Managerial Economics and Organizational Architecture James Brickley 6th Edition- Test Bank
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Sample Test
Chapter 03
Exchange and Markets
Essay Questions
1. What
are the goals of an economic system? What is the criterion to measure the effectiveness
of a system?
Answer: Every economic system is confronted with three basic
issues: what to produce,how to produce,and for whom to produce.One can answer
these questions using a centrally planned system, or allowing the markets to
find a solution, or generatinga mixed economy. Economists use the Pareto
efficiency criterion to measure the effectiveness of an economic activity.
According to this criterion, an economic activity is not effective if there is
another allocation of resources that can make someone better off without
hurting anyone else.
Difficulty: 01 Easy
Blooms: Remember
AACSB: Reflective Thinking
Topic: Goals of Economic Systems
2. Suppose
Sam and Kevin can produce pens and pencils as shown in the table below.
|
|
Pens |
Pencils |
|
Sam |
12 hours |
8 hours |
|
Kevin |
4 hours |
6 hours |
<<PM: Global: Delete period following letter in
parens?>>(a) Who has a comparative advantage in producing pens? Who has a
comparative advantage in producing pencils?
(b) Suppose Sam and Kevin have to each give Flip, a common friend, 10 pens and
10 pencils. Is there a trade that will make both of them better off? If a trade
that would make both of them better off exists, describe such a trade. If there
is no such trade that would make both of them better off, explain why.
Answer: (a) Kevin has a comparative advantage in producing pens
because he has to give up only 2/3 of a pencil to make a pen. Sam would have to
give up 12/8= 3/2 pencils to make a pen.
(b) Yes, trade can make them both better off. Sam has a comparative advantage
in producing pencils because he has to give up only 8/12=2/3 pens to make a
pencil. Kevin would have to give up 6/4 = 3/2 pens to make a pencil. There is
likely to be potential gains from trade if Kevin specializes in
production of pens and Sam specializes in pencils. Kevin could exchange 10 pens
for 10 pencils with Sam.
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Topic: Property Rights and Exchange in a Market Economy
3. If
demand is represented by Qd = 50 – 0.5P +
0.005I where I=$50,000 and supply is represented by Qs =
100 + 0.4P -2W where wages(W) =$15.00, compute the equilibrium price and
quantity. What happens if income falls to I=$40,000?
Answer: Qd = 50 – 0.5P +
0.005 (50,000) = 50 – 0.5P +250 = 300 – 0.5P. Qs =
100 + 0.4P − 2(15) = 100 + 0.4P – 30 = 70 + 0.4P. In equilibrium the quantity
demanded is equal to the quantity supplied: 300 – 0.5P = 70 + 0.4P. Therefore,
the equilibrium price = 230/0.9 = $255.56. <<AU: Change
OK?>>Substituting the price value in either the quantity demanded
equation or the quantity supplied equation gives us the equilibrium quantity.
Therefore, the equilibrium quantity = 300 – 0.5 (255.56) = 300 – 127.78 =
172.22 units. When income falls to $40,000, the new demand function is Qd =
50 – 0.5P + 0.005 (40,000) = 50 – 0.5P + 200 = Qd =
250 – 0.5P. The supply function is Qs =
70 + 0.4P. In equilibrium the quantity demanded is equal to quantity supplied.
Therefore, 250 – 0.5P = 70 + 0.4P = 250 – 70 = 0.4P + 0.5P = 180 = 0.9P = $200
is the new equilibrium price. <<AU: Change OK?>>Substituting the
price value in either the quantity demanded equation or the quantity supplied
equation gives us the equilibrium quantity. Therefore, the equilibrium quantity
= 250 – 0.5 (200) = 150 units.
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Topic: Basics of Supply and Demand
4. Draw
supply and demand curves. Show the impact of an increase in demandon the price
and quantity exchanged in the market.Show the impact of a decrease in demand on
the price and quantity exchanged in the market.
Answer: When there is an increase in demand, the demand curve
shifts to the right. The increase in demand increases both the price of the
good and the quantity of the good exchanged in the market.
When there is a decrease in demand, the demand curve shifts to
the left. The decrease in demand decreases both the price of the good and the
quantity of the good exchanged in the market.
