[HBSEFM] HBS ECONOMICS FOR MANAGERS
Certification Exam Guide
**Question 1.** Which concept defines the highest price a consumer is willing to pay for a
single unit of a product?
A) Market price
B) Marginal cost
C) Willingness to Pay (WTP)
D) Average revenue
Answer: C
Explanation: Willingness to Pay (WTP) is the maximum amount a consumer would be prepared
to spend for one unit, distinct from the market price they actually face.
**Question 2.** If the price elasticity of demand for a product is –2.5, a 10 % increase in price
will cause quantity demanded to change by:
A) –4 %
B) –25 %
C) –2.5 %
D) –0.4 %
Answer: B
Explanation: Elasticity = %ΔQ / %ΔP, so %ΔQ = –2.5 × 10 % = –25 %.
**Question 3.** Which of the following statements best describes an inelastic good?
A) Quantity demanded changes proportionally more than price.
B) Quantity demanded changes proportionally less than price.
C) Demand curve is perfectly horizontal.
D) Demand curve is perfectly vertical.
Answer: B
Explanation: Inelastic demand means the percentage change in quantity demanded is smaller
than the percentage change in price.
, [HBSEFM] HBS ECONOMICS FOR MANAGERS
Certification Exam Guide
**Question 4.** To maximize revenue when demand is elastic, a firm should:
A) Raise price.
B) Lower price.
C) Keep price unchanged.
D) Increase output without changing price.
Answer: B
Explanation: With elastic demand, a price reduction increases total revenue because the
percentage increase in quantity exceeds the percentage decrease in price.
**Question 5.** Which research method directly asks potential customers about their
preferences for product features?
A) Conjoint analysis
B) Focus group
C) Market simulation
D) Time‑series analysis
Answer: B
Explanation: Focus groups involve moderated discussions where participants explicitly state
preferences, providing direct qualitative insights.
**Question 6.** In a conjoint analysis study, respondents are presented with:
A) Single‑product price offers only.
B) Multiple product bundles with varying attributes.
C) Historical sales data.
D) Open‑ended survey questions.
Answer: B
, [HBSEFM] HBS ECONOMICS FOR MANAGERS
Certification Exam Guide
Explanation: Conjoint analysis shows respondents different combinations of attributes to infer
the value placed on each attribute.
**Question 7.** Which auction format typically reveals the highest willingness to pay among
participants?
A. English (ascending) auction
B. Dutch (descending) auction
C. Sealed‑bid first‑price auction
D. Vickrey (sealed‑bid second‑price) auction
Answer: D
Explanation: In a Vickrey auction, the winning bidder pays the second‑highest bid, encouraging
participants to bid their true WTP.
**Question 8.** If the price of printers falls, the demand for ink cartridges is likely to:
A) Increase (complements)
B) Decrease (substitutes)
C) Remain unchanged
D) Become perfectly elastic
Answer: A
Explanation: Printers and ink cartridges are complementary goods; a lower price of one raises
the demand for the other.
**Question 9.** Network effects are most commonly associated with:
A) Agricultural commodities
B) Social media platforms
C) Utility companies
D) Traditional retail stores
, [HBSEFM] HBS ECONOMICS FOR MANAGERS
Certification Exam Guide
Answer: B
Explanation: The value of a social media platform rises as more users join, exemplifying network
effects.
**Question 10.** Advertising that shifts the entire demand curve to the right primarily affects:
A) Marginal cost
B. Supply elasticity
C. Consumer willingness to pay
D. Fixed costs
Answer: C
Explanation: Effective advertising raises consumers’ perceived value, increasing their willingness
to pay and shifting demand outward.
**Question 11.** Fixed costs differ from variable costs in that fixed costs:
A) Change with each additional unit produced.
B) Remain constant regardless of output level.
C) Are always lower than variable costs.
D) Are incurred only after a sale.
Answer: B
Explanation: Fixed costs do not vary with production volume; they are incurred even if output is
zero.
**Question 12.** Which of the following is a sunk cost?
A) Rent on a factory building for the next year.
