Name:
Economics for Managers
Date:
1.Comparative advantage explains how two nations can benefit from trade.
True
False
Explain your answer
2. Externalities are created when parties not involved in an economic transaction are affected by it.
True
False
Explain your answer
3. Opportunity cost is the value of the next best alternative to a given choice.
True
False
Explain your answer
4. It is impossible for both nations to gain when trading with one other.
True
False
Explain your answer
5. In economics the true cost of making a choice is the value of what must be given up.
True
False
Explain your answer
6. Some college students think that because a college degree greatly increases their earning potential there is no
opportunity cost of attending college. How would an economist look at the matter?
a. There is no opportunity cost, assuming that future earnings actually increase as expected.
b. The opportunity cost is much less than it would appear, assuming that earnings increase.
c. Opportunity cost is a meaningless concept in this situation.
d. The college students are completely correct in all respects.
e. There is still an opportunity cost, even if it is justified by higher future earnings.
7.The term opportunity cost refers to the
a. value of what is gained when a choice is made.
b. difference between the value of what is gained and the value of what is forgone when a
choice is made.
c. value of what is forgone when a choice is made.
d. direct costs involved in making a choice.
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8.If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the
marginal cost per passenger is $100, then it will be profitable for the airline to
a. charge a stand-by passenger no less than the full fare of $500.
b. charge a stand-by passenger less than $100.
c. charge a stand-by passenger more than $500.
d. charge a stand-by passenger more than $100.
e. fill the seats at the last minute for any price.
9.Inputs, or factors of production, include
a. labor.
b. machinery.
c. natural resources.
d. all of the above.
10. A recession can best be defined as a period of time in which
a. total output of the economy falls.
b. total output of the economy rises very slowly.
c. total unemployment falls.
d. total international trade fails to rise.
e. Both a and c
11. An industry can be defined as
a. the group of all firms that sell a product.
b. any company that produces and sells something.
c. the set of buyers of a particular good or service.
d. the top companies that sell something.
12. The production possibilities frontier has a tendency to bow outward from the origin.
True
False
13. The central question in economics is how to
a. make the best use of scarce resources.
b. use government planning agencies.
c. induce people to want less.
d. increase human knowledge.
14. One popular definition of economics is the study of
a. how scarcity increases opportunities to meet ends.
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b.
c.
d.
e.
how markets overcome scarcity.
one goal and three tasks.
how to use limited means to meet unlimited wants.
wants versus needs.
15. An optimal decision is one that chooses
a. the most desirable alternative among the possibilities permitted by the resources available.
b. the lowest cost method of meeting goals, without regard to quality or any other feature.
c. among various possible goals and offends no one, so that all are equally happy.
d. among equally important goals, and thereby avoids the "indispensable necessity"
syndrome.
e. among possible goals in such a way that spends as little money as possible.
16. .In Figure 3-2, the production possibilities frontier has a bowed-out shape because of the law of
a. decreasing costs.
b. increasing costs.
c. demand.
d. comparative advantage.
17. Adam Smith noted that people are adept at which of the following?
a. Confusing themselves if given the chance.
b. Proving the truth of "Murphy's Law."
c. Denying themselves for the sake of others.
d. Pursuing their own self-interest.
e. All of the above are correct.
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Figure 5-3
18. Assume the market consists of three consumers with the demand curves in Figure 5-3. At a price of 1, the
total market demand is
a. 40.
b. 80.
c. 140.
d. 150.
19. The law of demand states that as the price
a. increases, total quantity demanded will increase.
b. decreases, total quantity demanded will decrease.
c. increases, total quantity demanded will decrease.
d. increases, total quantity demanded will stay the same.
20. Which of the following statements is correct?
a. The "law" of diminishing marginal utility implies that demand curves slope upward and to
the right.
b. If the price of a good falls, the utility-maximizing consumer will assure that marginal
utility rises.
c. If the price of a good falls, the consumer will purchase more of the good in order to
maximize total utility.
d. MU and demand have different underlying consumer behavior assumptions.
21. If the price of gasoline rises by 20 percent and consumption of gasoline falls 5 percent,
a. demand is elastic.
b. demand is unit-elastic.
c. demand is inelastic.
d. elasticity of demand cannot be calculated.
