Business Economics BBA

Business Economics BBA


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1              State and explain Circular Flow of Income and Expenditure.

2              Describe the Price and Output Determination under Monopoly.

3              Critically examine the Liquidity Preference Theory of Interest.

4              Describe  Price  and  Output  Determination  under  Monopolistic Competition.

5              State and explain importance and limitations of Micro Economics.

6              What is an Economic problem? Give examples.

7              Explain the law of supply.

8              Explain the Revenue concepts. Prepare a Revenue Schedule and draw curves.


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Case study

Marks – 10

Case Study: Government intervention

In  Germany  in  2009  there  was  considerable  debate  about  the  extent  to  which  the government should be intervening in the economy.

 For example, its citizens were worried about the future of Opel, a German car brand that was part of the ailing General Motors. Some  wanted  the  government  to  make  sure  jobs  were  saved  no  matter  what.  Others,  however, were more hesitant and worried about becoming the government becoming too interventionist.  Traditionally  since  the  Second  World  War  the  German  government  has seen  itself  as  a  referee  in  market  issues  and  has  avoided  trying  to  control  parts  of  the  economy.  It  would  regulate  anti-competitive  behaviour,  for  example,  but  not  try  to  run many industries. However in the recession of 2009 when the economy was shrinking the government was forced to spend more to stimulate demand and had to intervene heavily to  save  the  banking  sector  from  collapse.  The  government  also  had  to  offer  aid  to  businesses to keep them alive.

Q.No 1: What are the possible benefits of a government intervening in an economy?

Q.No 2: What prompted greater intervention by the German government in 2009?

Q.No 3: What would determine whether the German continued to intervene on this scale in the future?

Q4. Arguments against government intervention in an economy:


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Q1. Customers are normally classified as part of a firm’s:

 (A): contextual environment.

 (B): internal environment.

 (C): operational environment.

 (D): general environment.

Q2. Microeconomic influences are defined as those which:

 (A): affect smaller businesses.

 (B): are related to changes in economic aggregates.

 (C): operate at the level of the firm, industry or market.

 (D): operate on an economy-wide basis.

Q3. Economic scarcity refers to:

 (A): a general shortage of goods available for consumption.

 (B): shortages of a particular good available for consumption.

 (C): finite demands for resources coupled with infinite resources.

 (D): infinite demands for resources coupled with finite resources.

Q4. If the government has an extra £5billion to spend on healthcare or education over the next 2 years and chooses to spend it on healthcare, then the ‘real cost’ of this decision is:

 (A): £2.5 billion per year of extra spending.

 (B): £5 billion spent on healthcare.

 (C): £5billion spent on healthcare divided by the size of the population.

 (D): £5 billion not spent on education.

Q5. An economy in which most decisions on resource allocation are taken by the government is known as:

 (A): a capitalist economy.

 (B): a command economy.

 (C): a free enterprise economy.

 (D): a market-based economy.

Q6. Which of the following does not necessarily apply to a market?

 (A): It involves the processes of demand and supply.

 (B): It is found in a given geographical location.

 (C): It involves interaction between buyers and sellers.

 (D): It is a mechanism designed to effect exchange.

Q7. Which of the following is NOT TRUE of the process of outsourcing?

 (A): It results in the sharing of risk between both companies.

 (B): It allows the outsourcing company complete control over production.

 (C): It can cuts production costs for the outsourcing company.

 (D): It allows the outsourcing firm to concentrate on it’s core competencies.

Q8. Which of the following is NOT TRUE of a public limited company?

 (A): There has to be a minimum of 2 shareholders.

 (B): There has to be a minimum of £50,000 of authorized share capital.

 (C): There has to be 1 director.

 (D): A certificate is needed from the Registrar of Companies.

Q9. When a company outsources production but the employees of the sub-contractor company do not put in sufficient effort, this is an example of:

 (A): division of labour.

 (B): vertical integration.

 (C): adverse selection.

 (D): moral hazard.

Q 10. If you hired a painter to decorate your house, you would be:

 (A): the principal.

 (B): an intermediary.

 (C): the agent.

 (D): a network.

Q 11. Vertical integration refers to the process:

 (A): where a company undertakes successive stages of the production process.

 (B): where a company diversifies into other markets.

 (C): where a company opens a branch overseas.

 (D): where production takes place as part of a team.

