mergers with, and acquisitions of, competing firms.
B)erecting barriers to entry.
C)setting price equal to the marginal costs of production.
D)influencing the regulatory process.
Q2) Which of the following conditions holds for a monopolist, but not for a perfect competitor, at the profit-maximizing level of output?
A)Price = average revenue.
B)Marginal revenue = marginal cost.
C)Price > marginal cost.
D)Profit = (AR-ATC)x Q.
Q3) Which of the following barriers to entry into a market is most beneficial from society's perspective?
A)Economies of scale.
B)Ownership of an essential productive resource.
C)Brand loyalties.
D)Consumer lock-in and switching costs.
Q4) Explain how network externalities act as a barrier to entry.
Page 10
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Chapter 9: Market Structure: Oligopoly
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Sample Questions
Q1) One of the implications of the kinked demand curve model is that even if a firm's costs change by a measurable amount, market price is unlikely to change.This helps explain the price rigidity observed in many oligopolistic markets.
A)True
B)False
Q2) A firm could gain from cheating on a cartel agreement by doing all of the following except:
A)raising its price above the agreed level.
B)lowering its price below the agreed level.
C)selling more than its agreed quota.
D)increasing production.
Q3) Assume firm X is one of the three largest firms in an oligopolistic industry.Firm X is currently considering a vertical merger with another firm that is the sole supplier of an input used by all of the firms that compete with firm X.If the merger goes through, firm X would be able to operate much like:
A)a perfectly competitive firm.
B)a monopolistically competitive firm.
C)an oligopolist.
D)a monopolist.
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Page 11
Chapter 10: Pricing Strategies for the Firm
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Sample Questions
Q1) Assume there is a decrease in the number of substitutes for a good produced by a profit-maximizing price-setting firm.All else constant, this would cause the firm's ability to markup price above average cost to:
A)decrease.
B)stay the same.
C)increase.
D)cannot be determined with the information given.
Q2) The text describes three different "degrees" of price discrimination.Of these, which one is theoretically capable of generating the greatest amount of economic profit for the firm? Why? In contrast, which one do you think has the greatest applicability to the range of goods and services consumers typically purchase?
Q3) As the price elasticity of demand for an item increases, so does the firm's ability to mark up the price of the item above average cost.
A)True
B)False
Q4) Is the profit-maximizing price-taking firm able to mark up price above the marginal costs of production at the profit-maximizing level of output? Why or why not?
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Chapter 11: Measuring Macroeconomic Activity
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Sample Questions
Q1) The value of currently produced final goods and services measured in current year prices is called:
A)real GDP.
B)nominal GDP.
C)imputed values.
D)inflation.
Q2) What are some of the issues associated with the consumer price index?
Q3) The income generated from the sale of the goods and services produced in the economy and paid to the individuals and businesses who supply the factors of production is called:
A)GDP.
B)GNP.
C)national income.
D)NNP.
Q4) Business cycles are officially dated by:
A)National Bureau of Economic Research, NBER.
B)Bureau of Economic Analysis, BEA.
C)Bureau of Labor Statistics, BLS.
D)none of the above.
Q5) What are the two policy options used to influence the economy?
Page 13
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Chapter 12: Spending by
Individuals, Firms, and
Governments on Real Goods and Services
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Sample Questions
Q1) The Federal Reserve looks at the threshold of capital utilization rates as an indicator of inflationary pressures.
A)True
B)False
Q2) Temporary tax cuts will have a greater influence on consumption expenditures than temporary tax cuts.
A)True
B)False
Q3) Decreases in autonomous spending have a contractionary effect and make ________ levels of real income consistent with a given interest rate.
A)lower
B)higher
C)constant
D)none of the above.
Q4) You are given the following linear consumption function: C = 200 + 0.80Yd.What is the size of the autonomous consumption expenditures and induced expenditures?
Q5) What are the determinants of investment spending?
Page 14
Q6) Briefly explain how capacity utilization rates are used by forecasters.
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Chapter 13: The Role of Money in the Macro Economy
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Sample Questions
Q1) The equilibrium price in the money market is the:
A)inflation rate.
B)exchange rate.
C)interest rate.
D)none of the above.
Q2) Deposits held by commercial banks are insured by the:
A)Federal Trade Commission.
B)Federal Deposit Insurance Corporation.
C)Federal Communications Commission.
D)Resolution Trust Corporation.
Q3) A subway token does not fulfill the three functions of money.
A)True
B)False
Q4) Contractionary monetary policy increases the federal funds rate.
A)True
B)False
Q5) The monetary base is $1,000 billion and the money multiplier is 5.5.What is the size of the money supply?
Q6) Describe the fractional reserve banking system.
Q7) Define the three functions of money.
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Chapter 14: The Aggregate Model of the Macro Economy
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Sample Questions
Q1) Aggregate supply changes much faster than aggregate demand.
A)True
B)False
Q2) A vertical curve that defines the level of full-employment or potential output based on a given amount of resources, efficiency, and technology in the economy is called:
A)the short-run aggregate supply curve.
B)the long-run aggregate supply curve.
C)the aggregate demand curve.
D)none of the above.
Q3) Lower interest rates are generally charged on more risky investments and on securities that have longer maturities.
A)True
B)False
Q4) An increase in taxes would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.
Q5) 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) Gold certificates, special drawing rights, the reserve position of the IMF, and the holdings of foreign currencies represent:
A)physical assets.
B)reserve assets.
C)monetary assets.
D)none of the above.
Q2) In the foreign exchange market, foreign residents wishing to purchase U.S.exports or U.S.real and financial assets must:
A)demand U.S. dollars by supplying their foreign currency.
B)demand U.S. dollars by supplying U.S. dollars.
C)supply U.S. dollars by demanding their foreign currency.
D)none of the above.
Q3) Holding everything else constant, a country's exports will decrease if the:
A)country's currency appreciates.
B)country's currency depreciates.
C)country's currency is revalued.
D)none of the above.
Q4) What did the European Central Bank (ECB)do to bolster the value of the euro in September 2000?
Page 17
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Chapter 16: Combining Micro and Macro Analysis for Managerial Decision Making
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Sample Questions
Q1) Increases in both labor and capital productivity will result in:
A)downward shift of the average and marginal product curves and upward shift of the average cost curves.
B)downward shift of the average and marginal product curves and downward shift of the average cost curves.
C)upward shift of the average and marginal product curves and downward shift of the average cost curves.
D)upward shift of the average and marginal product curves and upward shift of the average cost curves.
Q2) If capital inflows decrease due to higher interest rates in other countries and large amounts of import spending, there will be:
A)upward pressure on a country's exchange rate.
B)downward pressure on a country's exchange rate.
C)no pressure on a country's exchange rate.
D)none of the above.
Q3) How did McDonald's attempt to address the cultural differences around the world in selling its product?
Q4) How did McDonalds address the drive-through innovation in China?
Page 18
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