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22. In Figure 6-2, the price elasticity of demand (dropping all minus signs) is ____ between P = 4 and P = 6 than
between P = 10 and P = 12 because between the lower set of prices the percentage change in price is
____.
a. smaller; smaller
b. smaller; greater
c. greater; smaller
d. greater; greater
23. From Figure 6-2, we can infer that demand is ____ between P = 12 and P = 10 and ____ between P = 6 and P
= 4.
a. elastic; elastic
b. elastic; inelastic
c. inelastic; elastic
d. inelastic; inelastic
24.The price elasticity of a vertical demand curve is always
a. infinitely large.
b. zero.
c. one.
d. increasing as price increases.
25. A rightward shift in the demand curve for a product will ordinarily result from
a. a decrease in the advertising budget.
b. a decrease in the price of a competing product.
c. an increase in consumer income.
d. an increase in the price of a complementary good.
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26. The following table contains information regarding price and output for a firm. For each point except the
first, calculate the elasticity between it and the point above.
Price
$7
6
5
4
3
2
1
Quantity
10
20
30
40
50
60
70
Elasticity
_____
_____
_____
_____
_____
_____
_____
Price
$7
6
5
4
3
2
1
Quantity
10
20
30
40
50
60
70
Elasticity
(None)
4.33
2.2
1.286
.7778
.4545
.231
27. A macroeconomist would concentrate on which of the following issues?
a. the price of pizzas
b. the profits of the IBM Corporation
c. the unemployment rate in Germany
d. the market for hot dogs
28. The clearest sign of economic growth is a(n)
a. increase in nominal GDP.
b. increase in real GDP.
c. decrease in nominal GDP.
d. increase in nominal GDP.
29. Describe some of the steps used to combat inflation. What are their side-effects?
30. Which of the following is a characteristic of a perfectly competitive market?
a. a few large firms
b. firms producing specialized products in order to attract consumers
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c. each individual firm having some control over the market price
d. a large number of small firms
31. At a perfectly competitive firm's short-run equilibrium level of output,
a. P = MR = MC.
b. P = MR, but MR does not equal MC.
c. P = MC, but MR does not equal MC.
d. MR = MC and P < MR.
32. Of the following industries, which are perfectly competitive? Of those which are not, why do they not fit the
model?
a. local banking
b. gasoline stations
c. college-level educational institutions
d. local radio and television
e. local farmers' market
32. All of the following are possible characteristics of oligopoly except
a. free entry into the industry.
b. significant economies of scale.
c. interdependence among sellers.
d. homogeneous product.
33. A cartel is
a. a group of oligopolists who try to behave like a single monopolist and split the benefits
among themselves.
b. a government-approved organization for the exchange of technical information among
firms.
c. a form of competition among oligopolists.
d. a regulated industry that is officially permitted to set the price of its product above longrun average total cost.
34. The theory of the kinked demand curve is used to explain
a. bizarre corporate behavior.
b. sales maximization.
c. the maximun criterion.
d. sticky prices in oligopolies.
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35. Other things held constant, when the general price level changes:
Select one:
a. we shift the aggregate demand curve to the left.
b. we shift the aggregate demand curve to the left.
c. we shift the aggregate supply curve to the right.
d. we shift the aggregate demand curve to the right.
e. we move along the aggregate demand curve.
36. The official unemployment rate is:
Select one:
a. the number of unemployed people divided by the number of employed
people.
b. the number of unemployed people divided by the total size of the
population.
c. the number of unemployed people divided by the size of the noninstitutionalized population, age 16 or older.
d. the number of unemployed people divided by the size of the noninstitutionalized population.
e. the number of unemployed people divided by the size of the labor force.
37. Which of the following is true of Antitrust policy?
Select one:
a. Antitrust policy prohibits agreements that allow free trade.
b. Antitrust policy restricts abusive behavior by a firm dominating a market.
c. Antitrust policy allows anti-competitive practices.
d. Antitrust policy encourages establishment of monopoly firms.
e. Antitrust policy creates trade barriers like tariffs and quota.
38. Other things equal, a country's long-run aggregate supply will shift to the left
when _____.
Select one:
a. the productivity of labor rises
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b. the quantity of natural resources rises
c. the mortality rate rises
d. the amount of investment rises
e. the aggregate expenditure on education rises
39. Which of the following is true of marginal revenue?
Select one:
a. Marginal revenue is the slope of the total cost curve when profit is maximized.
b. Marginal revenue equals total revenue divided by quantity.
c. Marginal revenue equals the change in total revenue divided by the change
in the quantity.
d. Marginal revenue is the slope of the supply curve of a firm.
e. Marginal revenue equals the income earned by selling the stocks on the
margin.
40. What is Gross Domestic Product? What is included in this statistic? What is excluded? Give two
examples of goods or services that are included in GDP and two examples of goods or services that are
excluded.
ANS:
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