Q 12. In the Resource Based View of the firm the firms’ resources are divided into three types. Which of the following is NOT one of those types?

 (A): Physical capital resources.

 (B): Organisational capital resources.

 (C): Land physical resources.

 (D): Human capital resources.

Q 13. Which of the following would make a firm MORE likely to outsource an activity?

 (A): The activity is standardised.

 (B): The activity is very important for the organisation.

 (C): Specific assets are required for the activity.

 (D): The activity took place only infrequently.

Q 14. Which of the following is NOT an organisational structure recognized by the theoretical literature?

 (A): Divisional structure.

 (B): Government organisation.

 (C): Functional organisation.

 (D): Matrix organisation.

Q 15. A demand function for a product is constructed on the assumption that all the following remain constant except:

 (A): the price of alternative goods.

 (B): consumers’ tastes.

 (C): disposable income.

 (D): the price of the product.

Q 16. Which of the following would shift the demand curve for a specific brand of ice-cream to the left?

 (A): A fall in the price of the above brand.

 (B): The onset of hot weather.

 (C): A fall in the price of a rival brand.

 (D): An increase in disposable income.

Q 17. Which of the below conditions will result in the appearance of a ‘Giffen Good’?

 (A): The good is inferior.

 (B): The good is inferior and following a fall in price the income effect is greater than the substitution effect.

 (C): The good is seen as unpopular.

 (D): The good takes up a relatively small amount of consumers’ disposable income.

Q 18. If other things remain constant, how will an increase in the price of paint most likely affect the demand for and the price of paintbrushes?

 (A): Demand will decrease, but price will increase.

 (B): Both demand and price will decrease.

 (C): Demand will increase, but price will decrease.

 (D): Both demand and price will increase.

Q 19. A likely cause of the market supply curve shifting to the right would be:

 (A): an improvement in productivity.

 (B): businesses becoming less confident of the future economic climate.

 (C): the rise in the market price of substitute products.

 (D): a rise in the price of factor inputs


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Q 20. In a short run productive situation where more units of labour are combined with a fixed amount of capital, the value of the marginal product of labour will decline because:

 (A): the fixed factor becomes over utilised.

 (B): the workers just aren’t working hard enough.

 (C): the fixed factor is under utilised.

 (D): the cost of capital is rising.

Q 21. Which of the following would be seen as a short run variable cost for a shoe manufacturer?

 (A): Electricity for running the machines.

 (B): Loans taken out to buy the machines.

 (C): Business rates on the factory.

 (D): The fee paid to an advertising agency.

Q 22. The short run average total cost curve is minimised when:

 (A): average fixed cost has stopped declining.

 (B): average variable cost is also at a minimum.

 (C): the fall in average fixed cost is balanced by the rise in short run average variable cost.

 (D): the firm is producing with spare capacity.

Q 23. If the firm is maximising profit, which of the below is true?

 (A): Output is such that average revenue and average cost are furthest apart.

 (B): Total revenue is maximised.

 (C): Total cost equals total revenue.

 (D): Average cost is minimised.

Q 24. The firm should shut down in the short run if:

 (A): total revenue only just covers variable costs.

 (B): losses would be greater than fixed costs.

 (C): only making normal profit.

 (D): demand is falling.

Q 25. Which of the following would you expect to increase as a result of a very small increase in output? a) Raw materials b) Indirect labour c) Depreciation

 (A): a, b & c.

 (B): a & b only.

 (C): a only.

 (D): b & c only.

Q 26. The concept of ‘economies of scope’ is best characterised as the firm:

 (A): being able of easily exit the industry if demand where to fall.

 (B): having the capability of producing a range of output.

 (C): having a vision as to the future.

 (D): being able to produce a single product at lowest possible cost.

Q 27. The ‘long run’ is a production period during which:

 (A): all inputs can be varied.

 (B): most inputs can be varied.

 (C): all inputs can be varied other than plant size.

 (D): at least one input is fixed in quantity.

Q 28. The divorce of ownership from control refers to the:

 (A): demise of the joint-stock company.

 (B): power of shareholders over management.

 (C): observation that managers are unlikely to be shareholders.

 (D): observation that shareholders as owners delegate the running of the firm to managers.

