BBA Major Field Exam - Business With
Questions And Answers
Scarcity and Choice
Human wants and needs are unlimited and resources to satisfy them are limited. Choices must be
made between the possible alternatives
3 Questions every economy must answer
What to produce?
How to produce it?
For whom it is produced?
3 Questions
What to produce?
Have to evaluate more than just needs. Involves the wants and needs of individuals.
3 Questions
How to produce it?
Center upon the methods and resources (land, labor, capital, enterprise) used in the production
process. Optimum way to achieve the desired output utilizing these methods and resources.
3 Questions
For whom it is produced for?
Issue of the distribution of the output resulting from the application of the production methods and
resources.
Market Imperfections/Market Failure
when market equilibrium results in too many or too few resources being used in the production of a
good or service. This can be caused by lack of competition, externalities, public goods
Lack of competition (Market Imperfections)
Must have competition among both producers and consumers for markets to function effectively
Externalities (Market Imperfections)
When a cost or benefit is imposed on people other than the consumers and producers of a product
(Ex. pollution from manufacturing negatively affects the community rather than either the buyer or
seller)
Public Goods (Market Imperfections)
Goods are collectively consumed by everyone and there is no way to bar people who do not pay from
consumption (Ex. National defense)
Law of Demand
Inverse relationship between the price of a good and that quantity buyers are willing to purchase in a
defined time period
Price as the Determinants (Demand)
,Primary determinant of the quality demanded is the price of the good.
Changes in the price of a good result in movement of the equilibrium point along the demand line.
Nonprice Determinant (Demand
These result in a shift (left or right) in the demand curve
- number of buyers
- buyer tastes and preferences
- buyer income
- expectation of buyers
- prices of related goods
Changes in Demand
Increase - (rightward shift) high equilibrium price and quantity
Decrease - (leftward shift) lower equilibrium price and quantity
Law of Supply
More of a particular good will be supplied as the price of that good rises, while less will be purchased
as its price declines.
Non-Price Determinant (Supply)
Result in a right or left shift in supply curve
- number of sellers in a market
-increases in technology that make suppliers more efficient
- prices of raw materials
- taxes of subsidies which increase or decrease the price of a product
- changes in the expectations of producers
- prices of other good the firm could produce
Increase in Supply
Rightward shift. Results in a lower equilibrium price and a higher equilibrium quantity
Decrease in Supply
Leftward shift. Results in a higher equilibrium price and a lower equilibrium quantity
Equal increase in Supply and Demand
Rightward shift. Increase in equilibrium quantity and no change in equilibrium price.
Supply Increases more than Demand
Rightward shift. Lower equilibrium price and greater equilibrium quantity
Demand Increases more than Supply
Rightward Shift. High price and greater equilibrium quantity
Equal Decrease in Supply and Demand
Leftward shift. Decrease in equilibrium quantity with no change in equilibrium price.
, Supply decreases more than Demand
Leftward shift. Higher equilibrium price and lower equilibrium quantity.
Demand decreases more than Supply
Leftward shift. Lower price and a lower equilibrium quantity
Shortage (Supply and Demand)
Happens when a price is established below the equilibrium price and demand exceeds supply.
Can be fixed when the price is free to move. The increase in price will slowly reduce the quantity
demanded and increase the quantity supplied.
Neither the supply or demand curves will move
Surplus (Supply and Demand)
Occurs when a prices is established above the equilibrium price and supply exceeds demand
Can be fixed if the price is able to move. The decrease in price will slowly increase the quantity
demanded and decrease the quantity supplied
Neither supply or demand curves will move.
Price Ceiling (Supply and Demand)
A price set below the equilibrium price and results in a shortage with quantity demanded exceeding
quantity supplied.
Price Floor (Supply and Demand)
A price set above the equilibrium price and results in a surplus with quantity supplied exceeding
quantity demanded.
Price Elasticity of Demand
The relationship between the changes in the price of a product and the resulting changes in demand
of that product
Elastic demand
When the percentage change in quantity demanded is greater than the percentage change in price.
Ex. commodity products
Inelastic demand
When the percentage change in quantity demanded is less than the percentage change in price. Ex.
health care
Income Elasticity of Demand
The ratio of the percentage change in the quantity demanded to a given percentage change in income
Demand:Income
Cross-Price Elasticity of Demand
The ratio of the percentage change in the quantity demanded of a good to a given percentage change
in the price of another good
Demand: Price of other good
Questions And Answers
Scarcity and Choice
Human wants and needs are unlimited and resources to satisfy them are limited. Choices must be
made between the possible alternatives
3 Questions every economy must answer
What to produce?
