Deck 1: Managers and Economics

Question 1

Which of the following statements is false?

A)Price determination is the key element in any market system.
B)Input prices influence a firm's costs of production.
C)Output prices influence a firm's revenues.
D)While managers must understand how output prices are determined, determination of input prices is irrelevant because it is beyond the manager's control.

Answer 1

D

Question 2

Which of the following statements about the circular flow model is false?

A)Consumers earn income by selling resources they own to businesses.
B)Businesses supply goods and services to the household sector.
C)Households supply resources to the business sector.
D)Business firms buy goods and services from the household sector.

Answer 2

D

Question 3

Firms are considered to be price searchers,as opposed to price takers,in all of the following market types except:

A)perfect competition.
B)monopolistic competition.
C)oligopoly.
D)monopoly.

Answer 3

A

Question 4

The market structure that is characterized by a small number of large firms that have some market power is called:

A)perfect competition.
B)monopolistic competition.
C)oligopoly.
D)monopoly.

Question 5

The major categories of expenditures in the economy are:

A)consumption, gross investment, and government purchases.
B)consumption, net investment, and net exports.
C)consumption, fixed investment, government purchases, and net imports.
D)consumption, gross investment, government purchases, and net exports.

Question 6

Which of the following would be an illustration of a microeconomic issue affecting U.S.auto manufacturers?

A)An introduction of new, more fuel efficient models by Japanese competitors.
B)A recession in Europe that causes U.S. auto exports to Europe to decline.
C)A decline in the demand for new cars in the U.S. due to an economic downturn.
D)An appreciation of the U.S. dollar relative to the Japanese yen.

Question 7

Which of the following is not a characteristic of a perfectly competitive market?

A)Large number of firms in the industry.
B)Outputs of the firms are perfect substitutes for one another.
C)Limited information is available to all market participants.
D)Ease of entry into the market.

Question 8

Which of the following statements about monopoly is false?

A)A single firm serves the market.
B)There are no close substitutes for the monopolist's output.
C)There are usually significant barriers to entry.
D)Because there is a single firm serving the entire market, the monopolist can charge whatever price it wants to for its output.

Question 9

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.

Question 10

Which of the following statements is correct?

A)Managerial decisions are affected primarily by microeconomic forces.
B)Managerial decisions are affected primarily by macroeconomic forces.
C)Managerial decisions are affected by both microeconomic and macroeconomic forces.
D)By and large, managerial decisions are not affected by either microeconomic or macroeconomic forces.

Question 11

Within the circular flow model,which of the following is not represented as a flow of funds into firms?

A)Foreign purchases of goods and services.
B)Income payments.
C)Consumption spending.
D)Government purchases.

Question 12

Which of the following market structures is most similar to perfect competition?

A)Monopsony.
B)Monopolistic competition.
C)Oligopoly.
D)Monopoly.

Question 13

Which of the following would be considered an example of a macroeconomic problem?

A)Should Microsoft reduce the price of its Windows operating system?
B)Should the federal government extend the eligibility period for unemployment benefits?
C)Should Mitsubishi eliminate one of its production shifts?
D)Should JP Morgan Chase increase the interest rate it charges its credit card customers?

Question 14

Which of the following conditions ensures that excess profits cannot persist in a perfectly competitive market over the long run?

A)Large number of firms in the industry.
B)Outputs of the firms are perfect substitutes for one another.
C)Complete information is available to all market participants.
D)Ease of entry into the market.

Question 15

Which of the following statements is correct?

A)So long as a firm is sufficiently large, it will have some amount of market power, regardless of the type of market in which it operates.
B)All else constant, a monopoly firm has more market power than a monopolistically competitive firm.
C)The amount of market power a firm possesses is unrelated to the type of market in which it operates.
D)The fact that the firms in an oligopoly are mutually interdependent means that individual firms do not have any market power.

Question 16

Which of the following is not included in gross private domestic investment spending?

A)Household spending on residential construction.
B)Spending on business inventories.
C)Household spending on durable goods.
D)Business spending on plant and equipment.

