De La Salle Lipa

College of Business, Economics, Accountancy and Management

Accountancy Department
Management Advisory Services

ECONOMICS

1. If both the supply and the demand for a good increase, the market price will
a. Rise only in the case of an inelastic supply function. c. Not be predictable with only these facts.
b. Fall only in the case of an inelastic supply function. d. Rise only in the case of an inelastic demand function.

2. A supply curve illustrates the relationship between

a. Price and quantity supplied c. Price and quantity demanded
b. Price and consumer taste d. Supply and demand

3. As a business owner you have to determine that the demand for your product is inelastic. Based upon this assessment you
understand that
a. Increasing the price of your product will increase total revenue
b. Decreasing the price of your product will increase total revenue
c. Increasing the price of your product will have no effect on total revenue
d. Increasing the price of your product will increase competition

4. Which one of the following has an inverse relationship with the demand for money?
a. Aggregate Income c. Interest rates
b. Price levels d. Flow of funds

5. An improvement in technology that in turn leads to improved worker productivity would most likely result in
a. A shift to the right in the supply curve and lowering of the price of the output.
b. A shift to the left in the supply curve and lowering of the price of the output.
c. An increase in the price of the output if demand is unchanged.
d. Wage increases.

6. Which of the following market features is likely to cause a surplus of a particular product?
a. A monopoly c. A price ceiling
b. A price floor d. A perfect market

7. A decrease in the price of a complementary good will

a. shift the demand curve of the joint commodity to the left
b. increase the price paid for a substitute good
c. shift the supply curve of the joint commodity to the right
d. shift the demand curve of the joint commodity to the right

8. Demand for a product tends to be elastic if

a. the product is considered a luxury item c. the population in the market area is large
b. few good complements for the product are available d. people spend a large share of their income on the product

9. Which of the following hast the highest price elasticity coefficient

a. Milk c. Bread
b. Macaroni and cheese d. Ski boat

10. The local video store’s business increased by 12 % after the movie theater raised its process P65 to P70. Thus, relative to
movie theater admissions, videos are
a. substitute goods c. complementary goods
b. superior goods d. public goods

11. An individual receives an income of P3,000 per month, and spends P2,500. An increase in income of P500 per month occurs,
and the individual spends P2,800. The individual’s marginal propensity to save is
a. 0.2 c. 0.6
b. 0.4 d. 0.8

12. In any competitive market, an equal increase in both demand and supply can be expected to always
a. increase both price and market-clearing quantity
b. decrease both price and market-clearing quantity
c. increase market-clearing quantity
d. increase price

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13. Given the following data, what is the marginal propensity to consume?
Level of
Disposable income Consumption
P40,000 P38,000
48,000 44,000

a. 1.33 c. 0.95
b. 1.16 d. 0.75

14. Which of the following will cause a shift in the supply curve of a product?
a. Changes in the prices of the product c. Changes in consumer taxes
b. Changes in production taxes d. Changes in the number of buyers in the market

15. When the government imposes health and safety regulations on certain products, one of the most likely results is
a. greater consumption of the product c. greater tax revenues for the government
b. lower prices for the product d. higher prices for the product

16. In which of the following situations would there be inelastic demand?

a. A 5% price increase results in 3% decrease in the quantity demanded.
b. A 4% price increase results in 6% decrease in the quantity demanded.
c. A 4% price increase results in 4% decrease in the quantity demanded.
d. A 3% price decrease results in 5% decrease in the quantity demanded.

17. In a competitive market for labor in which demand is stable, if workers try to increase their wage
a. employment must fall
b. government must set a maximum wage below the equilibrium wage
c. firms in the industry must become smaller
d. product supply must decrease

18. A polluting manufacturing firm tens, from the societal viewpoint, to

a. price its products too low c. report too little profitability
b. produce too little profitability d. employ too little equity financing

19. If the government regulated a product or service in a competitive market by setting a maximum price below the equilibrium
price, what is the ling-run effect?
a. A surplus c. A shortage
b. A decrease in demand d. No effect on the market

20. A valid reason for the government to intervene in the wholesale electrical power market would include which one of the
following?
a. A price increase that is more than expected.
b. Electricity is an essential resource and the wholesale market is not competitive.
c. The electricity distribution companies are losing money.
d. Foreign power generators have contracts with the local government at very high prices.

