Direction: Please go over each question. Suggested answers are 10.

10. The local video store’s business increased by 12% after the
provided at the end of this handout. movie theater raised its prices from P65 to P70. Thus,
relative to movie theater admissions, videos are
1. If both the supply and the demand for a good increase, the a. substitute goods
market price will b. superior goods
a. Rise only in the case of an inelastic supply function. c. complementary goods
b. Fall only in the case of an inelastic supply function. d. public goods
c. Not be predictable with only these facts.
d. Rise only in the case of an inelastic demand function. 11. An individual receives an income of P3,000 per month, and
spends P2,500. An increase in income of P500 per month
2. A supply curve illustrates the relationship between occurs, and the individual spends P2,800. The individual’s
a. Price and quantity supplied marginal propensity to save is
b. Price and consumer tastes a. 0.2 c. 0.6
c. Price and quantity demanded b. 0.4 d. 0.8
d. Supply and demand
12. In any competitive market, an equal increase in both
3. As a business owner you have determined that the demand demand and supply can be expected to always
for your product is inelastic. Based upon this assessment a. increase both price and market-clearing quantity
you understand that b. decrease both price and market-clearing quantity
a. Increasing the price of your product will increase total c. increase market-clearing quantity
revenue d. increase price
b. Decreasing the price of your product will increase
total revenue 13. Given the following data, what is the marginal propensity
c. Increasing the price of your product will have no effect to consume?
on total revenue Level of
d. Increasing the price of your product will increase Disposable income Consumption
competition P40,000 P38,000
48,000 44,000
4. Which one of the following has an inverse relationship a. 1.33 c. 0.95
with the demand for money? b. 1.16 d. 0.75
a. Aggregate income c. Interest rates
b. Price levels d. Flow of funds 14. Which of the following will cause a shift in the supply curve
of a product?
5. An improvement in technology that in turn leads to a. Changes in the price of the product.
improved worker productivity would most likely result in b. Changes in production taxes.
a. A shift to the right in the supply curve and a lowering c. Changes in consumer taxes.
of the price of the output. d. Changes in the number of buyers in the market.
b. A shift to the left in the supply curve and a lowering of 15. When the government imposes health and safety
the price of the output. regulations on certain products, one of the most likely
c. An increase in the price of the output if demand is results is
unchanged. a. greater consumption of the product
d. Wage increases. b. lower prices for the product
c. greater tax revenues for the government
6. Which of the following market features is likely to cause a d. higher prices for the product
surplus of a particular product?
a. A monopoly c. A price ceiling 16. In which of the following situations would there be
b. A price floor d. A perfect market inelastic demand?
a. A 5% price increase results in 3% decrease in the
7. A decrease in the price of a complementary good will quantity demanded.
a. shift the demand curve of the joint commodity to the b. A 4% price increase results in a 6% decrease in the
left quantity demanded.
b. increase the price paid for a substitute good c. A 4% price increase results in a 4% decrease in the
c. shift the supply curve of the joint commodity to the quantity demanded.
right d. A 3% price decrease results in 5% increase in the
d. shift the demand curve of the joint commodity to the quantity demanded.
right
17. In a competitive market for labor in which demand is
8. Demand for a product tends to be price inelastic if stable, if workers try to increase their wage
a. the product is considered a luxury item a. employment must fall
b. few good complements for the product are available b. government must set a maximum wage below the
c. the population in the market area is large equilibrium wage
d. people spend a large share of their income on the c. firms in the industry must become smaller
product d. product supply must decrease

9. Which of the following has the highest price elasticity 18. A polluting manufacturing firm tends, from the societal
coefficient? viewpoint, to
a. Milk a. price its products too low
b. Macaroni and cheese b. produce too little output
c. Bread c. report too little profitability
d. Ski boats d. employ too little equity financing
19. If the government regulates a product or service in a 28. If a product’s demand is elastic and there is a decrease in
competitive market by setting a maximum price below the price, the effect will be
equilibrium price, what is the long-run effect? a. a decrease in total revenue
a. A surplus b. No change in total revenue
b. A decrease in demand c. A decrease in total revenue and the demand curve
c. A shortage shifts to the left
d. No effect on the market d. An increase in total revenue