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Topic: Basics of Supply and Demand
5. A
bunch of elementary school kids sit down at a long lunch table. For several
minutes, everyone trades food, but then the table becomes quiet as they begin
to eat. What happened?
Answer: As long as there are additional mutually beneficial
trades, individuals will continue to negotiate and trade. Once all the gains
from trade have been exhausted, trading ends.
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Prices as Social Coordinators
6. What
are externalities and why is Ronald Coase an important figure in economics?
Answer: Externalities are unintended consequences of your
actions on others. If you plant a garden, then your neighbor enjoys the
benefits without compensating you for your unintended philanthropy. Similarly,
your smoking may cause problems for others, but you get away with it because no
one asks you for compensation. Positive and negative externalities distort the
market system from functioning optimally from a societal point of view.
Consider the case of a firm polluting the atmosphere. Without government
intervention in the form of pollution taxes, “too much” will be produced.
Similarly, consider the case of flu or vaccine shots. Again, without
governmental subsidies, “too little” will be produced. In both cases, we see optimal
allocation has failed to materialize. The standard response to externalities
has been government intervention in the form of subsidies, taxes, fines,
quotas, and limits. Coase was the first to point out that government action is
not necessary to mitigate externalities. Rather, free markets have the capacity
to produce efficient results as long as contracting costs between affected
parties arekept to a minimum. The nonintuitive part of Coase’s theorem is that
efficient allocation is possible regardless of the initial assignment of
property rights concerning the public good under question, so long as
contracting costs are not imposing.
Difficulty: 01 Easy
Blooms: Remember
AACSB: Reflective Thinking
Topic: Prices as Social Coordinators
7. Markets
can give a buyer everything a buyer needs to know about a product even though
the buyer does not have the training to understand the specific knowledge
needed to build or distribute the product. Explain.
Answer: The market price of a good tells the buyer of the good
in a market the opportunity cost of purchasing the good. As long as the value
of the good is greater than the price of the good, the buyer will make
purchases. As a result, as long as the value of a good is higher than the costs
of production, society will efficiently produce the good, maximizing social
well-being.
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Markets versus Central Planning
8. Many
products come with a warning about how to use the product without harming other
people. Why?
Answer: The information about how to use a particular product
without harming other people is a specific knowledge. The warning is a low-cost
method of transferring this information from the producer of the product to the
user of the product.
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Market versus Central Planning
9. A
business manager has to decide whether to buy supplies from the marketplace or
whether to build them inside the company. What do “information” and
“contracting” have to do with this decision?
Answer: Contracting costs and the costs of acquiring specific
knowledge or specific information play a large role in the decision of whether
transactions occur in the marketplace or within the boundaries of the firm.
Firms are more efficient than markets at organizing some transactions when the
costs of information gathering and contracting in markets are high. However,
when information is available at a lower cost and contracting or transactional
costs are low in the marketplace, it is more efficient for transactions to
occur in the marketplace. Individuals have a strong incentive to organize
transactions efficiently to maximize gains from trade.
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Contracting Costs and Existence of Firms
10.
Faith and Hope are 30-year-old identical twins. The only
difference between them is their credit score. Faith has a proven record of
repaying debts. Faith can borrow money at 4.5 percent. Hope has often missed
debt payments. Hope can borrow at 8.5 percent.
They are considering enrolling in an eveningMBA program. They plan on
completing the program in two years. Assume the annual tuition is $16,000 for
both years. They also anticipate that the nonmonetary costs of obtaining an MBA
will be $40,000 per year. The twins anticipate that after graduation in two
years, their earnings will be $10,000 per year higher until they retire at age
62. Should Faith enroll in the evening MBA program? Should Hope enroll in the
evening MBA program?
Answer: This problem requires us to compare the costs and
benefits of the decision using discounted present value. The cost of the MBA
measured in today’s dollars is
<<COMP: Please insert periods after equations that are
sentences.>>
The benefits are a stream of higher benefits starting in 2years
and lasting 30years until retirement at age 62. An infinite stream of $10,000
forever starting now – an infinite stream of $10,000 forever starting in 32
years – $10,000 –
PDV=<<Comp: Insert period after equation.>>
Faith:
<<Comp: Insert period after equation.>>
Hope:
<<Comp: Insert period after equation.>>
Given these figures, Faith should enroll in the MBA program because the
benefits measured in today’s dollars are greater than the costs measured in
today’s dollars. Hope should not enroll as the costs exceed the benefits.
