Econ Exam 2

According to the endowment​ effect, people appear to be behaving irrationally when they are unwilling to sell a good they already own in which of the following​ situations? A. If they are offered a price greater than the price they would pay if they did not already own the good. B. If they are offered a price lower than the price they would have to pay to replace the good. C. If the good was a gift that had great sentimental value. D. If they​ can't replace the good.

A. If they are offered a price greater than the price they would pay if they did not already own the good.

The marginal social benefit from vaccinations is greater than the marginal private benefit to people being vaccinated. A. True B. False

A. True

Which of the following countries operates under a​ single-payer health insurance​ system? A. United States B. Canada C. Japan D. All of the above.

B. Canada

In the United​ States, there are three legal categories of​ firms: sole​ proprietorships, partnerships, and corporations. Which of the following is an advantage for partnerships​? A. Partnerships have many stockholders. B. Partnerships have the ability to share work. C. Partnerships have limited personal liability. D. Partnerships have greater ability to raise funds. E. Partnerships have no risk minus sharing.

B. Partnerships have the ability to share work.

Your friend asks you to join him in the new Internet business he is setting up as a partnership. If you invest​ $10,000 in the​ business, what is the limit to your​ liability? A. $1,000 B. There is no limit to your liability. C. ​$10,000 D. $100,000

B. There is no limit to your liability.

If the price of a​ firm's bonds​ decreases, this indicates A. an increase in the price of the​ firm's stock. B. a higher cost of new external funds. C. that investors are more optimistic about the​ firm's profit prospects. D. All of the above can cause a decrease in a the prices of a​ firm's bonds.

B. a higher cost of new external funds.

Suppose you originally invested in a firm when it was large and profitable. Now the firm has downsized and is small and unprofitable. Would you be better off now if you had bought the​ firm's stock or the​ firm's bonds​?

Bonds

What do we mean by the separation of ownership from control in large​ corporations? A. Shareholders control the​ corporation, but it is owned by the government and by taxpayers. B. Shareholders own the​ corporation, but it is controlled by the government. C. Shareholders own the​ corporation, but it is controlled by managers. D. Shareholders control the​ corporation, but it is owned by managers.

C. Shareholders own the​ corporation, but it is controlled by managers.

Which of the following terms refers to a flow of funds from savers to firms through financial​ markets? A. indirect finance B. financial engineering C. direct finance D. business finance

C. direct finance

An increase in a​ firm's stock price most likely indicates which of the​ following? A. a higher cost of new external funds B. concern that the firm will soon go out of business C. optimism about the​ firm's profit prospects D. All of the above would increase the price of a​ firm's stock.

C. optimism about the​ firm's profit prospects

An increase in a​ firm's stock price most likely indicates which of the​ following? A. concern that the firm will soon go out of business B. a higher cost of new external funds C. optimism about the​ firm's profit prospects D. All of the above would increase the price of a​ firm's stock.

C. optimism about the​ firm's profit prospects

What is the term for the payment that a buyer agrees to make in a health insurance contract in exchange for the provider agreeing to pay some or all of the​ buyer's medical​ bills? A. commission B. load C. premium D. down payment

C. premium

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

D. all of the above.

Consider the two demand curves illustrated in the figure to the right. Which of the two is relatively more elastic?

D1

Which of the following is true of the management structure of corporations in the United​ States? A. Members of the board of directors who are outside directors do not have a direct management role in the firm. B. Large corporations are legally owned by shareholders who do usually not directly manage the firm. C. The chief executive officer runs the​ day-to-day operations of the corporation but does not sit on the board of directors. D. Large corporations are legally owned by a board of directors that directly manages the firm. E. Both a and b.

E. Both a and b.

Consider a form of public consumption such as attending sporting events. An​ individual's demand for sporting events depends on A. the​ individual's tastes and preferences. B. the cost of the sporting event. C. the popularity of the sporting event. D. both a and b. E. all of the above.

