IVY SOFTWARE MBA PREPWORKS FUNDAMENTALS OF ECONOMICS PRACTICE
EXAM LATEST 2025-2026 WITH ACTUAL QUESTIONS AND CORRECT VERIFIED
ANSWERS
The main concept demonstrated in the production possibilities frontier is -
| | | | | | | | | |
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 - 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 - ANSWER-Production Possibilities Frontier
| | | | |
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...? - 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...? - 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 ...? - 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...? - 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.
| | | | | | | | | | | |
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)? - ANSWER-Five Pickup Trucks
| | | | | | | | | | |
The opportunity cost of an item is - ANSWER-whatever must be given up to
| | | | | | | | | | | | |
obtain the item.
| | |
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... - 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...? - 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? - 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. - 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? - 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? - 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 - 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 - 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 - 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 - 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 - 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 - ANSWER-costs that do not vary with changes in the quantity
| | | | | | | | | | | |
|produced. what expenses must be paid even if production equals zero?
| | | | | | | | | |
variable costs - ANSWER-costs that do vary with changes in the quantity
| | | | | | | | | | |
produced
|
total cost - ANSWER-equals the sum of the fixed costs and variable costs
| | | | | | | | | | | |
TC=VC+FC
|
EXAM LATEST 2025-2026 WITH ACTUAL QUESTIONS AND CORRECT VERIFIED
ANSWERS
The main concept demonstrated in the production possibilities frontier is -
| | | | | | | | | |
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 - 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 - ANSWER-Production Possibilities Frontier
| | | | |
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...? - 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...? - 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 ...? - 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...? - 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.
| | | | | | | | | | | |
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)? - ANSWER-Five Pickup Trucks
| | | | | | | | | | |
The opportunity cost of an item is - ANSWER-whatever must be given up to
| | | | | | | | | | | | |
obtain the item.
| | |
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... - 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...? - 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? - 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. - 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? - 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? - 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 - 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 - 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 - 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 - 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 - 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 - ANSWER-costs that do not vary with changes in the quantity
| | | | | | | | | | | |
|produced. what expenses must be paid even if production equals zero?
| | | | | | | | | |
variable costs - ANSWER-costs that do vary with changes in the quantity
| | | | | | | | | | |
produced
|
total cost - ANSWER-equals the sum of the fixed costs and variable costs
| | | | | | | | | | | |
TC=VC+FC
|