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Topic: Appendix: Shareholder Value and Market Efficiency
Multiple Choice Questions
11.
A working knowledge of both markets and firms is important for
managers to be effective because it
12.
helps them make appropriate strategic and operational decisions.
13.
helps them to exploit other executives.
14.
helps them train their subordinates better.
15.
helps them earn high bonuses.
Answer: A
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective ThinkingTopic: Introduction
12.
The production and distribution of goods and services in an
economy is said to be Pareto-efficient if
13.
there exists no alternative that keeps all individuals at least
as well off but makes even one person better off.
14.
there is no alternative that reduces the cost of transportation
and distribution of goods in a market.
15.
the revenue generated from the sale of goods and services is
more than the cost of production.
16.
the quantity of goods demanded in an economy is more than the
quantity supplied.
Answer: A
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Goals of Economic Systems
13.
Tom and Jerry have been roommates for the past two years. During
this period, they bought 11 CDs together. Now that each is taking his own
apartment, they are deciding how to split their possessions. Tom suggests they
take fiveCDs each and give the extra one to Arnold, their neighbor. Jerry, on
the other hand, suggests they flip a coin to decide who gets the 11th CD.
Assuming they neither like nor dislike being altruistic, which of the two
suggestions is Pareto efficient?
A. Tom’s suggestion is Pareto efficient.
B.Jerry’s
suggestion is Pareto efficient.
C. Both suggestions are Pareto efficient.
D. None of the suggestions is Pareto efficient.
Answer: B
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Goals of Economic Systems
14.
A competitive equilibrium price guarantees that
A.consumers
who want to buy the product at the market price are satisfied.
B. producers can hoard the quantity they want at the current market price.
C. gains from trade are maximized only by the producers.
D. revenues generated are equal to the cost of production.
Answer: A
Difficulty: 01 Easy
Blooms: Remember
AACSB: Reflective Thinking
Topic: Basics of Supply and Demand
15.
Assume the current market price of candles is such that there is
a surplus (i.e., excess supply). Which of the following best describes the
adjustment process in a competitive market?
A. As the price increases, the quantity demanded andthe quantity supplied
decrease.
B. As the price increases, the quantity demanded decreases while the
quantity supplied increases.
C.As
the price decreases, the quantity demanded increases while the quantity
supplied decreases.
D. As the price decreases, the quantity demanded decreases while the
quantity supplied increases.
Answer: C
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Basics of Supply and Demand
16.
Assume the market for ceiling fans is perfectly competitive and
is currently in equilibrium. If the demand increases while the supply
decreases, then we can be certain that
A. the
equilibrium price will increase.
B. the equilibrium quantity will increase.
C. both price and quantity will increase.
D. both price and quantity will decrease.
Answer: A
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Basics of Supply and Demand
17.
Assume the demand function for basketballs is given by QD =
150 −3P + 0.1I, where P = price of a basketball, and I = average income of
consumers. Also, assume the supply of basketballs is given by QS =2P.
If the market for basketballs is perfectly competitive, and the average income
is equal to $1,500, what is the equilibrium price and quantity? What if a 20
percentincome tax is introduced?
A. Before the tax, the equilibrium price was $60, and 120 basketballs were
traded. The introduction of an income tax would have no effect on the
equilibrium price and quantity.
18.
Before the tax, the equilibrium price was $60, and 120
basketballs were traded. Once the income tax is introduced, the price would
decrease by $6, and only 108 basketballs would be traded.
C. Before the tax, the equilibrium price was $60, and 120 basketballs were
traded. Once the income tax is introduced, the price would decrease by $6,
which would cause the quantity of basketballs traded to increase.
D. Before the tax, the equilibrium price was $60, and 108 basketballs were
traded. Once the income tax is introduced, the price would decrease by $6, and
only 120 basketballs would be traded.
Answer: B
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Topic: Basics of Supply and Demand
18.
Assume the demand function for scooters is given by QD =
20,000 – 10P + 0.2I, where P = price of a scooter, and I = average income of
consumers. Also, assume the supply function of scooters is given by QS =
20P. If the market for scooters is perfectly competitive, and the average
income of consumers is $20,000, what are the equilibrium price and quantity in
this market?
