Economics 1-4
Economists differentiate between goods and services. Which one of the following best illustrates a payment for a service?
$10 for a haircut
3.The holder of a corporate bond is: (a) A creditor of the corporation (b) A debtor of the corporation (c) An owner of the corporation (d) An officer of the corporation.
(a) A creditor of the corporation
4. Product differentiation enables businesses to: (a) Charge more than they would under perfect competition (b) Set prices as they would under conditions of monopoly (c) Improve the quality of their product (d) Produce products completely different from those of their competitors.
(a) Charge more than they would under perfect competition
2.Before modernizing, the Chelsea Video Games Company employed 20 workers and produced 200 games a day. After modernizing, the company laid off 5 workers and is now producing 300 games a day. As a result of modernization, productivity at the Chelsea plant: (a) Doubled (b) Increased by 50 percent (c) Remained the same (d) Declined
(a) Doubled
3.Which one of the following is least likely to result in increased productivity? (a) Efficient use of natural resources (b) Employee training programs (c) Improved machinery (d) Working overtime.
(a) Efficient use of natural resources
5.The best way to increase productivity in a plant is to: (a) Employ all the factors of production more efficiently (b) Keep hiring more workers (c) Keep hiring more plant managers (d) Increase output.
(a) Employ all the factors of production more efficiently
6. Which one of the following statements is true? (a) Every time people buy Microsoft stock, Microsoft receives money for new capital investment. (b) Preferred stock is always better than common stock. (c) The main function of the SEC is to prevent stockholders from losing money on stock purchases. (d) The higher the margin rate, the more difficult it is to buy stocks with borrowed funds.
(a) Every time people buy Microsoft stock, Microsoft receives money for new capital investment.
6.In its effort to expand, ABC Pharmaceuticals acquired the stores of two of its competitors in the manufacture of products for the treatment of athlete's foot. In this way, ABC Pharmaceuticals was building a: (a) Horizontal combination (b) Vertical combination (c) Conglomerate combination (d) Circular combination.
(a) Horizontal combination
10.Which one of the following pieces of information is contained in a corporation's income statement? (a) Net income (b) Accounts payable (c) Value of the firm's factory (d) Total liabilities.
(a) Net income
6.Which one of the following is an example of a fixed cost? (a) Rent (b) Electricity to power machinery (c) Commission on sales (d) Raw materials.
(a) Rent
1.Which form of business organization is most numerous in the United States? (a) Sole proprietorships (b) Partnerships (c) Corporations (d) Cooperatives.
(a) Sole proprietorships
2.Which one of the following is the most attractive feature of the sole proprietorship? (a) The ease with which it can be organized (b) Its ability to expand across state borders (c) The ease with which ownership can be transferred (d) Its limited liability.
(a) The ease with which it can be organized
1.Corporations obtain most of the funds that they need for expansion from: (a) The sale of stocks (b) The sale of bonds (c) Short-term borrowing (d) Their undistributed profits.
(a) The sale of stocks
2.In setting their selling price, monopolists select the price that: (a) Will maximize their profit (b) Is the highest price they can get for their product (c) Is determined by consumer demand (d) Is determined by both supply and demand.
(a) Will maximize their profit
8. The Kilroy Bicycle Company has fixed annual costs of $100,000 and variable costs of $10 per bicycle. If output is increased from 5,000 to 10,000 bicycles per year, the total cost of producing each bicycle will be reduced from $30 to: (a) $25 (b) $20 (c) $15 (d) $10
(b) $20
7.Which one of the following is true of a limited liability corporation (LLC)? A LLC (a) Is the least expensive kind of business to organize (b) Is not subject to the corporate income tax (c) Is the only form of business organization that offers limited liability (d) Is the only form of business organization that provides unlimited life.
(b) Is not subject to the corporate income tax
1.Prices are usually lowest for a product when it is produced by: (a) Only one company (b) Many competing companies (c) A few very large companies (d) A public utility.
(b) Many competing companies
1.As a result of our nation's increasing productivity: (a) Most goods are cheaper than they were years ago (b) More goods are available per person than years ago (c) Goods are made better by machine than they were by hand (d) Output per employee per hour has decreased.
(b) More goods are available per person than years ago
4.When the point of diminishing returns is reached as workers are added to a production line: (a) Total revenue will decline (b) Output per employee will decline (c) Total profits will decline (d) The factory should hire more workers.
(b) Output per employee will decline
4.As a rule, who has voting rights in a corporation? Its (a) Officers (b) Stockholders (c) Board of directors (d) Employees.
(b) Stockholders
7.Business was so brisk for ABC Pharmaceuticals that its management bought a box- manufacturing company. This purchase enabled ABC to manufacture its own packaging materials. The new company was a: (a) Horizontal combination (b) Vertical combination (c) Conglomerate combination (d) Circular combination.
