Assessment 2 Econ

1. What is the basis for​ trade? 2. How can a country gain from specialization and​ trade?

1. Comparative advantage. 2. A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.

1. What is absolute​ advantage? 2. What is comparative​ advantage? 3. Is it possible for a country to have a comparative advantage in producing a good without also having an absolute​ advantage? A country without an absolute advantage in producing a good

1. The ability to produce more of a good or service than competitors using the same amount of resources. 2. The ability to produce a good or service at a lower opportunity cost than other producers. 3. will have a comparative advantage if it has a lower opportunity cost of producing that good.

1. Limited liability means that 2. The government grants limited liability to the owners of corporations 3. Limited liability becomes more important for firms trying to raise funds from a large number of​ investors, rather than from a small number of​ investors, because

1. shareholders in a corporation cannot lose more than their investment in the firm 2. to limit shareholder risk and thus encourage investment in corporations. 3. investors that make a small investment in a firm may be unwilling to risk all their personal assets if the firm fails.

Although only _______ percent of all firms are​ corporations, corporations account for_______of revenue and profits earned by all firms.

20; the majority

Suppose Ford Motor Company issues bonds with a face value of ​$1,000 and an annual coupon payment of ​$30. What is the interest rate Ford is paying on the borrowed​ funds? The interest rate is ____ percent. ​(Enter your response as a whole​ number.)

3

If the United States were to stop trading goods and services with other​ countries, which of the following U.S. industries would be likely to see their sales decline the​ most?

All of the above.

The United States has three legal categories of firms. Which of the three categories accounts for the most profit in the United​ States?

Corporations account for the most profit in the United States.

An income statement shows a​ firm's A. costs. B. revenues. C. profits. D. all of the above.

D. all of the above

The World Trade Organization​ (WTO) A. is an international organization that oversees international trade agreements. B. generally aids in negotiating trade agreements that include not only goods but also services and intellectual property. C. replaced the General Agreement on Tariffs and Trade​ (GATT) in January 1995. D. all of the above.

D. all of the above

_________are goods and services produced domestically but sold to other countries. _______ are goods and services bought domestically but produced in other countries. _________are taxes imposed by a government on imports of a good into a country.

Exports, Imports, Tariffs

Why do some consumers tend to favor price controls while others tend to oppose​ them?

Price ceilings generate shortages.​ Consequently, the consumers who obtain the product at a lower price​ win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage.

A corporation is

a legal form of business that provides the owners with limited liability.

An article in the New York Times quoted an economist as arguing that​ "global free trade and the European single market...encourage countries to specialize in sectors where they enjoy comparative advantage.​ Germany's [comparative​ advantage] is in cars and machine​ tools." For Germany to have a comparative advantage in a product relative to France or another​ country, it would have

a lower opportunity cost of producing the product than the other country.

A black market is A black market is

a market in which buying and selling occur at prices that violate government price regulations. a market in which buying and selling occur at prices that violate government price regulations.

The​ principal-agent problem occurs when

an agent pursues his own interests rather than the interests of the principal who hired him.

Economic profit is equal to a​ firm's revenues minus its​ costs, _________. Accounting profit is _______ economic profit.

both explicit and implicit; larger than

To earn a​ profit, firms must typically first raise funds to pay for operations. This often includes funds to pay for things like employees and machines. Which of the following is not a way small firms are able to raise​ funds? Small firms are usually unable to raise funds

by offering stocks.

U.S. consumers buy ___________ quantities of goods and services produced in other countries. At the same​ time, U.S. businesses sell _____________ quantities of goods and services to consumers in other countries.

increasing; increasing

A flow of funds from savers to borrowers through financial intermediaries such as banks is ________ finance, while a flow of funds from savers to firms through financial​ markets, such as the New York Stock Exchange is ________ finance.

indirect; direct

Comparative advantage

is the ability of an​ individual, a​ firm, or a country to produce a good or service at a lower opportunity cost than competitors.

A price ceiling is a legally determined ___________ price that sellers may charge. A price floor is a legally determined _________ price that sellers may receive.

maximum; minimum

Subtracting the value of a​ firm's liabilities from the value of its assets leaves its

net worth.

Do producers tend to favor price floors or price​ ceilings? ​ Why? Producers favor

price floors​ because, when​ binding, price floors increase price above the equilibrium and may increase producer surplus.

In​ 1999, at a meeting of the World Trade Organization in​ Seattle, Washington, a large number of people protested attempts to reduce trade barriers. What is a reason why some would want to prevent trade barriers from being​ reduced? Some want to prevent trade barriers from being reduced because they

seek to protect domestic infant industries.

​A(n) ​ _____ is a financial security that represents partial ownership of a​ firm, while a​ _____ is a financial security that represents a promise to repay a fixed amount of funds.

stock, bond

ExxonMobil is a large corporation. Who owns this​ company? ExxonMobil is owned by

stockholders

Stockholders' equity is

the difference between the value of a​ corporation's assets and the value of its​ liabilities; also known as net worth.

​Stockholders' equity is

the difference between the value of a​ corporation's assets and the value of its​ liabilities; also known as net worth.

The owners of sole proprietorships and partnerships have

unlimited liability.

Direct finance is borrowing ___________, while indirect finance is borrowing __________. If you borrow money from a bank to buy a new​ car, you are using _______ finance.

via financial markets; from financial intermediaries; indirect