Deck 2: Economics and the World of Business

Question 1

The problem of scarcity is directly relevant

A) only to developing countries low in resources.
B) only to those periods of history before mass production.
C) to all countries and all individuals.
D) only to those on low incomes.
E) only to those times when rationing has been enforced.

Answer 1

to all countries and all individuals.

Question 2

Which of the following statements is incorrect?

A) If poverty were eliminated there would be no reason to study economics.
B) Economics is a behavioural science.
C) Economic analysis can be used to explain how both individuals and societies make decisions.
D) In large measure, economics is the study of how people make choices.

Answer 2

If poverty were eliminated there would be no reason to study economics.

Question 3

Economists use the term 'capital' to mean

A) the current value of the firm's shares on the stock exchange.
B) the total value of a firm to its shareholders.
C) the process by which inputs are transformed into outputs.
D) all inputs into the production process that have themselves been produced, e.g. factories, machines and tools.

Answer 3

all inputs into the production process that have themselves been produced, e.g. factories, machines and tools.

Question 4

In return for supplying factors of production, households are paid

A) wages, rent and dividends.
B) wages, rent and retained profits.
C) goods and services.
D) pensions, interest and rent.

Question 5

Which of the following are factors of production?
(i) Land
(ii) Interest
(iii) Labour
(iv) Raw materials
(v) Rent
(vi) Wages
(vii) Profit
(viii) Capital

A) (iii), (v), (vi) and (vii)
B) (iii), (iv) and (viii)
C) (ii), (iii), (iv) and (vi)
D) (i), (ii), (iv) and (viii)
E) (i), (iii), (iv) and (viii)

Question 6

_________is related to wants and _________ is related to resources. Potential demands are typically_________Potential supplies.

A) Demand; supply; greater than
B) Demand; supply; less than
C) Supply; demand; equal to
D) Supply; demand; less than
E) Supply; demand; greater than

Question 7

A study of whether or not employers discriminate against women by paying them lower wages and assigning them to lower level positions than men would be in the area of

A) industrial relations.
B) law and economics.
C) microeconomics.
D) macroeconomics.

Question 8

A study of how increases in tax rates will affect the national unemployment rate is an example of

A) microeconomics.
B) macroeconomics.
C) descriptive economics.
D) normative economics.

Question 9

Macroeconomics is the branch of economics that examines

A) outcomes of economic behaviour, evaluates them as good or bad, and prescribes preferred courses of action.
B) ways to understand behaviour and the operation of systems without making judgements.
C) the economic behaviour of aggregates (income, employment, and output) on a national scale.
D) the functioning of individual industries and the behaviour of individual decision- making units, i.e. business firms and households.

Question 10

Economists define the rate of inflation as the rate of change in

A) total spending.
B) the price level.
C) the overall level of economic activity.
D) the unemployment level.

Question 11

The cut in VAT to tackle the recession can be described as

A) a supply- side policy.
B) an incomes policy.
C) a regulatory policy.
D) a demand- side policy.
E) a distribution policy.

Question 12

An example of a demand- side government policy would be

A) general cuts in tax rates.
B) grants to firms to encourage them to invest in green technology.
C) reducing the power of trade unions.
D) reducing unemployment benefit to encourage people to take up employment.

Question 13

The total demand for goods and services in an economy is known as

A) GDP (gross domestic product).
B) national demand.
C) total consumption.
D) GNP (gross national product).
E) aggregate demand.

Question 14

You own the DVD boxed set of The Twilight Saga and have watched the films once already. The opportunity cost of watching them a second time

A) is half the price of the DVD boxed set, since this is the second time you have watched them.
B) is the value of the best alternative use of the time you spend watching the DVDs.
C) cannot be calculated.
D) is zero.

Question 15

Assume that a firm can produce 6 units of good X or 12 units of good Y per hour with its current resources. The opportunity cost of a unit of X is

A) 1/2 a unit of Y.
B) 6 units of Y.
C) 72 units of Y.
D) 2 units of Y.
E) 12 units of Y.

Question 16

Which of the following is part of marginal cost?

A) The cost of any rented factory, office and machinery
B) The raw material cost incurred in making one more unit of output
C) The total labour cost incurred in making the firm's output
D) The total sunk average cost allocated to the last unit of output

Question 17

The additional cost of producing one more unit of a product is known as a firm's _________ cost.

A) monetary
B) real
C) marginal
D) average
E) opportunity

Question 18

A planned motorway connecting two cities was originally expected to cost £200 million. After building part of the system at a cost of £150 million, the government realised that the total cost of the system would be £260 million rather than £200 million. At this point, the marginal cost of completing the motorway is best estimated as

A) £260 million.
B) £60 million.
C) £110 million.
D) £50 million.

Question 19

Costs that cannot be avoided, regardless of what is done in the future, because they have already been incurred are

A) marginal costs.
B) implicit costs.
C) total costs.
D) sunk costs.

Question 20

Making a rational decision about whether to go to the cinema or to study involves comparing

A) the total cost of each activity.
B) the total benefit of each activity.
C) the price of the cinema ticket with the importance of study.
D) marginal benefits and marginal costs.

Question 21

Scarce resources create an 'economic problem' because

A) natural resources are limited.
B) consumers typically want to consume more goods and services.
C) some goods cost more than others.
D) A and B

Question 22

Which of the following could help to move an economy out of a recession?

A) Taxing inefficient companies
B) Lowering taxes on goods and services
C) Raising interest rates
D) Buying more imported goods and services

Question 23

The purchase of final goods and services is termed 'consumption' by economists.

Question 24

Scarcity occurs because incomes are not allocated fairly.

Question 25

Inputs are often called factors of production.

Question 26

Capital goods are products which are owned by businesses rather than households.

Question 27

A reduction in supply will normally reduce price.

Question 28

Governments only ever intervene in the economy to stabilise the macroeconomic environment.

Question 29

Microeconomics would consider questions such as what goods are going to be produced.

Question 30

The total amount of output in the economy is called aggregate supply.

Question 31

The total of consumer spending in the economy is called aggregate demand.

Question 32

In the 'circular flow of income' model, consumers are labelled as households.

Question 33

In the 'circular flow of income' model, firms earn income from households and households earn income from firms.

Question 34

Rational decision- making involves computer- assisted mediation.

Question 35

If the marginal benefit exceeds the marginal cost, it is rational to do the activity (or to do more of it).

Question 36

Marginal costs are the total costs of production divided by the number of units of output produced.

Question 37

What is economics all about?

Question 38

What are the main scarce resources, and why does scarcity create an 'economic problem'?

Question 39

What are the two main divisions into which economic ideas fall?

Question 40

How do economists define unemployment?

Question 41

What are demand- side and supply- side policies?

Question 42

Define what you consider to be the main macroeconomic variables that are of interest to a business economist. Why are the variables you have chosen important?

Question 43

Define what you consider to be the main microeconomic information that is of interest to a business economist.

Question 44

Suggest some demand- side policies that a government could use to move the economy out of a recession.

Question 45

Suggest some supply- side policies that a government could use to move the economy out of a recession.

Question 46

Explain the simple circular flow of income.

Question 47

What is opportunity cost? Illustrate your answer with two examples.

Question 48

From the point of view of Nissan^TM, what are the marginal cost and marginal benefit of producing one additional car?