BADM 7200 — Economic Environment of the Firm
Comprehensive Practice Exam Bank — EXAM 2 (Verified Update)
SECTION 1: INTRODUCTION TO MACROECONOMICS & THE DATA OF
MACROECONOMICS
Question 1
What is a model in economics, and why do we use models?
Select one:
A) A detailed description of every aspect of reality
B) A simplified representation of reality used to show how variables interact
C) A government policy document
D) A statistical formula with no theoretical basis
Correct Answer: B
Rationale: A model is a simplified representation of reality, often using diagrams or equations that show how variables
interact. The purpose is to dispense with irrelevant details and focus on underlying connections.
Question 2
What is the distinction between endogenous and exogenous variables?
Select one:
A) Endogenous variables are taken as given; exogenous variables are explained by the model
B) Endogenous variables are explained by the model; exogenous variables are taken as given
C) Both are explained by the model
D) Both are taken as given
Correct Answer: B
Rationale: Endogenous variables are variables a model explains; exogenous variables are variables a model takes as
given.
This is for informational purposes only. AI responses may include mistakes. Page 1
, Question 3
What is a market-clearing model, and when is the assumption of market clearing appropriate?
Select one:
A) A model where prices are fixed; appropriate in the short run
B) A model that assumes prices freely adjust to equilibrate supply and demand; appropriate when markets are
normally in equilibrium
C) A model where quantity is fixed; appropriate in the long run
D) A model where government sets all prices
Correct Answer: B
Rationale: A market-clearing model assumes prices freely adjust to equilibrate supply and demand. The assumption is
appropriate when markets are normally in equilibrium where supply and demand curves intersect.
Question 4
Use the following information to answer questions 4–8. The quantity of tea demanded, QD, depends
on the price of tea, PT, and the price of coffee, PC. The quantity of tea supplied, QS, depends on the
price of tea, PT, and the price of electricity, PE, according to the following equations: QD = 12 − 5PT
+ 3PC, QS = 30 + 2PT − 4PE. If the price of coffee is $4.00 and the price of electricity is $5.00, what is
the equilibrium price of tea?
Select one:
A) $3.00
B) $4.00
C) $2.00
D) $1.00
Correct Answer: C
Rationale: Set QD = QS: 12 − 5PT + 3(4) = 30 + 2PT − 4(5). This gives 12 − 5PT + 12 = 30 + 2PT − 20, so 24 − 5PT = 10 +
2PT, 14 = 7PT, PT = $2.00.
Question 5
Using the same equations, what is the equilibrium quantity of tea?
Select one:
A) 9
B) 4
C) 14
D) 18
Correct Answer: C
Rationale: Substitute PT = $2.00 into QD: QD = 12 − 5(2) + 3(4) = 12 − 10 + 12 = 14.
This is for informational purposes only. AI responses may include mistakes. Page 2
Comprehensive Practice Exam Bank — EXAM 2 (Verified Update)
SECTION 1: INTRODUCTION TO MACROECONOMICS & THE DATA OF
MACROECONOMICS
Question 1
What is a model in economics, and why do we use models?
Select one:
A) A detailed description of every aspect of reality
B) A simplified representation of reality used to show how variables interact
C) A government policy document
D) A statistical formula with no theoretical basis
Correct Answer: B
Rationale: A model is a simplified representation of reality, often using diagrams or equations that show how variables
interact. The purpose is to dispense with irrelevant details and focus on underlying connections.
Question 2
What is the distinction between endogenous and exogenous variables?
Select one:
A) Endogenous variables are taken as given; exogenous variables are explained by the model
B) Endogenous variables are explained by the model; exogenous variables are taken as given
C) Both are explained by the model
D) Both are taken as given
Correct Answer: B
Rationale: Endogenous variables are variables a model explains; exogenous variables are variables a model takes as
given.
This is for informational purposes only. AI responses may include mistakes. Page 1
, Question 3
What is a market-clearing model, and when is the assumption of market clearing appropriate?
Select one:
A) A model where prices are fixed; appropriate in the short run
B) A model that assumes prices freely adjust to equilibrate supply and demand; appropriate when markets are
normally in equilibrium
C) A model where quantity is fixed; appropriate in the long run
D) A model where government sets all prices
Correct Answer: B
Rationale: A market-clearing model assumes prices freely adjust to equilibrate supply and demand. The assumption is
appropriate when markets are normally in equilibrium where supply and demand curves intersect.
Question 4
Use the following information to answer questions 4–8. The quantity of tea demanded, QD, depends
on the price of tea, PT, and the price of coffee, PC. The quantity of tea supplied, QS, depends on the
price of tea, PT, and the price of electricity, PE, according to the following equations: QD = 12 − 5PT
+ 3PC, QS = 30 + 2PT − 4PE. If the price of coffee is $4.00 and the price of electricity is $5.00, what is
the equilibrium price of tea?
Select one:
A) $3.00
B) $4.00
C) $2.00
D) $1.00
Correct Answer: C
Rationale: Set QD = QS: 12 − 5PT + 3(4) = 30 + 2PT − 4(5). This gives 12 − 5PT + 12 = 30 + 2PT − 20, so 24 − 5PT = 10 +
2PT, 14 = 7PT, PT = $2.00.
Question 5
Using the same equations, what is the equilibrium quantity of tea?
Select one:
A) 9
B) 4
C) 14
D) 18
Correct Answer: C
Rationale: Substitute PT = $2.00 into QD: QD = 12 − 5(2) + 3(4) = 12 − 10 + 12 = 14.
This is for informational purposes only. AI responses may include mistakes. Page 2
