Economics Questions – Business 225

6) Which of the following statements best characterizes the disagreements be-

;tween Paul Samuelson and Jagdish Bhagwati in their debate about outsourc-

;ing?

a. Their disagreements are grounded in normative economic analysis. They dis-

;agree over how to interpret the relevant economic statistics.

b. Their disagreements are grounded in positive economic analysis. They dis-

;agree about the relevant economic statistics used in the model.

c. Their disagreements are grounded in normative economic analysis. They dis-

;agree over the types of jobs lost to outsourcing.

d. Their disagreements are grounded in positive economic analysis. They dis-

;agree about the model and the assumptions used in the model. ;

22) Although it is a popular product, Apple makes little profit from each song

;downloaded through iTunes. Why does Apple charge only $0.99 to download

;a song?

a. Although Apple makes a small amount of profit per song, total profit is large

;because the quantity sold is large.

b. The low price makes it more likely that consumers will buy iPods, which are

;relatively expensive.

c. Apple plans to increase the price of downloading songs after it sells a large

;enough number of iPods.

d. Apple cannot raise the price above $0.99 per song because consumers can

;download songs at even lower prices from Apple’s competitors. ;

;

44) You have a bond that pays $60 per year in coupon payments. Which of the

;following would result in an increase in the price of your bond?

a. The price of a share of stock in the company falls.

b. The likelihood that the firm issuing your bond will default on debt increases.

c. Coupon payments on newly-issued bonds fall to $50 per year.

d. Coupon payments on newly-issued bonds rise to $80 per year.

45) In June 2007 General Motors (GM) posted a price-earnings ratio of 9.84. If

;the price of the stock at that time was $36 per share, which of the following

;must have been true?

a. GM’s earnings per share was 3.66.

b. GM’s coupon payment was $35 per year.

c. GM’s dividend yield for the year was 26%.

d. GM’s revenues that month were $366 million.

46) In 2007, the dividend yield on General Motors (GM) stock fell from 8.6% to

;4.4%. Which of the following would have generated that result?

a. The price-earnings ratio rose.

b. GM issued bonds with a coupon rate equal to 8%.

c. GM announced a decrease in the dividend it would pay per share.

d. The closing price of GM stock fell. ;

63) When a firm’s long-run average cost curve is horizontal for a range of output,

;then in that range production displays

a. constant average fixed costs.

b. increasing returns to scale.

c. constant returns to scale.

d. decreasing returns to scale.

67) A perfectly competitive market is in long-run equilibrium. At present there are

;100 identical firms each producing 5,000 units of output. The prevailing

;market price is $20. Assume that each firm faces increasing marginal cost.

;Now suppose there is a sudden increase in demand for the industry’s product

;which causes the price of the good to rise to $24. Which of the following

;describes the effect of this increase in demand on a typical firm in the indus-

;try?

a. In the short run the typical firm increases its output and makes an above

;normal profit.

b. In the short run the typical firm’s output remains the same but because of the

;higher price its profit increases.

c. In the short run the typical firm increases its output but its total cost also

;rises. Hence, the effect on the firm’s profit cannot be determined without

;more information.

d. In the short run the typical firm increases its output but its total cost also

;rises, resulting in no change in profit. ;

69) According to Craig Johnson, president of retail consulting group Customer

;Growth Partners “Wal-Mart’s foray into organics should help to bring down

;prices for consumers.” Which of the following statements supports Mr.

;Johnson’s argument?

a. Wal-Mart has a reputation for deliberately lowering prices to force its

;competitors out of the market.

b. Wal-Mart is large enough that it can successfully pressure the U.S.

;Department of Agriculture to force organic food farmers to lower their prices.

c. By expanding the organic market, Wal-Mart would bring in economies of scale

;that would, when added to a competitive market, drive down prices.

d. Wal-Mart’s core customer base is the low-income consumer. Therefore, to

;compete for this customer group organic food farmers will be compelled to

;lower prices.

71) Microsoft thought that the initial Xbox was sufficiently different from PS2

;that it could charge a significantly higher price for the Xbox than Sony could

;charge for PS2. Which of the following statements is implied by Microsoft’s

;product positioning?

a. Microsoft recognized that the PS2 was a substitute for the Xbox but believed

;that the Microsoft name would be sufficient to draw customers away from the

;PS2 and that customers would be willing to pay a premium for Microsoft’s

;product.

b. Microsoft believed that the PS2 would soon be phased out by Sony’s PS3;

;therefore, it could charge a high price for the Xbox because it had no close

;substitutes.

c. Microsoft believed that the PS2 was a distant substitute for the Xbox and

;therefore the demand curve for Xbox would be elastic. Charging a higher price

;would enable it to increase its profits.

d. Microsoft believed that it had differentiated the Xbox sufficiently to insulate

;it from competition. Consequently, it would be able to charge a higher price

;and increase its profits.

76) A major difference between monopolistic competition and perfect competi-

;tion is that

a. there are barriers to entry in monopolistic competition. There are no barriers

;to entry in perfectly competitive markets.

b. monopolistically competitive firms sell differentiated products. Perfectly

;competitive firms sell identical products.

c. government regulation restricts the ability of monopolistically competitive

;firms to change their prices. Perfectly competitive firms face no price regula-

;tion.

d. the market demand curve in a monopolistically competitive market slopes

;downward. The market demand curve in a perfectly competitive market is

;horizontal. ;

79) At the peak of its success in the mid-1980s to the early 1990s, Apple Com-

;puter had a 15 percent share of the personal computer market. In 2007

;Apple’s share of the growing personal computer market was estimated at 6

;percent. Which of the following best accounts for this decline in market

;share?

a. The entry of rivals eliminated Apple’s product differentiation.

b. Apple was not able to keep up with technological advancements in the per-

;sonal computer market.

c. The entry of rivals revealed that Apple was producing sub-standard comput-

;ers.

d. Rivals engaged in predatory pricing but Apple was not willing to engage in a

;price war. ;

98) Why does the short-run aggregate supply curve shift to the left in the long

;run, following an increase in aggregate demand?

a. Workers and firms adjust their expectations of wages and prices upward and

;they push for higher wages and prices.

b. Workers and firms adjust their expectations of wages and prices upward and

;they accept lower wages and prices.

c. Workers and firms adjust their expectations of wages and prices downward

;and they accept lower wages and prices.

d. Workers and firms adjust their expectations of wages and prices downward

;and they push for higher wages and prices.