E. all of the above.

Suppose that a firm in which you have invested is making a lot of money. Would you rather own the​ firm's stock or the​ firm's bonds? Bonds Stock

Stock

If people are uncertain whether the price of a product is high or​ low, they often compare the price to the previous price of the product. True or False?

True

In many​ cases, the popularity of people who use a product can make the product desirable. True or False?

True

What explanation might an economist provide why some people smoke cigarettes when such behavior can lead to health​ consequences? Some people likely smoke cigarettes because

-they overvalue the utility from current choices. -they underestimate the future costs of current choices.

Suppose Ford Motor Company issues bonds with a face value of ​$10,000 and an annual coupon payment of ​$100. What is the interest rate Ford is paying on the borrowed​ funds? The interest rate is

1 percent.

Although only___ percent of all firms are​ corporations, corporations account for____ of revenue and profits earned by all firms.

20 the majority

What term do economists use to refer to the conflict between the interests of shareholders and the interests of top​ management? A. capture theory B. corporate governance C. a​ principal-agent problem D. gold plating

C. a​ principal-agent problem

A column in the Wall Street Journal titled​ "Three Mistakes Investors Keep Making Again and​ Again" listed​ "trying to forecast what stocks will do​ next" as one of the three mistakes. ​Source: Morgan​ Housel, "Three Mistakes Investors Keep Making Again and​ Again," Wall Street Journal​, September​ 12, 2014. Trying to forecast stock prices would be a mistake for the average investor because A. the average investor has no access to information about the stock. B. the average investor is not very intelligent. C. stock prices are based on expected future profitability which is very unpredictable. D. the average investor will typically underestimate their willingness to take risk.

C. stock prices are based on expected future profitability which is very unpredictable.

Suppose a consumer is trying to decide how much to spend on housing and how much to spend on all other ​(non-housing​) consumption. The economic model of consumer behavior predicts that the consumer will A. consume as much housing as she can afford without any ​non-housing consumption. B. consume an infinite amount of housing and ​non-housing consumption. C. consume any combination of housing and ​non-housing consumption from among the combinations of housing and ​non-housing items she can afford. D. consume as much housing and as much ​non-housing consumption as she wants. E. choose the combination of housing and ​non-housing consumption that makes her as well off as possible from among the combinations of housing and ​non-housing items she can afford.

E. choose the combination of housing and ​non-housing consumption that makes her as well off as possible from among the combinations of housing and ​non-housing items she can afford.

In recent​ years, some economists have begun studying situations in which people do not appear to be making choices that are economically rational. This new area of economics is called________. Why might consumers not act​ rationally? Consumers might A. ignore sunk costs. B. don't take into account monetary costs. C. be overly optimistic about their future behavior. D. only take actions that are appropriate to reach their goals. E. take into account nonmonetary opportunity costs.

behavioral economics C. be overly optimistic about their future behavior.

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

both explicit and implicit larger than

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

interest rate

interest rate=coupon payment/face value x100

The principal-agent problem arises almost everywhere in the business world--but it also crops up even closer to​ home, such as the case of the college classroom. In this​ case, who is the principal and who is the​ agent? The principal is the and the agent is the

student professor

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

According to the​ textbook, the data on the relationship between health care spending per person and income per person shows that health care A. is a normal good. B. has supply that is price elastic. C. has demand that is price elastic. D. is an inferior good.

A. is a normal good.

Subtracting the value of a​ firm's liabilities from the value of its assets leaves its A. net worth. B. total worth. C. gross income. D. net income.

A. net worth.

The substitution effect is the change in the quantity demanded of a good that results from​ ______________, holding constant the effect of the price change on consumer purchasing power. A. the tendency of people to be unwilling to sell something they own B. a change in price making the good more or less expensive relative to other goods C. a change in the price of a substitute for the good D. an increase in the usefulness of a product as the number of consumers who use it increases

B. a change in price making the good more or less expensive relative to other goods

If the price of a​ firm's bonds​ decreases, this indicates A. that investors are more optimistic about the​ firm's profit prospects. B. a higher cost of new external funds. C. an increase in the price of the​ firm's stock. D. All of the above can cause a decrease in a the prices of a​ firm's bonds.