20. A valid reason for the government to intervene in the 29. All of the following are complementary goods except
wholesale electrical power market would include which a. margarine and butter
one of the following? b. Cameras and rolls of film
a. A price increase that is more than expected. c. VCRs and video cassettes
b. Electricity is an essential resource and the wholesale d. Razors and razor blades
market is not competitive.
c. The electricity distribution companies are losing 30. The law of diminishing marginal utility states that
money. a. Marginal utility will decline as a consumer acquires
d. Foreign power generators have contracts with the additional units of a specific product
local government at very high prices. b. Total utility decline as a consumer acquires additional
units of a specific product
21. If the income elasticity of demand coefficient for a c. Declining utilities causes the demand curve to slope
particular product is 3.00, the good is likely upward
a. A luxury good d. Consumers’ wants will diminish with the passage of
b. An inferior good time
c. A complementary good
d. A necessity 31. In the pharmaceutical industry where a diabetic must have
insulin no matter the cost and where there is no other
22. Which one of the following would cause the demand curve substitute, the diabetic’s demand curve is best described
for a commodity to shift to the left? as
a. A rise in the price of a substitute product. a. Perfectly elastic c. Perfectly inelastic
b. A rise in average household income. b. Elastic d. Inelastic
c. A rise in the price of a complementary commodity.
d. A rise in the population. 32. Because of the existence of economies of scale, business
firms may find that
23. Price ceilings a. Each additional unit of labor is less efficient than the
a. are illustrated by government price support programs previous unit
in agriculture b. As more labor is added to a factory, increases in output
b. create prices greater than equilibrium prices will diminish in the short run
c. create prices below equilibrium prices c. Increasing the size of a factory will result in lower
d. result in persistent surpluses average costs
d. Increasing the size of a factory will result in lower
24. X and Y are substitute products. If the price of product Y total costs
increases, the immediate impact on product X is
a. price will increase 33. In the long run, a firm may experience increasing returns
b. quantity demanded will increase due to
c. quantity supplied will increase a. Law of diminishing returns
d. price, quantity demanded, and supply will increase b. Opportunity costs
25. Wilson Corporation has a major competitor that produces c. Comparative advantage
a product that is a close substitute for Wilson’s good. If d. Economies of scale
the coefficient of cross-elasticity of demand for Wilson’s
product with respect to the competitor’s product is 2.00 34. The measurement of the benefit lost by using resources for
and the competitor decreases its price by 5%, what is the a given purpose is
expected effect on demand for Wilson’s product? a. Economic efficiency
a. A 5% increase in demand b. Opportunity costs
b. A 10% increase in demand c. Comparative advantage
c. A 5% decrease in demand d. Absolute advantage
d. A 10% decrease in demand
35. Marginal revenue is
26. If a group of consumers decide to boycott a particular a. Equal to price in monopolistic competition
product, the expected result would be b. The change in total revenue associated with
a. An increase in the product price to make up lost increasing prices
revenue c. Greater than price in pure competition
b. A decrease in the demand for the product d. The change in total revenue associated with
c. An increase in product supply because of increased producing and selling one more unit
availability
d. That demand for the product would become 36. In microeconomics, the distinguishing characteristic of the
completely inelastic long run on the supply side is that
a. Only supply factors determine price and output
27. Which of the following is not likely to affect the supply of b. Only demand factors determine price and output
a particular good? c. Firms are not allowed to enter or exit the industry
a. Changes in government subsidies. d. All inputs are variable
b. Changes in technology
c. Changes in consumer income
d. Changes in production costs
37. What is the main factor that differentiates the short-run d. As the nature of the economy has changed, it has been
cost function from the long-run cost function? necessary to revise the components of the index of
a. Nothing, the two functions are identical leading indicators
b. The level of technology
c. Changes in government subsidies 46. Disposable income is calculated as
d. The nature of the costs a. Gross domestic product minus the capital cost
allowance
38. If consumer confidence falls, the impact upon the economy b. Net domestic product minus indirect business taxes
is plus net income earned abroad
a. A downturn c. Personal income minus transfer payments
b. No change d. Personal income minus personal taxes
c. An upturn
d. Consumer confidence does not have an impact upon 47. The primary reason for allowing legal immigration into
the economy industrial nations is the immigrants’ potential for
a. Reducing a trade deficit
39. During the recessionary phase of a business cycle b. Fulfilling a trade agreement
a. The purchasing power of money is likely to decline c. Contributing to economic growth
rapidly d. Fulfilling a political agreement
b. The natural rate of unemployment will increase
dramatically 48. Some economic indicators lead the economy into a
c. Potential national income will exceed actual national recovery or recession, and some lag it. An example of a
income lagging indicator is
d. Actual national income will exceed potential national a. Chronic unemployment
income b. Housing starts
c. Orders for consumer and producer goods
40. For a given level of tax collections, prices, and interest rates, d. Consumer expectations
a decrease in governmental purchases will result in a(n)
a. Increase in aggregate demand 49. Government borrowing to finance large deficits increases
b. Increase in aggregate supply the demand for lendable funds and
c. Decrease in aggregate demand a. Increases the supply of lendable funds
d. Decrease in aggregate supply b. Has no impact on interests
c. Exerts downward pressure on interest rates
41. In national income terms, aggregate demand is the d. Puts upward pressure on interest rates
a. Demand for money by the community in a period of
full employment 50. A period of rising inflation
b. Total expenditure on capital goods by entrepreneurs a. Increases the price level, which benefits those who are
during a period of full employment entitled to receive specific amounts of money
c. Demand that is needed if a country’s economy is to b. Enhances the positive relationship between the price
operate at optimum level and the level of investment level and the purchasing power of money
is to be raised c. Will not be affected by contracts that include the
d. Total expenditures on consumer goods and indexing of payments
investment, including government and foreign d. Increases the price level, which is negatively related to
expenditures, during a given period the purchasing power of money