21. If the income elasticity of demand coefficient for particular product is 3.00, the good is likely
a. A luxury good c. A complementary good
b. An inferior good d. A necessity

22. Which one of the following would cause the demand curve for a commodity to shift to the left?
a. A rise in the price of a substitute product.
b. A rise in average household income.
c. A rise in the price of a complementary commodity.
d. A rise in the population.

23. Price ceilings

a. are illustrated by government price support programs in agriculture
b. create process greater than equilibrium prices
c. create prices below equilibrium prices
d. result in persistent surpluses

24. X and Y are substitute products. If the price of the product Y increases, the immediate impact o product X is
a. price will increases c. quantity supplied will increase
b. quantity demanded will increase d. price, quantity demanded, and supply will increase

25. Wilson Corporation has a major competitor that produces a product that is close substitute for Wilson’s good. If the coefficient
of cross-elasticity of demand for Wilson’s product with respect to the competitor’s product is 2.00 and the competitor decreases its
price by 5%, what is the expected effect on demand for Wilson’s product?
a. A 5% increase in demand c. A 5% decrease in demand
b. A 10% increase in demand d. A 10% decrease in demand

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26. If a group of consumers decide to boycott a particular product, the expected result would be
a. An increase in the product price to make up lost revenue
b. An decrease in the demand for the product
c. An increase in the product supply because of increased availability
d. That demand for the product would become completely inelastic

27. Which of the following is not likely to affect the supply of a particular good?
a. Changes in government subsidies c. Changes in consumer income
b. Changes in technology d. Changes in production costs

28. If a product’s demand is elastic and there is decrease in price, the effect will be
a. a decrease in total revenue c. A decrease in total revenue and the demand curve shifts to the left
b. no change in total revenue d. An increase in total revenue

29. All of the following are complementary goods except

a. Margarine and butter c. VCRs and video cassettes
b. Cameras and rolls of the film d. Razors and razor blades

30. The law of diminishing marginal utility states that

a. Marginal utility will decline as a consumer acquires additional units of a specific product
b. Total utility decline as a consumer acquires additional units of a specific product
c. Declining utilities causes the demand curve to slope upward
d. Consumers’ wants will diminish with the passage of time

31. In the pharmaceutical industry where a diabetic must have insulin no matter the cost and where there is mother substitute, the
diabetic’s demand curve is best described as
a. Perfectly elastic c. Perfectly inelastic
b. Elastic d. Inelastic

32. Because of the existence of economies of scale, business firms may find that
a. Each additional unit of labor is less efficient than the previous unit
b. As more labor is added to a factory, increases in output will diminish in the short run
c. Increasing the size of a factory will result in lower average costs
d. Increasing the size of a factory will result in lower total costs

33. In the long run, a firm may experience increasing returns due to
a. Law of diminishing returns c. Comparative advantage
b. Opportunity cists d. Economies of scale

34. The measurement of the benefit lost by using resources for a given purpose is
a. Economic efficiency c. Comparative advantage
b. Opportunity costs d. Absolute advantage

35. Marginal revenue is

a. Equal to price in monopolistic competition
b. The change in total revenue associated with increasing prices
c. Greater than price in pure competition
d. The change in total revenue associated with producing and selling one more unit

36. In microeconomics, the distinguishing characteristic of the long run on the supply side is that
a. Only supply factors determine price and output
b. Only demand factors determine price and output
c. Firms are not allowed to enter or exit the industry
d. All inputs are variable

37. What is the main factor that differentiates the short-run cost function from the long-run cost function?
a. Nothing, two functions are identical c. Changes in government subsidies
b. The level of technology d. The nature of the costs

38. If consumer confidence falls, the impact upon the economy is

a. A downturn c. An upturn
b. No change d. Consumer confidence does not have an impact upon the economy

