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MANAGEMENT ADVISORY SERVICES ABELEDA/BOBADILLA/URO

MAS.1 Economics OCTOBER 2013
MULTIPLE CHOICE
1. If both the supply and the demand for a d. shift the demand curve of the joint
good increase, the market price will commodity to the right
a. Rise only in the case of an inelastic
supply function. 8. Demand for a product tends to be price
b. Fall only in the case of an inelastic inelastic if
supply function. a. the product is considered a luxury item
c. Not be predictable with only these facts. b. few good complements for the product
d. Rise only in the case of an inelastic are available
demand function. c. the population in the market area is
large
2. A supply curve illustrates the d. people spend a large share of their
relationship between income on the product
a. Price and quantity supplied
b. Price and consumer tastes 9. Which of the following has the highest price
c. Price and quantity demanded elasticity coefficient?
d. Supply and demand a. Milk
b. Macaroni and cheese
3. As a business owner you have determined c. Bread
that the demand for your product is inelastic. d. Ski boats
Based upon this assessment you understand
that 10. The local video store’s business increased
a. Increasing the price of your product will by 12% after the movie theater raised its
increase total revenue prices
b. Decreasing the price of your product from P65 to P70. Thus, relative to movie
will increase total revenue theater admissions, videos are
c. Increasing the price of your product a. substitute goods
will have no effect on total revenue b. superior goods
d. Increasing the price of your product c. complementary goods
will increase competition d. public goods

4. . Which one of the following has an inverse 11. An individual receives an income of P3,000
relationship with the demand for money? per month, and spends P2,500. An
a. Aggregate income increase in income of P500 per month
b. Interest rates occurs, and the individual spends P2,800.
c. Flow of funds The individual’s marginal propensity to
d. Price levels save is
a. 0.2 c. 0.6
5. An improvement in technology that in turn b. 0.4 d. 0.8
leads to improved worker productivity would
most likely result in 12. In any competitive market, an equal
a. A shift to the right in the supply curve increase in both demand and supply can be
and a lowering of the price of the expected to always
output. a. increase both price and market-clearing
b. A shift to the left in the supply curve quantity
and a lowering of the price of the b. decrease both price and market-
output. clearing quantity
c. An increase in the price of the output if c. increase market-clearing quantity
demand is unchanged. d. increase price
d. Wage increases.
13. Given the following data, what is the
6. Which of the following market features is marginal propensity to consume?
likely to cause a surplus of a particular Level of
product? Disposable income Consumption
a. A monopoly c. A price P40,000 P38,000
ceiling 48,000 44,000
b. A price floor d. A perfect a. 1.33 c. 0.95
market b. 1.16 d. 0.75

