Economics

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“Economics Interview Questions and Answers Guide will explain us now that Economics is the social science that studies the production, distribution, and consumption of goods and services. Economics Interview Questions and Answers are for your preparation of Economics jobs. Current economic models developed out of the broader field of political economy in the late 19th century. Learn more about the basic and advance Economics by our Economics Interview Questions and Answers Guide.”



115 Economics Questions And Answers

1⟩ Does Europe the USA or China have the largest economy?

1- Europe (remember Italy, French, UK and Germany are 4 world's power) 2- USA 3- China.

2006 GDP Figures from the CIA World Fact book, in Trillions of dollars, purchasing power parity:

European Union: 13.080

United State: 13.060

China: 10.210

Prior to 2005, and probably back to 1942, the United State surpassed the EU.

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2⟩ What currency was used in the 1700s?

This depends on the country. Most currencies, however, were based on gold and silver.

In America, in the 13 colonies, tobacco was mostly used as a type of currency.

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3⟩ How best to define economics?

Economics is usually defined as the problem of how best to distribute limited resources, limited because wants are characterized as unlimited, but common sense tells us that rather than limited resources, there is an abundance of resources. The difference is one of perspective and this is core to any alternative understanding of economics. If wants are the focus, then of course resources are limited by definition, but if minimum needs or essentials are used as the foundation, then resources are seen to be abundant. The difference is between a description and an explanation. A focus on wants or desires describes a market situation, while a focus on essentials or needs allows an explanation of choices to begin.

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5⟩ What are the various uses for break-even analysis?

Such analysis allows the firm to determine at what level of operations it will break even (earn zero profit) and to explore the relationship between volume, costs, and profits. It helps the management that at current costs of products how many numbers of units must be sold to recover the cost of producing the product.

For Example: If you spend, $200 on producing a product and selling price is $20 then you must sale 10 units to recover the cost of product.

It also helps the management to determine how much of units to be sold to get desired profit on product. For example: if in the above example you want to earn $20 profit then add it to it's cost of $200 and it will become $220 now you need to earn profit of this $20 you need to sale 11 items of product.

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6⟩ Why do some people believe that a mixed economic system solves basic economic problems?

It is because both the private sector and public sector have a say in answering the basic economic questions, thus, there will be a degree of high efficiency (due to the private sector involvement) and social welfare too (due to the public sector involvement).

It allows the Government to intervene when the economy faces market failure. The mixed economic system allows markets to operate freely until it fails to allocate resources efficiently, after this, the government agencies, such as the EU Competition Commission, are able to correct for these failures. If this had been a completely free economic system, Government agencies would not have the means of power to be able to intervene.

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7⟩ What are the disadvantages of mixed economy system?

The disadvantages of a mixed economy really depend on how "mixed" it is. For instance, if it is mixed more towards a free-market, there is little regulation (some may see this as a good, though), but if it is mixed more towards a command economy, the control may stifle growth.

Mixed economies can also have different characteristics. Each of these will share a different set of disadvantages. A will stifle profits due to it's high tax structure, but will encourage new ideas due to its low regulation (this could result in many weird effects such as an economy comprised almost solely of small, well-niche businesses). B will encourage profits, but due to its regulation, some new ideas (and some growth) will be stifled. For instance, if environmental regulations are strict, the building of new plants or refineries might be lowered. This could result in a small number of very large and profitable businesses.

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8⟩ What are the advantages of free market economy?

There are many advantages to a free market economy. They range from the moral issues to the practical issues. We will deal mainly with the practical ones.

Unprecedented innovation - Free markets are wrought with inventions and the capital to research them. Countries classified as having a free market have been responsible for the vast majority of inventions since the 19th century.

Very high-income mobility - This means that under a free market system it is easier to move around income brackets. It is just easier to become rich or poor when you are left to your own devices as opposed to a controlled economy where resources are allocated by the government.

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9⟩ What kind of market structure is the automotive industry?

There are many ways to describe the market structure of the automotive industry. Here are two:

One of heterogeneous buyers makes up the population and nearly homogeneous sellers. This means that everyone (the population) needs a car (because a car is not a luxury item), but everyone has different needs (i.e.: compare a mother of 4 to a construction worker). Thus, buyers are everyone in the population, and they are heterogeneous (different). However, sellers are practically the same. GM, Ford, Chrysler, Nissan, Honda, Toyota, etc all offer the same products. Thus, they are homogeneous (similar).