Question 17

Which of the following statements is false? In the circular flow model:

A)the funds needed to finance investment spending come from the saving of households.
B)GDP can be measured either by the income received or by the expenditures made.
C)factor payments are made to business firms.
D)consumption expenditures are made by households.

Question 18

All else constant,the choice of whether to use a labor-intensive production process or a capital-intensive one is depends on:

A)the absolute prices of capital and labor.
B)the relative prices of capital labor.
C)the type of market in which the firm operates.
D)whether the economy is growing or shrinking.

Question 19

The key characteristic of an oligopolistic market is:

A)production of a homogeneous product.
B)mutual interdependence among firms in the market.
C)the absence of market power by any one firm.
D)ease of entry into, and exit out of, the market.

Question 20

The assumed goal of the firms that operate in each of the four market structures discussed in the text is to maximize:

A)sales.
B)revenue.
C)profits.
D)price.

Question 21

The type of policy that involves interest rates and the availability of loanable funds is known as:

A)fiscal policy.
B)monetary policy.
C)strategic financial policy.
D)federal policy.

Question 22

Sound business decision making requires a firm understanding of both microeconomic and macroeconomic concepts.

Question 23

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.

Question 24

The rate of inflation measures the change in the relative prices of the goods and services produced in the macroeconomy over a specified period of time.

Question 25

With respect to prices,at the macroeconomic level attention is focused on relative prices,while at the microeconomic level attention is focused on absolute prices.

Question 26

If a country's national government wants to stimulate spending in the economy,it should:

A)decrease taxes and increase government spending.
B)increase taxes and decrease government spending.
C)increase taxes and government spending.
D)decrease taxes and government spending.

Question 27

The following question is an example of microeconomic analysis,"What determines the price of gasoline in a particular city or town?"

Question 28

Assuming that C = $4,500,I = $1,000,G = $1,200,Exports = $450,Imports = $550,Depreciation = $600,and Indirect Business Taxes = $500 (all in billions of dollars),GDP equals:

A)$5,500 billion.
B)$6,000 billion.
C)$6,400 billion.
D)$6,600 billion.

Question 29

Gross Domestic Product (GDP)is defined as the market value of:

A)all goods and services sold during the year by domestic and foreign producers.
B)all final consumer goods produced during the year by domestic and foreign suppliers.
C)all intermediate goods produced during the year by domestic and foreign suppliers.
D)all final goods and services produced within the boundaries of an economy during the year by domestic and foreign-supplied resources.

Question 30

Which of the following would have the greatest positive impact on a country's domestic economy?

A)An increase in spending on imports from other countries.
B)An increase in spending by foreigners on the country's exports.
C)A decrease in the confidence of foreign investors in the country's economy.
D)A decrease in the incomes of consumers in foreign countries.

Question 31

The term "relative price" is used to refer to how the current price of a good or service compares to the price of the same item in the previous time period.

Question 32

Managerial economics refers to the application of microeconomics to business decision making.

Question 33

The type of policy that involves changes in taxes or spending by the federal government is known as:

A)fiscal policy.
B)monetary policy.
C)strategic financial policy.
D)federal policy.

Question 34

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.

Question 35

Assume that with existing tax and spending laws,government spending exceeds government tax revenues.To cover the resulting shortfall,the government must:

A)increase consumers' incomes.
B)print more money.
C)Borrow money in the financial markets.
D)lower interest rates.

Question 36

Changes in the macroeconomy,such as an increase in average per person income,can have effects at the microeconomic level,for example,on the profitability of firms in a particular industry.

Question 37

Assume a bottled water company is trying to decide on a new pricing strategy.Sound decision making would require the firm's managers to consider not only how consumers will respond to the product's own price,but how they will react to the price for the firm's product relative to the prices of similar products offered by the firm's competitors.

Question 38

If a country's central bank wants to stimulate spending in the economy,it should:

A)increase the amount of assets banks should keep on reserve at all times.
B)decrease taxes.
C)lower interest rates.
D)increase government spending.

Question 39

Understanding how individual sectors of the economy will respond to changes in key economic variables gives us a better understanding of how the macroeconomy behaves.