39. During the recessionary phase of a business cycle

a. The purchasing power of money is likely to decline rapidly
b. The natural rate of unemployment will increase dramatically
c. Potential national income will exceed actual national income
d. Actual national income will exceed potential national income

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40. For a given level of tax collections, prices, and interest rates a decrease in governmental purchases will result in a(n)
a. Increase in aggregate demand c. Decrease in aggregate demand
b. Increase in aggregate supply d. Decrease in aggregate supply

41. In national income terms, aggregate demand is the

a. Demand for money by the community in a period of full employment
b. Total expenditure on capital goods by entrepreneurs during a period of full employment
c. Demand that is needed if a country’s economy is to operate at optimum level and the level of investment is to be raised
d. Total expenditures on consumer goods and investment; including government and foreign expenditures, during a given period

42. Which of the following would not be included in the calculation of the gross domestic product?
a. Purchase of a new home c. A doctors fee
b. An automotive worker’s wages d. Purchase of common stock

43. An upturn in economic activity is indicated by all of the following, except

a. Increased housing starts c. Increase in personal travel
b. Reduction in the quantity of unemployment claims d. Reduction in the amount of luxury purchases

44. Which of the following may provide a leading indicator of a future increase in gross domestic product?
a. A reduction in the money supply
b. A decrease in the issuance of building permits
c. An increase in the timeliness of delivery by vendors
d. An increase in the average hours worked per week of production workers

45. Which one of the following statements about leading economic indicators is not true?
a. For forecasting purposes, several variables are monitored and weighted- average is referred to as the index of leading indicators
b. The index of leading indicators has historically been very accurate
c. The use of the index of leading indicators involves monitoring the data on a monthly basis
d. As the nature of the economy has changed, I has been necessary to revise the components of the index of leading indicators

46. Disposable income is calculated as

a. Gross domestic product minus the capital cost allowance
b. Net domestic product minus indirect business taxes plus net income earned abroad
c. Personal income minus transfer payments
d. Personal income minus personal taxes

47. The primary reason for allowing legal immigration into industrial nations is the immigrants potential for
a. Reducing a trade deficit c. Contributing to economic growth
b. Fulfilling a trade agreement d. Fulfilling a political agreement

48. Some economic indicators lead the economy into a recovery or recession and some lag it. An example of a lagging indicator is
a. Chronic unemployment c. Orders for consumer and producer goods
b. Housing starts d. Consumer expectations

49. Government borrowing to finance large deficits increases the demand for lendable funds and
a. Increases the supply of lendable funds c. Exerts downward pressure on interest rates
b. Has no impact on interests d. Puts upward pressure on interest rates

50. A period of rising inflation

a. Increases the price level, which benefits those who are entitled to receive specific amounts of money
b. Enhances the positive relationship between the price level and the purchasing power of money.
c. Will not be affected by contracts that include the indexing of payments
d. Increases the price level, which is negatively related to the purchasing power of money

51. The most effective fiscal polity program to help reduce demand-pull inflation would be to
a. Decrease the rate of growth of the money supply c. Decrease taxes and increase government spending
b. Increase both taxes and government spending d. Increase taxes and decrease government spending

52. The money supply in a nation’s economy will decrease following

a. Open-market purchases by the nation’s central bank c. An increase in the reserve ratio
b. A decrease in the discount rate d. A decrease in the margin requirement

53. According to fiscal policy principles, a tax increase will

a. Increase spending and increase aggregate demand c. Reduce spending and increase aggregate demand
b. Increase spending and reduce aggregate demand d. Reduce spending and reduce aggregate demand

54. Which of the following instruments of monetary policy is the most important means by which the money supply is controlled?
a. Changing the reserve ratio c. Manipulation of government spending
b. Open-market operations d. Changing the discount rate

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55. If a government were to use only fiscal policy to stimulate the economy from a recession, it would
a. Raise consumer taxes and increase government spending
b. Lower business taxes and government spending
c. Increase the money supply and increase government spending
d. Lower consumer taxes and increase government spending