A. The equilibrium price is $16,000, and 800 scooters are traded.
B. The equilibrium price is $1,600, and 32,000 scooters are traded.
C.The
equilibrium price is $800, and 16,000 scooters are traded.
D. The equilibrium price is $800, and 32,000 scooters are traded.
Answer: C
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Topic: Basics of Supply and Demand
19.
Assume the market for hammers is perfectly competitive and the
current price is $15. If, at this price, the quantity of hammers demanded is
15,000, while the quantity supplied is 25,000, then
A. the market for hammers is in equilibrium.
B. the price of hammers is likely to increase.
C.the
price of hammers is likely to decrease.
D. there would be no change in price.
Answer: C
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Basics of Supply and Demand
20.
If the price of movie tickets doubles, then
A.the
demand for DVDs is likely to increase.
B. the price of DVDs is likely to decrease.
C. the quantity of movie tickets sold is likely to increase.
D. the quantity of popcorn sold at the moviesis likely to increase.
Answer: A
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Basics of Supply and Demand
21.
Assume the market for pencils is competitive and originally in
equilibrium. As a result of an increase in the price of graphite, the supply of
pencils decreases. What is true of the new equilibrium?
A.The
price is higher while the quantity exchanged decreases.
B. The price is higher and the quantity exchanged increases.
C. The price is lower and the quantity exchanged decreases.
D. The price is lower while the quantity exchanged increases.
Answer: A
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Basics of Supply and Demand
22.
There is an increase in incomes due to a tech boom. Which of the
following correctly captures the effect of this change on the market for
gasoline?
A.Both
equilibrium quantity and price will increase.
B. Both equilibrium quantity and price will decrease.
C. Equilibrium quantity will increase, but equilibrium price will
decrease.
D. Equilibrium quantity will decrease, but equilibrium price will
increase.
Answer: A
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Topic: Basics of Supply and Demand
23.
There is an increase in availability of alternative fuels
through research and development. Which of the following correctly captures the
effect of this change on the market for gasoline?
A. Both equilibrium quantity and price will increase.
B.Both
equilibrium quantity and price will decrease.
C. Equilibrium quantity will increase, but equilibrium price will decrease.
D. Equilibrium quantity will decrease, but equilibrium price will
increase.
Answer: B
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Topic: Basics of Supply and Demand
24.
There is an OPEC cartel that reduces the production of world oil
by several million barrels a day. Which of the following correctly captures the
effect of this change on the market for gasoline?
A. Both equilibrium quantity and price will increase.
B. Both equilibrium quantity and price will decrease.
C. Equilibrium quantity will increase, but equilibrium price will
decrease.
D.Equilibrium
quantity will decrease, but equilibrium price will increase.
Answer: D
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Topic: Basics of Supply and Demand
25.
The war in Iraq comes to an end. Iran and Afghanistan lay pipes
to generate more oil. The United States and Venezuela enter into an era of
friendship. Which of the following correctly captures the effect of this change
on the market for gasoline?
A. Both equilibrium quantity and price will increase.
B. Both equilibrium quantity and price will decrease.
C.Equilibrium
quantity will increase, but equilibrium price will decrease.
D. Equilibrium quantity will decrease, but equilibrium price will
increase.
Answer: C
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Topic: Basics of Supply and Demand
26.
Let Qd = 10 – 2P and Qs =
3P be the demand and supply curves for Beer. The equilibrium combination (P*
and Q*) in the market is ______.
A. P* = 2; Q* =
5
B. P* = 5; Q* =
0
C.P* =
2; Q* = 6
D. P* = 6; Q* =
2
Answer: C
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Topic: Basics of Supply and Demand
27.
Which one of the following does not cause a shift in thedemand
curve for gasoline?
A. An increase in the amount of alternative fuels
B. An increase in gas tax
C.An
increase in the price of gasoline
D. An increase in oil imports from the Gulf
Answer: C
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Basics of Supply and Demand
28.
Assume the government introduces a $0.50 per gallon tax on
gasoline. Which of the following is true?
A.The
quantity of subway and bus tickets sold is likely to increase.