B. a higher cost of new external funds.

Which of the following statements is true of health care spending in the United​ States? A. Spending on health care as a percentage of GDP was roughly constant between 1965 and 2015. B. Spending on health care as a percentage of GDP declined by half between 1965 and 2015. C. Spending on health care as a percentage of GDP more than doubled between 1965 and 2015. D. None of the above is true.

C. Spending on health care as a percentage of GDP more than doubled between 1965 and 2015.

ExxonMobil is a large corporation. Who owns this​ company? ExxonMobil is owned by A. outside directors. B. the chief financial officer. C. stockholders. D. the customers. E. the board of directors.

C. stockholders.

Which of the following is one of the major reasons for the improvement in U.S. health in the last two​ centuries? A. improvements in the distribution of food B. advances in medical equipment and prescription drugs C. better sanitation D. All of the above are true.

D. All of the above are true.

Which of the following refers to the​ principal-agent problem in the market for health​ care? A. A conflict of interest between doctors and health insurance companies. B. Doctors pursuing only the interests of their patients rather than the interest of society. C. Doctors pursuing the interests of health insurance providers rather than the interests of their patients. D. Doctors pursuing their own interests rather than the interests of their patients.

D. Doctors pursuing their own interests rather than the interests of their patients.

What affects the desirability of a​ product? Products become more desirable when A. celebrities use a product because consumers who use the same product may feel more fashionable. B. professional athletes use a product because consumers who use the same product may feel closer to famous people. C. movie stars use a product because consumers perceive them to be particularly knowledgeable about it. D. both a and b. E. all of the above.

E. all of the above.

Rules of thumb are guides to decision making that always produce optimal choices. True or False

False

A bond represents ____ , while a share of stock represents____.

a loan to the company part ownership of the company

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 A. by offering bonds. B. using retained earnings. C. through borrowing from banks. D. by recruiting additional owners. E. through borrowing from friends.

A. by offering bonds.

Of the three types of firms in the United​ States, the A. partnership has the disadvantage of unlimited personal liability. B. sole proprietorship has the advantage of greater ability to raise funds. C. partnership has the disadvantage of possible double taxation of income. D. corporation has the disadvantage of limited ability to raise funds. E. none of the above.

A. partnership has the disadvantage of unlimited personal liability.

A corporation is A. a firm owned jointly by two or more persons and not organized as a corporation. B. a legal form of business that provides the owners with limited liability. C. a firm owned by a single individual and not organized as a corporation. D. a legal form of business that provides the sole owner specific rights under The​ Sarbanes-Oxley Act.

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

According to the law of diminishing marginal​ utility, as the consumption of a particular good​ increases, A. marginal utility increases. B. marginal utility decreases. C. total utility decreases. D. total utility increases by larger and larger amounts.

B. marginal utility decreases.

One of the most important differences among health care systems in different countries is how people pay for the health care they receive. Which of the following countries has socialized medicine​? A. The United Kingdom and Canada B. The United States C. The United Kingdom D. Japan E. Canada

C. The United Kingdom

The marginal utility per dollar you are spending on iTunes music downloads is less than the marginal utility per dollar you are spending on Red Bull. According to the rule of equal marginal utility per dollar​ spent, what can you do to increase your total utility from consumption of music downloads and Red​ Bull? A. You can decrease your consumption of both goods. B. You can increase your consumption of music downloads. C. You can increase your consumption of Red Bull. D. You can increase your consumption of both goods.

C. You can increase your consumption of Red Bull.

The payments by a corporation to its shareholders are called​ ________, and the interest payments on a bond are called​ ________. A. retained​ earnings; interest B. coupon​ payments; capital gains C. dividends; coupon payments D. capital​ gains; dividends

C. dividends; coupon payments

In March​ 2010, President Obama signed into law the Patient Protection and Affordable Care Act​ (ACA). Which of the following is true of the​ legislation? The ACA A. requires every resident of the United States to have health insurance or pay a fine of​ 10% of income. B. does not raise taxes. C. provides tax credits to​ low-income individuals and small businesses with 25 or fewer employees. D. increased Medicare payments for prescription drugs and the use of diagnostic equipment and other technology. E. requires firms with more than 50 employees to offer health insurance to its employees and to automatically enroll them in the plan.

