What happens when the Federal Reserve increases the money supply?
Correct Answer: B
Question 22
A shopper purchases a shirt for $17 but was willing to pay $25. What does this indicate?
Correct Answer: A
InGlobal Economics for Managers,consumer surplusis defined as the difference betweenwhat a consumer is willing to payfor a good andwhat the consumer actually pays, making option A correct. In this example, the shopper was willing to pay $25 but paid only $17. The consumer surplus is therefore: Consumer Surplus = Willingness to Pay # Price Paid Consumer Surplus = $25 # $17 = $8 This $8 represents the net benefit the consumer gains from the transaction. Consumer surplus captures the idea that consumers often value goods more than the market price, and the difference contributes to their economic welfare. Options B and C incorrectly refer to producer surplus, which depends on production costs rather than consumer willingness to pay. Option D incorrectly states that consumer surplus equals $25, which is the maximum willingness to pay, not the surplus. Global Economics for Managersuses consumer surplus extensively to evaluate the effects of price changes, taxes, and trade policies on consumer welfare. Thus, option A is correct.
Question 23
Barriers to entry help to create monopolies. What is a common type of barrier?
Correct Answer: D
Economies of scale are a common barrier to entry that can help create monopoly power. Option D is correct because when average costs decline as output increases, a large established firm may produce at a lower per- unit cost than potential entrants. New firms entering at small scale may be unable to match the incumbent's cost advantage, making entry unattractive or impossible. This is especially important in industries with high fixed costs, such as utilities, railways, telecommunications infrastructure, and large-scale manufacturing. Option A may reduce competition, but it is not the standard structural barrier described here. Elastic demand curves do not block entry. Progressive tax structures are tax systems, not typical monopoly barriers. Economies of scale are one of the classic reasons monopolies can persist.
Question 24
What are common types of barriers to entry that can cause a monopoly? (Choose TWO.)
Correct Answer: A,B
InGlobal Economics for Managers, monopolies arise whenbarriers to entryprevent competitors from entering a market. Two common barriers arecontrol of a key resourceandeconomies of scale, making options A and B correct. When a single firm owns a unique or scarce resource, competitors cannot produce the good without access to that resource. Economies of scale create monopolies when one firm can produce at a lower average cost than multiple firms due to high fixed costs. Options C, D, and E promote competition rather than monopoly. Thus, options A and B correctly identify monopoly-creating barriers to entry.
Question 25
What is one of the elements of the Porter Diamond in the theory of national competitive advantage of industries?
Correct Answer: C
InGlobal Economics for Managers, one of the four core elements ofPorter's Diamond Model of National Competitive Advantageisdomestic demand conditions, making option C the correct answer. Michael Porter' s framework explains why certain industries within particular countries achieve international competitiveness, emphasizing the role of the national environment in shaping firm performance. Domestic demand conditions refer to thenature, size, and sophistication of demand in the home market. When domestic consumers are demanding, quality-conscious, and forward-looking, firms are pressured to innovate, improve product quality, and adopt advanced production methods. These pressures help firms develop capabilities that later become advantages in international markets. For example, firms accustomed to serving sophisticated domestic buyers are better prepared to compete globally. Option A is incorrect because firm opportunity costs are a general microeconomic concept and are not part of the Porter Diamond. Option B is incorrect because the model emphasizesdomestic factor conditions, not foreign supply markets. Option D, trade deficits, is a macroeconomic outcome and does not explain the structural sources of competitive advantage within industries. Global Economics for Managershighlights that Porter's Diamond consists of four interrelated determinants: factor conditions, domestic demand conditions, related and supporting industries, and firm strategy, structure, and rivalry. Among these, domestic demand conditions are particularly important because they influence the direction and pace of innovation. Strong home demand encourages firms to anticipate global trends rather than merely react to them. For managers, understanding domestic demand conditions helps explain why firms from certain countries dominate specific global industries. Therefore, option C accurately identifies a key element of the Porter Diamond theory.