(b) Vertical combination
2.The holder of one share of stock in a corporation is: (a) A creditor of the corporation (b) A debtor of the corporation (c) An owner of the corporation (d) An officer of the corporation.
(c) An owner of the corporation
8.A few months ago, ABC Pharmaceuticals was acquired by one of the nation's largest producers of breakfast cereals. The new company was a: (a) Horizontal combination (b) Vertical combination (c) Conglomerate combination (d) Circular combination.
(c) Conglomerate combination
10.When he became CEO of General Electric back in 1981, Jack Welch announced that he would prepare GE for the 21st century by selling off or destroying existing operations, and introducing new ones. As a result of those policies, GE grew at annual rate of 23 percent for the next 20 years. Such a program is known as: (a) Research and development (b) Marginal analysis (c) Creative destruction (d) Personnel management.
(c) Creative destruction
10.The federal government has attempted to regulate monopolies chiefly in order to: (a) Eliminate big business in the United States (b) Reduce the number of public utilities (c) Encourage competition (d) Increase the number of small businesses.
(c) Encourage competition
9. Which one of the following is an example of a disadvantage to a company of getting too big? A company (a) Goes out of business because of decreased demand for its product (b) Becomes so large that it has to expand into new quarters (c) Finds that it is spending more on new managers than it is earning in additional profits (d) Is receiving more orders than it can fill.
(c) Finds that it is spending more on new managers than it is earning in additional profits
9.Interlocking directorates are formed when one company: (a) Is absorbed by another (b) Holds controlling shares of stock in other companies (c) Has representatives on the boards of directors of competing firms (d) Absorbs another company.
(c) Has representatives on the boards of directors of competing firms
5.Stockholders in a large corporation generally do not: (a) Receive a share of the profits (b) Elect the board of directors (c) Manage the everyday affairs of the business (d) Own the business.
(c) Manage the everyday affairs of the business
3. Monopolistic competition takes place when: (a) There are only a few buyers for a product (b) Only two or three firms manufacture a product (c) Many firms sell a similar product (d) There is no competition among firms selling similar products.
(c) Many firms sell a similar product
9.The Girl Scouts of America is an example of a: (a) Consumer co-op (b) Sole proprietorship (c) Not-for-profit corporation (d) Government-owned corporation.
(c) Not-for-profit corporation
7.In industries with high overhead costs, increasing production tends to lower: (a) Return on investment (b) Total variable costs (c) Overhead cost per unit (d) Total operating costs.
(c) Overhead cost per unit
7.To "buy on margin" means to: (a) Buy long (b) Buy over the counter (c) Buy stocks in the hope of selling at a profit in the near feature (d) Buy stocks with borrowed funds.
(d) Buy stocks with borrowed funds.
4.Preferred stock is like: (a) A bond in that the dividends must be paid regularly (b) A bond in that the holder of the stock is a creditor of the corporation (c) Common stock in that dividends increase as profits increase (d) Common stock in that there may be times when the board of directors decides to pay no dividends.
(d) Common stock in that there may be times when the board of directors decides to pay no dividends.
8."Double taxation" refers to the fact that: (a) Corporations have to pay both state and federal taxes (b) The part of a corporation's earnings not distributed as dividends is subject to excess profits taxes (c) Corporations pay both income taxes and sales taxes (d) Corporations pay income taxes on their earnings, and the earnings that they distribute as dividends are subject to personal income taxes.
(d) Corporations pay income taxes on their earnings, and the earnings that they distribute as dividends are subject to personal income taxes.
6.Limited liability, unlimited life, and a charter are characteristics of: (a) Sole proprietorships (b) Partnerships (c) All businesses in the United States (d) Corporations.
(d) Corporations.
3.Which one of the following is a disadvantage of most corporations? (a) Limited life (b) Unlimited liability (c) Limited capital (d) Double taxation.
(d) Double taxation.
10.Which one of the following is the best reason for owning a business of one's own? (a) It is the surest way to a profitable future. (b) Entrepreneurship gives one the ability to ignore the competition. (c) Most new businesses are financial successes. (d) Entrepreneurs are their own boss.
(d) Entrepreneurs are their own boss.
5.Patents and copyrights are similar in that both: (a) Provide government with important sources of revenue (b) Are issued by the boards of directors of corporations (c) Last forever (d) Grant the holder a legal monopoly.
(d) Grant the holder a legal monopoly.
8.When a corporate security is registered with the Securities and Exchange Commission, this means that: (a) The SEC has approved the security as a safe investment (b) Certain financial information has been filed with the SEC (c) The SEC may act as a broker for the corporation (d) The public may inquire of the SEC as to its opinion of the advisability of purchasing the security.
(d) The public may inquire of the SEC as to its opinion of the advisability of purchasing the security.
9.All of the following information is contained in a balance sheet, except (a) Assets (b) Liabilities (c) Net worth (d) Total sales.
(d) Total sales.