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

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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
b. lower prices for the product
c. greater tax revenues for the
government
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 a 6%
decrease in the quantity demanded.
c. A 4% price increase results in a 4%
decrease in the quantity demanded.
d. A 3% price decrease results in 5%
increase 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 tends, from
the societal viewpoint, to
a. price its products too low
b. produce too little output
c. report too little profitability
d. employ too little equity financing
19. If the government regulates a product or
service in a competitive market by setting a
maximum price below the equilibrium price,
what is the long-run effect?
a. A surplus
b. A decrease in demand
c. A shortage
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 a particular product is 3.00,
the good is likely
a. A luxury good
b. An inferior good
c. A complementary good
d. A necessity
22. Which one of the following would cause
the demand curve for a commodity to shift
to the left?
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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 prices 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 product Y increases, the immediate
impact on product X is
a. price will increase
b. quantity demanded will increase
c. quantity supplied will increase
d. price, quantity demanded, and supply
will increase
25. Wilson Corporation has a major competitor
that produces a product that is a 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
b. A 10% increase in demand
c. A 5% decrease in demand
d. A 10% decrease in demand
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. A decrease in the demand for the
product
c. An increase in 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.
b. Changes in technology
c. Changes in consumer income
d. Changes in production costs
28. If a product’s demand is elastic and there
is a decrease in price, the effect will be
a. a decrease in total revenue
b. No change in total revenue
c. A decrease in total revenue and the
demand curve shifts to the left
d. An increase in total revenue
29. All of the following are complementary
goods except
a. margarine and butter
b. Cameras and rolls of film
c. VCRs and video cassettes
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 no other
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
b. Opportunity costs
c. Comparative advantage
d. Economies of scale
34. The measurement of the benefit lost by
using resources for a given purpose is
a. Economic efficiency
b. Opportunity costs
c. Comparative advantage
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?
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a. Nothing, the two functions are identical
b. The level of technology
c. Changes in government subsidies
d. The nature of the costs
38. If consumer confidence falls, the impact
upon the economy is
a. A downturn
b. No change
c. An upturn
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
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
b. Increase in aggregate supply
c. Decrease in aggregate demand
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 one of the following would not be
included in the calculation of the gross
domestic product?
a. Purchase of a new home
b. An automotive worker’s wages
c. A doctor’s fee
d. Purchase of common stock
43. An upturn in economic activity is indicated
by all of the following, except
a. Increased housing starts
b. Reduction in the quantity of
unemployment claims
c. Increase in personal travel
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 help reduce demand-pull inflation would be
d. An increase in the average hours to
worked per week of production workers a. Decrease the rate of growth of the
money supply
45. Which one of the following statements b. Increase both taxes and government
about leading economic indicators is not spending
true? c. Decrease taxes and increase
a. For forecasting purposes, several government spending
variables are monitored and weighted- d. Increase taxes and decrease
average is referred to as the index of government spending
leading indicators e.
b. The index of leading indicators has 52. The money supply in a nation’s economy
historically been very accurate will decrease following
c. The use of the index of leading a. Open-market purchases by the nation’s
indicators involves monitoring the data central bank
on a monthly basis b. A decrease in the discount rate
d. As the nature of the economy has c. An increase in the reserve ratio
changed, it has been necessary to d. A decrease in the margin requirement
revise the components of the index of
leading indicators 53. According to fiscal policy principles, a tax
increase will
46. Disposable income is calculated as a. Increase spending and increase
a. Gross domestic product minus the aggregate demand
capital cost allowance b. Increase spending and reduce
b. Net domestic product minus indirect aggregate demand
business taxes plus net income earned c. Reduce spending and increase
abroad aggregate demand
c. Personal income minus transfer d. Reduce spending and reduce aggregate
payments demand
d. Personal income minus personal taxes
54. Which of the following instruments of
47. The primary reason for allowing legal monetary policy is the most important
immigration into industrial nations is the means by which the money supply is
immigrants’ potential for controlled?
a. Reducing a trade deficit a. Changing the reserve ratio
b. Fulfilling a trade agreement b. Open-market operations
c. Contributing to economic growth c. Manipulation of government spending
d. Fulfilling a political agreement d. Changing the discount rate

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
b. Housing starts
c. Orders for consumer and producer
goods
d. Consumer expectations
49. Government borrowing to finance large
deficits increases the demand for lendable
funds and
a. Increases the supply of lendable funds
b. Has no impact on interests
c. Exerts downward pressure on interest
rates
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
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
policy that a nation’s central bank could
use to stabilize the economy during an
inflationary period?
a. Selling government securities
b. Lowering bank reserve requirements
c. Lowering bank discount rates
d. Encouraging higher tax rates

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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 banking 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 rebate is
a. Increase consumer disposable income
and expand the economy
b. Increase consumer disposable and
contract the economy
c. Decrease consumer disposable income
and expand the economy
d. Increase consumer disposable income
and contract 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
b. Structural unemployment rate
c. Cyclical 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 a
typical urban consumers
62. Which of the following is true about
deflation?
a. It motivates consumers to borrow
money
b. It motivates businesses to make
investments
c. It results in very low interest rates
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
b. The lower prices encourage consumers
to make major purchases
c. Interest rates tend to be high
d. Actual GDP is above potential GDP
64. What factors explains the difference
between real and nominal interest rates?
a. Inflation risk
b. Credit risk
c. Default risk
d. Market risk
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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 lower 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. If the central bank of a country raises
interest rates sharply, the country’s
currency will most likely
a. . increase in relative value
b. remain unchanged in value
c. decrease in relative 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
b. Domestic producers of goods protected
by the tariff
c. 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
b. Profit margins
c. Economic order quantities
d. Tariffs
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 in
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 permit only one efficient supplier
d. Exchange controls d. The government is the only supplier