B. The quantityof cars sold is likely to increase.
C. The quantity of gasoline sold is likely to increase.
D. The quantity of cars manufactured by producers will increase.
Answer: A
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Prices as Social Coordinators
29.
Externalities exist when the actions of one agent
A.benefit
or hurt another agent who is not part of the exchange relationship.
B. hurt the agent committing the action.
C. benefit the agent committing the action.
D. benefit or hurt another agent who is a part of the exchange
relationship.
Answer: A
Difficulty: 01 Easy
Blooms: Remember
AACSB: Reflective Thinking
Topic: Prices as Social Coordinators
30.
Assume Pollutex Inc. produces paper in its plant located on Lake
Ontario, half a mile away from CleanAir Camping. Pollutex employs an obsolete
production process, dumping pollutants in the lake. The camp has experienced a
steady decline in the number of attendees since Pollutex moved nearby. In
particular, the owners forecast that CleanAir Camping will generate a profit of
only $50,000 a year in the future, which is $150,000 less than the one
generated before Pollutex moved nearby. A cleaner production process is
available, which would not require dumping the pollutants in the lake. However,
converting the plant would increase yearly costs by $100,000. Is the current
situation Pareto efficient?
A. Yes, since there is no alternative that would make CleanAir better off
without hurting Pollutex, and vice versa.
B. No, as Pollutex could convert its plant and make CleanAir better off by
$200,000.
C.No.
In fact, CleanAir owners could pay Pollutex a sum between $100,000 and $150,000
a year to convert its plant and increase profits between $0 and $50,000.
D. No. In fact, Pollutex owners could pay CleanAir a sum between $0 and
$150,000 to move to a different location.
Answer: C
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Topic: Prices as Social Coordinators
31.
According to Ronald Coase, allocation of resources in a
free-market economy will be efficient as long as
A. property rights are clearly assigned but not enforced.
B. contracting costs are sufficiently high.
C.property
rights are clearly assigned andcan be enforced with low contracting costs.
D. property rights are assigned only to the rich.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
AACSB: Reflective Thinking
Topic: Prices as Social Coordinators
32.
According to Ronald Coase, for a free-market economy to work
efficiently, there needs to be
A.allocation
of private property rights with low transactions cost.
B. allocation of private property rights with high transactions cost.
C. a well-developed tax code.
D. an autocratic form of government in the country.
Answer: A
Difficulty: 01 Easy
Blooms: Remember
AACSB: Reflective Thinking
Topic: Prices as Social Coordinators
33.
Which of the following is an example of positive externalities?
A.Your
neighbor’s garden is always well taken care of.
B. Your neighbor’s barbecue smoke comes through your window.
C. Your neighbor always listens to music at an unbearable volume.
D. You allow weeds to grow on your yard.
Answer: A
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Prices as Social Coordinators
34.
Consumer surplus is
A. the result of a shortage.
B. the result of a surplus.
C. a measure of the quantity traded by consumers.
D.a
measure of the gains from trade to consumers.
Answer: D
Difficulty: 01 Easy
Blooms: Remember
AACSB: Reflective Thinking
Topic: Prices as Social Coordinators
35.
The minimum wage is a
A. cost ceiling.
B. positive externality.
C.price
floor.
D. price ceiling.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
AACSB: Reflective Thinking
Topic: Prices as Social Coordinators
36.
The minimum wage
A. increases economic efficiency.
B. creates a shortage of labor.
C.creates
a surplus of labor.
D. increases producer surplus.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
AACSB: Reflective Thinking
Topic: Prices as Social Coordinators
37.
Price controls on gasoline
A. increase consumer surplus.
B.create
a shortage of gasoline.
C. create a surplus of gasoline.
D. increase producer surplus for all producers.
Answer: B
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Prices as Social Coordinators
38.
The following diagram shows a market in equilibrium. If there
was a $3.00 price floor,
39.
the quantity demanded would be 65 units.
B. the quantity demanded would be 30 units.
C. there would be a shortage of 30 units.
D. there
would be a surplus of 30 units.
Answer: D
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Topic: Prices as Social Coordinators
39. The following diagram shows a market in equilibrium. If there was a $1.50
price ceiling,
1. the
quantity demanded would be 65 units.
B. the
quantity demanded would be 80 units.
