Business Economics (BE) 301 - Midterm 2
Test Questions and Answers
Suppose the demand for pens increases and the supply for pens decreases. What
effect will it have on the quantity? - ANS-uncertain
A recent research signified the large health benefits of eating cooked tomatoes.
Holding other things constant, this will cause - ANS-the demand curve for tomatoes
to shift to the right
How does an increase in income affect the market of iPads (normal good) - ANS-the
demand curve for ipads to shift to the right
The price of peanuts (an input in the production of peanut butter) increases. At the
same time, we see the price for Jelly (a complement in the consumption of peanut
butter) rise. How does this affect the market for peanut butter? - ANS-the demand
curve will shift to the left, the supply curve will shift to the left
Based on question 4, the price for peanut butter _____, and the quantity demanded
for peanut butter ______. - ANS-uncertain; decreases
Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a
good, with values ($14, 13, 12, 11, 10, 9, 8, 7, 6, 5, 4). Assume no transaction
costs and a competitive market, what is the equilibrium price? - ANS-9
If the government imposes a price floor at $10 in the market in question 6, how
many goods will be traded? - ANS-five
Changes in the price of a good cause - ANS--movement along the demand curve
-movement along the supply curve
Which of the following will cause shifts in the demand curve - ANS--the price of
related goods
-the number of buyers of the good
A market is said to be in equilibrium if - ANS--the market clears
-quantity supplied = quantity demanded
-there are no unconsummated wealth-creating transactions
-total surplus is maximized
These are characteristics of a perfectly competitive industry, EXCEPT
a. many sellers
b. no barriers to entry
c. homogenous products
d. limited information - ANS-d. limited information
, In the long-run, a perfectly competitive firm will achieve - ANS-zero economic
profits
A sudden rise in the market demand in a competitive industry leads to which of the
following? - ANS-a market equilibrium price higher than the original equilibrium in
the short-run
Suppose a market has many buyers, a few sellers, product differentiation, barriers
to entry, and perfect information. How would we classify this market? - ANS-
oligopoly
Monopolies are characterized by which of the following
a. one firm
b. many firms
c. no close substitutes
d. product homogeneity - ANS-a. & c.
Monopolists will maximize profits by producing and selling the quantity where:
a. price is equal to marginal cost
b. price is equal to marginal revenue
c. price is equal to short-run average cost
d. none of the above - ANS-d. none of the above
Lipitor, a medication with few substitutes, should have an own-price elasticity of
demand that is - ANS-relatively inelastic
Based on the idea of risk premiums, what should we expect people with higher
FICO scores to pay in terms of interest rates relative to people with average FICO
scores? - ANS-Higher FICO scores lead to lower interest rates
Which of the following most closely resembles a monopolisticcally competitive
market?
a. the market for brand-name basketball shoes
b. the market for patented pharmaceuticals
c. the market for wheat
d. the market for smart phones - ANS-a. the market for brand-name basketball
shoes
d. the market for smart phones
Suppose that in a particular industry that firms are making positive economic
profits. Assuming there are no barriers to entry or exit, what would we expect to
happen to the number of firms in this industry in the long run? - ANS-the number
of firms will increase
The resource-based view of sources of economic profit suggests that firms exhibit
difference performances within the same industry because - ANS-some firms have
superior resources
Test Questions and Answers
Suppose the demand for pens increases and the supply for pens decreases. What
effect will it have on the quantity? - ANS-uncertain
A recent research signified the large health benefits of eating cooked tomatoes.
Holding other things constant, this will cause - ANS-the demand curve for tomatoes
to shift to the right
How does an increase in income affect the market of iPads (normal good) - ANS-the
demand curve for ipads to shift to the right
The price of peanuts (an input in the production of peanut butter) increases. At the
same time, we see the price for Jelly (a complement in the consumption of peanut
butter) rise. How does this affect the market for peanut butter? - ANS-the demand
curve will shift to the left, the supply curve will shift to the left
Based on question 4, the price for peanut butter _____, and the quantity demanded
for peanut butter ______. - ANS-uncertain; decreases
Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a
good, with values ($14, 13, 12, 11, 10, 9, 8, 7, 6, 5, 4). Assume no transaction
costs and a competitive market, what is the equilibrium price? - ANS-9
If the government imposes a price floor at $10 in the market in question 6, how
many goods will be traded? - ANS-five
Changes in the price of a good cause - ANS--movement along the demand curve
-movement along the supply curve
Which of the following will cause shifts in the demand curve - ANS--the price of
related goods
-the number of buyers of the good
A market is said to be in equilibrium if - ANS--the market clears
-quantity supplied = quantity demanded
-there are no unconsummated wealth-creating transactions
-total surplus is maximized
These are characteristics of a perfectly competitive industry, EXCEPT
a. many sellers
b. no barriers to entry
c. homogenous products
d. limited information - ANS-d. limited information
, In the long-run, a perfectly competitive firm will achieve - ANS-zero economic
profits
A sudden rise in the market demand in a competitive industry leads to which of the
following? - ANS-a market equilibrium price higher than the original equilibrium in
the short-run
Suppose a market has many buyers, a few sellers, product differentiation, barriers
to entry, and perfect information. How would we classify this market? - ANS-
oligopoly
Monopolies are characterized by which of the following
a. one firm
b. many firms
c. no close substitutes
d. product homogeneity - ANS-a. & c.
Monopolists will maximize profits by producing and selling the quantity where:
a. price is equal to marginal cost
b. price is equal to marginal revenue
c. price is equal to short-run average cost
d. none of the above - ANS-d. none of the above
Lipitor, a medication with few substitutes, should have an own-price elasticity of
demand that is - ANS-relatively inelastic
Based on the idea of risk premiums, what should we expect people with higher
FICO scores to pay in terms of interest rates relative to people with average FICO
scores? - ANS-Higher FICO scores lead to lower interest rates
Which of the following most closely resembles a monopolisticcally competitive
market?
a. the market for brand-name basketball shoes
b. the market for patented pharmaceuticals
c. the market for wheat
d. the market for smart phones - ANS-a. the market for brand-name basketball
shoes
d. the market for smart phones
Suppose that in a particular industry that firms are making positive economic
profits. Assuming there are no barriers to entry or exit, what would we expect to
happen to the number of firms in this industry in the long run? - ANS-the number
of firms will increase
The resource-based view of sources of economic profit suggests that firms exhibit
difference performances within the same industry because - ANS-some firms have
superior resources
