Ivy Software MBA Prepworks Fundamentals of
Economics Questions With All Correct Answers
The main concept demonstrated in the production possibilities frontier is
correct answer -Opportunity cost
When country A has a lower opportunity cost of producing sugar relative to
country B, then country A is said to have correct answer -Comparative
Advantage
A graph that shows the combinations of two goods that the economy can
produce given the available scarce resources and available technology is
called a correct answer -Production Possibilities Frontier
Assume a production possibilities frontier for pickup trucks and big Mac
hamburgers. The economy is producing 20 big Mac hamburgers and 65
pickup trucks (point 20, 65). What is the opportunity cost of producing an
additional 20 Big Mac hamburgers (point 40, 60)? correct answer -Five
Pickup Trucks
The opportunity cost of an item is correct answer -whatever must be given
up to obtain the item.
Consider market for pork, suppose that price of beef, a substitute for pork,
increases. Because of the change in price of beef, the equilibrium price of
pork...? correct answer -Increases
Consider the market for pork, suppose that the price of beef, a substitute for
pork, increases. Because of this change in the price of beef, the equilibrium
quantity of pork will...? correct answer -Increase because increase in price
of beef causes demand curve for pork to shift North East. B/c of this shift, the
equilibrium quantity of pork will increase.
Consider the market for pork. Suppose that the price of hog feed, an input to
the production of pork, increases. Because of that change in the price of hog
feed, the equilibrium quantity of pork ...? correct answer -Decreases
because the increase in price of hog feed causes the supply curve for pork to
shift NW. B/c of this shift, the quantity of pork decreases.
,Consider the market for pork. Suppose that disposable income increases and
pork is an inferior good. Because of that change in income, the equilibrium
price of pork...? correct answer -Decreases because the increase in
disposable income causes the demand curve for pork to shift south west,
because pork is an inferior good. because of this shift, the equilibrium price of
pork decreases.
Consider the market for pork. Suppose that 1) disposable income increases
and pork is a normal good, And 2) the price of hog feed decreases. Because of
these changes, the equilibrium price of pork is... correct answer -
Indeterminate because the increase in disposable income causes the demand
curve for pork to shift north east because pork is a normal good. The decrease
in price of hog feed causes the supply curve to shift to the south east. The net
effect of these shifts leaves us unable to say waht will happen to the
equilibrium price of pork.
Consider the market for pork. Suppose that disposable income increases and
pork is a normal good and the price of hog feed decreases. The equilibrium
quantity of pork...? correct answer -Increases.
Suppose the price elasticity for demand for retail phone service in the US is
0.95. If the # of retail substitutes for retail telephone service increases, will the
price elasticity of demand become more elastic or more inelastic? correct
answer -Elastic. When the number of substitute products increases, the price
elasticity of demand will become more elastic. consumers become more
sensitive to price when they have more options to chose among.
True or False: the law of demand states that if the price of a good increases,
CP, then the quantity demanded of that good will increase. correct answer
-False. quantity demanded of that good will decrease.
Suppose the cross-price elasticity of demand for home heating oil with respect
to the price of natural gas is +0.6. This number tells us that home heating oil
and natural gas are substitute or compliment goods? correct answer -
Substitute goods. When the cross price elasticity is positive then they are
substitutes.
,Consider the market for mustard which is a complement to hot dogs. Suppose
the price of hot dogs increase. What happens to the equilibrium price and
equilibrium quantity of the mustard market? correct answer -Equilibrium
price decreases and equilibrium quantity decreases. The price of hot dogs is
an independent variable in the demand function for mustard. This is because
hot dogs and mustard are complementary goods. Therefore, if the price of hot
dogs increases, then the demand curve for mustard shifts to the south-west.
People demand less mustard at every price when hot dogs are more
expensive. In the mustard market, the equilibrium price decreases and
equilibrium quantity decreases.
profit maximizing rule correct answer -a business maximizes profits when
it produces where the marginal revenue from selling another unit equals the
marginal cost of producing another unit.