Question 40

Which of the following statements is correct?

A)Because it is subject to change, and frequently does, consumer and business confidence has only a minimal impact on future economic activity.
B)Because it has historically remained steady, consumer and business confidence has only a minimal impact on future economic activity.
C)Consumer and business confidence is extremely important and can have a great impact on future economic activity.
D)Consumer confidence is extremely important and can have a great impact on future economic activity. The same is not true of business confidence.

Question 41

Assuming that C = $6,200,I = $1,300,G = $1,100,Exports = $630,Imports = $750,and Depreciation = $600 (all in billions of dollars),GDP equals $7,880.

Question 42

Because it is the only firm operating in a particular market,a monopolist is guaranteed to earn an economic profit.

Question 43

All else constant,as the barriers to entry into a particular market increase,so will the ability of firms in that market to earn above-average profits.

Question 44

All else constant,an increase in the amount of borrowing by the federal government would reduce the amount of money available for businesses to borrow to finance investment spending.

Question 45

According to the circular flow model,an increase in spending by businesses on productive resources would cause the income and spending of consumers to increase.

Question 46

All else constant,an increase in the amount of government spending on roads and bridges would cause GDP in the domestic economy to increase.

Question 47

Gross Domestic Product (GDP)is defined as the market value of all goods and services purchased in the economy during a particular year.

Question 48

Consumer income can be used for three things: purchases of goods and services,paying taxes and saving.

Question 49

If we ranked the four market structures on the basis of degree of competition,perfect competition and monopolistic competition would be at opposite ends of the spectrum.

Question 50

Monetary policy consists of changes in taxes,which in turn affects the amount of money households can spend on consumption.

Question 51

Assume a monopolistically competitive firm comes up with a new innovation that allows it to earn above-normal economic profits.Given the nature of the market in which it operates,over time those profits will be competed away as new competitors enter the market.

Question 52

"Gross Investment spending" refers exclusively to purchases of plant and equipment by businesses and net changes in business inventories.

Question 53

Because most gas stations are small relative to the market in which they operate and gasoline is fairly homogeneous,the market for gasoline is considered to be perfectly competitive.

Question 54

Because it has a direct effect on the hiring decisions of firms,a change in business confidence has a much larger impact on the level of economic activity than does a change in consumer confidence.

Question 55

If government spending exceeds the amount of taxes collected from households and businesses,the government simply finances the difference by printing more money.

Question 56

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.

Question 57

In deciding which model of a car to buy,microeconomic theory maintains that consumers are concerned about the absolute price of a particular car,rather than its relative price.

Question 58

Because it does not face competition from other firms,a monopolist is guaranteed to make excess profits over time.

Question 59

According to the circular flow model,all else constant,an increase in government spending should cause an increase in spending,income,and production in the economy.

Question 60

All else constant,if the central bank wants to slow the pace at which the economy is expanding,it should increase interest rates.

Question 61

Assume an individual is considering opening a new car dealership in a medium-sized metropolitan area (population = 200,000).Provide a list of economic variables you would recommend that the person consider in making his decision whether to open the business,and explain your rationale for including each variable.

Question 62

All else constant,a decrease in the level of economic activity in foreign countries could be expected to have an adverse effect on the domestic economy.

Question 63

The U.S.Treasury is responsible for controlling the money supply and interest rates in the economy.

Question 64

One way for the federal government to increase the amount of spending in the domestic economy would be to decrease personal and business taxes.

Question 65

List and describe the sources of spending in the economy by focusing on the four major sectors of the economy.

Question 66

Assume the price of product A increases from $1 to $1.50,while the price of competing product B increases from $1.50 to $2.00.Based on the information,what we can say about the absolute and relative price differences between the two products and the relative attractiveness of the two products to consumers.

Question 67

Many analysts have argued that the federal government should stop spending money on programs such as agricultural price supports and should redirect that spending to such things as improvements in the nation's roads and bridges.Construct an economic argument that supports this proposed change in policy.

Question 68

Explain the basic distinction between microeconomic analysis and macroeconomic analysis.Describe the types of issues that each branch of analysis focuses on.