Page 1 of 126 1 IVY SOFTWARE MBA PREPWORKS FUNDAMENTALS OF ECONOMICS EXAM ACTUAL EXAM QUESTIONS AND ANSWERS 2024 -2025 TEST BANK IVY SOFTWARE MBA PREPWORKS FUNDAMENTALS OF ECONOMICS EXAM 1 Consider market for pork, suppose that price of beef, a substitute for pork, increases. Because of the change in price of beef, the equilibrium price of pork...? - ANSWER -Increases Consider the market for pork, suppose that the price of beef, a substitute for pork, increases. Because of this change in the price of beef, the equilibrium quantity of pork will...? - ANSWER -
Increase because increase in price of beef caus es demand curve for pork to shift North East. B/c of this shift, the equilibrium quantity of pork will increase . Consider the market for pork. Suppose that the price of hog feed, an input to the production of pork, increases. Because of that change in the price of hog feed, the equilibrium quantity of pork ...? - ANSWER -Decreases because the increase in price of hog feed causes the supply curve for pork to shift NW. B/c of this shift, the quantity of pork decreases. Consider the market for pork. Suppose t hat disposable income increases and pork is an inferior good. Because of that change in income, the equilibrium price of pork...? - ANSWER -Decreases because the increase in disposable income causes the demand curve for pork to shift south west, because por k is an inferior good. because of this shift, the equilibrium price of pork decreases. Page 2 of 126 2 Consider the market for pork. Suppose that 1) disposable income increases and pork is a normal good, And 2) the price of hog feed decreases. Because of these changes, t he equilibrium price of pork is... - ANSWER -Indeterminate because the increase in disposable income causes the demand curve for pork to shift north east because pork is a normal good. The decrease in price of hog feed causes the supply curve to shift to th e south east. The net effect of these shifts leaves us unable to say waht will happen to the equilibrium price of pork. Consider the market for pork. Suppose that disposable income increases and pork is a normal good and the price of hog feed decreases. T he equilibrium quantity of pork...? - ANSWER -
Increases. Suppose the price elasticity for demand for retail phone service in the US is 0.95. If the # of retail substitutes for retail telephone service increases, will the price elasticity of demand become m ore elastic or more inelastic? - ANSWER -Elastic. When the number of substitute products increases, the price elasticity of demand will become more elastic. consumers become more sensitive to price when they have more options to chose among. True or False: the law of demand states that if the price of a good increases, CP, then the quantity demanded of that good will increase. - ANSWER -False. quantity demanded of that good will decrease. Suppose the cross -price elasticity of demand for home heating oil wit h respect to the price of natural gas is +0.6. This number tells us that home heating oil and natural gas are substitute or Page 3 of 126 3 compliment goods? - ANSWER -Substitute goods. When the cross price elasticity is positive then they are substitutes. Consider the ma rket for mustard which is a complement to hot dogs. Suppose the price of hot dogs increase. What happens to the equilibrium price and equilibrium quantity of the mustard market? - ANSWER -Equilibrium price decreases and equilibrium quantity decreases. The p rice of hot dogs is an independent variable in the demand function for mustard. This is because hot dogs and mustard are complementary goods. Therefore, if the price of hot dogs increases, then the demand curve for mustard shifts to the south -west. People demand less mustard at every price when hot dogs are more expensive. In the mustard market, the equilibrium price decreases and equilibrium quantity decreases. profit maximizing rule - ANSWER -a business maximizes profits when it produces where the margina l revenue from selling another unit equals the marginal cost of producing another unit. Marginal Revenue=Marginal Cost The main concept demonstrated in the production possibilities frontier is - ANSWER -
Opportunity cost When country A has a lower opportunity cost of producing sugar relative to country B, then country A is said to have - ANSWER -Comparative Advantage Page 4 of 126 4 A graph that shows the combinations of two goods that the economy can produce given the available scarce resourc es and available technology is called a - ANSWER -Production Possibilities Frontier Assume a production possibilities frontier for pickup trucks and big Mac hamburgers. The economy is producing 20 big Mac hamburgers and 65 pickup trucks (point 20, 65). Wha t is the opportunity cost of producing an additional 20 Big Mac hamburgers (point 40, 60)? - ANSWER -
Five Pickup Trucks The opportunity cost of an item is - ANSWER -whatever must be given up to obtain the item. Marginal cost - ANSWER -is equal to the change in the total cost that arises from an extra unit of production. It is calculated by takin g the change in total cost and dividing it by the change in the quantity produced =change in TC/change in Q Marginal revenue - ANSWER -is the change in total revenue generated from an additional unit sold. It is calculated by taking the change in total revenue divided by the change in quantity sold Short Run - ANSWER -a time horizon where some fixed costs exist.
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