56. The national budget deficit is the

a. Total accumulation of the national government’s surpluses and deficits
b. Excess national and local spending over their revenues
c. Amount by which the national government’s expenditures exceed its revenues in a given year
d. Amount by which liabilities exceed assets on the national government’s balance sheet

57. Which of the following is a tool of monetary policies that a nations’ central bank could use to stabilize the economy during an
inflationary period?
a. Selling government securities c. Lowering bank discount rates
b. Lowering bank reserve requirements d. Encouraging higher tax rates

58. Economists and economic policy makers are interested in the multiplier effect because the multiplier explains why
a. A small change in investment can have a much larger impact on gross domestic product
b. Consumption is always a multiple of savings
c. The money supply increases when deposits in the bank system increase
d. The velocity of money is less than one.

59. Assume that the Congress passes a tax bill that provides for a “rebate” to taxpayers. One the goals of the debate is
a. Increase consumer disposable income and expand the economy
b. Increase consumer disposable income and contract the economy
c. Decrease in Increase consumer disposable income and expand the economy
d. Increase consumer disposable income and expand the economy

60. The rate of unemployment caused by changes in the composition of unemployment opportunities over time is referred to as the
a. Frictional unemployment rate c. Cyclical unemployment rate
b. Structural unemployment rate d. Full-employment unemployment rate

61. The producer price index measures

a. The price of a basket of commodities at the point of the first commercial sale
b. Price changes for all products sold by domestic producers to foreigners
c. Price changes of goods purchased for other countries
d. The price of a fixed market basket of goods and services purchased by atypical urban consumers

62. Which of the following is true about deflation?

a. It motivates consumers to borrow money c. It results in very low interest rates
b. It motivates businesses to make investments d. It results in economic expansion

63. Economies often experience inflation but seldom experience long period of deflation. Which of the following is true about a
deflationary economy?
a. Companies are hesitant to make investments c. Interest rates tend to be high
b. The lower prices encourage consumers to make purchases d. Actual GDP is above potential GDP

64. What factors explains the difference between real and nominal interest rates?
a. Inflation risk c. Default risk
b. Credit risk d. Market risk

65. All of the following are true about international trade except that
a. The gains from international trade depend on specialization with comparative advantage
b. Absolute advantage without comparative advantage does not result in gains from international trade
c. Absolute advantage is defined as the ability of one nation to produce a product a relatively opportunity cost than other nation
d. Where there is a reciprocal absolute advantage between two countries, specialization will make it possible to produce more of
each product

66. It the central bank of a country raises interest rates sharply, the country’s currency will most likely
a. increase in relative value c. decrease in relative value
b. remained unchanged in value d. decrease sharply in value at first and then return to its initial value

67. Which one of the following groups would be the primary beneficiary of a tariff?
a. Domestic producers of export goods c. Domestic producers of goods protected by the tariff
b. Domestic consumers of goods protected by the tariff d. Foreign producers of goods protected by the tariff

68. In the law of comparative advantage, the country which should produce a specific product is determined by
a. Opportunity costs c. Economic order quantities
b. Profit margins d. Tariffs

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69. Assuming exchange rates are allowed to fluctuate freely, which one of the following factors would likely cause a nation’s
currency to appreciate on the foreign exchange market?
a. A relatively rapid rate of growth income that stimulates imports
b. A high rate of inflation relative to other countries
c. A slower rate of growth in income than in other countries, which causes imports to lag behind exports
d. Domestic real interest rates that are lower than real interest rates abroad

70. Exchange rates are determined by

a. Each industrial country’s government
b. The International Monetary Fund
c. Supply and demand in the foreign currency market
d. Exporters and importers of manufactured goods

71. Which of the following measures creates the most restrictive barrier to exporting to a country?
a. Tariffs c. Embargoes
b. Quotas d. Exchange controls

72. When net exports are negative, there is a net flow of

a. Goods from firms in foreign countries to the domestic country
b. Money from foreign countries to the firms of domestic country
c. Goods from firms in domestic country to the foreign country
d. Goods and services which results in a trade surplus