42. Which one of the following would not be included in the 51. The most effective fiscal polity program to help reduce
calculation of the gross domestic product? demand-pull inflation would be to
a. Purchase of a new home a. Decrease the rate of growth of the money supply
b. An automotive worker’s wages b. Increase both taxes and government spending
c. A doctor’s fee c. Decrease taxes and increase government spending
d. Purchase of common stock d. Increase taxes and decrease government spending

43. An upturn in economic activity is indicated by all of the 52. The money supply in a nation’s economy will decrease
following, except following
a. Increased housing starts a. Open-market purchases by the nation’s central bank
b. Reduction in the quantity of unemployment claims b. A decrease in the discount rate
c. Increase in personal travel c. An increase in the reserve ratio
d. Reduction in the amount of luxury purchases d. A decrease in the margin requirement

44. Which of the following may provide a leading indicator of 53. According to fiscal policy principles, a tax increase will
a future increase in gross domestic product? a. Increase spending and increase aggregate demand
a. A reduction in the money supply b. Increase spending and reduce aggregate demand
b. A decrease in the issuance of building permits c. Reduce spending and increase aggregate demand
c. An increase in the timeliness of delivery by vendors d. Reduce spending and reduce aggregate demand
d. An increase in the average hours worked per week of
production workers 54. Which of the following instruments of monetary policy is
the most important means by which the money supply is
45. Which one of the following statements about leading controlled?
economic indicators is not true? a. Changing the reserve ratio
a. For forecasting purposes, several variables are b. Open-market operations
monitored and weighted-average is referred to as the c. Manipulation of government spending
index of leading indicators d. Changing the discount rate
b. The index of leading indicators has historically been
very accurate 55. If a government were to use only fiscal policy to stimulate
c. The use of the index of leading indicators involves the economy from a recession, it would
monitoring the data on a monthly basis a. Raise consumer taxes and increase government
spending
 b. Lower business taxes and government spending 64. What factors explains the difference between real and
c. Increase the money supply and increase government nominal interest rates?
spending a. Inflation risk c. Default risk
d. Lower consumer taxes and increase government b. Credit risk d. Market risk
spending
65. All of the following are true about international trade
56. The national budget deficit is the except that
a. total accumulation of the national government’s a. the gains from international trade depend on
surpluses and deficits specialization with comparative advantage
b. Excess national and local spending over their revenues b. absolute advantage without comparative advantage
c. Amount by which the national government’s does not result in gains from international trade
expenditures exceed its revenues in a given year c. absolute advantage is defined as the ability of one
d. Amount by which liabilities exceed assets on the nation to produce a product a relatively lower
national government’s balance sheet opportunity cost than other nation
d. Where there is a reciprocal absolute advantage
57. Which of the following is a tool of monetary policy that a between two countries, specialization will make it
nation’s central bank could use to stabilize the economy possible to produce more of each product
during an inflationary period?
a. Selling government securities 66. If the central bank of a country raises interest rates sharply,
b. Lowering bank reserve requirements the country’s currency will most likely
c. Lowering bank discount rates a. increase in relative value