5. A Corporation pays a dividend on its common stock: (a) Every year (b) When the interest becomes due (c) Whenever its board of directors votes to do so (d) Whenever it earns a profit.
(d) Whenever it earns a profit.
Charter
A government license to form a business
Microeconomists study questions such as...
How will the decisions made by firm X affect consumer demand for the products produced by that firm?
Which one of the following statements is a major criticism of the market system?
It fails to deal with certain harmful side effects of production.
Which one of the following statements is said to be a major advantage of the market system?
It is the most efficient of all economic systems.
corporation
a business chartered under state or federal law and owned by its shareholders
external cost
a cost of a business that is paid for by society as a whole
internal cost
a cost of business paid for by the business firm
demand curve
a line on a graph that shows the amount of a product or service that will be purchased at each price
supply curve
a line on a graph that shows the amount of a product or service that would be offered for sale at each price
good
a tangible item of value
S-corporation
a type of business with fewer than 76 stockholders
capitalism
an economic system in which the means of production are privately owned
Which one of the following would not have the same effect as the other three on the amount of beef consumed?
an effective advertising campaign on the part of pork producers
In an industry that has many competing firms, an increase in demand may be expected to result in
an increase in production
Which one of the following would probably lead to an increase in the demand for bricks?
an increase in the price of lumber, which can be used as a substitute for bricks
The greatest degree of economic specialization is most likely to be found in...
an industrial society such as that of the United States
public utility
an industry that serves the public interest
factor of production
an ingredient that goes into the production of a good or service
In a market economy, consumers can have just about anything they want if they...
are willing and able to pay the price
When described in connection with supply and demand schedules, an increase in demand may be expected to result in
buyers will take a larger quantity at all prices than before
Each of the following is an example of currency, except a...
check for $5
Which one of the following forces will be most influential in determining the number of pairs of brown as compared to black shoes a manufacturer will produce in market economy?
consumer demand
market price
equilibrium price; the price at which the quantity of a good or service supplied equals the amount demanded
When the supply of a commodity increases while the demand remains the same, the market price will
fall
An economic model...
helps economists understand economic activity and predict changes
Under what circumstances might peacock feathers be called "money"?
if everyone accepted them in payment for goods and services
In which type of economic system are consumers most likely to determine what goods will be produced?
market economy
Money provides a "store of value" because it...
may be saved for future use
All other things being equal, if consumers are willing to pay more for an item, it is likely that...
more of that item will be produced
For which one of the following commodities is supply most elastic?
plastic toys
Dividends
profits of a corporation that are distributed in the form of cash payments to stockholders
Competition and the desire for profits pressure business firms to...
provide consumers with the goods and services they want
In the circular flow of economic activity, we see that businesses
receive money from both government and households
marginal utility
the additional usefulness received from each added unit of a product or service
supply
the amount of a product or service offered for sale at a particular price
profits
the amount of money left over after subtracting business expenses from business income
entrepreneurship
the bringing together of the factors of production
In the graph, AA represents
the demand curve
gross domestic product
the dollar value of all goods and services produced by an economy in a single year
marginalism
the evaluation of the usefulness of adding one more item in the production of a product or service
elasticity of supply
the extent to which the total spending for an item will fluctuate with changes in supply
elasticity of demand
the extent to which total spending for an item will fluctuate with changes in prices
consumer sovereignty
the freedom to choose which goods one can buy
trade-off
the giving up of one thing to obtain something else
The opportunity cost of an increase in the local police force is...
the government goods or services that people will give up in order for the government to hire additional police
In an economic system operating under capitalism, the fundamental questions of WHAT, HOW, and WHO are answered by...
the market
In the graph, D represents
the market price
eminent domain
the power of government to seize property it intends to use for public purpose
Law of Demand
the principle that the demand for a good or service varies inversely with its price
Law of Supply
the principle that the quantity of a good or service supplied varies directly with its price
capital formation
the production of capital goods
Which one of the following is most influential in causing firms to produce the goods and services that the public wants?
the profit motive
standard of living
the quantity and quality of goods and services available to an individual or society
demand
the quantity of a product or service that would be purchased at a particular price
competition
the rivalry among buyers and among sellers in the same field
unlimited liability
the status of being personally responsible for all the debts of a company
circular flow
the stream of funds, goods, and services passing back and forth among households, businesses, and government
economics
the study of how society uses limited resources to satisfy unlimited wants
macroeconomics
the study of the forces affecting the economy as a whole
In the graph, BB represents
the supply curve
economic system
the way a society answers the WHAT, HOW, and WHO questions
The demand for a good is elastic when
total revenue increases with each decrease in price
"An individual's role in the economy is most likely determined at birth, and goods and services are produced according to time-honored methods." Which economic system fits this description?
traditional
limited liability company
unincorporated firm that has many of the advantages of a corporation
"All societies must economize because human wants are unlimited, but resources needed to satisfy these wants are limited." This statement means that society must...
use its resources in such a way that it gets the most out of them