C. provides tax credits to​ low-income individuals and small businesses with 25 or fewer employees.

What role does utility play in the economic model of consumer​ behavior? When modeling consumer​ behavior, utility A. provides an objective measure of satisfaction from consuming a particular set of goods and services in units called​ "utils." B. identifies the combination of goods and services that can be produced most efficiently. C. reflects the enjoyment a consumer receives from consuming a particular set of goods and services. D. identifies the combination of goods and services that is least expensive. E. identifies the consumer who receives the most satisfaction from consuming a particular set of goods and services.

C. reflects the enjoyment a consumer receives from consuming a particular set of goods and services.

​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. A. bond, stock B. stock, dividend C. stock, bond D. interest​ payment, stock

C. stock, bond

The optimal combination of pizza and coke you should consume is the one A. where your total utility of pizza equals your total utility of coke. B. where your marginal utility of pizza equals your marginal utility of coke. C. where your marginal utility per dollar spent on pizza equals your marginal utility per dollar spent on coke. D. where your marginal utility of pizza equals your total utility of​ pizza, and your marginal utility of coke equals your total utility of coke.

C. where your marginal utility per dollar spent on pizza equals your marginal utility per dollar spent on coke.

Which of the following statements is true about the health of people in the United States during the past 150​ years? A. Life expectancy has more than doubled. B. The average person has become taller. C. Infant mortality has decreased. D. All of the above are true.

D. All of the above are true.

Which of the following is a disadvantage for​ corporations? A. Corporations have unlimited personal liability. B. Corporations have no ability to share risk. C. Corporations have limited ability to raise funds. D. Corporations are costly to organize. E. Corporations have no stockholders.

D. Corporations are costly to organize.

The​ principal-agent problem occurs when A. the principal gives an agent conflicting objectives which the agent is unable to fulfill. B. an agent pursues his​ principal's interests rather than his own interests. C. a​ firm's shareholders fulfill their own interest rather than the interests of top management. D. an agent pursues his own interests rather than the interests of the principal who hired him.

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

In the United​ States, ________ account for the majority of revenue earned and​ ________ account for the majority of business organizations. A. corporations; corporations B. ​partnerships; corporations C. sole​ proprietorships; partnerships D. corporations; sole proprietorships

D. corporations; sole proprietorships

Evaluate the following​ argument: I would like to invest in the stock​ market, but I think that buying shares of stock in a corporation is too risky. Suppose I buy​ $10,000 of Twitter​ stock, and the company ends up going bankrupt. Because as a​ stockholder, I'm part owner of the​ company, I might be responsible for paying hundreds of thousands of dollars of the​ company's debts. This statement is A. false because shareholders cannot lose any money when purchasing stock. B. true because shareholders are sometimes liable for the debts of a corporation. C. true because Twitter stock is not a good investment. D. false because shareholders are not liable for the debts of a corporation.

D. false because shareholders are not liable for the debts of a corporation.

The income effect causes quantity demanded to​ ________ when the price of a normal good​ decreases, and causes quantity demanded to​ ________ when the price of an inferior good decreases. A. ​decrease; increase B. increase; increase C. decrease; decrease D. increase; decrease

D. increase; decrease

What affects the desirability of a​ product? Products become more desirable when A. professional athletes use a product because consumers who use the same product may feel closer to famous people. B. celebrities use a product because consumers who use the same product may feel more fashionable. C. movie stars use a product because consumers perceive them to be particularly knowledgeable about it. D. both a and b. E. all of the above.

E. all of the above.

What effect does a network externality have on the market for a​ product? If a network externality is present for a​ product, then A. producers may be more likely to supply the product to avoid market failure. B. producers may be less likely to supply the product because it is less unique. C. consumers may be more likely to buy the product to create path dependence. D. consumers may be less likely to buy the product to avoid switching costs. E. consumers may be more likely to buy the product because it is more useful.