73. Which of the following factors is least likely to affect a country’s foreign currency exchange rates?
a. Interest rates in the country c. Political stability in the country
b. Inflation in the country d. The tax rate in the country

74. Patents are granted in order to encourage firms to invest in the research and development of new products. Patents are an
example of
a. Vertical integration c. Entry barriers
b. Market concentration d. Collusion

75. The distinguishing characteristic of oligopolistic market is

a. A single seller of a homogeneous product with no close substitutes
b. A single seller of a heterogeneous product with no close substitutes
c. Lack of entry and exit barriers in the industry
d. Mutual interdependence of firm pricing and output decisions

76. Economic markets that are characterized by monopolistic competition have all the following characteristic except
a. One seller of the product c. Advertising
b. Economies or diseconomies of scale d. Heterogeneous products

77. Which type of economic market structure is characterized by a few large sellers of a product or service, engaging primarily in
non-price competition?
a. Monopoly c. Perfect competition
b. Oligopoly d. Monopolistic competition

78. Which type of economic market structure is composed of a large number of sellers, each producing an identical product, and
with no significant barriers to entry and exit?
a. Monopoly c. Perfect competition
b. Oligopoly d. Monopolistic competition

79. A natural monopoly exists because

a. The firm owns natural resources
b. The firms hold patents
c. Economic and technical conditions permit only one efficient supplier
d. The government is the only supplier

80. A market with many independent firms, low barriers to entry, and product differentiation is best classified as
a. A monopoly c. Monopolistic competition
b. A natural monopoly d. An oligopoly

81. Which of the following is not a key assumption of perfect competition?

a. Firms sell a homogeneous product
b. Customers are indifferent about which firm they buy from
c. The level of a firm’s output is small relative to the industry’s total output
d. Each firm can price its product above the industry price

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82. The ultimate purpose of competitor analysis is to
a. identify the competition
b. determine the competitor’s strength and weaknesses
c. identify the competition’s major customers
d. understand and predict the behavior of the competition

83. Which of the following is not an important aspect of supply chain management?
a. Information technology c. Customer relations
b. Accurate forecasts d. Communications

84. Which of the following types of organizations would more likely engage in public relations type advertising?
a. An airline c. A hotel chain
b. A toy manufacturer d. An electric utility company

85. Target marketing analysis involves

a. Analyzing the firm’s input markets
b. Understanding and segmenting the firm’s customer markets
c. Analyzing the firm’s market structure
d. Declining on whether to offer a new product line

86. If a firm’s customers are businesses, market segmentation might be performed along all of the following dimensions, except
a. Industry c. Lifestyle
b. Location d. Size

87. Which of the following is a defining characteristic supply chain management?

a. Focuses on the sharing of information with suppliers and customers
b. Focuses on redesigning processes
c. Focuses on improving quality
d. Focuses on strategic alliances

88. Which of the following is not likely strategy for a firm in a purely competitive market?
a. Lean manufacturing c. Process reengineering
b. Supply chain management d. Development of a brand name

89. What is the purpose of a response profile in competitor analysis?

a. To develop an understanding of the firm’s industry
b. To analyze the firm’s strengths in relation to its competitors
c. To identify possible actions by competitors
d. To understand the nature of the firm’s major markets

90. The process of dividing all potential consumers into smaller groups of buyers with distinct needs, characteristics, or behaviors,
who might require a similar product or service mix, is called
a. Strategic planning c. Product positioning
b. Market segmentation d. Objective setting

91. Which of the following measures of unemployment would be of least importance to management when trying to predict the
future state of the economy?
a. Structural unemployment c. Frictional unemployment
b. Cyclical unemployment d. Overall unemployment

92. An oligopolist faces a ‘kinked” demand curve. This terminology indicates that
a. When an oligopolist lowers its price, the other firms in the oligopoly will match the price reduction, but if the oligopolist raises
its price, the other firms will ignore the price change
b. An oligopolist faces a nonlinear demand for its product, and price changes will have little effect on demand for that product
c. An oligopolist can sell its product at any price, but after the “saturation point” another oligopolist will lower its price and
therefore, shift the demand curve to the left.
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

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