B. Raw material inventory purchased last month.
C. Depreciation expense on equipment.
Certification Exam Guide
**Question 1.** Which concept defines the highest price a consumer is willing to pay for a
single unit of a product?
A) Market price
B) Marginal cost
C) Willingness to Pay (WTP)
D) Average revenue
Answer: C
Explanation: Willingness to Pay (WTP) is the maximum amount a consumer would be prepared
to spend for one unit, distinct from the market price they actually face.
**Question 2.** If the price elasticity of demand for a product is –2.5, a 10 % increase in price
will cause quantity demanded to change by:
A) –4 %
B) –25 %
C) –2.5 %
D) –0.4 %
Answer: B
Explanation: Elasticity = %ΔQ / %ΔP, so %ΔQ = –2.5 × 10 % = –25 %.
**Question 3.** Which of the following statements best describes an inelastic good?
A) Quantity demanded changes proportionally more than price.
B) Quantity demanded changes proportionally less than price.
C) Demand curve is perfectly horizontal.
D) Demand curve is perfectly vertical.
Answer: B
Explanation: Inelastic demand means the percentage change in quantity demanded is smaller
than the percentage change in price.
, [HBSEFM] HBS ECONOMICS FOR MANAGERS
Certification Exam Guide
**Question 4.** To maximize revenue when demand is elastic, a firm should:
A) Raise price.
B) Lower price.
C) Keep price unchanged.
D) Increase output without changing price.
Answer: B
Explanation: With elastic demand, a price reduction increases total revenue because the
percentage increase in quantity exceeds the percentage decrease in price.
**Question 5.** Which research method directly asks potential customers about their
preferences for product features?
A) Conjoint analysis
B) Focus group
C) Market simulation
D) Time‑series analysis
Answer: B
Explanation: Focus groups involve moderated discussions where participants explicitly state
preferences, providing direct qualitative insights.
**Question 6.** In a conjoint analysis study, respondents are presented with:
A) Single‑product price offers only.
B) Multiple product bundles with varying attributes.
C) Historical sales data.
D) Open‑ended survey questions.
Answer: B
, [HBSEFM] HBS ECONOMICS FOR MANAGERS
Certification Exam Guide
Explanation: Conjoint analysis shows respondents different combinations of attributes to infer
the value placed on each attribute.
**Question 7.** Which auction format typically reveals the highest willingness to pay among
participants?
A. English (ascending) auction
B. Dutch (descending) auction
C. Sealed‑bid first‑price auction
D. Vickrey (sealed‑bid second‑price) auction
Answer: D
Explanation: In a Vickrey auction, the winning bidder pays the second‑highest bid, encouraging
participants to bid their true WTP.
**Question 8.** If the price of printers falls, the demand for ink cartridges is likely to:
A) Increase (complements)
B) Decrease (substitutes)
C) Remain unchanged
D) Become perfectly elastic
Answer: A
Explanation: Printers and ink cartridges are complementary goods; a lower price of one raises
the demand for the other.
**Question 9.** Network effects are most commonly associated with:
A) Agricultural commodities
B) Social media platforms
C) Utility companies
D) Traditional retail stores
, [HBSEFM] HBS ECONOMICS FOR MANAGERS
Certification Exam Guide
Answer: B
Explanation: The value of a social media platform rises as more users join, exemplifying network
effects.
**Question 10.** Advertising that shifts the entire demand curve to the right primarily affects:
A) Marginal cost
B. Supply elasticity
C. Consumer willingness to pay
D. Fixed costs
Answer: C
Explanation: Effective advertising raises consumers’ perceived value, increasing their willingness
to pay and shifting demand outward.
**Question 11.** Fixed costs differ from variable costs in that fixed costs:
A) Change with each additional unit produced.
B) Remain constant regardless of output level.
C) Are always lower than variable costs.
D) Are incurred only after a sale.
Answer: B
Explanation: Fixed costs do not vary with production volume; they are incurred even if output is
zero.
**Question 12.** Which of the following is a sunk cost?
A) Rent on a factory building for the next year.
B. Raw material inventory purchased last month.
C. Depreciation expense on equipment.