d. Encouraging higher tax rates b. remain unchanged in value
c. decrease in relative value
58. Economists and economic policy makers are interested in d. decrease sharply in value at first and then return to its
the multiplier effect because the multiplier explains why initial value
a. A small change in investment can have a much larger
impact on gross domestic product 67. Which one of the following groups would be the primary
b. Consumption is always a multiple of savings beneficiary of a tariff?
c. The money supply increases when deposits in the a. Domestic producers of export goods
banking system increase b. Domestic producers of goods protected by the tariff
d. The velocity of money is less than one c. Domestic consumers of goods protected by the tariff
d. Foreign producers of goods protected by the tariff
59. Assume that the Congress passes a tax bill that provides
for a “rebate” to taxpayers. One the goals of the rebate is 68. In the law of comparative advantage, the country which
a. Increase consumer disposable income and expand the should produce a specific product is determined by
economy a. Opportunity costs
b. Increase consumer disposable and contract the b. Profit margins
economy c. Economic order quantities
c. Decrease consumer disposable income and expand the d. Tariffs
economy
d. Increase consumer disposable income and contract 69. Assuming exchange rates are allowed to fluctuate freely,
the economy which one of the following factors would likely cause a
nation’s currency to appreciate on the foreign exchange
60. The rate of unemployment caused by changes in the market?
composition of unemployment opportunities over time is a. A relatively rapid rate of growth in income that
referred to as the stimulates imports
a. Frictional unemployment rate b. A high rate of inflation relative to other countries
b. Structural unemployment rate c. A slower rate of growth in income than in other
c. Cyclical unemployment rate countries, which causes imports to lag behind exports
d. Full-employment unemployment rate d. Domestic real interest rates that are lower than real
interest rates abroad
61. The producer price index measures
a. The price of a basket of commodities at the point of 70. Exchange rates are determined by
the first commercial sale a. Each industrial country’s government
b. Price changes for all products sold by domestic b. The International Monetary Fund
producers to foreigners c. Supply and demand in the foreign currency market
c. Price changes of goods purchased for other countries d. Exporters and importers of manufactured goods
d. The price of a fixed market basket of goods and
services purchased by a typical urban consumer 71. Which of the following measures creates the most
restrictive barrier to exporting to a country?
62. Which of the following is true about deflation? a. Tariffs c. Embargoes
a. It motivates consumers to borrow money b. Quotas d. Exchange controls
b. It motivates businesses to make investments
c. It results in very low interest rates 72. When net exports are negative, there is a net flow of
d. It results in economic expansion a. Goods from firms in foreign countries to the domestic
country
63. Economies often experience inflation but seldom b. Money from foreign countries to the firms of the
experience long period of deflation. Which of the domestic country
following is true about a deflationary economy? c. Goods from the firms of the domestic country to
a. Companies are hesitant to make investments foreign country
b. The lower prices encourage consumers to make major d. Goods and services which result in a trade surplus
purchases
c. Interest rates tend to be high 73. Which of the following factors is least likely to affect a
d. Actual GDP is above potential GDP country’s foreign currency exchange rates?
a. Interest rates in the country
b. Inflation in the country
 c. Political stability in the country c. Customer relations
d. The tax rate in the country d. Communications

