# Economics for Managers (VV2)

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Economics for Managers (VV2)
1 . Discuss the fundamental nature of Management Economies with respect to the three choice problems of the economy.
2 . The demand function of a product is given as Q = 500-5P. Find out the point price elasticity demand when
a) P = Rs. 15 and Q = 200
a) P = Rs. 50 and Q = 200
What inferences do you draw from the results when the price of a commodity increases from Rs. 15 to Rs. 50, the quantity demanded remaining constant?
3 . Distinguish between accounting costs and Economics costs. Explain giving suitable examples.
4 . Explain the functional forms of cost function giving illustration.
5 . “It is believed that a firm under a perfect competition is a price-taker and not a price-maker.” Explain giving examples.
6 . What are the various factors which may influence the demand for intermediate goods like cables? Explain the most appropriate method of forecasting the demand for such an item.
7 . State the assumption underlying the economists’ theory of firm. Develop a critique of the theory and suggest the need for alternative models.
8 . ‘Price leadership is an alternative cooperative method used to avoid tough competition’.

Case Detail :
In early 1991, there was a sharp increase in the price of newsprint, the paper used by the newspapers. Since newsprint is the largest expense for India newspapers (after salaries) publishers were concerned about the price hike. Suppose that the demand for newsprint can be represented as follows:

Qi = 17-3 — 0-0092 p +0-0067

Where Q. equals the quantity demanded (in kilograms per capital), P is the price of newsprint (in Rs. per metric ton) and I is the income per capita (in Rs.),

