Business Economics Mock Test Paper

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Questions and Answers

In the kinked demand curve model of oligopoly, it is assumed that:

  • Response to a price increase is more than the response to a price decrease
  • Response to a price increase is less than the response to a price decrease (correct)
  • Elasticity of demand is constant regardless of whether price increases or decreases
  • Elasticity of demand is perfectly elastic if price increases and perfectly inelastic if price decreases

The Cobb-Douglas homogeneous production function Q = $L^{1/2}K^{1/2}$ exhibits:

  • Constant returns to scale (correct)
  • Decreasing returns to scale
  • Increasing returns to scale
  • None of the above

Price discrimination will be profitable only if the elasticity of demand in different markets is:

  • Different (correct)
  • Uniform
  • Less
  • Zero

An example of positive economic analysis would be:

<p>An analysis of the relationship between the price of food and quantity purchased (D)</p> Signup and view all the answers

Business cycles emerge in which type of economic system?

<p>Mixed economic system (C)</p> Signup and view all the answers

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Study Notes

Oligopoly Models

  • In the kinked demand curve model of oligopoly, it is assumed that the demand curve has a kink at the current price level, with a more elastic segment above the kink and a less elastic segment below.

Production Function

  • The Cobb-Douglas homogeneous production function is Q = $L^{1/2}K^{1/2}$, where Q is output, L is labor, and K is capital.

Price Discrimination

  • Price discrimination will be profitable only if the elasticity of demand in different markets is different, allowing a firm to charge different prices in each market.

Economic Analysis

  • An example of positive economic analysis would be a study that aims to describe and explain an economic phenomenon without making value judgments.

Economic Systems

  • Business cycles emerge in capitalist economic systems, characterized by private ownership of the means of production and creation of goods and services for profit.

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