74. Patents are granted in order to encourage firms to invest in 84. Which of the following types of organizations would more
the research and development of new products. Patents likely engage in public relations type advertising?
are an example of a. An airline
a. Vertical integration c. Entry barriers b. a toy manufacturer
b. market concentration d. Collusion c. A hotel chain
d. An electric utility company
75. The distinguishing characteristic of oligopolistic market is
a. A single seller of a homogeneous product with no 85. Target marketing analysis involves
close substitutes a. Analyzing the firm’s input markets
b. A single seller of a heterogeneous product with no b. Understanding and segmenting the firm’s customer
close substitutes markets
c. Lack of entry and exit barriers in the industry c. Analyzing the firm’s market structure
d. Mutual interdependence of firm pricing and output d. Deciding on whether to offer a new product line
decisions
86. If a firm’s customers are businesses, market segmentation
76. Economic markets that are characterized by monopolistic might be performed along all of the following dimensions,
competition have all of the following characteristic except except
a. One seller of the product a. Industry c. Lifestyle
b. Economies or diseconomies of scale b. Location d. Size
c. Advertising
d. Heterogeneous products 87. Which of the following is a defining characteristic of
supply chain management?
77. Which type of economic market structure is characterized a. Focuses on the sharing of information with suppliers
by a few large sellers of a product or service, engaging and customers.
primarily in nonprice competition? b. Focuses on redesigning processes
a. Monopoly c. Focuses on improving quality
b. Oligopoly d. Focuses on strategic alliances
c. Perfect competition
d. Monopolistic competition 88. Which of the following is not a likely strategy for a firm in
a purely competitive market?
78. Which type of economic market structure is composed of a. Lean manufacturing
a large number of sellers, each producing an identical b. Supply chain management
product, and with no significant barriers to entry and exit? c. Process reengineering
a. Monopoly d. Development of a brand name
b. Perfect competition
c. Oligopoly 89. What is the purpose of a response profile in competitor
d. Monopolistic competition analysis?
a. To develop an understanding of the firm’s industry
79. A natural monopoly exists because b. To analyze the firm’s strengths in relation to its
a. The firm owns natural resources competitors
b. The firms hold patents c. To identify possible actions by competitors
c. Economic and technical conditions permit only one d. To understand the nature of the firm’s major markets
efficient supplier
d. The government is the only supplier 90. The process of dividing all potential consumers into smaller
groups of buyers with distinct needs, characteristics, or
80. A market with many independent firms, low barriers to behaviors, who might require a similar product or service
entry, and product differentiation is best classified as mix, is called
a. a monopoly a. Strategic planning c. Product positioning
b. a natural monopoly b. Market segmentation d. Objective setting
c. Monopolistic competition
d. an oligopoly 91. Which of the following measures of unemployment would
be of least importance to management when trying to
81. Which of the following is not a key assumption of perfect predict the future state of the economy?
competition? a. Structural unemployment
a. Firms sell a homogeneous product b. Cyclical unemployment
b. Customers are indifferent about which firm they buy c. Frictional unemployment
from d. Overall unemployment
c. The level of a firm’s output is small relative to the
industry’s total output 92. An oligopolist faces a “kinked” demand curve. This
d. Each firm can price its product above the industry terminology indicates that
price a. When an oligopolist lowers its price, the other firms
in the oligopoly will match the price reduction, but if
82. The ultimate purpose of competitor analysis is to the oligopolist raises its price, the other firms will
a. identify the competition ignore the price change
b. determine the competition’s strength and weaknesses b. An oligopolist faces a nonlinear demand for its
c. identify the competition’s major customers product, and price changes will have little effect on
d. understand and predict the behavior of the demand for that product
competition c. An oligopolist can sell its product at any price, but
after the “saturation point” another oligopolist will
83. Which of the following is not an important aspect of lower its price and, therefore, shift the demand curve
supply chain management? to the left
a. Information technology
b. Accurate forecasts
 d. Consumers have no effect on the demand curve, and
an oligopolist can shape the curve to optimize its own
efficiency

93. Which of the following best describes the steps involved

in performing competitor analysis?
a. Gathering information about the competitor and
using it to predict the competitor’s behavior
b. Determining the type of market structure and the
number of competitors
c. Assessing the general environment and determining
how that affects competition
d. Assessing the market structure to predict when new
competitors will enter the market

SUGGESTED ANSWER
1. C 25. D 49. D 73. D
2. A 26. B 50. D 74. C
3. A 27. C 51. D 75. D
4. C 28. D 52. C 76. A
5. A 29. A 53. D 77. B
6. B 30. A 54. B 78. B
7. D 31. C 55. D 79. C
8. D 32. C 56. C 80. C
9. D 33. D 57. A 81. D
10. A 34. B 58. A 82. D
11. B 35. D 59. A 83 C
12. C 36. D 60. B 84. D
13. D 37. D 61. A 85. B
14. B 38. A 62. C 86. C
15. D 39. C 63. A 87. A
16. A 40. C 64. A 88. D END
17. A 41. D 65. C 89. C
18. A 42. D 66. A 90. B
19. C 43. D 67. B 91. C
20. B 44. D 68. A 92. A
21. A 45. C 69. C 93. A
22. C 46. D 70. C
23. C 47. C 71. C
24. B 48. A 72. A