E. consumers may be more likely to buy the product because it is more useful.

Assume a large corporation is experiencing the​ principal-agent problem. What could the corporation do to minimize this​ problem? The company could A. appoint inside directors as members of the board of directors. B. institute separation of ownership from control. C. provide shareholders with limited personal liability. D. let a chief executive officer run the​ day-to-day operations of the corporation. E. tie the salaries of top managers to the price of the firm's stock.

E. tie the salaries of top managers to the price of the firm's stock.

Utility refers to how much consumers utilize a product or service. True or False?

False

The United States has three legal categories of firms. Which of the three categories accounts for the largest number of firms in the United​ States? _________ account for the largest number of firms in the United States.

Sole proprietorships

The economic model of consumer behavior predicts that consumers will choose to buy the combination of goods and services that makes them as well off as possible from among all the combinations that their budgets allow them to buy. True or False?

True

The graph to the right shows your weekly demand for pizza. How was this demand curve​ constructed? A. By computing your optimal consumption of pizza at the various prices​ shown, all other variables that affect your demand for pizza held constant. B. By computing your consumption of pizza at various​ prices, regardless of utility gained. C. By computing your consumption of pizza when the price of pizza remains constant. D. By computing your consumption of pizza when both the price of pizza and the number of slices you consume per week remain constant.

A. By computing your optimal consumption of pizza at the various prices​ shown, all other variables that affect your demand for pizza held constant.

What is a budget​ constraint? A. It is the limited amount of income available to consumers to spend on goods and services. B. It is the amount of income that yields equal marginal utility per dollar spent. C. It is the amount of utility that a consumer receives from spending a limited amount of income on goods and services. D. It is the amount of money necessary to purchase a given combination of goods.

A. It is the limited amount of income available to consumers to spend on goods and services.

The landmark legislation that helps guard against inflated profits and hidden liabilities on balance sheets to protect against financial scandals is the A. Sarbanes-Oxley Act of 2002. B. Private Securities Litigation Reform Act of 1995. C. Fraud Enforcement and Recovery Act of 2009. D. Foreign Investment and National Security Act of 2007.

A. Sarbanes-Oxley Act of 2002.

Suppose that shortly after graduating from college you decide to start your own business. Assuming you are starting a small business and want it to be your business alone​, which category of firm are you most likely to​ start? A. Sole proprietorship B. Corporation C. Partnership D. All of the above are equally alike. E. A and C are more likely than B.

A. Sole proprietorship

Of all firms in the United​ States, A. about 20 percent are corporations that account for the majority of all​ firms' revenue. B. about 40 percent are sole proprietorships that account for the majority of all​ firms' profits. C. about 40 percent are corporations that account for the majority of all​ firms' profits. D. about 60 percent are partnerships that account for the majority of all​ firms' revenue. E. both a and b.

A. about 20 percent are corporations that account for the majority of all​ firms' revenue.

Behavioral economists attribute some consumer behavior to the endowment effect. Which of the following is an example of the endowment​ effect? An example of the endowment effect is A. being unwilling to sell a painting for a price that is greater than the price you would be willing to pay to buy the painting if you​ didn't already own it. B. being willing to will your descendents a house upon your death that you otherwise could have sold for a substantial price. C. being unwilling to sell a car that you already own. D. buying lottery tickets with an expected value that is less than their price. E. taking into account nonmonetary opportunity costs such as the value of your time.

A. being unwilling to sell a painting for a price that is greater than the price you would be willing to pay to buy the painting if you​ didn't already own it.

What explanations have economists offered for why firms​ don't raise prices when doing so would seem to increase​ profits? Firms might not raise prices when doing so might increase profits because A. consumers find it unfair for firms to increase prices after an increase in demand. B. consumers find it unfair for firms to increase prices after an increase in costs. C. firms are not concerned about profit in the long run. D. the amount consumers wish to buy is unrelated to how much of the product other people are consuming. E. both a and b.

