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Economics for Business Revision 3

1. Economies of scale can result from all of the following except one. Which is the exception?

A) Increased firm size allowing the firm to employ specialist managersB) A bus company replacing smaller buses with larger busesC) An increase in the size of a firms capacity and plantD) A factory employing two shifts of workers rather than one shift per day

2. Which of the following statements about the subject of economics are correct?

(i) The main purpose of economic activity is to increase economic welfare(ii) Economic analysis suggests that economic growth is always beneficial(iii) Economics is solely concerned with the study of commercial business activity(iv) Economics studies the problem of allocating scarce resources between competing uses

A) (ii) and (iii) only B) (i) and (iv) only C) (i), (ii) and (iv) only D) (i), (iii) and (iv) only

3. All of the following are typical characteristics of oligopoly except which one?

A) Extensive use of advertising and product differentiationB) The ability to conduct independent decision makingC) Significant barriers to entryD) Small number of firms

4. Financial intermediation is the process by which

A) Net savers and net borrowers are brought togetherB) The central bank acts as a link between commercial banks and the governmentC) Banks provide commercial services for their customersD) Banks create credit on the basis of their liquid assets

5. The short-run shut down price for a firm in perfect competition occurs where price equals

A) Average fixed cost B) Average variable costC) Sunk Costs D) Average total cost

6. Which of the following businesses would benefit most from an expansionary monetary policy?

A) Highly geared companies producing consumer durable goodsB) Cash rich companies producing consumer durable goodsC) Low geared companies in the supermarket industryD) Low geared companies whose inputs are mainly imported.

7. Which of the following assertions would not be consistent with supply side economics?

A) Increasing aggregate demand will not affect national income or the price levelB) High interest rates may reduce investment expenditure and so harm national income growthC) Aggregate supply creates its own demandD) Lower taxation increases national income by reducing disincentives to work and invest.

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8. All of the following are examples of externalities except which one?

A) Some consumers being unable to afford goods because prices have been driven up by the demand from otherconsumers

B) Firms training workers who then move to other employeesC) Pollution resulting from a production processD) Road congestion caused by rush hour traffic on the roads

9. In a customs union member countries

A) Meet to agree tariff increases affecting internal trade between themselvesB) Trade freely with each other and accept a common external tariff for trade with the rest of the worldC) Trade freely with each other impose their own national restrictions on trade with the rest of the worldD) Replace national currencies with a common currency such as the Euro

10. Select the definition of marginal cost form the list below:

A) The addition to total costs when output rises by one unitB) The average variable cost when fixed costs are zeroC) The average variable cost at any given level of output

D) The average total cost at any given level of output.

11. Which of the following statements about the difference between profit and shareholder wealth is false?

A) Shareholder wealth takes risk into accountB) Shareholder wealth influences share prices but profit does notC) Shareholder wealth considers financial returns over a longer period than profitD) Shareholder wealth is a discounted present value of anticipated future earnings but profit is just a short term

measure of past earnings.

12. Which of the following is most likely to increase rather then to reduce market imperfections?

A) A lowering of entry barriers separating marketsB) Informative advertising giving way to persuasive advertisingC) Employers making grater use of the internet to advertise job vacanciesD) An increase in the number of buyers and sellers in a market

13. Which of the following is nota suitable way for a manufacturing company to finance buying assets?

A) Leases B) Commercial bondsC) Certificates of deposits D) Commercial bills

14. A country has a trade deficit. The demand for its imports and exports are both price elastic. All of the followingwould lead to an a reduction on the countrys trade deficit except which one?

A) A depreciation in the exchange rate for the countrys currency?B) A fall in consumer incomes in the country.C) An improvement in the countrys terms of tradeD) A rise in the rate of inflation in its trading partners economies.

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15. Which of the following statement about public goods us correct?