Marginal Revenue=Marginal Cost
Marginal cost correct answer -is equal to the change in the total cost that
arises from an extra unit of production. It is calculated by taking the change in
total cost and dividing it by the change in the quantity produced
=change in TC/change in Q
Marginal revenue correct answer -is the change in total revenue generated
from an additional unit sold. It is calculated by taking the change in total
revenue divided by the change in quantity sold
Short Run correct answer -a time horizon where some fixed costs exist.
is a time horizon within which a business is unable to adjust at least one input
because there is a fixed cost of some kind.
we think in terms of the short run not the long run
Long Run correct answer -a situation where the fixed costs (the inputs)
become variable. a time horizon long enough for the seller to adjust all inputs.
If you observe a business with no fixed costs, then it is in a long run state.
\when prices remain low for a very long period of time, then the business
moves into a long run decision mode. In the long run there are no fixed costs.
, fixed costs correct answer -costs that do not vary with changes in the
quantity produced. what expenses must be paid even if production equals
zero?
variable costs correct answer -costs that do vary with changes in the
quantity produced
total cost correct answer -equals the sum of the fixed costs and variable
costs
TC=VC+FC
average fixed cost correct answer -equals fixed cost divided by quantity
produced
AFC= TC/Q
average variable cost correct answer -equals variable cost divided by the
quantity produced
average total cost correct answer -equals the total cost divided by the
quantity produced, or it is the sum of average fixed cost plus average variable
cost
sunk cost correct answer -a cost that has already been committed and
cannot be recovered
joint costs correct answer -costs that do not change with changes in the
scope of production. economies of scope arise when there are joint costs. (ie:
comcast purchasing NBC universal).
perfect competition correct answer -occurs in an industry in which
- there are many buyers and many sellers
- an industry in which the good is homogeneous
- and an industry in which all who want to enter the industry are free to do so
and any business may exit at a time of their choosing
monopoly correct answer -an industry that is controlled by a monopolist
firm who is the only seller of a good. the good the monopolist sells is
heterogeneous because they are the only one that sells the good and the
market that the monopolist sells its product in has barriers to entry
Economics Questions With All Correct Answers
The main concept demonstrated in the production possibilities frontier is
correct answer -Opportunity cost
When country A has a lower opportunity cost of producing sugar relative to
country B, then country A is said to have correct answer -Comparative
Advantage
A graph that shows the combinations of two goods that the economy can
produce given the available scarce resources and available technology is
called a correct answer -Production Possibilities Frontier
Assume a production possibilities frontier for pickup trucks and big Mac
hamburgers. The economy is producing 20 big Mac hamburgers and 65
pickup trucks (point 20, 65). What is the opportunity cost of producing an
additional 20 Big Mac hamburgers (point 40, 60)? correct answer -Five
Pickup Trucks
The opportunity cost of an item is correct answer -whatever must be given
up to obtain the item.
Consider market for pork, suppose that price of beef, a substitute for pork,
increases. Because of the change in price of beef, the equilibrium price of
pork...? correct answer -Increases
Consider the market for pork, suppose that the price of beef, a substitute for
pork, increases. Because of this change in the price of beef, the equilibrium
quantity of pork will...? correct answer -Increase because increase in price
of beef causes demand curve for pork to shift North East. B/c of this shift, the
equilibrium quantity of pork will increase.
Consider the market for pork. Suppose that the price of hog feed, an input to
the production of pork, increases. Because of that change in the price of hog
feed, the equilibrium quantity of pork ...? correct answer -Decreases
because the increase in price of hog feed causes the supply curve for pork to
shift NW. B/c of this shift, the quantity of pork decreases.
,Consider the market for pork. Suppose that disposable income increases and
pork is an inferior good. Because of that change in income, the equilibrium
price of pork...? correct answer -Decreases because the increase in
disposable income causes the demand curve for pork to shift south west,
because pork is an inferior good. because of this shift, the equilibrium price of
pork decreases.