A. consumers find it unfair for firms to increase prices after an increase in demand.

In the United​ States, ________ account for the majority of revenue earned and​ ________ account for the majority of business organizations. A. corporations; sole proprietorships B. ​partnerships; corporations C. ​corporations; corporations D. sole​ proprietorships; partnerships

A. corporations; sole proprietorships

A large corporation suffers from the​ principal-agent problem when​ its: A. management does not own a large share of firm stock and pursues its own interests rather than those of shareholders. B. chief executive officer runs the​ day-to-day operations of the corporation while simultaneously sitting on the board of directors. C. board of directors sacrifices ​long-term growth for​ short-term profits. D. stock shareholders sell firm assets to increase dividend payments. E. board of directors ties the salaries of management exclusively to the price of the firm's stock.

A. management does not own a large share of firm stock and pursues its own interests rather than those of shareholders.

Suppose you have a monthly entertainment budget that you use to rent movies and purchase CDs. You currently use your income to rent 5 movies per month at a cost of​ $5.00 per movie and to purchase 5 CDs per month at a cost of​ $10.00 per CD. Your marginal utility from the fifth movie is 10 and your marginal utility from the fifth CD is 10. Are you maximizing​ utility? You are A. not maximizing utility because the marginal utility per dollar spent on movies is not equal to the marginal utility per dollar spent on CDs. B. not maximizing utility because the price of movies is not equal to the price of CDs. C. not maximizing utility because the marginal utility of movies is not equal to the marginal utility of CDs. D. maximizing utility because you are spending all of your entertainment budget. E. maximizing utility because you are consuming an equal number of movies and CDs. What could you do to increase​ utility? You could increase utility by consuming more_____ and fewer____.

A. not maximizing utility because the marginal utility per dollar spent on movies is not equal to the marginal utility per dollar spent on CDs. movies CDs

For which of the following types of business organizations is there a legal distinction between the personal assets of the owners of the firm and the assets of the​ firm? A. sole proprietorships B. corporations C. for both sole proprietorships and partnerships D. partnerships

B. corporations

Which of the following is the way in which the largest number of people obtain health insurance in the United​ States? A. individual insurance plans B. employer-provided insurance plans C. Medicaid D. Medicare

B. employer-provided insurance plans

Suppose ham is a normal good. How will consumers adjust their buying decisions if the price of ham​ changes? If the price of ham​ increases, then consumers will demand A. more ham due to the income effect because their purchasing power increases and less ham due to the substitution effect because the opportunity cost of consuming ham is higher. B. less ham due to the income effect because their purchasing power decreases and less ham due to the substitution effect because the opportunity cost of consuming ham is higher. C. less ham due to the income effect because the opportunity cost of consuming ham is higher and less ham due to the substitution effect because their purchasing power decreases. D. more ham due to the income effect because the opportunity cost of consuming ham is lower and less ham due to the substitution effect because their purchasing power decreases. E. more ham due to the income effect because their purchasing power decreases and less ham due to the substitution effect because the opportunity cost of consuming ham is higher. ​Instead, suppose ham is an inferior good. If the price of ham​ increases, then consumers will demand_____ ham due to the income effect and____ ham due to the substitution effect.

B. less ham due to the income effect because their purchasing power decreases and less ham due to the substitution effect because the opportunity cost of consuming ham is higher. more less

The owners of corporations have A. to exclusively follow federal comma not state comma guidelines. B. limited liability. C. no layers of management. D. limited ability to raise funds compared to sole proprietorships and partnerships.

B. limited liability.

Which of the following is an example of a way in which health insurance companies have dealt with the problem of adverse​ selection? A. eliminating coinsurance B. limiting insurance coverage on​ pre-existing conditions C. eliminating deductibles D. reducing reimbursements to doctors and hospitals

B. limiting insurance coverage on​ pre-existing conditions

Which of the following terms refers to what occurs when a person gets a vaccination against a disease and that action reduces the chances that other people will contract that​ disease? A. moral hazard B. positive externality C. negative externality D. adverse selection

B. positive externality

Health care spending in the United States is forecasted to be as much as​ $4.6 trillion in​ 2020, accounting for about​ $1 of every​ $5 in the economy. ​ Currently, health care spending is roughly​ $2.7 trillion. How is this cost paid for most​ Americans? In the United​ States, the majority of people have A. no health insurance. B. private health insurance. C. universal health insurance. D. health insurance through a government program. E. national health insurance.