How to produce it?
For whom it is produced?
3 Questions
What to produce?
Have to evaluate more than just needs. Involves the wants and needs of individuals.
3 Questions
How to produce it?
Center upon the methods and resources (land, labor, capital, enterprise) used in the production
process. Optimum way to achieve the desired output utilizing these methods and resources.
3 Questions
For whom it is produced for?
Issue of the distribution of the output resulting from the application of the production methods and
resources.
Market Imperfections/Market Failure
when market equilibrium results in too many or too few resources being used in the production of a
good or service. This can be caused by lack of competition, externalities, public goods
Lack of competition (Market Imperfections)
Must have competition among both producers and consumers for markets to function effectively
Externalities (Market Imperfections)
When a cost or benefit is imposed on people other than the consumers and producers of a product
(Ex. pollution from manufacturing negatively affects the community rather than either the buyer or
seller)
Public Goods (Market Imperfections)
Goods are collectively consumed by everyone and there is no way to bar people who do not pay from
consumption (Ex. National defense)
Law of Demand
Inverse relationship between the price of a good and that quantity buyers are willing to purchase in a
defined time period
Price as the Determinants (Demand)
,Primary determinant of the quality demanded is the price of the good.
Changes in the price of a good result in movement of the equilibrium point along the demand line.
Nonprice Determinant (Demand
These result in a shift (left or right) in the demand curve
- number of buyers
- buyer tastes and preferences
- buyer income
- expectation of buyers
- prices of related goods
Changes in Demand
Increase - (rightward shift) high equilibrium price and quantity
Decrease - (leftward shift) lower equilibrium price and quantity
Law of Supply
More of a particular good will be supplied as the price of that good rises, while less will be purchased
as its price declines.
Non-Price Determinant (Supply)
Result in a right or left shift in supply curve
- number of sellers in a market
-increases in technology that make suppliers more efficient
- prices of raw materials
- taxes of subsidies which increase or decrease the price of a product
- changes in the expectations of producers
- prices of other good the firm could produce
Increase in Supply
Rightward shift. Results in a lower equilibrium price and a higher equilibrium quantity
Decrease in Supply
Leftward shift. Results in a higher equilibrium price and a lower equilibrium quantity
Equal increase in Supply and Demand
Rightward shift. Increase in equilibrium quantity and no change in equilibrium price.
Supply Increases more than Demand
Rightward shift. Lower equilibrium price and greater equilibrium quantity
Demand Increases more than Supply
Rightward Shift. High price and greater equilibrium quantity
Equal Decrease in Supply and Demand
Leftward shift. Decrease in equilibrium quantity with no change in equilibrium price.
, Supply decreases more than Demand
Leftward shift. Higher equilibrium price and lower equilibrium quantity.
Demand decreases more than Supply
Leftward shift. Lower price and a lower equilibrium quantity
Shortage (Supply and Demand)
Happens when a price is established below the equilibrium price and demand exceeds supply.
Can be fixed when the price is free to move. The increase in price will slowly reduce the quantity
demanded and increase the quantity supplied.
Neither the supply or demand curves will move
Surplus (Supply and Demand)
Occurs when a prices is established above the equilibrium price and supply exceeds demand
Can be fixed if the price is able to move. The decrease in price will slowly increase the quantity
demanded and decrease the quantity supplied
Neither supply or demand curves will move.
Price Ceiling (Supply and Demand)
A price set below the equilibrium price and results in a shortage with quantity demanded exceeding
quantity supplied.
Price Floor (Supply and Demand)
A price set above the equilibrium price and results in a surplus with quantity supplied exceeding
quantity demanded.
Price Elasticity of Demand
The relationship between the changes in the price of a product and the resulting changes in demand
of that product
Elastic demand
When the percentage change in quantity demanded is greater than the percentage change in price.
Ex. commodity products
Inelastic demand
When the percentage change in quantity demanded is less than the percentage change in price. Ex.
health care
Income Elasticity of Demand
The ratio of the percentage change in the quantity demanded to a given percentage change in income
Demand:Income
Cross-Price Elasticity of Demand
The ratio of the percentage change in the quantity demanded of a good to a given percentage change
in the price of another good
Demand: Price of other good