72. When net exports are negative, there is a 80. A market with many independent firms,
net flow of low barriers to entry, and product
a. Goods from firms in foreign countries differentiation is best classified as
to the domestic country a. a monopoly
b. Money from foreign countries to the b. a natural monopoly
firms of the domestic country c. Monopolistic competition
c. Goods from the firms of the domestic d. an oligopoly
country to foreign country
d. Goods and services which result in a 81. Which of the following is not a key
trade surplus assumption of perfect competition?
a. Firms sell a homogeneous product
73. Which of the following factors is least b. Customers are indifferent about which
likely to affect a country’s foreign currency firm they buy from
exchange rates? c. The level of a firm’s output is small
a. Interest rates in the country relative to the industry’s total output
b. Inflation in the country d. Each firm can price its product above
c. Political stability in the country the industry price
d. The tax rate in the country
82. The ultimate purpose of competitor
74. Patents are granted in order to encourage analysis is to
firms to invest in the research and a. identify the competition
development of new products. Patents are an b. determine the competition’s strength
example of and weaknesses
a. Vertical integration c. Entry c. identify the competition’s major
barriers customers
b. market concentration d. Collusion d. understand and predict the behavior of
the competition
75. The distinguishing characteristic of
oligopolistic market is 83. Which of the following is not an important
a. A single seller of a homogeneous aspect of supply chain management?
product with no close substitutes a. Information technology
b. A single seller of a heterogeneous b. Accurate forecasts
product with no close substitutes c. Customer relations
c. Lack of entry and exit barriers in the d. Communications
industry
d. Mutual interdependence of firm pricing 84. Which of the following types of
and output decisions organizations would more likely engage in
public relations type advertising?
76. Economic markets that are characterized a. An airline
by monopolistic competition have all of the b. a toy manufacturer
following characteristic except c. A hotel chain
a. One seller of the product d. An electric utility company
b. Economies or diseconomies of scale
c. Advertising 85. Target marketing analysis involves
d. Heterogeneous products a. Analyzing the firm’s input markets
b. Understanding and segmenting the
77. Which type of economic market structure is firm’s customer markets
characterized by a few large sellers of a c. Analyzing the firm’s market structure
product or service, engaging primarily in d. Deciding on whether to offer a new
nonprice competition? product line
a. Monopoly
b. Oligopoly 86. If a firm’s customers are businesses,
c. Perfect competition market segmentation might be performed
d. Monopolistic competition along all of the following dimensions,
except
78. Which type of economic market structure is a. Industry c. Lifestyle
composed of a large number of sellers, b. Location d. Size
each producing an identical product, and
with no significant barriers to entry and 87. Which of the following is a defining
exit? characteristic of supply chain
a. Monopoly management?
b. Perfect competition a. Focuses on the sharing of information
c. Oligopoly with suppliers and customers.
d. Monopolistic competition b. Focuses on redesigning processes
c. Focuses on improving quality
79. A natural monopoly exists because d. Focuses on strategic alliances
a. The firm owns natural resources
b. The firms hold patents 88. Which of the following is not a likely
c. Economic and technical conditions strategy for a firm in a purely competitive

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 market? 92. An oligopolist faces a “kinked” demand
a. Lean manufacturing curve. This terminology indicates that
b. Supply chain management a. When an oligopolist lowers its price,
c. Process reengineering the other firms in the oligopoly will
d. Development of a brand name match the price reduction, but if the
oligopolist raises its price, the other
firms will ignore the price change
89. What is the purpose of a response profile in b. An oligopolist faces a nonlinear
competitor analysis? demand for its product, and price
a. To develop an understanding of the changes will have little effect on
firm’s industry demand for that product
b. To analyze the firm’s strengths in c. An oligopolist can sell its product at
relation to its competitors any price, but after the “saturation
c. To identify possible actions by point” another oligopolist will lower its
competitors price and, therefore, shift the demand
d. To understand the nature of the firm’s curve to the left
major markets d. Consumers have no effect on the
demand curve, and an oligopolist can
90. The process of dividing all potential shape the curve to optimize its own
consumers into smaller groups of buyers efficiency
with distinct needs, characteristics, or
behaviors, who might require a similar 93. Which of the following best describes the
product or service mix, is called steps involved in performing competitor
a. Strategic planning c. Product analysis?
positioning a. Gathering information about the
b. Market segmentation d. Objective competitor and using it to predict the
setting competitor’s behavior
b. Determining the type of market
91. Which of the following measures of structure and the number of
unemployment would be of least competitors
importance to management when trying to c. Assessing the general environment and
predict the future state of the economy? determining how that affects
a. Structural unemployment competition
b. Cyclical unemployment d. Assessing the market structure to
c. Frictional unemployment predict when new competitors will
d. Overall unemployment enter the market

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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
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