B. private health insurance.

Sales​ personnel, whether selling​ life-insurance, automobiles, or​ pharmaceuticals, typically get paid on commission instead of a straight hourly wage. The​ principal-agent problem between the owner of the business and its sales force is A. increased when workers are paid on commission because the workers do not grow any type of loyalty towards their employers. B. reduced when workers are paid on commission because it gives them an incentive to work harder. C. not in any way affected by the method of payment for​ workers' services. D. reduced when workers are paid a competitive salary that gives them an incentive to work harder.

B. reduced when workers are paid on commission because it gives them an incentive to work harder.

Asymmetric information is a situation in which one party to an economic transaction has less information than the other party. Two types of problems associated with asymmetric information are adverse selection and moral hazard. Which of the following is an example of moral hazard​? An example of moral hazard is A. old people being more likely to purchase health insurance than young people. B. those with health insurance failing to exercise. C. those without​ pre-existing health problems being more likely to purchase health insurance than those with​ pre-existing health problems. D. sick people being more likely to purchase health insurance than healthy people. E. those without health insurance using illegal drugs.

B. those with health insurance failing to exercise.

Owners of small businesses typically obtain funds for expansion A. by reinvesting profits​, by borrowing funds from friends or a​ bank, or by selling stock. B. with retained earnings​, by taking on​ partners, or by issuing bonds. C. with retained earnings​, by taking on​ partners, or by borrowing funds from relatives or a bank. D. by reinvesting profits​, by borrowing funds from relatives or a​ bank, by issuing​ bonds, or by selling stock. E. all of the above.

C. with retained earnings​, by taking on​ partners, or by borrowing funds from relatives or a bank.

Which of the following mistakes do consumers commonly commit when making​ decisions? A. They take into account monetary costs but ignore nonmonetary opportunity costs. B. They are unrealistic about their future behavior. C. They fail to ignore sunk costs. D. All of the above are mistakes consumers commonly commit when making decisions.

D. All of the above are mistakes consumers commonly commit when making decisions.

Which of the following reasons do economists use to explain why people are​ overweight? A. People overvalue the utility from current choices. B. People undervalue the utility to be received in the future. C. People's preferences are not consistent over time. D. All of the above explain why people are overweight.

D. All of the above explain why people are overweight.

How is the separation of ownership from control related to the​ principal-agent problem? A. The agents​ (shareholders) may pursue their own interests rather than the interests of the principals​ (managers). B. The agents​ (consumers) may pursue their own interests rather than the interests of the principals​ (firms). C. The agents​ (firms) may pursue their own interests rather than the interests of the principals​ (consumers). D. The agents​ (managers) may pursue their own interests rather than the interests of the principals​ (shareholders).

D. The agents​ (managers) may pursue their own interests rather than the interests of the principals​ (shareholders).

Which of the following best describes the system of socialized​ medicine? A. a health care system under which the prices of medical services are determined by free markets B. a health care system under which unions provide all medical services to union members and nonmembers C. a health care system under which hospitals and physicians operate as private businesses D. a health care system under which the government owns most of the hospitals and employs most of the physicians

D. a health care system under which the government owns most of the hospitals and employs most of the physicians

Which of the following terms refers to the situation in which one party to an economic transaction takes advantage of knowing more than the other party to the​ transaction? A. principal-agent problem B. co-payment C. moral hazard D. adverse selection

D. adverse selection

How should sunk costs be used in consumer​ decision-making? In consumer​ decision-making, sunk costs should A. be included in the budget constraint. B. be treated as nonmonetary costs. C. be treated as opportunity costs. D. be ignored. E. be treated as monetary costs.