Q 29. In Baumol’s model, the size of the profit constraint faced by an individual firm is likely to be relatively high in all the below cases with the exception of when:

 (A): the overall state of the market is buoyant.

 (B): profits declared by the firm in previous time periods were high.

 (C): profits made by rival firms are increasing.

 (D): the number of shareholders increase as major current shareholders release their shares.

Q 30.Consumer surplus comes about as a result of:

 (A): consumers having a strong desire for the good.

 (B): the consumer having an excess of disposable income.

 (C): the producer charging a different price for each unit consumed.

 (D): the consumer being willing to pay more than the market price.

Q 31.The value of price elasticity as price falls on a downward sloping linear demand curve that starts at a point on the price axis and finishes at a point on the quantity axis:

 (A): is always elastic so long as the curve is relatively shallow.

 (B): will become increasingly less elastic as you move down the curve.

 (C): is constant due to the linearity of the demand curve.

 (D): is always inelastic so long as the slope of the demand curve is relatively steep.

Q 32. The price elasticity of demand for a product will be lower:

 (A): the greater the proportion of income spent on the product.

 (B): the smaller the number of close complements.

(C): the smaller the number of close substitutes.

 (D): the higher the initial price.

Q 33. As the price of cinema tickets increases a study shows the value of price cross elasticity of demand between cinema attendance and popcorn consumption to be equal to + 1.5. Which of the following statements is true?

 (A): Cinema attendance and popcorn consumption are seen as substitutes.

 (B): The demand curve for cinema attendance will have shifted to the left.

 (C): The demand curve for popcorn will have shifted to the right.

 (D): If the price of popcorn had increased rather than the price of cinema admission then the price cross elasticity of demand would almost certainly have a lower value than + 1.5.

Q 34. A study shows the price elasticity of demand for the purchase of tickets to travel on a specific bus route to be price inelastic to a value of 0.7. Which of the below statements is untrue?

 (A): Price elasticity is likely to be higher during those hours when customers must use the service to travel to work.

 (B): An increase in price of 10% would lead to a fall in demand of 7%.

 (C): If a rival bus company providing a similar service at a similar price along the same route were to close, the above elasticity would almost certainly fall.

 (D): By decreasing price the company would loose revenue.

Q 35. If the profit constraint in Baumol’s model were to rise, which of the below are untrue?

 (A): To counter the necessity to make more profit the firm will increase sales by lowering price.

 (B): Price charged rises if the constraint were ‘operative’.

 (C): There would be no impact upon price so long as the constraint remained ‘inoperative’.

 (D): Total revenue falls if the constraint were ‘operative’.

Q 36. The impact of an increase in variable cost in Baumol’s model with an ‘operative’ profit constraint is that the:

 (A): firm may raise price and decrease output, yet would do so to a relatively lesser degree than a profit maximising firm in a similar situation.

 (B): firm is able to ignore the change in cost and maintain price.

 (C): firm will have to raise price.

 (D): firm will decrease price to increase sales to meet the higher profit.

Q 37. A ‘discretionary investment’ in Williamson’s model represents:

 (A): a way of spending surplus profit.

 (B): a gift by managers to shareholders by means of an additional dividend.

 (C): an additional investment undertaken by managers in excess of that required for the normal operation of the firm.

 (D): a free and anonymous gift by managers to charity.

Q 38. ‘Organisation slack’ exists in an organisation when:

 (A): sales are in decline.

 (B): shareholders do not have sufficient knowledge and expertise to correctly monitor the performance of managers.

 (C): a profit constraint is thought to be too high by both managers and shareholders.

 (D): costs are higher than necessary for a given level of activity.

Q 39. In Marris’s model the goals of managers and shareholders are seen to be more compatible than in other managerial theories because:

 (A): shareholders are seen to be more influential over management than in other models.

 (B): managers and shareholders both derive benefit from the growth of the firm.

 (C): shareholders are seen to be so lacking in real information as to how the firm should be run they are always satisfied with the performance of management.

 (D): management is seen to be more fragmented and less powerful.

Q 40. The essential feature of a Behavioural Theory of the firm is that:

 (A): the various groups or stakeholders within the firm all work harmoniously together to their mutual benefit.

 (B): emphasis is placed upon the complexity of organisations and the differing interests of its stakeholders.

 (C): shareholders are seen to be more influential over management.

 (D): profit is seen to be less important than in other theories.


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