BMAL 590 BUSINESS FINANCE EXAM
STUDY GUIDE 2026 TEST PAPER
QUESTIONS AND SOLUTIONS
⩥ When we refer to "individual" action, we are referring to: Answer: a
variety of actors that in microeconomic terms can be referred to as
sellers (producers) and buyers (consumers). These actors influence the
supply of and demand for goods and services. The means for achieving
coordination are generally money and interest rates.
⩥ normative science. Answer: the idea that science follows objective
rules of evidence and is unaffected by the personal beliefs or values of
scientists
Microeconomics can be considered a normative science. It does not
prescribe a course of action. Rather, it tries to explain what might
happen as a result of certain changes.
For example, if the supply of crude oil decreases, microeconomics
suggests that the price of gasoline may increase. At a certain level, it
may even suggest that buyers will buy less gasoline.
⩥ Microeconomics has two main schools or streams of thought:.
Answer: One school is the general equilibrium theory (introduced by
Leon Walras in 1874)
,2nd, is partial equilibrium theory (introduced by Alfred Marshall in
1890). This school of thought believes in developing measurable
hypotheses related to economic events, and subjecting the hypotheses to
empirical testing to determine which of the hypotheses work best.
Since it is difficult to replicate tests, economists make several
assumptions such as infinite sellers and buyers, perfect knowledge,
homogeneous goods and services, and static relationships to arrive at
solutions.
⩥ Austrian school. Answer: argues that the equilibrium theories are
flawed and unrealistic. The Austrian school acknowledges imperfections
and heterogeneityand tries to explain how economic incentives might
facilitate individuals overcoming the problems posed by uncertainty and
ignorance.
Thus, the Austrian school proposes that markets exist precisely because
people have incomplete knowledge, differing preferences, and other
imperfections.
⩥ Scarcity. Answer: requires choice
⩥ Choice. Answer: refers to people having to choose which of their
desires they will satisfy and which they will leave unsatisfied.
,When we, either as individuals or as a society, choose more of
something, scarcity forces us to have less of something else.
⩥ Trade-offs. Answer: Alternatives that must be given up when one is
chosen rather than another
All decisions that people make involve trade-offs of one goal against
another. To get one thing that we like, we usually have to give up
another thing that we also like.
Examples:
- Going to movie night before your final exam leaves less time for a
college student to study.
- Having more money to buy stuff requires working longer hours, which
leaves less time for family and relaxation.
⩥ efficiency. Answer: when society gets the most from its scarce
resources.
⩥ equality. Answer: when prosperity is distributed uniformly among
society's members.
, The tradeoff is that to achieve greater equality by redistributing income
from higher wage earners to the poor. But this redistribution reduces the
incentive to work and produce, and it shrinks the size of economic
prosperity.
⩥ A note about the redistribution of income. Answer: The redistribution
of income from the wage earners to poorer people is accomplished
through a progressive tax system and well-defined social programs like
food stamps and unemployment insurance that try to provide a safety net
for people at the low end of the income distribution. But, a progressive
tax system reduces the incentive to work. The reward for working hard
is a high income. Taxes reduce this reward and therefore reduce the
incentive to work hard.
⩥ John is an athlete. He has $120 to spend and wants to buy either a
heart rate monitor or new running shoes. Both the heart rate monitor and
running shoes cost $120, so he can only buy one. This illustrates the
principle that. Answer: People face trade-offs in the decisions that they
make.
⩥ opportunity cost. Answer: of any item is whatever must be given up to
obtain it. It is the cost associated with the next best alternative only.
It is the relevant cost for decision making. Making decisions requires
comparing the costs and benefits of alternative choices.
STUDY GUIDE 2026 TEST PAPER
QUESTIONS AND SOLUTIONS
⩥ When we refer to "individual" action, we are referring to: Answer: a
variety of actors that in microeconomic terms can be referred to as
sellers (producers) and buyers (consumers). These actors influence the
supply of and demand for goods and services. The means for achieving
coordination are generally money and interest rates.
⩥ normative science. Answer: the idea that science follows objective
rules of evidence and is unaffected by the personal beliefs or values of
scientists
Microeconomics can be considered a normative science. It does not
prescribe a course of action. Rather, it tries to explain what might
happen as a result of certain changes.
For example, if the supply of crude oil decreases, microeconomics
suggests that the price of gasoline may increase. At a certain level, it
may even suggest that buyers will buy less gasoline.
⩥ Microeconomics has two main schools or streams of thought:.
Answer: One school is the general equilibrium theory (introduced by
Leon Walras in 1874)
,2nd, is partial equilibrium theory (introduced by Alfred Marshall in
1890). This school of thought believes in developing measurable
hypotheses related to economic events, and subjecting the hypotheses to
empirical testing to determine which of the hypotheses work best.
Since it is difficult to replicate tests, economists make several
assumptions such as infinite sellers and buyers, perfect knowledge,
homogeneous goods and services, and static relationships to arrive at
solutions.
⩥ Austrian school. Answer: argues that the equilibrium theories are
flawed and unrealistic. The Austrian school acknowledges imperfections
and heterogeneityand tries to explain how economic incentives might
facilitate individuals overcoming the problems posed by uncertainty and
ignorance.
Thus, the Austrian school proposes that markets exist precisely because
people have incomplete knowledge, differing preferences, and other
imperfections.
⩥ Scarcity. Answer: requires choice
⩥ Choice. Answer: refers to people having to choose which of their
desires they will satisfy and which they will leave unsatisfied.
,When we, either as individuals or as a society, choose more of
something, scarcity forces us to have less of something else.
⩥ Trade-offs. Answer: Alternatives that must be given up when one is
chosen rather than another
All decisions that people make involve trade-offs of one goal against
another. To get one thing that we like, we usually have to give up
another thing that we also like.
Examples:
- Going to movie night before your final exam leaves less time for a
college student to study.
- Having more money to buy stuff requires working longer hours, which
leaves less time for family and relaxation.
⩥ efficiency. Answer: when society gets the most from its scarce
resources.
⩥ equality. Answer: when prosperity is distributed uniformly among
society's members.
, The tradeoff is that to achieve greater equality by redistributing income
from higher wage earners to the poor. But this redistribution reduces the
incentive to work and produce, and it shrinks the size of economic
prosperity.
⩥ A note about the redistribution of income. Answer: The redistribution
of income from the wage earners to poorer people is accomplished
through a progressive tax system and well-defined social programs like
food stamps and unemployment insurance that try to provide a safety net
for people at the low end of the income distribution. But, a progressive
tax system reduces the incentive to work. The reward for working hard
is a high income. Taxes reduce this reward and therefore reduce the
incentive to work hard.
⩥ John is an athlete. He has $120 to spend and wants to buy either a
heart rate monitor or new running shoes. Both the heart rate monitor and
running shoes cost $120, so he can only buy one. This illustrates the
principle that. Answer: People face trade-offs in the decisions that they
make.
⩥ opportunity cost. Answer: of any item is whatever must be given up to
obtain it. It is the cost associated with the next best alternative only.
It is the relevant cost for decision making. Making decisions requires
comparing the costs and benefits of alternative choices.