D. be ignored.

Which of the following terms refers to the problem in which one person with no deductible on his or her health insurance policy tends to engage in a less healthy lifestyle than another person with a high insurance​ deductible? A. risk pooling B. adverse selection C. biased selection D. moral hazard

D. moral hazard

Changes in the value of a​ firm's stocks and bonds offer important information for a​ firm's managers. If the price is decreasing investors are​ _______ and are providing information that indicates the​ firm's managers might want to​ _________ the business. A. more optimistic​, expand B. more pessimistic​, expand C. more optimistic​, contract D. more pessimistic​, contract

D. more pessimistic​, contract

The three major types of firms in the United States are called A. small​ businesses, limited liability​ firms, and corporations. B. sole​ proprietorships, not-for-profit​ companies, and government agencies. C. non-profit corporations, government​ agencies, and limited liability firms. D. sole​ proprietorships, partnerships, and corporations.

D. sole​ proprietorships, partnerships, and corporations.

What explanation might an economist provide why some people overeat when such behavior can lead to health​ consequences? Some people likely overeat because A. their preferences are consistent over time. B. they accurately estimate the utility from current choices. C. they undervalue the utility from current choices. D. they underestimate the future costs of current choices. E. they overvalue the utility to be received in the future from being thin.

D. they underestimate the future costs of current choices.

Behavioral economists attribute some consumer behavior to the endowment effect. Which of the following is an example of the endowment​ effect? An example of the endowment effect is A. buying lottery tickets with an expected value that is less than their price. B. being unwilling to sell a vase that you already own. C. taking into account nonmonetary opportunity costs such as the value of your time. D. being willing to will your descendents a painting upon your death that you otherwise could have sold for a substantial price. E. being unwilling to sell a house for a price that is greater than the price you would be willing to pay to buy the house if you​ didn't already own it.

E. being unwilling to sell a house for a price that is greater than the price you would be willing to pay to buy the house if you​ didn't already own it.

Behavioral economist Richard Thaler has studied several examples of how businesses make use of inconsistencies in consumer​ decision-making. Which of the following is an example of​ this? An example of businesses taking advantage of inconsistencies in consumer​ decision-making is A. office supply stores requiring consumers to purchase​ "add-ons," such as an ink​ cartridge, at the same time that consumers purchase a​ "base good," such as a printer. B. photographers requiring consumers to pay to develop every picture on a role of film even for pictures the consumer​ doesn't like or that are fuzzy. C. banks increasing the price of a checking account and removing other costs to consumers such as ATM​ fees, returned check​ charges, and minimum balance fees. D. one​ hotel, such as​ Marriott, attracting customers from another​ hotel, such as Hilton​ Hotels, by advertising that​ Marriott's "add-ons" are more fairly priced than​ Hilton's. E. credit card companies not allowing stores to charge a fee to consumers if they pay with a credit card but allowing stores to provide a discount to consumers if they pay in cash.

E. credit card companies not allowing stores to charge a fee to consumers if they pay with a credit card but allowing stores to provide a discount to consumers if they pay in cash.

Spending on health care has been growing faster than the economy as a whole for at least the past several decades. What has caused this​ trend? Health care as a proportion of GDP has been increasing because A. health care has too much paperwork. B. patients drive up costs suing doctors and hospitals for malpractice. C. the population is getting younger. D. uninsured patients receive treatment in emergency rooms. E. expensive medical equipment has been invented.

E. expensive medical equipment has been invented.

What role does utility play in the economic model of consumer​ behavior? When modeling consumer​ behavior, utility A. identifies the combination of goods and services that can be produced most efficiently. B. identifies the combination of goods and services that is most expensive. C. provides an objective measure of satisfaction from consuming a particular set of goods and services in units called​ "utils." D. identifies the consumer who receives the most satisfaction from consuming a particular set of goods and services. E. reflects the enjoyment a consumer receives from consuming a particular set of goods and services.

E. reflects the enjoyment a consumer receives from consuming a particular set of goods and services.

Because public goods must be both ______ and _____ , health care ____ qualify as a public good under the usual definition.

nonrival nonexcludable does not