Ivy Software MBA Prepworks Fundamentals
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of Economics EXAM WITH ANSWERS
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The main concept demonstrated in the production possibilities
|\ |\ |\ |\ |\ |\ |\ |\
frontier is - CORRECT ANSWERS ✔✔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
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
ANSWERS ✔✔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 ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\
✔✔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 ANSWERS ✔✔Five Pickup |\ |\ |\ |\ |\ |\ |\ |\ |\
Trucks
The opportunity cost of an item is - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔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 ANSWERS ✔✔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
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
ANSWERS ✔✔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 ANSWERS ✔✔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 ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔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 ANSWERS ✔✔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 |\ |\ |\ |\ |\ |\ |\ |\
ANSWERS ✔✔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 ANSWERS ✔✔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 ANSWERS ✔✔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 ANSWERS ✔✔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 ANSWERS ✔✔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 ANSWERS ✔✔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 ANSWERS ✔✔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 ANSWERS ✔✔is the change in total
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
revenue generated from an additional unit sold. It is calculated
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
|\ |\ |\ |\ |\
of Economics EXAM WITH ANSWERS
|\ |\ |\ |\
The main concept demonstrated in the production possibilities
|\ |\ |\ |\ |\ |\ |\ |\
frontier is - CORRECT ANSWERS ✔✔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
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
ANSWERS ✔✔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 ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\
✔✔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 ANSWERS ✔✔Five Pickup |\ |\ |\ |\ |\ |\ |\ |\ |\
Trucks
The opportunity cost of an item is - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔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 ANSWERS ✔✔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
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
ANSWERS ✔✔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 ANSWERS ✔✔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 ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔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 ANSWERS ✔✔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 |\ |\ |\ |\ |\ |\ |\ |\
ANSWERS ✔✔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 ANSWERS ✔✔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 ANSWERS ✔✔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 ANSWERS ✔✔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 ANSWERS ✔✔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 ANSWERS ✔✔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 ANSWERS ✔✔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 ANSWERS ✔✔is the change in total
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
revenue generated from an additional unit sold. It is calculated
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