Consider the market for pork. Suppose that 1) disposable income increases
and pork is a normal good, And 2) the price of hog feed decreases. Because of
these changes, the equilibrium price of pork is... correct answer -
Indeterminate because the increase in disposable income causes the demand
curve for pork to shift north east because pork is a normal good. The decrease
in price of hog feed causes the supply curve to shift to the south east. The net
effect of these shifts leaves us unable to say waht will happen to the
equilibrium price of pork.
Consider the market for pork. Suppose that disposable income increases and
pork is a normal good and the price of hog feed decreases. The equilibrium
quantity of pork...? correct answer -Increases.
Suppose the price elasticity for demand for retail phone service in the US is
0.95. If the # of retail substitutes for retail telephone service increases, will the
price elasticity of demand become more elastic or more inelastic? correct
answer -Elastic. When the number of substitute products increases, the price
elasticity of demand will become more elastic. consumers become more
sensitive to price when they have more options to chose among.
True or False: the law of demand states that if the price of a good increases,
CP, then the quantity demanded of that good will increase. correct answer
-False. quantity demanded of that good will decrease.
Suppose the cross-price elasticity of demand for home heating oil with respect
to the price of natural gas is +0.6. This number tells us that home heating oil
and natural gas are substitute or compliment goods? correct answer -
Substitute goods. When the cross price elasticity is positive then they are
substitutes.
,Consider the market for mustard which is a complement to hot dogs. Suppose
the price of hot dogs increase. What happens to the equilibrium price and
equilibrium quantity of the mustard market? correct answer -Equilibrium
price decreases and equilibrium quantity decreases. The price of hot dogs is
an independent variable in the demand function for mustard. This is because
hot dogs and mustard are complementary goods. Therefore, if the price of hot
dogs increases, then the demand curve for mustard shifts to the south-west.
People demand less mustard at every price when hot dogs are more
expensive. In the mustard market, the equilibrium price decreases and
equilibrium quantity decreases.
profit maximizing rule correct answer -a business maximizes profits when
it produces where the marginal revenue from selling another unit equals the
marginal cost of producing another unit.
Marginal Revenue=Marginal Cost
Marginal cost correct answer -is equal to the change in the total cost that
arises from an extra unit of production. It is calculated by taking the change in
total cost and dividing it by the change in the quantity produced
=change in TC/change in Q
Marginal revenue correct answer -is the change in total revenue generated
from an additional unit sold. It is calculated by taking the change in total
revenue divided by the change in quantity sold
Short Run correct answer -a time horizon where some fixed costs exist.
is a time horizon within which a business is unable to adjust at least one input
because there is a fixed cost of some kind.
we think in terms of the short run not the long run
Long Run correct answer -a situation where the fixed costs (the inputs)
become variable. a time horizon long enough for the seller to adjust all inputs.
If you observe a business with no fixed costs, then it is in a long run state.
\when prices remain low for a very long period of time, then the business
moves into a long run decision mode. In the long run there are no fixed costs.
, fixed costs correct answer -costs that do not vary with changes in the
quantity produced. what expenses must be paid even if production equals
zero?
variable costs correct answer -costs that do vary with changes in the
quantity produced
total cost correct answer -equals the sum of the fixed costs and variable
costs
TC=VC+FC
average fixed cost correct answer -equals fixed cost divided by quantity
produced
AFC= TC/Q
average variable cost correct answer -equals variable cost divided by the
quantity produced
average total cost correct answer -equals the total cost divided by the
quantity produced, or it is the sum of average fixed cost plus average variable
cost
sunk cost correct answer -a cost that has already been committed and
cannot be recovered
joint costs correct answer -costs that do not change with changes in the
scope of production. economies of scope arise when there are joint costs. (ie:
comcast purchasing NBC universal).
perfect competition correct answer -occurs in an industry in which
- there are many buyers and many sellers
- an industry in which the good is homogeneous
- and an industry in which all who want to enter the industry are free to do so
and any business may exit at a time of their choosing
monopoly correct answer -an industry that is controlled by a monopolist
firm who is the only seller of a good. the good the monopolist sells is
heterogeneous because they are the only one that sells the good and the
market that the monopolist sells its product in has barriers to entry