Buyers with high brand-preference and highly marketed sellers this means that many automobile buyers have a brand loyalty, and sellers market to cultivate that loyalty. A great example of this is Jeep and Harley Davidson. Both companies have created a kind of community amongst their owners (I am sure we have all seen two Jeeps passing and the driver’s wave at each other).

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10⟩ What are the advantages of leaving the allocation of a countrys resources to the price mechanism?

The main conditions required are:

1. Either a finite number of agents or goods.

2. No externalities - That is, the consumption of one person should not harm or benefit anyone else.

3. No matter how much a person is consuming, they must be able to be made slightly happier by consuming a bit more of something.

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11⟩ What still matters in strategic management lies in the value of planning?

There is an old saying that if you fail to plan, you are planning to fail. By acting on this, strategic management actually gives the organization direction, a sense of identity and unity towards what the business goal. Therein lays the continued importance of strategic management towards business success.

Every business has a vision and a mission. Strategic management takes into consideration both of these. Strategic management helps in achieving the organizational goals in an effective and efficient manner. For more details on importance of management, you can see the "Importance of Management" section on

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12⟩ Why was Vietnam divided into two countries?

The north was communist, the south was capitalist, which was determined by their supporter states, the USSR and the US after independence in 1954, and however, this division was only meant to be temporary, with elections to re-unify the country.

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13⟩ What can you do about tourists use of natural resources?

Countries have to legislate so that new tourist developments satisfy environmental safeguards. All development must be sustainable.

1) There must be no pollution into waterways and oceans.

2) Garbage and sewage must be collected and recycled as much as possible.

3) Tourist movements into natural areas must be limited so the numbers do not do any damage to the environment.

4) Building must blend into the natural environment.

5) There must be legal deforestation (e.g., cutting down rainforests to build a golf course).

6) New resorts and gardens must not put too great a demand on water and other natural resources.

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16⟩ What was the theory of mercantilism?

Mercantilism was the economic philosophy underlying English colonial policy. The object of mercantilism was to increase the wealth of the Mother County (Great Britain) in gold and silver. To accomplish that goal, a favorable balance of trade was desired. That means that a nation would sell more than it would purchase, thus creating a surplus in the treasury. The name of the philosophy points out the importance is of merchants in this policy. Merchants would sell products to foreign nations and purchased items to be sold within the nation. Colonies played a vital role in mercantilism. A colony would supply the necessary raw materials to the industries of England and the colonists would be a source of income to the nation because they would buy the finished products and supplies they needed to grow, from the Mother Country. The ideal was to become self-sufficient. The nation would produce everything its people needed and buy nothing from foreign nations. Since the ideal could not be accomplished in the real world of economics, the object of mercantilism was to minimize imports that cost money and maximize exports and the trade that brought money in to the nation.

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18⟩ Is there a difference between corporate profit maximization and maximization of shareholder wealth?

Sure, profit maximization relates to profits *only* while shareholder wealth also involves total company equity, debt ratios and any of 15 other financial performance measure ratios. Management could focus on profit maximization over a longer period of time, say, 40 years (Toyota), while the shareholder would rather see stock values and corporate total value increase immediately (get in and get out) (90% of American manufacturers). If management focused on short-term profit maximization, say at the expense of long-term sales revenues, then shareholder wealth (stock price) could actually decrease because of the loss of market share.

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19⟩ What caused the Great Depression?

The business boom of the 1920s made people overly confident therefore, they invested their money in risky stocks and deals. In addition, banks made careless loans and soon failed when people could not pay them back. Third, businesses produced more goods than were wanted and they could not sell or make a profit. Lastly, human workers / jobs were becoming replaced by machines and people could not find work.

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20⟩ Is there a rule of thumb for office rent or lease per gross income?

There is a GRM (Gross Rent Multiplier) that compares the total rental/lease income to the value or price of the property.

The price can run 8 to 10 times the gross income, but that can vary based on market conditions, interest rates, management, building type, quality.

Capitalization Rate (cap rate) is a more comprehensive way of evaluation, but if the GRM is known for a building type and location, you can quickly determine a ballpark value.

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