A) Public goods are examples of free goodsB) The problem of scarcity does not affect the provision of public goodsC) Public goods are characterized by the free-rider problemD) Public goods are defined as those goods provided by the state

16. If a firm operating in an oligopolistic market believes that its demand curve is kinkedA) Its marginal cost curve must show a discontinuityB) It is unable to secure economies of large scale productionC) It will tend to avoid price changesD) It cannot maximize profits where marginal cost and marginal revenue are equal

17. An advantage of a command economy is that:

A) The goods and services produced reflect the preference of consumersB) Social costs and benefits can be taken into accountC) The state always know what is in an individuals best interestD) Decision making is decentralised

18. All of the following would result from a shift from direct to indirect taxes except which one?

A) A reduction in the disincentive to work and effortB) A shift in the burden of taxation towards lower income groupsC) A more progressive taxation systemD) An increase in the retail price index

19. Which one of the following is a characteristic of imperfect competition but not of perfect competition?

A) Profit maximizing behaviour B) Large numbers of firms in the firmsC) Ease of entry into the industry D) Product differentiation

20. In a market economy, price act as all of the following except which one?

A) A means of allocating scarce resources B) A substitute for barterC) Signals to producers about consumer preferences D) Signals to consumers about costs

21. In a system of freely floating exchange rates the central bank and government will

A) Not need to engage in exchange equalizationB) Have to intervene in foreign exchange markets in order to maintain the systemC) Allow market forces to determine the exchange rate within a strictly limited bandD) Have less ability to control the money supply than in a fixed exchange rate system

22. Monetarist economists believe all of the following except which one?

A) There is a stable relationship between the growth of the money supply and the rate of inhalationB) Supply side measures are the only effective means of reducing the natural rate of unemploymentC) In the long run only fiscal policy is effective in reducing unemploymentD) Budget deficits should be avoided since they are a significant source of growth in the money supply

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23. A PPC can be used to show all of the following except

A) The different combination of two goods that can be produced from available inputsB) The different combination of two goods that a household can purchase with the available incomeC) All the technically efficient combinations of output that can be produced with available inputsD) Full employment of resources in an economy

24. Which of the following statements must be true when a firms average total costs and average variable cost areidentical?

A) Total FC = 0 B) MC = 0C) ATC of production are minimized D) The firm produces zero output.

25. Which of the following statements describes the role of an agent

A) An employee of an organisationB) One who is responsible for the organization pursues the interests of ownersC) One who is paid by the owners of the organization.D) An owner of the organisation

26. It is necessary to include a balancing item in the BOP to

A) Compensate for mistakes made when recording current and capital flowsB) Balance the capital and current accountsC) ensure that balance of payment is in equilibriumD) record accurately changes of official reserves

27. Which of the following is not a consequence of a country suffering a high rate of inflation?

A) impoverishment of households on fixed incomeB) A high nominal rate of interestC) A depreciation of its exchange rate compared to currencies from countries with lower inflation rates

D) Excess aggregate demand for goods and services

28. An example of forward vertical integration is

A) A car manufacturer taking over a car distributerB) A car manufacturer taking over an engine factoryC) The merger between Mercedes and Chrysler in the car industryD) The Ford car company producing refrigerators

29. A profit-maximising firm in imperfect competition must cut the products price is

A) Demand is elastic B) Marginal revenue is greater than marginal costC) Average total costs fall D) The demand curve shifts rightwards

30. Central banks fulfill all of the following functions except which?

A) Lender of liquidity to the commercial banksB) Chief advisor to the government on taxation policyC) Provider of capital and liquidity to the governmentD) Holder of bank accounts on behalf of commercial banks

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31. Which of the following statements is always true for a merit good?

A) Zero negative externalities result from the consumption of a merit goodB) It is characterized by non-excludability and non-rivalryC) When consumed, the social benefits exceed the private benefitsD) It is provided by the government

32. Every year a household allows its bank account to become overdrawn for 3 months to pay for its annual holiday.Which one of the following statements correctly describes this?

A) A short term lack of synchronization between payments and receiptsB) Medium term borrowingC) Long Term borrowingD) Maturity transformation

33. Identify which of the following features does notdistinguish redeemable debt apart from equity:

A) It will pay a regular set sum of interestB) It will never be traded on an investment marketC) It will have a maturity date when it will mature

D) It has a face value which shows its value at redemption

34. A rise in the gross national product of a country will raise average living standards only if

A) Taxation does not exceed government expenditureB) savings rise faster then investmentC) It exceeds the rate of growth of populationD) Exports are at least equal to imports

35. The development of the Indian economy in recent years has led to it becoming well-known as a place for thetelephone call centres, IT programming and the conducting of transactions processing (e.g. invoice processingand sales order handling) for UK firms.

Which of the following terms best describes this sort of economic development?

A) Balanced economic growthB) Growth is the tertiary sectorC) Growth is the primary sectorD) Growth is the secondary sector

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