1. If there are 1 million people in the market, and if per capita income equals Rs. 10,000 what is the demand curve for newsprint?
2. Under these circumstances, what is the price elasticity of demand if the price of newsprint equals Rs. 400 per metric ton?
3. According to a study, the demand curve for newsprint in India is:
Q2 = 2672 — 0-51 p
Where, Q2 is the number of metrix tons of newsprint demanded (in thousand). What is the price elasticity of demand for newsprint in India if price equals Rs. 500 per metric ton?
1. Economics is the study of
production technology
consumption decisions
how society decides what, how, and for whom to produce
the best way to run society
2. The opportunity cost of a good is
the time lost in finding it
the quantity of other goods sacrificed to get another unit of that good
the expenditure on the good
the loss of interest in using savings
3. A market can accurately be described as
a place to buy things
a place to sell things
the process by which prices adjust to reconcile the allocation of resources
a place where buyers and sellers meet
4. In a free market __________ ___________
governments intervene
governments plan production
governments interfere
prices adjust to reconcile scarcity and desires
5. In the mixed economy
economic problems are solved by the government and market
economic decisions are made by the private sector and free market
economic allocation is achieved by the invisible hand
economic questions are solved by government departments
6. Normative economics forms ___________ based on _____________
positive statements, facts
opinions, personal values
positive statements, values
opinions, facts
7. Microeconomics is concerned with
the economy as a whole
the electronics industry
the study of individual economic behaviour
the interactions within the entire economy
8. Macroeconomics is the study of ___________________
individual building blocks in the economy
the relationship between different sectors of the economy
household purchase decisions
the economy as a whole
9. Data are important in economics because __________ and __________
they suggest relationships for explanation, allow testing of hypotheses
they can be used for tables, they can be graphed
they can be used in computers, governments use them
they provide interesting information, can be summarised
10. Time series data show information
about the same point in time over different places
about different points in time over the same variable
about different variables over different places
about different points in time over different places
11. The retail price index is used to ______________
construct price lists
compare shop prices
measure changes in the cost of living
none of the above
12. A real value can be derived from a nominal value by
adjusting for changes over time
adjusting for data collection errors
adjusting for population changes
adjusting for changes in prices
13. If your income during one year is £10,000 and the following year it is £12,000, then it has grown by
20%
2%
12%
16%
14. A straight-line diagram can be drawn knowing the ______ and _________
ertical axis and horizontal axis
intercept and slope
scale and slope
intercept and scale
15. On a graph, a positive linear relationship
moves down to the right
moves up to the left
moves up to the right
moves down to the left
16. If the diagram of a line shows that lower values on the vertical scale are associated with higher values on the horizontal scale, this is an example of _____________
a nonlinear relationship
a positive linear relationship
a scatter diagram
a negative linear relationship
17. When we know the quantity of a product that buyers wish to purchase at each possible price, we know
Demand
Supply
Excess demand
Excess supply
18. The equilibrium price clears the market; it is the price at which ________ _________
Everything is sold
Quantity demanded equals quantity supplied
Excess demand is zero
b & c
19. When a market is in equilibrium
Quantity demanded equals quantity supplied
Excess demand and excess supply are zero
The market is cleared by the equilibrium price
All of the above
20. ________ and ________ do not directly affect the demand curve
the price of related goods, consumer incomes
consumer incomes, tastes
the costs of production, bank opening hours
the price of related goods, preferences
21. A demand curve can shift because of changing
incomes
prices of related goods
tastes
all of the above
22. A supply curve is directly affected by
technology
input costs
government regulation
all of the above
23. If a price increase of good A increases the quantity demanded of good B, then good B is a
substitute good
complementary good
bargain
inferior good
24. An increase in consumer income will increase demand for a _______ but decrease demand for a _________
substitute good, inferior good
normal good, inferior good
inferior good, normal good
normal good, complementary good
25. The price elasticity of demand measures ________________
the responsiveness of quantity demanded to a change in price
how far a demand curve shifts
a change in price
a change in quantity demanded
26. If demand is ___________ then price cuts will __________ spending
inelastic, increase
elastic, increase
elastic, decrease
none of the above
27. Positive cross-elasticities suggest that goods are _________ and negative cross-elasticities that goods are __________
substitutes, inferior
normal, complements
substitutes, complements
normal, inferior
28. A measurement showing how quantity demanded varies with income is the
price elasticity of demand
cross-price elasticity of demand
budget elasticity of demand
income elasticity of demand
29. Inferior goods have ___________ and luxury goods have ____________
negative income elasticities, income elasticities greater than 1
income elasticities greater than 1, negative income elasticities
positive income elasticities, negative income elasticities
none of the above
30. If your income doubles and the prices of the goods you buy double, then your demand for these goods will likely ________
increase
not change
decrease
shift
31. The income effect of a price increase of a normal good is to __________ of that good and the substitution effect is to _______ of that good
increase quantity demanded, reduce quantity demanded
increase quantity demanded, increase quantity demanded
reduce quantity demanded, reduce quantity demanded
reduce quantity demanded, increase quantity demanded
32. The opportunity cost of a student is
Course fees and rent
A loan from the bank
What the student could have earned in the best job available by not studying
What the student will earn after graduation
33. Economics assumes that people consume goods and services to achieve
Status
Prestige
Utility
Self-esteem
34. The extra utility from consuming one more unit of a good is called
Marginal utility
Additional utility
Surplus utility
Bonus utility
35. Adding up the quantities demanded of a good by different people facing the same price gives us the
Supply curve
Market demand curve
Demand curve
Market supply curve
36. Firms are assumed to _________ costs and to _________ profits
incur, desire
pay, make
charge, earn
minimize, maximize
37. The increase in total cost when one more unit is produced is known as
marginal cost
opportunity cost
limited cost
average cost
38. Marginal revenue is the _________ when output is ____________
change in average revenue, increased
change in total revenue, increased by one unit
change in average revenue, increased by one unit
change in total revenue, increased
39. Profits are maximized when _________________
costs are minimized
revenue is maximized
average cost is less than average revenue
marginal cost equals marginal revenue
40. If a firm’s wage costs increase this will cause __________ and ________
marginal cost to increase, output to fall
marginal revenue to increase, output to fall
opportunity cost to increase, the firm will close
average cost will rise, output will increase

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