Ivy Software MBA Prepworks Fundamentals of
Economics Actual Exam Study Questions with
Correct Answers
1. The main concept demonstrated in the production possibilities frontier is -
ANSWER Opportunity cost
2. 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
3. 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
4. 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
5. 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.
6. Marginal Revenue=Marginal Cost
,7. 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
8. 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
9. 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
10.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.
11.fixed costs - ANSWER costs that do not vary with changes in the quantity
produced. what expenses must be paid even if production equals zero?
12.variable costs - ANSWER costs that do vary with changes in the quantity
produced
13.total cost - ANSWER equals the sum of the fixed costs and variable costs
TC=VC+FC
,14.average fixed cost - ANSWER equals fixed cost divided by quantity
produced
AFC= TC/Q
15.average variable cost - ANSWER equals variable cost divided by the
quantity produced
16.average total cost - ANSWER equals the total cost divided by the quantity
produced, or it is the sum of average fixed cost plus average variable cost
17.sunk cost - ANSWER a cost that has already been committed and cannot be
recovered
18.The opportunity cost of an item is - ANSWER whatever must be given up
to obtain the item.
19.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
20.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.
21.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.
22.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.
23.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.
24.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.
25.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.
Economics Actual Exam Study Questions with
Correct Answers
1. The main concept demonstrated in the production possibilities frontier is -
ANSWER Opportunity cost
2. 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
3. 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
4. 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
5. 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.
6. Marginal Revenue=Marginal Cost
,7. 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
8. 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
9. 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
10.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.
11.fixed costs - ANSWER costs that do not vary with changes in the quantity
produced. what expenses must be paid even if production equals zero?
12.variable costs - ANSWER costs that do vary with changes in the quantity
produced
13.total cost - ANSWER equals the sum of the fixed costs and variable costs
TC=VC+FC
,14.average fixed cost - ANSWER equals fixed cost divided by quantity
produced
AFC= TC/Q
15.average variable cost - ANSWER equals variable cost divided by the
quantity produced
16.average total cost - ANSWER equals the total cost divided by the quantity
produced, or it is the sum of average fixed cost plus average variable cost
17.sunk cost - ANSWER a cost that has already been committed and cannot be
recovered
18.The opportunity cost of an item is - ANSWER whatever must be given up
to obtain the item.
19.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
20.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.
21.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.
22.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.
23.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.
24.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.
25.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.