C. there would be a shortage of 30 units.
D. there would be a surplus of 30 units.
Answer: B
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Topic: Prices as Social Coordinators
40.
The following diagram shows a market in equilibrium.If there was
a $3.50 price floor,
1. the
quantity demanded would be 65 units.
B. the quantity demanded would be <<AU: Change to 60
units?>>60units.
C. there would be a shortage of 60units.
D.there
would be a surplus of 60units.
Answer: D
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
Topic: Prices as Social Coordinators
41.
A price ceiling on a good will usually
A. shift both the demand and supply curves to the right.
B. shift both the demand and supply curves to the left.
C. shift the demand curve to the left and the supply curve to the right.
D.shift
neither the demand curve nor the supply curve.
Answer: D
Difficulty: 01 Easy
Blooms: Remember
AACSB: Reflective Thinking
Topic: Prices as Social Coordinators
42.
The demand and supply curves in the market for gasoline are
illustrated in the graph below.
Starting at the equilibrium point, if the government imposes a
price ceiling of $10, consumer surplus will then be given by the area
____ <<PM: Make this type question “Fill in the blank”?>>
A. A.
B. A
+ B.
C. A + D.
D. C.
Answer: B
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Prices as Social Coordinators
43.
The demand and supply curves in the market for gasoline are
illustrated in the graph below.
Starting at the equilibrium point, if the government imposes a
price ceiling of $10, producer surplus will fall by an amount given by the area_____ <<PM:
Fill in the blank?>>
A. A.
B. B + C.
C. B
+ E.
D. C.
Answer: C
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Prices as Social Coordinators
44.
The demand and supply curves in the market for gasoline are
illustrated in the graph below.
Starting at the equilibrium point, if the government imposes a
price ceiling of $10, the deadweight loss will be the area ______.
A. D
+ E
B. F + G
C. D
D. E
Answer: A
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Prices as Social Coordinators
45.
Which of the following is a factor that can motivate changes in
the costs of transferring knowledge?
A.Changes in technology
1. The
nature of knowledge to be transferred
2. The
prevailing tax rates
3. The
form of government in the country
Answer: A
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective ThinkingTopic: Market versus Central Planning
46.
Currently XYZ’s compensation system is such that only top
managers receive compensation based on the company’s performance, while
everybody else in the company receives a fixed salary. Moreover, top managers
have full discretion over the launch of new products. Due to the failure of the
last three products launched by XYZ, top managers are contemplating modifying
the allocation of decision rights concerning new products. What changes would
make more economic sense?
A. Delegating decision rights down the ladder to those employees who are
likely to have more specific knowledge and leaving their current compensation
scheme unchanged
B.Delegating
decision rights down the ladder to those employees who are likely to have more
specific knowledge and changing their compensation by awarding them bonuses
based on their performance
C. Leaving the allocation of decision rights unchanged, but changing the
compensation of all the employees by awarding them bonuses based on their
performance
D. Giving themselves good bonuses and reducing benefits for all other
employees
Answer: B
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Topic: Market versus Central Planning
47.
MACROSOFT’s top management is contemplating the development and
marketing of three new software products (a word processor, a spreadsheet
application, and a web browser). However, it needs to decide whether to launch
them separately or as a package. The CEO proposes to delegate the decision to a
team formed with representatives from each department. Why does this proposal
make economic sense?
A. Ultimately, they are the ones who have to implement whatever decision
is made, so one might as well ask their opinion.
B.They
are likely to make a more informed decision.
C. Their differences are likely to prove to be advantageous to the
management.
D. If the project fails, the management will have someone to blame.
Answer: B
Difficulty: 02 Medium
Blooms: Understand
AACSB: Reflective Thinking
Topic: Markets versus Central Planning
48.
Which of the following is an advantage of carrying out economic
transactions through firms?
49.
The number of transactions carried out by a firm is fewer than
that carried out in a market, thereby reducing the contracting cost.
50.
Firms lack knowledge about the products they produce and
distribute in a market.
51.
Transactions made by or with a firm involve no opportunity cost.
52.
The number of transactions carried out by a firm is more than
that carried out in a market, thereby reducing the contracting cost.
Answer: A
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
Topic: Contracting Cost and Existence of Firms
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